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Exhibit 4.5
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of September 30, 1998, is by and
between TERA COMPUTER COMPANY, a Washington corporation, with headquarters
located at 0000 Xxxxxxxx Xxxxxx Xxxx, Xxxxxxx, Xxxxxxxxxx 00000 (the "Company"),
and ADVANTAGE FUND II LTD., a British Virgin Islands corporation ("Advantage"),
and XXXX INDUSTRIES, INC., a Kansas corporation ("Xxxx" and, collectively with
Advantage, the "Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Buyers wish to purchase shares of the common stock, $.01 par value, of the
Company (the "Common Stock"), to acquire the right to receive additional shares
of Common Stock, and to acquire warrants exercisable for shares of Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS
Unless otherwise defined herein, capitalized terms used in this
Agreement shall have the following meanings:
(a) "Adjustment Date" means the last day of each Adjustment
Period during the Term.
(b) "Adjustment Period" means a period commencing on the day
after the Initial Adjustment Date and ending on the same day (as the Initial
Adjustment Date) of each third month thereafter through the end of the Term.
(c) "Adjustment Price" means the arithmetic average of the
Closing Price of the Common Stock during the Measurement Period ending on the
Trading Day immediately preceding the Initial Adjustment Date or an Adjustment
Date, as the case may be, provided that each subsequent Adjustment Price shall
be permanently reduced on each Reset Date by an amount equal to three percent
(pro rated for each period of less than 30 days after a Reset Date shall occur
in which the event giving rise thereto shall continue) of the Adjustment Price
that otherwise would have applied without such increase.
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(d) "Adjustment Shares" means the shares of Common Stock issuable
by the Company to the Buyers pursuant to Section 3 hereof and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(e) "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.
(f) "Closing Date" means September 30, 1998 or such other date as
to which the parties hereto may agree.
(g) "Closing Price" of the Common Stock on any date means the
closing bid price for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Closing Price is being determined:
(i) The Company shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock or fix any record date for any such action, then the Closing Price for
each day in such Measurement Period or such other period which day is prior to
the earlier of (1) the date fixed for the determination of shareholders entitled
to receive such dividend or other distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such dividend or
distribution begins shall be reduced by multiplying the Closing Price
(determined without regard to this proviso) for each such day in such
Measurement Period or such other period by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the earlier of (1) the record date fixed for such determination and
(2) the date on which ex-dividend trading in the Common Stock with respect to
such dividend or distribution begins and the denominator of which shall be the
sum of such number of shares and the total number of shares constituting such
dividend or other distribution;
(ii) The Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock, or fix a record date for such
issuance, which rights or warrants entitle such holders (for a period expiring
within forty-five (45) days after the date fixed for the determination of
shareholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Closing Price
(determined without regard to this proviso) for any day in such Measurement
Period or such other period which day is prior to the end of such 45-day period,
then the Closing Price
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for each such day shall be reduced so that the same shall equal the price
determined by multiplying the Closing Price (determined without regard to this
proviso) by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the record date fixed for
the determination of shareholders entitled to receive such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Closing Price, and the denominator
of which shall be the number of shares of Common Stock outstanding on the close
of business on such record date plus the total number of additional shares of
Common Stock so offered for subscription or purchase. In determining whether any
rights or warrants entitle the holders to subscribe for or purchase shares of
Common Stock at less than the Closing Price (determined without regard to this
proviso), and in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration received for
such rights or warrants, the value of such consideration, if other than cash, to
be determined in good faith by a resolution of the Board of Directors of the
Company;
(iii) The outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock or a record date for
any such subdivision shall be fixed, then the Closing Price of the Common Stock
for each day in such Measurement Period or such other period which day is prior
to the earlier of (1) the day upon which such subdivision becomes effective and
(2) the date on which ex-dividend trading in the Common Stock with respect to
such subdivision begins shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Closing Price for each day in such
Measurement Period or such other period which day is prior to the earlier of (1)
the date on which such combination becomes effective and (2) the date on which
trading in the Common Stock on a basis which gives effect to such combination
begins, shall be proportionately increased;
(iv) The Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of capital
stock of the Company (other than any dividends or distributions to which clause
(i) of this proviso applies) or evidences of its indebtedness, cash or other
assets (including securities, but excluding any rights or warrants referred to
in clause (ii) of this proviso and dividends and distributions paid exclusively
in cash and excluding any capital stock, evidences of indebtedness, cash or
assets distributed upon a merger or consolidation) (the foregoing hereinafter in
this clause (iv) of this proviso called the "Securities"), or fix a record date
for any such distribution, then, in each such case, the Closing Price for each
day in such Measurement Period or such other period which day is prior to the
earlier of (1) the record date for such distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such distribution begins
shall be reduced so that the same shall be equal to the price determined by
multiplying the Closing Price (determined without regard to this proviso) by a
fraction, the numerator of which shall be the Closing Price (determined without
regard to this proviso) for such trade less the fair market value (as determined
in good faith by resolution of the Board of Directors of the Company) on such
date of the portion of the Securities so distributed or to be distributed
applicable to one share of Common Stock and the denominator of which shall be
the Closing
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Price (determined without regard to this proviso). If the Board of Directors of
the Company determines the fair market value of any distribution for purposes of
this clause (iv) by reference to the actual or when issued trading market for
any securities comprising all or part of such distribution, it must in doing so
consider the prices in such market on the same day for which an adjustment in
the Closing Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is applicable
that also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock to which clause (i) or (ii) of this
proviso applies (or both), shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, assets, shares of capital stock,
rights or warrants other than such shares of Common Stock or rights or warrants
to which clause (i) or (ii) of this proviso applies (and any Closing Price
reduction required by this clause (iv) with respect to such dividend or
distribution shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (and any
further Closing Price reduction required by clauses (i) and (ii) of this proviso
with respect to such dividend or distribution shall then be made), except that
any shares of Common Stock included in such dividend or distribution shall not
be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of clause (i) of this proviso;
(v) The Company or any subsidiary of the Company shall (x)
by dividend or otherwise, distribute to all holders of its Common Stock cash in
(or fix any record date for any such distribution), or (y) repurchase or
reacquire shares of its Common Stock (other than an Option Share Surrender) for,
in either case, an aggregate amount that, combined with (1) the aggregate amount
of any other such distributions to all holders of its Common Stock made
exclusively in cash after the Closing Date and within the twelve (12) months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to this clause (v) has been made, (2) the aggregate amount
of any cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company) of consideration paid in
respect of any repurchase or other reacquisition by the Company or any
subsidiary of the Company of any shares of Common Stock (other than an Option
Share Surrender) made after the Closing Date and within the twelve (12) months
preceding the date of payment of such distribution or making of such repurchase
