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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______ .
Commission file number 0-26820
TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
WASHINGTON 93-0962605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2815 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 490-2000
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 13, 1998, 13,372,161 shares of the Company's Common
Stock, par value $0.01 per share, were outstanding.
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TERA COMPUTER COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of December 31, 1997
and September 30, 1998 3
Statements of Operations for the Three Months and
Nine Months Ended September 30, 1997 and 1998 4
Condensed Statements of Cash Flows for the Three
Months and Nine Months Ended September 30, 1997
and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 10
PART II OTHER INFORMATION
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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TERA COMPUTER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,329,115 $ 5,277,276
Funds in transit 3,000,000
Accounts receivable 99,696 383,815
Related party receivable 368,008 302,176
Inventory 4,290,873 7,265,678
Advances to suppliers 325,385 955,300
Other assets 410,754 569,468
------------ ------------
Total current assets 18,823,831 17,753,713
PROPERTY AND EQUIPMENT, NET 1,914,925 2,533,356
LEASE DEPOSITS 120,629 163,052
------------ ------------
TOTAL $ 20,859,385 $ 20,450,121
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,138,343 $ 2,763,235
Accrued payroll and related expenses 1,713,553 1,612,785
Deferred revenue 34,178
Potential contract adjustments 250,000 250,000
Current portion of obligations under capital leases 379,597 476,311
------------ ------------
Total current liabilities 4,481,493 5,136,509
OBLIGATIONS UNDER CAPITAL LEASES
less current portion 532,321 610,999
REDEEMABLE SECURITIES (SEE NOTES)
Issued and outstanding, 10,000 and 3,282 shares of Series A Convertible 9,477,709
Preferred Stock, $.01 par value
SHAREHOLDERS' EQUITY (SEE NOTES)
Preferred Stock, par $.01 - Authorized, 5,000,000 shares; issued and
outstanding, 10,000 and 3,282 shares of Series A Convertible
issued and outstanding, 0 and 6,000 shares of Series B Convertible 8,784,990
Common Stock, par $.01 - Authorized, 25,000,000 shares;
issued and outstanding, 11,248,096 and 13,185,775 shares 49,168,180 64,590,707
Preferred stock dividend distributable 116,025
Accumulated deficit (42,800,318) (58,789,109)
------------ ------------
6,367,862 14,702,613
============ ============
TOTAL $ 20,859,385 $ 20,450,121
============ ============
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ $ 231,655 $ $ 1,779,210
OPERATING EXPENSES:
Cost of sales (209,383) (1,654,398)
Research and development (3,871,400) (3,344,563) (8,984,017) (11,219,122)
Marketing and sales (262,065) (484,165) (635,226) (1,268,554)
General and administrative (366,560) (516,316) (1,066,076) (1,496,551)
------------ ------------ ------------ ------------
(4,500,025) (4,322,772) (10,685,319) (13,859,415)
RESEARCH FUNDING 119,815 105,565 349,169 181,348
------------ ------------ ------------ ------------
Net operating expense (4,380,210) (4,217,207) (10,336,150) (13,678,067)
OTHER INCOME 104,382 63,330 79,418 163,648
------------ ------------ ------------ ------------
NET LOSS (4,275,828) (4,153,877) (10,256,732) (13,514,419)
PREFERRED STOCK DIVIDEND (14,714) (141,300) (52,214) (365,611)
AMORTIZATION OF PREFERRED
STOCK DISCOUNT (484,259) (464,733) (847,221) (464,733)
============ ============ ============ ============
LOSS FOR COMMON STOCK $ (4,774,801) $ (4,759,910) $(11,156,167) $(14,344,763)
============ ============ ============ ============
LOSS PER COMMON SHARE (0.46) $ (0.39) $ (1.38) $ (1.22)
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,331,862 12,258,238 8,064,929 11,785,680
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,275,828) $ (4,153,877) $(10,256,732) $(13,514,419)
Net cash used by operating activities (5,461,944) (6,357,859) (11,962,494) (16,288,886)
INVESTING ACTIVITIES:
Net cash used by investing activities (742,103) (392,439) (1,007,473) (1,375,640)
FINANCING ACTIVITIES:
Net cash provided by financing activities 5,384,354 6,077,845 21,086,258 12,612,687
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (819,693) (672,453) 8,116,291 (5,051,839)
CASH AND CASH EQUIVALENTS
Beginning of period 9,864,744 5,949,729 928,760 10,329,115
------------ ------------ ------------ ------------
End of period $ 9,045,051 $ 5,277,276 $ 9,045,051 $ 5,277,276
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 22,068 $ 58,835 $ 56,882 $ 132,316
============ ============ ============ ============
</TABLE>
See notes to financial statements
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TERA COMPUTER COMPANY
NOTES TO FINANCIAL STATEMENTS
(unaudited)
BASIS OF PRESENTATION
The accompanying balance sheets and related interim statements of
operations and cash flows have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have been
included. Interim results are not necessarily indicative of results for a full
year. The information included in this Form 10-Q should be read in conjunction
with Management's Discussion and Analysis and the financial statements and notes
thereto included in the Company's restated financial statements for the years
ended December 31, 1996 and 1997, and the period from December 7, 1987 through
December 31, 1997, contained in the Company's Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1997.
