SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of June 30, 1998, is by and between
TERA COMPUTER COMPANY, a Washington corporation, with headquarters located at
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), and
GENESEE FUND LIMITED - PORTFOLIO B, a British Virgin Islands corporation (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer 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 (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of non-voting, convertible preferred stock
of the Company which will be convertible into shares of Common Stock, $.01 par
value (the "Common Stock"), of the Company, and to acquire warrants exercisable
for shares of Common Stock of the Company;
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. AGREEMENT TO SUBSCRIBE; PAYMENT OF PURCHASE PRICE.
(a) Subscription for Preferred Shares. The Buyer hereby agrees to
purchase from the Company the number of shares (the "Preferred Shares") of
Series B Convertible Preferred Stock, $.01 par value (the "Preferred Stock"), of
the Company set forth on the signature page of this Agreement, with the
Preferred Stock having the terms and conditions as set forth in the form of
Statement of Rights and Preferences of the Series B Convertible Preferred Stock
included in the form of Articles of Amendment attached hereto as Annex I (the
"Statement of Rights"), at the price per share and for the aggregate purchase
price set forth on the signature page of this Agreement. The purchase price for
the Preferred Shares shall be payable in United States Dollars.
(b) Warrants. In connection with the purchase of the Preferred Shares,
the Company agrees to issue to the Buyer warrants to purchase the number of
shares of Common Stock set forth on the signature page of this Agreement, such
warrants having the terms and conditions included in the form of warrant
attached hereto as Annex II (the "Warrants").
(c) Form and Method of Payment. The Buyer shall pay the purchase price
for the Preferred Shares directly to the Company by certified bank check or wire
transfer to an account designated in writing by the Company against issuance and
delivery to the Buyer of the Preferred Shares and the Warrants, and the Company
shall deliver the certificates for the Preferred Shares and Warrants directly to
the Buyer against payment of the purchase price for the Preferred Shares to the
Company, not later than 4:00 p.m., New York City time, on the date which is not
later than two Business Days after the Company shall have accepted this
Agreement and returned a signed counterpart thereof to the Buyer or its legal
counsel.
(d) Certain Definitions. The shares of Common Stock issuable upon
conversion of the Preferred Shares are referred to herein as the "Conversion
Shares." The shares of Common Stock issuable in payment of dividends on the
Preferred Shares are referred to herein as the "Dividend Shares." The shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the "Warrant Shares." The Conversion Shares, the Dividend Shares and the Warrant
Shares are referred to herein collectively as the "Common Shares." The Common
Shares and the Preferred Shares are referred to herein collectively as the
"Shares." The Shares and Warrants are referred to herein collectively as the
"Securities."
2. BUYER REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) Purchase for Investment. The Buyer is purchasing the Preferred
Shares and acquiring the Warrants for its own account for investment only and
not with a view towards the public sale or distribution thereof.
(b) Accredited Investor; No Broker-Dealer. The Buyer is an "accredited
investor" as that term is defined in Rule 501 of the General Rules and
Regulations 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.
(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.
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(d) Company Reliance. The Buyer understands that the Preferred Shares
are being offered and sold, the Warrants are being issued, and the Common 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
Preferred Shares and Warrants and to receive an offer of the Common 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
Preferred Shares and Warrants and the offer of the Common Shares which have been
requested by the Buyer. The Buyer and its advisors, if any, have been afforded
the opportunity to ask questions 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
Company's (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1997; (ii) the Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998; and (iii) the proxy statement for the Company's 1998 Annual Meeting
(collectively, the "Disclosure Documents"); and the Buyer understands that its
investment in the Securities involves a high degree of risk.
(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
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
(h) No Current Holdings. As of June 29, 1998, except for 2,018 shares
of Series A Stock, 20,022 shares of Common Stock, and warrants to purchase
37,500 shares of Common Stock owned by Buyer as of such date, the Buyer owned no
other securities of the Company.
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3. COMPANY REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to, and covenants and agrees with, the
Buyer 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
Registration Rights Agreement, the Statement of Rights, the Warrants, 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. The authorized capital stock of the Company
currently consists of (a) 25,000,000 shares of Common Stock, of which 12,188,775
shares were outstanding as of June 29, 1998, all of which are fully paid and
nonassessable; and (b) 5,000,000 shares of Preferred Stock, $.01 par value, of
which (i) 10,000 shares are designated as Series A Convertible Preferred Stock,
of which 5,890 shares are outstanding; (ii) 12,000 shares will be designated as
Series B Convertible Preferred Stock prior to the Closing Date; and (iii) 5,000
shares are designated as Series C Convertible Preferred Stock, none of which are
outstanding. As of June 29, 1998, the Company had outstanding options entitling
the holders thereof to purchase 2,071,213 shares of Common Stock and outstanding
warrants entitling the holders thereof to purchase 782,196 shares of Common
Stock. As of the Closing Date, there will have been no material increase from
June 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 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 Section 4(b) of the disclosure
letter delivered to the Buyer at or before the execution of this Agreement (the
"Disclosure Letter"). 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 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
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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 Agreement), except for Advantage Fund II Ltd. and Genesee
Fund Limited - Portfolio B and as set forth in Section 4(b) of the Disclosure
Letter.