or reacquisition, as the case may be, and in respect of which no adjustment
pursuant to this clause (v) has been made, and (3) the aggregate of any cash
plus the fair market value (as determined in good faith by a resolution of the
Board of Directors of the Company) of consideration payable in respect of any
Tender Offer by the Company or any of its subsidiaries for all or any portion of
the Common Stock concluded within the twelve (12) months preceding the date of
payment of such distribution or completion of such repurchase or reacquisition,
as the case may be, and in respect of which no adjustment pursuant to clause
(vi) of this proviso has been made (such aggregate amount combined with the
amounts in clauses (1), (2) and (3) above being the "Combined Amount"), exceeds
10% of the
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product of the Closing Price (determined without regard to this proviso) for any
day in such Measurement Period or such other period which day is prior to the
earlier of (A) the record date with respect to such distribution and (B) the
date on which ex-dividend trading in the Common Stock with respect to such
distribution begins or the date of such repurchase or reacquisition, as the case
may be, times the number of shares of Common Stock outstanding on such date,
then, and in each such case, the Closing Price for each such day shall be
reduced so that the same shall equal the price determined by multiplying the
Closing Price (determined without regard to this proviso) for such day by a
fraction (i) the numerator of which shall be equal to the Closing Price
(determined without regard to this proviso) for such day less an amount equal to
the quotient of (x) the excess of such Combined Amount over such 10% and (y) the
number of shares of Common Stock outstanding on such day and (ii) the
denominator of which shall be equal to the Closing Price (determined without
regard to this proviso) for such day; or
(vi) A Tender Offer made by the Company or any of its
subsidiaries for all or any portion of the Common Stock shall expire and such
Tender Offer (as amended upon the expiration thereof) shall require the payment
to shareholders (based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined in good faith
by resolution of the Board of Directors of the Company) that combined together
with (1) the aggregate of the cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Company), as of the
expiration of such Tender Offer, of consideration payable in respect of any
other Tender Offers, by the Company or any of its subsidiaries for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such Tender Offer and in respect of which no adjustment pursuant
to this clause (vi) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board of
Directors of the Company) of consideration paid in respect of any repurchase or
other reacquisition by the Company or any subsidiary of the Company of any
shares of Common Stock (other than an Option Share Surrender) made after the
Closing Date and within the 12 months preceding the expiration of such Tender
Offer and in respect of which no adjustment pursuant to clause (v) of this
proviso has been made, and (3) the aggregate amount of any distributions to all
holders of Common Stock made exclusively in cash within 12 months preceding the
expiration of such Tender Offer and in respect of which no adjustment pursuant
to clause (v) of this proviso has been made, exceeds 10% of the product of the
Closing Price (determined without regard to this proviso) for any day in such
period times the number of shares of Common Stock outstanding on such day, then,
and in each such case, the Closing Price for such day shall be reduced so that
the same shall equal the price determined by multiplying the Closing Price
(determined without regard to this proviso) for such day by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding on
such day multiplied by the Closing Price (determined without regard to this
proviso) for such day and the denominator of which shall be the sum of (x) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to shareholders
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based on the acceptance (up to any maximum specified in the terms of the Tender
Offer) of all shares validly tendered and not withdrawn as of the last time
tenders could have been made pursuant to such Tender Offer (the "Expiration
Time") (the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") and (y) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on such day times the Closing
Price (determined without regard to this proviso) of the Common Stock on the
Trading Day next succeeding the Expiration Time. If the application of this
clause (vi) to any Tender Offer would result in an increase in the Closing Price
(determined without regard to this proviso) for any trade, no adjustment shall
be made for such Tender Offer under this clause (vi) for such day.
(h) "Common Shares" means the Initial Shares, the Adjustment
Shares, and the Warrant Shares.
(i) "Disclosure Documents" means the Company's (i) Annual Report
on Form 10-K for the fiscal year ended December 31, 1997; (ii) Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 1998 and June 30, 1998; and
(iii) proxy statement for the Company's 1998 Annual Meeting.
(j) "Floor Price" means $12.00 (subject to equitable adjustments
from time to time on terms reasonably acceptable to the Buyers for stock splits,
stock dividends, combinations, recapitalizations, reclassifications and similar
events occurring or with respect to which "ex-" trading commences on or after
the date of this Agreement), provided that the Floor Price shall be permanently
increased on each Reset Date by an amount equal to three percent (pro rated for
each period of less than 30 days after a Reset Date shall occur in which the
event giving rise thereto shall continue) of the Floor Price that otherwise
would have applied without such increase.
(k) "Initial Adjustment Date" means the later of (i) the
effective date of the initial Registration Statement filed with the SEC, or (ii)
February 22, 1999.
(l) "Initial Shares" means an aggregate of 600,000 shares of
Common Stock issued and sold by the Company to the Buyers on the Closing Date in
accordance with the terms and conditions hereof.
(m) "Market Price" of any security on any date shall mean the
last sale price (regular way) per share of such security on such date on the
principal securities exchange or other market on which such security is listed
for trading which constitutes the principal securities market for such security,
as reported by such exchange or market.
(n) "Measurement Period" means, with respect to any date, the
period of 15 consecutive Trading Days ending on the Trading Day prior to such
date.
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(o) "Nasdaq" means the Nasdaq National Market.
(p) "Option Share Surrender" means the surrender of shares of
Common Stock to the Company in payment of the exercise price or tax obligations
incurred in connection with the exercise of a stock option granted by the
Company to any of its employees, directors or consultants.
(q) "Registration Rights Agreements" means the Registration
Rights Agreements, dated the date hereof, between the Company and each of the
Buyers, the form of which is attached hereto as ANNEX I.
(r) "Registration Statement" has the meaning given such term in
the Registration Rights Agreements.
(s) "Reset Date" means (i) the date that is 91 days after the
Closing Date, unless the Registration Statement has been declared effective
prior thereto; (ii) each date that is 30 days after a Reset Date, if the
Registration Statement has not been declared effective by the SEC prior to such
30th day; (iii) if the Registration Statement has not been declared effective by
the SEC within 90 days after the Closing Date, the date on which the
Registration Statement is declared effective by the SEC; (iv) the date on which
the Registration Statement has ceased to be available for use by any holder of
the Common Shares which is named therein as a selling shareholder if, at any
time during which the Registration Statement is required by the Registration
Rights Agreements to remain available for such use, the Registration Statement
ceases to be so available for any reason (including, without limitation, by
reason of an SEC stop order, a material misstatement or omission therein or the
information contained in the Registration Statement having become outdated) and
shall remain so unavailable, and each date that is the 30th day (whether or not
consecutive) after such date on which the Registration Statement shall have
remained so unavailable, excluding any Excluded Period (as defined in the
Registration Rights Agreements); (v) the date on which the Registration
Statement becomes available for use by holders of Common Shares if the
Registration Statement shall have become unavailable for such use as described
in the preceding clause (iv); provided, however, that if more than one event
that could give rise to a Reset Date during any period shall have occurred, only
one of such events shall be deemed to result in a Reset Date so that the
adjustments provided herein by reason of the occurrence of a Reset Date shall be
made only once in respect of any period of time and then in the maximum amount
based on all such Reset Dates.
(t) "SEC" means the United States Securities and Exchange
Commission.
(u) "Securities" means the Common Shares and the Warrants.
(v) "Tender Offer" means a tender offer as defined for the
purposes of Regulation 14D and Rule 13e-4 under the 1934 Act.