NET LOSS PER COMMON SHARE
Net loss per common share is computed on the basis of the weighted
average number of shares of Common Stock outstanding. As outstanding stock
options, warrants and preferred stock are antidilutive, their effect has not
been included in the calculation of net loss per share.
INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
As of As of
December 31,1997 September 30, 1998
---------------- ------------------
<S> <C> <C>
Components and subsystems $3,405,120 $5,812,667
Work in Process 885,753 1,813,011
---------- ----------
$4,290,873 $7,265,678
</TABLE>
CHANGES IN CAPITAL
The Company previously classified its Series A Convertible Preferred
Stock, issued in December 1997, and its Series B Convertible Preferred Stock,
issued in June 1998, as redeemable securities as the governing instruments for
both securities contained conditions for redemption which were not solely within
the control of
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the Company; for example a significant decline in the market value of the
Company's common stock which could lead to a delisting of the common stock from
the Nasdaq National Market System. The Company and each of the holders of these
securities have entered into agreements providing that the holders no longer may
redeem these securities if the condition otherwise giving rise to a redemption
right by the holders is not solely within the control of the Company. Therefore,
these securities are now classified as Shareholders' Equity.
The Company previously reported the issuance on June 30, 1998, of 6,000
shares of Series B Convertible Preferred Stock and 100,000 warrants, with an
exercise price of $15.00 per share. The warrants were valued at $464,733 (net of
allocated offering costs), using the Black-Scholes method. The discount arising
from the allocation of proceeds to the warrants has been amortized as a return
of capital to the preferred shareholders over the period the related Series B
Convertible Preferred was first convertible, which occurred in the three months
ended September 30, 1998.
On September 30, 1998, the Company issued 600,000 shares of Common Stock
and five year warrants to purchase 121,008 shares of Common Stock with an
exercise price of $10.04 per share, subject to adjustment, for total proceeds of
$6,000,000, less offering expenses. Of the proceeds, $3,000,000 were received on
September 30, 1998; the remaining $3,000,000 were in transit on September 30,
1998, and were received on October 1, 1998. See Item 2 under Part II, below, for
additional information regarding this financing.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in this Item 2 includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act, as amended, and is
subject to the safe harbor created by those sections. For a discussion of Risk
Factors that could affect the Company's future performance, please see "Business
- - - - Risk Factors" contained in the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1997.
OVERVIEW
The Company had an accumulated net loss from operations of approximately
$58.8 million as of September 30, 1998. The Company's funding to date has been
primarily from the sale of approximately $70.8 million in securities, research
funding from the Defense Advanced Research Projects Agency ("DARPA"), of
approximately $19.2 million, and product sales of approximately $1.3 million.