(c) Concerning the Securities. The Securities have been duly
authorized and the Preferred Shares, when issued and paid for in accordance with
this Agreement, and the Common Shares, when issued upon conversion of the
Preferred Shares or in payment of dividends thereon or 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 Shares.
The Common Stock is listed for trading on the Nasdaq National Market ("Nasdaq")
and, except as set forth in Section 4(c) of the Disclosure Letter, (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 Agreement.
This Agreement, the Warrants, and the Registration Rights Agreement 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 Agreement, when executed and delivered by
the Company, will be, valid and binding obligations of the Company enforceable
in accordance with their respective terms, subject as to enforceability 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 consummation by the Company of the issuance of the Preferred
Shares and the Warrants, as contemplated by this Agreement and completion of the
other transactions contemplated by this Agreement, the Registration Rights
Agreement and the terms of the Preferred Stock 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 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 or order of any court, United States federal
or state regulatory body,
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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. 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 Preferred Shares, and the
issuance of the Warrants, as contemplated by this Agreement, and (ii) the
issuance of Common Shares on conversion of the Preferred Shares or exercise of
the Warrants.
(g) Information Provided. The information provided by or on behalf of
the Company to the Buyer in connection with the transactions contemplated by the
Agreement, including, without limitation, the information referred to in Section
2(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 circumstance under which they are made, not
misleading.
(h) Absence of Certain Changes. 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, except as 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 taken as a whole 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, 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 best of the Company's knowledge
no such request will be made by the Company prior to the time the Registration
Statement relating to the Common Shares which is contemplated by the
Registration Rights Agreement is first ordered effective by the SEC; and to the
best of the Company's knowledge 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.
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(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, or proposed to be 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, or proposed to be
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.
(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 1934 Act.
(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 harmless the Buyer from, any claim made against the Buyer by
any person for any such conversion, 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.
4. Certain Covenants and Acknowledgments.
(a) Transfer Restrictions. The Buyer acknowledges that (i) the
Preferred Shares and Warrants have not been and are not being registered under
the provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Common Shares have not been and are not being registered
under the 1933 Act, and may not be transferred unless (a) subsequently
registered thereunder or (b) the 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
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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 Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
(b) Restrictive Legend.
(1) The Buyer acknowledges and agrees that the certificates for
the Preferred Shares and the Warrants and, until such time as the Common Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the certificates for the Common Shares issued upon conversion
of the Preferred Shares and exercise of the Warrants may 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):
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 Agreement has been
declared effective, thereafter (i) upon request of the Buyer the Company
will substitute certificates without this restrictive legend for
certificates for any Common Shares issued prior to the date such
Registration Statement is declared effective by the SEC which bear such
restrictive legend and remove any stop-transfer restriction relating
thereto promptly, but in no event later than three Business Days after
surrender of such certificates by the Buyer and (ii) the Company shall not
place any restrictive legend on certificates for Common Shares issued on
conversion of the Preferred Shares or for Warrant Shares issued upon
exercise of the Warrants or impose any stop-transfer restriction thereon
except as permitted under the Registration Rights Agreement.
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(2) The Buyer further acknowledges and agrees that the
certificates for the Preferred Shares may bear the following additional
identifying and restrictive legends in substantially the following form:
WITH REFERENCE TO THE STATEMENT OR RIGHTS AND PREFERENCES OF
THE SERIES B CONVERTIBLE PREFERRED STOCK (THE "STATEMENT OF
RIGHTS") PURSUANT TO WHICH THE SECURITIES REPRESENTED BY
THIS CERTIFICATE WERE ISSUED, THE PORTION OF THE MAXIMUM
SHARE AMOUNT (AS DEFINED IN SECTION 4(a)(1) OF THE STATEMENT
OF RIGHTS) ALLOCATED TO THE SECURITIES REPRESENTED BY THIS
CERTIFICATE FOR PURPOSES OF CONVERSION THEREOF IS 609,375
SHARES OR SUCH GREATER NUMBER AS PERMITTED BY THE RULES OF
THE NASDAQ.