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(w) "Term" means the period commencing on the Closing Date and
ending September 30, 2001.
(x) "Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap Market which at
the time constitutes the principal securities market for the Common Stock is
open for general trading.
(y) "Warrants" means warrants to purchase shares of Common Stock,
such warrants having the terms and conditions set forth in the form of warrant
attached hereto as ANNEX II.
(z) "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
2. AGREEMENT TO SUBSCRIBE; PAYMENT OF PURCHASE PRICE
(a) SUBSCRIPTION FOR INITIAL SHARES. Each Buyer hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
each Buyer, the number of Initial Shares set forth on the signature page hereof
at a purchase price of $10.00 per share, for an aggregate purchase price of
$6,000,000 from both Buyers.
(b) WARRANTS. In connection with the purchase of the Initial
Shares by each Buyer, the Company agrees to issue the number of Warrants set
forth on the signature page hereof to each Buyer.
(c) FORM AND METHOD OF PAYMENT. Each Buyer shall pay the purchase
price for the number of Initial Shares purchased thereby directly to the Company
in United States Dollars by certified bank check or wire transfer to an account
designated in writing by the Company against issuance to such Buyer of its
portion of the Initial Shares and the Warrants. The Company shall deliver (i)
the certificates for the Initial Shares directly to each Buyer, and (ii) the
Warrants directly to each Buyer against payment of the purchase price for the
Initial Shares to the Company on the Closing Date.
3. BUYERS' RIGHT TO ADDITIONAL ISSUANCES OF COMMON
STOCK
(a) INITIAL ISSUANCE OF ADJUSTMENT SHARES. If the Adjustment
Price for the Initial Adjustment Date is less than the Floor Price, then the
Company shall issue to each Buyer the number of Adjustment Shares calculated in
accordance with the following formula:
[ (C / B) x A ] - A
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where:
A = Number of Initial Shares beneficially owned by Buyer on the Initial
Adjustment Date,
B = Adjustment Price for the Initial Adjustment Date, and
C = Floor Price.
(b) SUBSEQUENT ISSUANCES OF ADJUSTMENT SHARES. On each subsequent
Adjustment Date, if the Adjustment Price for that Adjustment Date is less than
the lowest Adjustment Price for any prior Adjustment Date, then the Company
shall issue to each Buyer the number of Adjustment Shares calculated in
accordance with the following formula:
[ (1.0125 x A x C) / B ] - A
where:
A = Number of Initial Shares and Adjustment Shares beneficially owned by Buyer
on the Adjustment Date,
B = Adjustment Price applicable to the Adjustment Date, and
C = Lowest Adjustment Price for any prior Adjustment Date.
(c) BUYER'S ASSIGNMENT OF RIGHTS UNDER SECTION 3. If a Buyer
intends to assign all or any portion of its rights to acquire any Adjustment
Shares in accordance with Section 10(h) hereof, then such Buyer shall so notify
the Company not less than ten days before any Adjustment Date. Each such notice
of assignment by a Buyer shall specify the name(s) of the assignee(s) and the
rights to be assigned thereto. Each such notice shall be executed by the
assignee(s). From and after the giving of such notice by such Buyer, the Buyer
shall be deemed for all purposes to have assigned to such assignee(s) the rights
under this Agreement with respect to the acquisition of the number of Adjustment
Shares covered by such notice, and such assignee(s) shall be deemed a party to
this Agreement with respect to the acquisition of such number of Adjustment
Shares upon the terms and subject to the conditions of this Agreement, and all
applicable references hereinafter to the "Buyers" shall include such
assignee(s).
(d) NO FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued as Adjustment Shares but, in lieu of any fraction of a share of
Common Stock that would otherwise be issuable as Adjustment Shares, the Company
shall pay in cash an amount equal to the product of (i) the Adjustment Price and
(ii) such fraction of a share.
(e) DELIVERY OF ADJUSTMENT SHARES. The Company shall issue and
deliver to each Buyer certificates for the Adjustment Shares not later than 4:00
p.m., Pacific Time, on or before the third Business Day following any Adjustment
Date, or as otherwise agreed to by the parties hereto. Delivery of certificates
for the Adjustment Shares shall be made at
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a location mutually agreed to by the parties hereto. In lieu of delivering
physical certificates representing the Adjustment Shares, provided that the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of a Buyer, the
Company shall cause its transfer agent to electronically transmit such
Adjustment Shares by crediting the account of such Buyer or the Buyer's broker
with the DTC through its Deposit Withdrawal Agent Commission system. The
Company's obligation to issue and deliver the certificates for Common Stock
representing the Adjustment Shares shall be absolute and unconditional,
irrespective of any action or inaction by the Buyer to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Company to the Buyer, or
any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Buyer or any other person of any obligation to the
Company or any violation or alleged violation of law by the Buyer or any other
person, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Buyer in connection with such obligation.
If the Company fails to issue and deliver the certificates for the Common Stock
pursuant to this Section 3(e) as and when required to do so following each
Adjustment Date, in addition to any other liabilities the Company may have
hereunder and under applicable law (1) the Company shall pay or reimburse the
Buyer on demand for all reasonable out-of-pocket expenses including, without
limitation, fees and expenses of legal counsel incurred by the Buyer as a result
of such failure, and (2) the Adjustment Price used to determine the number of
Adjustment Shares due with respect to such Adjustment Date shall be reduced by
two percent from the Adjustment Price otherwise used to calculate such number of
Adjustment Shares for each Trading Day the Company fails to issue and deliver
such certificates and, accordingly, the Buyer shall be entitled to receive the
additional Adjustment Shares resulting from such reduced Adjustment Price.
(f) CONDITION PRECEDENT TO ISSUANCE OF ADJUSTMENT SHARES. Each
Buyer understands that the Company's obligation to issue the Adjustment Shares
to such Buyer in accordance with this Agreement is conditioned upon the accuracy
in all material respects on the Adjustment Date of the representations and
warranties of the Buyer contained in Sections 4(a), (b), (c), (d), (f) and (g)
of this Agreement as if made on the Adjustment Date.
4. BUYER REPRESENTATIONS AND WARRANTIES
Each Buyer represents and warrants to, and covenants and agrees with,
the Company as follows (except for the representations set forth in Section
4(h), with respect to which each Buyer represents only to its security holdings
in the Company):
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Initial
Shares and acquiring the Warrants and, upon issuance of any Adjustment Shares,
will acquire the Adjustment Shares, for its own account for investment only and
not with a view towards the
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public sale or distribution thereof. The Buyer understands that its investment
in the Securities involves a high degree of risk.
(b) ACCREDITED INVESTOR; NO BROKER-DEALER. The Buyer is an
"accredited investor" as that term is defined in Rule 501 of Regulation D under
the 1933 Act by reason of Rule 501(a)(3). The Buyer is not a person required to
be registered as a broker or dealer under Section 15(a) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") or a member of the National
Association of Securities Dealers, Inc.
(c) REOFFERS AND RESALES. All subsequent offers and sales of the
Securities by the Buyer shall be made pursuant to registration of the Securities
being offered and sold under the 1933 Act or pursuant to an exemption from
registration.