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The Company has experienced net losses in each year of operations and
expects to incur further substantial losses until additional sales are made, and
possibly thereafter. In April 1998 the Company recognized its first revenue from
system sales with its delivery of a two-processor MTA system to the San Diego
Supercomputer Center ("SDSC"); through September 30, 1998, the Company had not
generated any earnings. The Company plans to upgrade the SDSC system in stages
to larger configurations as it receives production printed circuit boards,
integrated circuits and other components that are integrated into a commercially
acceptable system. See "Business - Risk Factors - Development Status of the MTA
System" and " - Manufacturing Risks; Reliance On And Capacity Of Third-Party
Sole Source Suppliers" and "Business - Strategy" in the Company's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1997.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
Revenue. The Company recorded revenue in the first nine months of 1998
of approximately $1.8 million, of which $232,000 was recognized in the third
quarter pursuant to a subcontract with SDSC to evaluate multithreaded
architecture for certain defense applications. The Company expects to complete
this subcontract in for an additional $487,000, of which the Company's portion,
after payments to subcontractors, will be approximately $183,000; this
subcontract expires on June 30, 1999. The Company may obtain additional revenues
in 1998 from the sale of larger configurations to SDSC and from other sales to
potential customers, although it currently has no purchase orders for sales to
other customers.
Operating Expenses. Cost of revenue for the third quarter and the first
nine months of 1998, largely arising from the company's first system sales to
SDSC in the second quarter, were high as a percentage of sales due to favorable
pricing terms provided to SDSC and the inclusion of costs of system
infrastructure to support a full 16-processor MTA system.
Research and development expenses include costs associated with the
development of the MTA system, including personnel expense, depreciation and
lease expense on facilities and equipment, nonrecurring engineering, software
and hardware costs and preproduction expenses. Research and development expenses
for the three and nine months ended September 30, 1998 were $3.3 million and
$11.2 million, respectively, representing approximately 79% and 82% of the
respective net operating expenses for each period, compared to $3.9 million and
$9.0 million for the same respective periods in 1997, which represented
approximately 88% and 87% of such periods' respective net operating expenses.
During the third quarter, approximately $1.3 million of the $3.3 million were
related to the completion and testing of the initial MTA system, preproduction
costs and expense related to inventory revaluation and obsolescence due to
redesign and optimization of components in inventory, compared to $2.0 million
for such items in the third
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quarter of 1997. The corresponding figures for the first nine months of 1998
were $5.0 million compared to $3.7 million for the first nine months of 1997;
this difference primarily arose from inventory obsolescence recognized in the
first quarter of 1998. Although non-recurring hardware engineering expenses for
the current MTA implementation should continue to decrease, research and
development expenses will continue to be a major expense as the Company devotes
greater effort to future system development.
Marketing and sales expenses for the three and nine months ended
September 30, 1998 were $484,000 and $1.27 million, respectively, compared to
$262,000 and $635,000 for the same periods in 1997, representing an increase of
85% over the third quarter of 1997 and 100% over the first nine months of 1997.
General and administrative expenses for the first three and nine months ended
September 30, 1998 were $516,000 and $1.50 million, respectively, compared to
$367,000 and $1.07 million for the same periods in 1997, representing an
increase of 41% in the third quarter and 40% for the nine month period. The
increase in marketing and sales expenses was due to additional sales and
applications staff, increased marketing efforts and higher wages, while the
increase in general and administrative expenses was due largely to additional
staff, operating costs associated with being a publicly owned company and higher
wages. These expenses are expected to increase commensurate with any growth in
the Company's operations.
Research Funding. The Company currently is billing DARPA under a
research contract awarded in September 1995. Billings under this contract were
approximately $181,000 in the first nine months of 1998, with $106,000 billed in
the third quarter, and $282,000 left to be billed under this contract.
Other Income. Other income, net of other expense, increased to $164,000
in the first nine months of 1998, largely due to interest received on the
Company's increased cash balances. Other net income in the third quarter of
1998, however, was about $63,000, as compared to $104,000 for the third quarter
of 1997.
Taxes. There was no provision for federal income taxes in any period as
the Company has continued to incur net operating losses.
Preferred Stock. The Company recorded a $141,000 cumulative charge for
dividends on the Company's Series A and Series B Convertible Preferred Stock in
the third quarter, all of which has been paid by the issuance of 19,934 shares
of the Company's Common Stock. In addition, the Company amortized in the third
quarter the preferred stock discount resulting from the allocation of proceeds
to warrants issued on June 30, 1998; this resulted in a $465,000 non-cash charge
to the Loss for Common Stock.