SECTION 7(c)(3) OF THE STATEMENT OF RIGHTS PERMITS A HOLDER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE TO CONVERT
SUCH SECURITIES IN ACCORDANCE WITH THE STATEMENT OF RIGHTS
WITHOUT BEING REQUIRED TO PHYSICALLY SURRENDER THIS
CERTIFICATE TO THE COMPANY UNLESS ALL OF THE SECURITIES
REPRESENTED HEREBY ARE SO CONVERTED. CONSEQUENTLY, FOLLOWING
CONVERSION OF ANY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE, THE NUMBER OF SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES STATED
HEREON.
THE ISSUANCE DATE (AS DEFINED IN SECTION 7(b) OF THE
STATEMENT OF RIGHTS) OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS JUNE 30, 1998.
(c) Registration Rights Agreement. The parties hereto agree to enter
into the 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 Buyer promptly after such filing.
The Buyer agrees to cooperate with the Company in connection with such filing
and, upon request of the
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Company, to provide all information relating to the 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
Agreement), the Company shall file a listing application for the Common Shares
with the Nasdaq and shall provide evidence of such filing to the 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 of sale of the Preferred 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
for, the Preferred Shares for sale to the Buyer pursuant to this Agreement and
the Common Shares for issuance to the Buyer on conversion of the Preferred
Shares, and exercise of the Warrants, under such of the securities or "blue sky"
laws of jurisdictions as shall be applicable to the sale of the Preferred Shares
and the issuance of the Warrants pursuant to this Agreement and the issuance to
the Buyer of Common Shares on conversion of the Preferred Shares and exercise of
the Warrants, or both. 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 Buyer on or prior to the Closing Date.
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(h) Certain Expenses and Fees. Whether or not the closing occurs, the
Company shall pay or reimburse the Buyer for all reasonable expenses (including,
without limitation, legal fees and expenses of counsel to the Buyer of up to
$15,000) incurred by the Buyer 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 Buyer, and the Buyer shall pay on demand all expenses
(including reasonable attorneys' fees and expenses) incurred by the Company, as
a consequence of, or in connection with, (1) any default or breach of any of the
other party's obligations under this Agreement, the Statement of Rights, the
Registration Rights Agreement, the Warrants, and the Transfer Agent Instructions
(which payment shall be made by the defaulting or breaching party), and (2) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Buyer 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 Buyer, as the case may be, from paying any amount due the Buyer
or the Company, as the case may be, in which the party seeking such enforcement
or restructuring prevails.
(i) Certain Issuances of Securities.
(1) Unless the Company obtains Shareholder Approval (as defined
in Section 4(a)(7) of the Statement of Rights) or a waiver thereof from Nasdaq,
the Company will not issue any shares of Common Stock or shares of any other
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 the requirements of 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 Preferred Shares to the Buyer or the issuance of
Common Shares upon conversion thereof or upon exercise of the 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).
(2) 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 (collectively, "Equity
Securities") at a price below the market price of the Common Stock during the
period from the Closing Date to the date on which the Registration Statement
shall have been effective with the SEC for 60 consecutive days; provided,
however, that nothing in this Section 4(i)(2) 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,
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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.
(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 Preferred Shares set forth in Section 7 or 8, as the case
may be, of this Agreement on or before the Closing Date.
(k) Certain Trading Restrictions. The Buyer agrees that, during the
period from the date the Registration Statement is first declared effective by
the SEC to the date of the conversion in full or redemption of all Preferred
Shares owned by the Buyer, the Buyer shall not engage in short sales or other
hedging transactions relating to the Common Stock, except that the Buyer may
enter into such transactions involving a number of shares of Common Stock not to
exceed the number of shares for which a Conversion Notice (as defined in Section
5(b) herein) has been submitted to the Company and the Transfer Agent (as
defined in Section 5(a) herein) plus the number of shares involved in such
transactions which are permitted by the terms of the Subscription Agreement,
dated as of December 23, 1997, by and between the Company and the Buyer, as such
agreement may be amended from time to time (the "1997 Subscription Agreement").