(d) COMPANY RELIANCE. The Buyer understands that the Initial
Shares are being offered and sold, the Warrants are being issued, and the
Adjustment Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Initial Shares and the Warrants and to receive an offer of the
Adjustment Shares.
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances, and
operations of the Company and materials relating to the offer and sale of the
Initial Shares and the Warrants and the offer of the Adjustment Shares, that
have been requested by the Buyer. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the management of the Company and
have received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Buyer has had the opportunity to
obtain and to review the Disclosure Documents.
(f) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities.
(g) SUBSCRIPTION AGREEMENT. This Agreement has been duly and
validly authorized, executed, and delivered on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
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(h) CURRENT HOLDINGS. As of the date hereof, Advantage owns 2,677
shares of Series A Convertible Preferred Stock, $0.01 par value of the Company
(the "Series A Stock"), 3,000 shares of Series B Convertible Preferred Stock,
$0.01 par value, of the Company (the "Series B Stock"), 11,847 shares of Common
Stock, and warrants to purchase 137,500 shares of Common Stock. As of the date
hereof, Xxxx owns no shares of Series A Stock, no shares of Series B Stock, no
shares of Common Stock, and no warrants to purchase shares of Common Stock.
5. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and covenants and agrees with,
Buyers that:
(a) ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and
has all requisite corporate power and authority (i) to own, lease, and operate
its properties and to carry on its business as now being conducted, and (ii) to
execute, deliver, and perform its obligations under this Agreement, the
Warrants, and the Registration Rights Agreements, and the other agreements to be
executed and delivered by the Company in connection herewith, and to consummate
the transactions contemplated hereby and thereby. The Company is duly qualified
to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and where failure so to
qualify could have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company. The Company has no subsidiaries.
(b) CAPITALIZATION. As of September 29, 1998, the authorized
capital stock of the Company consisted of (i) 25,000,000 shares of Common Stock,
of which 12,598,962 shares were outstanding and all of which are fully paid and
nonassessable; and (ii) 5,000,000 shares of Preferred Stock, $.01 par value, of
which (i) 10,000 shares were designated as Series A Stock, of which 3,282 shares
are outstanding; (ii) 12,000 shares were designated as Series B Stock, of which
6,000 shares are outstanding; and (iii) 5,000 shares were designated as Series C
Convertible Preferred Stock, none of which are outstanding. As of September 29,
1998, the Company had outstanding options entitling the holders thereof to
purchase 2,639,229 shares of Common Stock and outstanding warrants entitling the
holders thereof to purchase 911,592 shares of Common Stock. As of the Closing
Date, there will have been no material increase from September 29, 1998 in the
number of shares of Common Stock outstanding other than pursuant to the exercise
of outstanding options or warrants or the conversion of outstanding shares of
Series A Stock of Series B Stock, or both. The Company does not have outstanding
any material amount of securities (or obligations to issue any such securities)
convertible into, exchangeable for or otherwise entitling the holders thereof to
acquire shares of Common Stock, except as disclosed above or in the Disclosure
Documents or as set forth in Schedule 5(b) hereof. The outstanding shares of
Common Stock and outstanding options, warrants, and other securities to purchase
Common Stock have been duly authorized and validly issued. None of such
outstanding
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shares of Common Stock, options, warrants, and other securities has been issued
in violation of the preemptive rights of any security holder of the Company. The
offers and sales of the outstanding shares of Common Stock and options, warrants
and other rights to acquire Common Stock were at all relevant times either
registered under the 1933 Act and applicable state securities laws or exempt
from such requirements. No holder of any of the Company's securities has any
rights, "demand," "piggy-back" or otherwise, to have such securities registered
by reason of the intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreements).
(c) CONCERNING THE SECURITIES. The Securities have been duly
authorized and the Initial Shares, when issued and paid for in accordance with
this Agreement, the Adjustment Shares, when issued, and the Warrant Shares, when
issued upon exercise of the Warrants, as the case may be, will be duly and
validly issued, fully paid and non-assessable, and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive or similar rights of any security holder of the Company or any other
person to acquire any of the Common Shares. The Common Stock is listed for
trading on the Nasdaq and, except as set forth in Schedule 5(c), (i) the Company
and the Common Stock meet the currently applicable criteria for continued
listing and trading on Nasdaq; (ii) the Company has not been notified since
September 25, 1995 by Nasdaq of any failure or potential failure to meet the
criteria for continued listing and trading on Nasdaq; (iii) no suspension of
trading in the Common Stock is in effect; and (iv) the Company knows of no
reason that the Common Shares will not be eligible for listing on Nasdaq.
(d) SUBSCRIPTION AGREEMENT; WARRANTS; REGISTRATION RIGHTS
AGREEMENTS. This Agreement, the Warrants, and the Registration Rights Agreements
have been duly and validly authorized by the Company, this Agreement has been
duly executed and delivered on behalf of the Company and this Agreement is, and
the Warrants and the Registration Rights Agreements, when executed and delivered
by the Company, will be, valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and limits upon
rights to indemnity.
(e) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the issuance by the Company of the Initial Shares,
the Adjustment Shares, the Warrants, and the Warrant Shares, as contemplated by
this Agreement, and completion of the other transactions contemplated in this
Agreement, the Registration Rights Agreements and the Warrants, do not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the Restated and Amended Articles
of Incorporation or Bylaws of the Company, or any indenture, mortgage, deed of
trust or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound which would have a
material adverse effect on the Company, or any applicable law, rule or
regulation or any applicable decree, judgment
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or order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its properties or assets which would have a material adverse
effect on the Company.
(f) APPROVALS. Except as set forth in Schedule 5(f), no
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
shareholders of the Company is required to be obtained by the Company for (i)
the issuance and sale of the Initial Shares and the issuance of the Warrants and
the Adjustment Shares, as contemplated by this Agreement, and (ii) the issuance
of Warrant Shares upon exercise of the Warrants, except for the filing of one or
more Forms D with respect to the Securities as required under Regulation D under
the 1933 Act.
(g) INFORMATION PROVIDED. The information provided by or on
behalf of the Company to the Buyers in connection with the transactions
contemplated by the Agreement, including, without limitation, the information
referred to in Section 4(e) of this Agreement, does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances in which
they were made, not misleading.
(h) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Disclosure Documents and Schedule 5(h), since December 31, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, and, except as and to the extent disclosed, reflected
or reserved against in the financial statements of the Company and the notes
thereto included in the Disclosure Documents, the Company has no material
(individually or in the aggregate) liabilities, debts or obligations whether
accrued, absolute, contingent or otherwise, and whether due or to become due.
Subsequent to December 31, 1997, the Company has not incurred any liabilities,
debts or obligations of any nature whatsoever which are individually or in the
aggregate material to the Company, other than those incurred in the ordinary
course of its business or disclosed in the Disclosure Documents.
(i) ABSENCE OF CERTAIN PROCEEDINGS. There is no action, suit or
proceeding, before or by any court, public board or body or governmental agency
(an "Action") pending or, to the knowledge of the Company, threatened against
the Company and, to the knowledge of the Company, there is no inquiry or
investigation before or by any court, public board or body or governmental
agency pending or threatened against the Company, in any such case wherein an
unfavorable decision, ruling or finding would have a material adverse effect on
the properties, business, condition (financial or other), results of operations
or prospects of the Company or the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under,
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this Agreement or any of such other documents. Neither the Company nor any
director or officer thereof is or has been the subject of any Action involving
(i) a claim of violation of or liability under federal or state securities laws
or (ii) a claim of breach of fiduciary duty. The Company does not have pending
before the SEC any request for confidential treatment of information and to the
knowledge of the Company, no such request will be made by the Company prior to
the time the Registration Statement relating to the Initial Shares which is
contemplated by the Registration Rights Agreements is first ordered effective by
the SEC; and, to the knowledge of the Company, there is not pending or
contemplated and has not been any investigation by the SEC of the Company or any
director or officer of the Company.
(j) PROPERTIES. The Company has good title to all property, real
and personal (tangible and intangible), and other assets owned by it, free and
clear of all security interests, charges, mortgages, liens or other
encumbrances, except such as are described in the Disclosure Documents or such
as do not materially interfere with the use of such property made by the
Company. The leases, licenses or other contracts or instruments under which the
Company leases, holds or is entitled to use any property, real or personal, are
valid, subsisting, and enforceable with only such exceptions as do not
materially interfere with the use of such property made by the Company. The
Company has received no notice of any material violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties. The Company does not have any knowledge of, and the Company has not
given or received any notice of, any pending conflicts with or infringement of
the rights of others with respect to any Company Proprietary Rights (as defined
herein) or with respect to any license of Company Proprietary Rights. No action,
suit, arbitration, or legal, administrative or other proceeding or investigation
is pending, or, to the best knowledge of the Company, threatened, which involves
any Company Proprietary Rights. The Company is not subject to any judgment,
order, writ, injunction or decree of any court or any federal, state, local,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator, or has entered into or
is a party to any contract which restricts or impairs the use of any such
Company Proprietary Rights in a manner which would have a material adverse
effect on the use by the Company of any of the Company Proprietary Rights. To
the best knowledge of the Company, no Company Proprietary Rights and no services
or products sold by the Company, conflict with or infringe upon any proprietary
rights available to any third party. The Company has not received written notice
of any pending conflict with or infringement upon such third-party proprietary
rights. The Company has not entered into any consent, indemnification,
forbearance to xxx or settlement agreement with respect to Company Proprietary
Rights other than in the ordinary course of business. No claims have been
asserted by any person with respect to the validity of the Company's ownership
or right to use the Company Proprietary Rights and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. To
the best knowledge of the Company, the Company Proprietary Rights are valid and
enforceable. No registration relating to the Company Proprietary Rights has
lapsed, expired or been abandoned or
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canceled or is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and are in good standing, except for such
lapses, expirations, abandonments, cancellations, adversarial proceedings or
failures to be in good standing which would not, singly or in the aggregate,
have a material adverse effect on the business, properties, operations,
condition (financial or otherwise), results of operations or prospects of the
Company. The Company has complied, in all material respects, with its
contractual obligations relating to the protection of the Company Proprietary
Rights used pursuant to licenses. To the best knowledge of the Company, no
person is infringing on or violating the Company Proprietary Rights. As used
herein, the term "Company Proprietary Rights" means all patents, patent
applications, inventions, trademarks, trade names, applications for registration
of trademarks, service marks, service xxxx applications, copyrights, know-how,
manufacturing processes, formulae, trade secrets, licenses and rights in any
thereof and any other intangible property and assets which are material to the
business of the Company as now conducted, as proposed to be conducted or as
described in this Agreement.
(k) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(l) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents with the SEC. All of such forms, reports and other
documents complied, when filed, in all material respects, with all applicable
requirements of the 1933 Act and the 0000 Xxx. The Company has not filed any
reports with the SEC under the 1934 Act since January 22, 1998, other than the
Disclosure Documents.
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or
similar person is entitled to any commission, fee or other compensation by
reason of the transactions contemplated by this Agreement and the Company shall
pay, and indemnify and hold each Buyer harmless from, any claim made against
such Buyer by any person for any such commission, fee or other compensation.
(n) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(o) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
person acting on behalf of the Company, in respect of or in connection with the
offer and sale of the Securities. Neither the Company nor, to its knowledge, any
person acting on behalf of the Company has, either directly or indirectly, sold
or offered for sale to any person any of the Common Shares or the Warrants or,
within the six months prior to the date hereof, any other similar security of
the Company except as contemplated by this Agreement; and neither the
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Company nor any person authorized to act on its behalf will sell or offer for
sale any shares of Common Stock or Warrants, or solicit any offers to buy any
shares of Common Stock or Warrants, so as thereby to cause the issuance or sale
of any of the Common Shares or the issuance of the Warrants to be in violation
of Section 5 of the 1933 Act.
(p) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued
any shares of Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Common Stock which are subject to Rule 4460(i) of Nasdaq
(or any successor, replacement or similar provision thereof or of any other
market on which the Common Stock is listed for trading) and which would be
integrated with the sale of the Initial Shares to the Buyers or the issuance of
Adjustment Shares or Warrant Shares for purposes of such Rule 4460(i) (or any
successor, replacement or similar provision thereof or of any other market on
which the Common Stock is listed for trading), other than the Company's Series B
Convertible Preferred Stock.
6. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
(a) TRANSFER RESTRICTIONS. Each Buyer acknowledges that (i) the
Warrants have not been and are not being registered under the 1933 Act, and,
except as provided in the Registration Rights Agreements, the Common Shares have
not been and are not being registered under the 1933 Act, and may not be
transferred unless (x) subsequently registered thereunder or (y) such Buyer
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope, and substance to the Company, to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration; (ii) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any such resale of Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreements) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder (other than pursuant to Section 6(d) hereof and
pursuant to the Registration Rights Agreements).
(b) RESTRICTIVE LEGEND. Each Buyer acknowledges and agrees that
the certificates for the Initial Shares, the Adjustment Shares, the Warrants,
and the Warrant Shares and, until such time as the Common Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreements, the certificates for the Common Shares shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Once the Registration Statement required to be filed by the Company pursuant to
Section 2 of the Registration Rights Agreements has been declared effective,
thereafter (i) upon request of a Buyer the Company will substitute certificates
without the above-referenced legend for certificates for any Common Shares
issued prior to the date such Registration Statement is declared effective by
the SEC which bear such legend and promptly remove any stop-transfer restriction
relating to such Common Shares, but in no event later than three Business Days
after surrender of such certificates by such Buyer, and (ii) the Company shall
not place any restrictive legend on certificates for any Common Shares issued or
impose any stop-transfer restriction thereon.
(c) REGISTRATION RIGHTS AGREEMENTS. The Company and each Buyer
agree to enter into a Registration Rights Agreement on or before the Closing
Date.