The Company and the Buyer further agree that, on and after the Closing Date (in
addition to the transactions permitted by the preceding sentence) (i) the Buyer
may engage in short sales or other hedging transactions relating to up to
one-half of the Warrant Shares or Warrants exercisable for up to one-half of the
Warrant Shares, provided that 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, and (ii) the Buyer may engage in short sales and other
hedging transactions relating to the warrants issued pursuant to the 1997
Subscription Agreement and the shares of Common Stock issued or issuable upon
exercise thereof in accordance with the terms of the 1997 Subscription
Agreement.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) Transfer Agent Instructions. Prior to the Closing Date, the
Company will instruct ChaseMellon Shareholder Services, L.L.C., as Transfer
Agent and Registrar (the "Transfer Agent"), by letter in the form attached
hereto as Annex IV (the "Transfer Agent Instructions"), to issue certificates
for the Common Shares from time to time on conversion of the Preferred Shares
and exercise of the Warrants in such amounts as specified from time to time to
the Company in the Conversion Notices and subscription form attached to the
Warrants delivered in connection with such conversions and exercises, as the
case may be, and referred to in Sections 5(b) and 5(c) of this Agreement. The
Common Shares shall be registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of Preferred Shares and exercise of the Warrants, as the case may be.
Such certificates may bear the restrictive legends specified in Section 4(b) of
this Agreement prior to registration of the resale of the Common
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Shares under the 1933 Act. The Company warrants that no instructions other than
(x) such instructions referred to in this Section 5(a), (y) stop-transfer
instructions to give effect to Section 4(a) hereof prior to the registration of
the resale of the Common Shares under the 1933 Act, and (z) the instructions
required by Section 4(n) of the Registration Rights Agreement will be given by
the Company to the Transfer Agent and that the Common Shares otherwise shall be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any way
the Buyer's obligation and agreement to comply with all applicable securities
laws upon resale of the Shares. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory in form, scope, and substance to the
Company that registration of a resale by the Buyer of any of the Shares in
accordance with clause (i)(b) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall permit the transfer of such Shares and, in
the case of the Common Shares, promptly, but in no event later than three
Business Days after receipt of such opinion, instruct the Transfer Agent to
issue upon transfer one more share certificates in such name and such
denominations as specified by the Buyer. The provisions of Section 4(n) of the
Registration Rights Agreement shall be in addition to this Section 5(a) once
said Section 4(n) becomes applicable.
(b) Conversion Procedure. In connection with the exercise of
conversion rights relating to the Preferred Shares, the Buyer or any subsequent
holder of the Preferred Shares shall complete, sign and furnish to the Company,
with a copy to the Transfer Agent, a Notice of Conversion in the form attached
hereto as Annex V, which shall be deemed to satisfy all requirements of the
Statement of Rights (a "Conversion Notice"). As set forth in Section 7(c)(3) of
the Statement of Rights, the number of Common Shares to be issued in connection
with a particular conversion of Preferred Shares is, absent manifest error,
conclusively the number of Common Shares stated in the applicable Conversion
Notice. If in connection with a particular conversion of Preferred Shares the
Company determines that manifest error has been made by virtue of the conversion
price or other information set forth in the applicable Conversion Notice, the
Company shall have the right immediately to notify the converting holder of such
error (with a copy of such notice given to the Transfer Agent by facsimile),
which notice shall state the number of Common Shares in dispute, and,
notwithstanding such notice from the Company, shall direct the Transfer Agent to
issue and deliver the number of Common Shares not in dispute as and when
required by the Statement of Rights. If the Company shall have notified the
Transfer Agent of any such error, the Company shall, on the date such notice is
given, submit the dispute to Deloitte & Touche LLP or another firm of
independent public accountants of recognized national standing (the "Auditors")
for determination and shall instruct the Auditors to resolve such dispute and to
notify the Company, the Transfer Agent, and the converting holder of Preferred
Shares, as the case may be, within one Business Day after such dispute is
submitted to the Auditors. Immediately after receipt of timely notice of the
Auditors' determination, the Company shall instruct the Transfer Agent to issue
to the converting holder any additional Common Shares to which such holder is
entitled based on the determination of the Auditors. If the Auditors shall fail
to notify the Transfer Agent within three Business Days after the applicable
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Conversion Notice is given to the Company and the Transfer Agent, then the
Company shall instruct the Transfer Agent to issue, within three Business Days
after receipt of the applicable Conversion Notice, to the converting holder any
additional Common Shares to which such holder is entitled based on the
applicable Conversion Notice. Such immediate action shall be taken by the
Company to assure that there shall be full compliance with the Company's
unqualified obligation that all Common Shares issuable on such conversion be
issued by the due date therefor as provided in the Statement of Rights.