(d) FORM D. The Company agrees to file a Form D with the SEC with
respect to the Securities as required under Regulation D promulgated under the
1933 Act and to provide a copy thereof to the Buyers promptly after such filing.
Each Buyer agrees to cooperate with the Company in connection with such filing
and, upon request of the Company, to provide all information relating to such
Buyer reasonably required for such filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the
date that is 30 days after the Closing Date, but in any event before the
effective date of the Registration Statement (as defined in the Registration
Rights Agreements), the Company shall file a listing application for the Common
Shares with the Nasdaq and shall provide evidence of such filing to each Buyer.
From the Closing Date until such time as the Registration Statement is no longer
required to be in effect, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
(f) USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any "margin stock" as defined in Regulation G (12 C.F.R.
Part 207) of the Board of Governors of the Federal Reserve System ("margin
stock"). The proceeds
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of sale of the Common Shares will be used for general working capital purposes
and in the operation of the Company's business. None of such proceeds will be
used, directly or indirectly (i) to make any loan to or investment in any other
person or (ii) for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other purpose
that might constitute the transactions contemplated by this Agreement as a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption from qualification for, the Initial Shares for sale to the Buyers
pursuant to this Agreement and the Warrants, and the Adjustment Shares and the
Warrant Shares for issuance to the Buyers, under such of the securities or "blue
sky" laws of jurisdictions as shall be applicable to the offer and sale of the
Initial Shares, the issuance of the Warrants, and the offer of the Adjustment
Shares pursuant to this Agreement. The Company shall furnish copies of all
filings, applications, orders, and grants or confirmations of exemptions
relating to such securities or "blue sky" laws to the Buyers withing five days
of filing or receipt thereof, as the case may be.
(h) CERTAIN EXPENSES AND FEES. Whether or not the closing of the
transactions contemplated hereby occurs, the Company shall pay or reimburse the
Buyers for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the Buyers of up to $20,000) incurred by the Buyers
in connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, the Company shall pay on demand all expenses
(including reasonable attorneys' fees and expenses) incurred by the Buyers, and
the Buyers shall pay on demand all expenses (including reasonable attorneys'
fees and expenses) incurred by the Company, as a consequence of, or in
connection with, (i) any default or breach of any of the other party's
obligations under this Agreement, the Warrants, and the Registration Rights
Agreements (which payment shall be made by the defaulting or breaching party),
and (ii) the enforcement or restructuring of any right of, including the
collection of any payments due, the Buyers or the Company, as the case may be,
under any of such agreements or instruments, including any action or proceeding
relating to such enforcement or any order, injunction or other process seeking
to restrain the Company or the Buyers, as the case may be, from paying any
amount due the Buyers or the Company, as the case may be, in which the party
seeking such enforcement or restructuring prevails.
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(i) CERTAIN ISSUANCES OF SECURITIES.
(i) Unless the Company obtains the Shareholder Approval
(as defined in Section 6(i)(2) below) or a waiver thereof from Nasdaq, the
Company will not issue any shares of Common Stock or shares of any series of
preferred stock or other securities convertible into, exchangeable for or
otherwise entitling the holder to acquire shares of Common Stock which issuance
would be subject to Rule 4460(i) of the Nasdaq (or any successor or replacement
provision thereof or any similar provision of any other market on which the
Common Stock is listed for trading) and which would be integrated with the sale
of the Initial Shares to the Buyers, or the issuance of Adjustment Shares or
Warrant Shares to the Buyers, or the sale and issuance of the Series B Stock and
the common stock purchase warrants issued in connection therewith (including the
issuance of shares of Common Stock upon conversion of the Series B Stock or in
payment of dividends thereof, and upon exercise of the aforesaid common stock
purchase warrants), for purposes of Rule 4460(i) (or any successor or
replacement provision thereof or any similar provision of any other market on
which the Common Stock is listed for trading).
(ii) For purposes of this Agreement, "Shareholder
Approval" means the approval by a majority of the votes cast by the holders of
shares of Common Stock (in person or by proxy) at a meeting of the shareholders
of the Company (duly convened at which a quorum was present), or a written
consent of holders of shares of Common Stock entitled to such number of votes
given without a meeting, of the issuance by the Company of 20% or more of the
outstanding Common Stock of the Company for less than the greater of the book or
market value of such Common Stock, taking into account all issuances of Common
Stock to the Buyers on the Closing Date, on all Adjustment Dates, and upon the
exercise of the Warrants, as and to the extent required under Rule 4460(i) of
Nasdaq as in effect from time to time or any successor or replacement provision
thereof or of any similar provision of any other market on which the Common
Stock is listed for trading.
(iii) During the period from the Closing Date to the later
of the date on which the Registration Statement shall have been effective with
the SEC for 60 consecutive days or the Initial Adjustment Date, the Company
shall not offer, sell, contract to sell or issue (or engage any person to assist
the Company in taking any such action) any equity securities or securities
convertible into, exchangeable for or otherwise entitling the holder to acquire,
any Common Stock at a price below the Market Price of the Common Stock;
provided, however, that nothing in this Section 6(i)(3) shall prohibit the
Company from issuing securities (x) pursuant to compensation plans for
employees, directors, officers, advisers or consultants of the Company and in
accordance with the terms of such plans as in effect as of the date of this
Agreement or (y) upon exercise of conversion, exchange, purchase or similar
rights issued, granted or given by the Company and outstanding as of the date of
this Agreement or pursuant to the exercise of the Warrants.
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(j) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Initial Shares set forth in Section 8 or 9, as the case
may be, of this Agreement on the Closing Date.
(k) CERTAIN TRADING RESTRICTIONS. So long as the Company is in
compliance in all material respects with its obligations to the Buyer pursuant
to this Agreement, the Registration Rights Agreements and the Warrants, each
Buyer agrees that it and its affiliates shall not engage in short sales or other
hedging transactions relating to the Common Stock (i) during the 18 Trading Days
prior to the Initial Adjustment Date unless and only while the then highest
current bid price of the Common Stock, as reported on Nasdaq, is higher than
125% of the Floor Price, and (ii) during the 18 Trading Days prior to any other
Adjustment Date unless and only while the then highest current bid price of the
Common Stock, as reported on Nasdaq, is higher than 125% of the then applicable
lowest Adjustment Price for any prior Adjustment Date. To the extent that any
prior agreement between the Company and the Buyers otherwise permits short sales
or other hedging transactions, any such sale and transaction shall conform to
the provisions of the foregoing sentence, except as otherwise provided below
with respect to the Preferred Stock Subscription Agreements. To the extent that
the first sentence of this Section 6(k) permits short sales or other hedging
transactions, then such transactions may only be effected at or above the last
reported sale price of the Common Stock in accordance with Rule 10a-1 under the
1934 Act (assuming that the exclusions in subparagraph (e) of Rule 10a-1 are
inapplicable), and in any case such transactions will not create any daily low
sales prices for the Common Stock. The foregoing notwithstanding, nothing herein
shall prohibit Advantage from entering into a short sale or other hedging
transaction involving a number of shares of Common Stock not in excess of the
number of shares for which it has submitted a conversion notice to the Company
and its transfer agent pursuant to its respective Subscription Agreements, dated
as of December 23, 1997 and June 30, 1998, with the Company (the "Preferred
Stock Subscription Agreements").
(l) RESERVATION OF COMMON STOCK. The Company (and any successor
corporation) shall take all action necessary so that a number of shares of the
authorized but unissued Common Stock (or common stock in the case of any
successor corporation) sufficient to provide for the issuance of all Adjustment
Shares and Warrant Shares issuable hereunder are at all times reserved by the
Company (or any successor corporation), free from preemptive rights. If the
Company shall issue any securities or make any change in its capital structure
which would change the number of shares of Common Stock issuable as Adjustment
Shares or Warrant Shares as herein provided, the Company shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for issuance of the Common Shares on the new basis. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
the issuance of all Adjustment Shares and Warrant Shares issuable hereunder, the
Company promptly shall seek, and use its
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best efforts to obtain and complete, such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(m) CONSOLIDATION, MERGER, ETC. In case of any consolidation or
merger of the Company with any other corporation (other than a wholly-owned
subsidiary of the Company) in which the Company is not the surviving
corporation, or in case of any sale or transfer of all or substantially all of
the assets of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Company shall make appropriate provision or cause
appropriate provision to be made so that each holder of Common Shares then
outstanding shall have the right thereafter to receive Adjustment Shares in the
form of the kind of shares of stock and other securities and property receivable
upon such consolidation, merger, sale, transfer, or share exchange by a holder
of shares of Common Stock immediately prior to the effective date of such
consolidation, merger, sale, transfer, or share exchange and on a basis which
preserves the economic benefits of the rights of the holders of Common Shares to
receive Adjustment Shares on a basis as nearly as practical as such rights exist
hereunder prior thereto. The Company shall not effect any such transaction
unless the provisions of this Section 6(m) have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
(n) OVERDUE AMOUNTS. Whenever any amount which is due by the
Company to any holder of Common Shares pursuant to the terms of this Agreement,
the Registration Rights Agreements or the Warrants is not paid to such holder
when due, such amount shall bear interest at the rate of 14% per annum (or such
other rate as shall be the maximum rate allowable by applicable law) until paid
in full.
7. BUYERS' RIGHT TO REQUIRE REPURCHASE OF THE COMMON SHARES
(a) REPURCHASE AT OPTION OF BUYERS. Each Buyer shall be entitled,
at its option by notice to the Company given within 90 days after the occurrence
of a Repurchase Event (as defined in Section 7(b)), to require the Company to
repurchase all or a portion of its Common Shares following the occurrence of a
Repurchase Event.
(b) REPURCHASE EVENTS. A "Repurchase Event" means any one of the
following events:
(i) For any period of five consecutive Trading Days there
shall be no reported closing bid price of the Common Stock on any national
securities exchange, the Nasdaq or on the Nasdaq SmallCap Market;
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(ii) The Common Stock ceases to be listed for trading on
the Nasdaq, the Nasdaq SmallCap Market, the New York Stock Exchange, or the
American Stock Exchange;
(iii) The inability for 30 or more days (whether or not
consecutive) of any holder of Common Shares who is entitled to exercise its
repurchase right under this Section 7 to sell such Common Shares pursuant to the
Registration Statement for any reason on each of such 30 days, other than for an
Excluded Period as defined in the Registration Rights Agreements;
(iv) The Company shall fail or default in the timely
performance of any material obligation to the Buyer under the terms of this
Agreement, the Warrants, the Registration Rights Agreements or any other
agreement or document entered into in connection with the transactions
contemplated hereby, as such instruments may be amended from time to time,
provided such failure or default is not cured prior to the delivery of an
Repurchase Notice (as defined in Section 7(c)); or
(v) Any consolidation or merger of the Company with or
into another entity (other than a merger or consolidation of a subsidiary of the
Company into the Company or a wholly-owned subsidiary of the Company) where the
shareholders of the Company immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately following such
transaction or the common stock of such surviving corporation is not listed for
trading on the Nasdaq, the Nasdaq SmallCap Market, the New York Stock Exchange,
or the American Stock Exchange.
(c) REPURCHASE NOTICE. To exercise the right of repurchase under
Section 7(a), a Buyer shall deliver to the Company a notice of repurchase (a
"Repurchase Notice"), accompanied by the certificate(s) for the Common Shares to
be repurchased. Any Repurchase Notice shall state (i) that such Buyer is thereby
requiring the Company to repurchase Common Shares pursuant to this Section 7,
(ii) the Repurchase Event giving rise to such repurchase, and (iii) the number
of Common Shares which are to be repurchased. Promptly and in no event later
than three Business Days after the Company's receipt of the Repurchase Notice,
the Company shall make payment in immediately available funds of the Repurchase
Price (as defined in Section 7(d)) applicable on the date of such repurchase
with respect to the Common Shares to be repurchased to or upon the order of the
Buyer as specified in the Repurchase Notice. Upon repurchase of less than all of
the Common Shares evidenced by a particular certificate, promptly, but in no
event later than three Business Days after surrender of such certificate to the
Company, the Company shall issue a replacement certificate for the Common Shares
that have not been repurchased. Only whole Common Shares may be repurchased.
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(x) XXXXXXXXXX PRICE. As used herein, "Repurchase Price" means
(1) during the period from the Closing Date through and including the Initial
Adjustment Date, the product of (i) the number of Common Shares to be
repurchased and (ii) the Floor Price, and (2) after the Initial Adjustment Date,
the product of (i) the number of Shares to be repurchased and (ii) the greater
of (x) the arithmetic average of the Market Price of the Common Stock for the
five consecutive Trading Days ending on the Trading Day immediately preceding
the date of repurchase and (y) the most recent Adjustment Price.
(e) THIRD PARTY REPURCHASE RIGHTS. Each Buyer acknowledges that
holders of outstanding securities of the Company issued pursuant to the
Preferred Stock Subscription Agreements (including Advantage and its affiliates)
are entitled to have their securities repurchased or redeemed by the Company
upon the occurrence of certain events, including but not limited to events
substantially similar to the Repurchase Events, and that such obligations of the
Company to repurchase securities held by third parties may affect the Company's
ability to pay any Repurchase Price due under this Agreement.
(f) INABILITY TO ISSUE ADJUSTMENT SHARES. In the event the
Company is unable to issue all Adjustment Shares required to be issued with
respect to any Adjustment Date by reason of the restrictions set forth in Rule
4460(i) of the Nasdaq (or any successor or replacement provision thereof or any
similar provision of any other market on which the Common Stock is listed for
trading) (collectively, the "Rule"), each Buyer shall be entitled, at its
option, by notice to the Company given within 90 days after such Adjustment
Date, to require the Company to make a payment to such Buyer in an amount equal
to the product of (i) the number of Adjustment Shares otherwise required to be
issued to each Buyer on such Adjustment Date which the Company is unable to
issue by reason of the Rule and (ii) the Repurchase Price. Promptly and in no
event later than three Business Days after the Company's receipt of such notice,
the Company shall make a cash payment in immediately available funds of such
Repurchase Price to or upon the order of such Buyer unless prior thereto the
Company notifies such Buyer that it is seeking Shareholder Approval to permit
the issuance of all required Adjustment Shares in accordance with the Rule. If
the Company so elects to seek such Shareholder Approval and for any reason such
approval is not obtained within 60 days of the applicable Adjustment Date, the
Company shall be obligated to pay such Buyer the amount due pursuant to this
Section 7(f) within three Business Days after such 60th day. The Company's
obligations to make payments pursuant to this Section 7(f) shall not limit or
otherwise affect its obligations to repurchase Common Shares pursuant to the
other provisions of this Section 7.