(c) Exercise Procedure. In connection with an exercise of the
Warrants, the Buyer or any subsequent holder of the Warrants shall complete,
sign and furnish to the Company, with a copy to the Transfer Agent, a form of
subscription in the form attached to the Warrants and (if not exercised pursuant
to the net issuance provisions thereof) a certified or bank check or wire
transfer in an amount equal to the aggregate Purchase Price (as such term is
defined in the Warrants) for the number of shares of Common Stock being
purchased, which shall be deemed to comply with all requirements of the Warrants
(a "Subscription Form").
6. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares and the
issuance of the Warrants (the "Closing Date") shall be 12:00 noon, New York City
time, on the date which is (i) the date specified in Section 1(c) hereof, if
applicable, or (ii) such other mutually agreed to date and time. The closing
shall occur on the Closing Date at a location mutually agreed to by the parties
hereto.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell and issue the
Preferred Shares and to issue the Warrants to the Buyer 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 Preferred Shares in
accordance with Section 1 hereof; and
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(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
(d) The receipt and acceptance by the Company of an executed
subscription agreement, dated the date hereof, between the Company and Advantage
Fund II Ltd. ("Advantage") relating to the purchase by Advantage of 3,000 shares
of Preferred Stock at a purchase price of $950.00 per share, and the performance
by Advantage of all of its agreements and covenants set forth therein.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and to acquire the Warrants on the Closing Date is conditioned
upon:
(a) Delivery by the Company to the Buyer of the certificates for the
Preferred 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 Buyer of a certificate, dated the Closing
Date, of the Chief Executive Officer or the Chief Financial Officer of the
Company confirming such matters;
(c) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Washington of the Statement of Rights;
(d) The Transfer Agent shall have acknowledged receipt of the Transfer
Agent Instructions;
(e) The receipt by the Buyer 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 committees thereof) of the Company relating to this
Agreement and the transactions contemplated hereby and (iii) such other matters
as reasonably requested by the Buyer; and
(f) Receipt by the Buyer 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 Buyer, to the effect set forth in Annex VI attached hereto.
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9. MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Washington.
(b) 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 facsimile copy of this Agreement bearing a signature on
behalf of a party hereto shall be legal and binding on such party.
(c) 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) 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) This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement.
(f) 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) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by mail or delivered personally (which shall
include facsimile) or by courier and shall be effective five days after being
placed in the mail, if mailed, or upon receipt (or on the next Business Day, 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
Executive Officer (facsimile number (▇▇▇) ▇▇▇-▇▇▇▇), copy to Stoel ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq. (facsimile number (▇▇▇) ▇▇▇-▇▇▇▇) or, in the case of
the Buyer, at its address shown on the signature page of this Agreement, with a
copy to Genesee International, Inc., ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (facsimile number 425-462-4645) or such other
address as a party shall have provided by notice to the other party in
accordance with this provision. The Buyer hereby designates as its address for
any notice required or permitted to be given to the Buyer pursuant to the
Statement of Rights and
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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 ▇.▇. ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (facsimile number
425-462-4645), until the Buyer shall designate another address for such purpose.
(h) Prior to the Closing Date with respect to the Preferred Shares and
the Warrants, the Buyer shall have the right to assign all of its rights and
obligations under this Agreement with respect to the purchase of all or any
portion of the Preferred Shares and the acquisition of the Warrants provided any
such assignee, by written instrument duly executed by such assignee, assumes all
obligations of the Buyer hereunder with respect to the purchase of the portion
of the Preferred Shares and the acquisition of the Warrants 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 purchase of
all or the portion of the Preferred Shares the obligation for the purchase 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 Agreement with respect to the Common Shares
issuable on conversion of the Preferred Shares and exercise of the Warrants with
respect to which the purchase under this Agreement has been so assigned.
(i) The respective representations, warranties, covenants and
agreements of the 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 Preferred Shares and the issuance of the Warrants
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) This Agreement and its Annexes set forth the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, whether written or oral, with
respect thereto.
(k) The Buyer 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:
(1) 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;
(2) any other condition of the Buyer's obligations hereunder is
not fulfilled; or
(3) the closing shall not have occurred on or before June 30,
1998, other than solely by reason of a breach of this Agreement by the Buyer.
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Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer 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.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and
the Company by their respective officers thereunto duly authorized as of the
date set forth above.
NUMBER OF SHARES: 3,000
PRICE PER SHARE: $950.00
AGGREGATE PURCHASE PRICE FOR SHARES: $2,850,000.00
NUMBER OF WARRANTS: 50,000
ADVANTAGE FUND II LTD.
By: /s/
-------------------------------------
Title:
Address: ▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Facsimile: 011-599-9732-2008
TERA COMPUTER COMPANY
By: /s/
-------------------------------------
Title: President and Chief Executive
Officer
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