(g) LIMITATIONS ON REPURCHASES BY THE COMPANY. Notwithstanding
the foregoing, the Company's obligation to repurchase a Buyer's Common Shares
upon the occurrence of a Repurchase Event shall be subject to (i) the
restrictions on the Company's ability to purchase, redeem or otherwise acquire
any shares of its Common Stock as may be set forth in the Company's Amended and
Restated Articles of Incorporation, including the Statement of Rights and
Preferences for the Series A Stock and for the Series B Stock, and
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(ii) the limitations on distributions to shareholders set
forth in the Washington Business Corporation Act. The Company agrees that it
will not amend its Restated Articles of Incorporation to limit or prohibit the
Buyers' rights to have their Common Shares repurchased pursuant to this
Agreement.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Each Buyer understands that the Company's obligation to sell and issue
the Initial Shares and to issue the Warrants to such Buyer on the Closing Date
pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement
as evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Company of good funds as payment
in full of an amount equal to the purchase price for the Initial Shares in
accordance with Section 2 hereof; and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyers contained in this Agreement as if made on the Closing
Date and the performance by the Buyers on or before the Closing Date of all
covenants and agreements of the Buyers required to be performed on or before the
Closing Date.
9. CONDITIONS TO THE BUYERS' OBLIGATIONS
The Company understands that each Buyer's obligations to purchase the
Initial Shares and to acquire the Warrants on the Closing Date pursuant to this
Agreement is conditioned upon:
(a) Delivery by the Company to the Buyers of the certificates for
the Initial Shares and the Warrants in accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date and receipt by the Buyers of a certificate, dated the Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters and such other matters as the Buyers may
reasonably request;
(c) Receipt by the Buyers of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (i) the Articles of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (ii)
all resolutions of the Board of Directors (and
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committees thereof) of the Company relating to this Agreement and the
transactions contemplated hereby, and (iii) such other matters as reasonably
requested by the Buyers; and
(d) Receipt by the Buyers on the Closing Date of an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyers, to the effect set forth in ANNEX III.
10. MISCELLANEOUS
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington.
(b) COUNTERPARTS. This Agreement may be executed in counterparts
and by the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A telephone line facsimile copy of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party.
(c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyers or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(f) WAIVERS. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be delivered personally (which shall include
telephone line facsimile transmission) or by courier and shall be effective upon
receipt (or on the next Business Day,
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if the date of such receipt is not a Business Day), if delivered personally or
by courier, in the case of the Company addressed to the Company at its address
shown in the introductory paragraph of this Agreement, Attention: Chief
Financial Officer (facsimile number (000) 000-0000), with a copy to Stoel Rives
LLP, Suite 3600, One Union Square, 000 Xxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000,
Attn: Xxxxxxxxxxx X. Xxxx, Esq. (facsimile number (000) 000-0000) or, in the
case of each Buyer, at its address shown on the signature page of this
Agreement, with a copy to Genesee International, Inc., 00000 X.X. 0xx Xxxxxx,
Xxxxx 0000, Xxxxxxxx, Xxxxxxxxxx 00000-0000 (facsimile number (000) 000-0000) or
such other address or telephone line facsimile transmission number as a party
shall have provided by notice to the other party in accordance with this
provision. Each Buyer hereby designates as its address for any notice required
or permitted to be given to the Buyer pursuant to the Warrants the address shown
on the signature page of this Agreement, with a copy to: Advantage Fund II Ltd.,
c/o Genesee International, Inc., 10500 X.X. 0xx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxxxxxx 00000-0000 (facsimile number (000) 000-0000), until the Buyer shall
designate another address for such purpose.
(h) ASSIGNMENT. Prior to any Adjustment Date, each Buyer shall
have the right to assign all of its rights and obligations under this Agreement
with respect to the acquisition of the Adjustment Shares to any affiliate,
provided that any such assignee, by written instrument duly executed by such
assignee, assumes all obligations of the Buyer hereunder with respect to the
acquisition of the Adjustment Shares so assigned and makes the same
representations and warranties with respect thereto as the Buyer makes in this
Agreement, whereupon the Buyer shall be relieved of any further obligations,
responsibilities, and liabilities with respect to the acquisition of such
Adjustment Shares, the right to the acquisition of which has been so assigned.
In the case of any such assignment, the Company shall agree in writing with such
assignee to make available to such assignee the benefits of the Registration
Rights Agreements with respect to the Adjustment Shares with respect to which
the acquisition under this Agreement has been so assigned.
(i) SURVIVAL. The respective representations, warranties,
covenants, and agreements of each Buyer and the Company contained in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall survive the delivery of payment for the Initial Shares and the
issuance of the Warrants, the Adjustment Shares, and the Warrant Shares and
shall remain in full force and effect regardless of any investigation made by or
on behalf of them or any person controlling or advising any of them.
(j) ENTIRE AGREEMENT. This Agreement and the annexes and
schedules attached hereto set forth the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, with respect thereto.
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(k) TERMINATION. The Buyers shall have the right to terminate
this Agreement by giving notice to the Company at any time at or prior to the
Closing Date if:
(i) the Company shall have failed, refused, or been unable
at or prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(ii) any other condition of the Buyers' obligations
hereunder is not fulfilled; or
(iii) the closing shall not have occurred on a Closing
Date on or before October 5, 1998, other than solely by reason of a breach of
this Agreement by a Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyers. Upon such termination, the Buyers shall have no further obligation to
the Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the
Buyers shall have the right to approve before issuance any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyers, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyers shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyers
and the Company by their respective officers thereunto duly authorized as of the
date set forth above.
ADVANTAGE FUND II LTD.
By: ________________________________
Title: ______________________________
Address: x/x XXXXX
Xxxx Xxxxxxxxx 0
Xxxxxxx, Xxxxxxxxxxx Antilles
Facsimile: 011-599-9732-2008
Number of Common Shares to be purchased:
300,000 Initial Shares
Purchase Price: $10.00 per share
Number of Warrants to be acquired: 60,504
XXXX INDUSTRIES, INC.
By: ________________________________
Title: ______________________________
Address: 0000 Xxxx 00xx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Number of Common Shares to be purchased:
300,000 Initial Shares
Purchase Price: $10.00 per share
Number of Warrants to be acquired: 60,504
TERA COMPUTER COMPANY
By: ________________________________
Name: Xxxxx X. Xxxxxxxx
Title: President and
Chief Executive Officer