Year 2000. Although it has not completed a formal inquiry of its
suppliers and customers, the Company does not expect that issues relating to the
Year 2000 problem will be significant to its financial condition or results of
operations. No
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significant modifications to its internal computer system are necessary to
address Year 2000 issues, and it does not anticipate that any issues affecting
its suppliers and customers will substantially affect the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception through September 30, 1998, the Company's principal
sources of liquidity have been net proceeds from the sale of securities totaling
$70.8 million, DARPA research funding of approximately $19.2 million and sales
receipts of approximately $1.3 million. At September 30, 1998, the Company had
$8.3 million in cash, cash equivalents and funds in transit, $384,000 in
accounts receivable and no bank line of credit.
During the remainder of 1998 and the first half of 1999, the Company's
working capital needs will depend primarily upon its personnel costs and the
cost of inventory, as well as manufacturing startup costs and research and
development expenses related to future implementations of the MTA system. In the
first nine months of 1998, overall wages and benefits increased by about 55%
over the first nine months of 1997 to approximately $7.0 million, reflecting
both additional personnel (which increased from 75 to 102 from the end of
September 1997 to the end of September 1998) and higher wages, while total
expenditures related to inventory increased to approximately $7.6 million in the
first nine months of 1998, a $4.4 million increase over the first nine months of
1997. Personnel costs are expected to increase gradually as additional employees
are added; the level of inventory expenditures will depend upon further orders
for MTA systems and the timing of future sales and deliveries. The Company has
experienced delays in the receipt of particular components of the MTA system
that have increased the need for working capital, and the Company could
experience significant additional delays in the manufacturing process that could
further substantially increase the Company's need for working capital.
Although the Company believes its current cash resources, together with
funds anticipated from future sales of MTA systems, to be sufficient to continue
anticipated levels of business operations through 1998, the Company believes it
will need to raise additional capital by early 1999. The Company may raise
additional capital in 1998, through equity or debt financing transactions, even
if revenues are received from the sale of MTA systems when anticipated. There
can be no assurance that any additional financing will be available on
acceptable terms when needed or that such financings will not be dilutive to the
Company's shareholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 30, 1998, the Company raised $6,000,000 dollars through the
negotiated private sale of 600,000 shares of Common Stock and five year warrants
to purchase 121,008 shares of Common Stock, with a per share exercise price of
$10.04, subject to adjustment, to two accredited investors, Advantage Fund II
Ltd., and Koch Industries, Inc. Further information regarding the Common Stock
and the warrants is contained under "Changes in Capital" in the Notes to
Financial Statements, above. There were no sales agents or underwriters involved
in this placement. These sales were exempt from the registration provisions of
the Securities Act of 1933 pursuant to Section 4(2) thereof, based on the nature
of the offering and status of the offerees.
Pursuant to the Subscription Agreement between the Company and the
investors, the Company would be required to issue additional shares of Common
Stock to the holders if the average closing price of the Common Stock is below
$12.00 for the 15 trading days immediately prior to February 22, 1999 (or such
later date as a registration statement covering the resale of the shares of
Common Stock issued and issuable to the investors becomes effective). There are
similar adjustment periods with respect to these securities still owned by the
investors each three months thereafter through September 30, 2001.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
4.1 Waiver Agreement, dated as of December 23, 1997, between the Company
and Advantage Fund II Ltd.
4.2 Waiver Agreement, dated as of December 23, 1997, between the Company
and Genesee Fund Limited - Portfolio B
4.3 Waiver Agreement, dated as of June 30, 1998, between the Company and
Advantage Fund II Ltd.
4.4 Waiver Agreement, dated as of June 30, 1998, between the Company and
Genesee Fund Limited - Portfolio B
4.5 Subscription Agreement, dated as of September 30, 1998, by and among
the Company, Advantage Fund II Ltd. and Koch Industries, Inc.
4.6 Amendment Agreement, dated as of September 30, 1998, by and among
the Company, Advantage Fund II Ltd. and Koch Industries, Inc.
10.1 Agreement, dated as of October 1, 1998, by and between the Company and
Unisys Corporation.
11. Computation of Per Share Earnings
27. Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 8, 1998, reporting the
Company's sale of Common Stock and warrants under "Other Events."
ITEMS 1, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERA COMPUTER COMPANY
November 16, 1998 By: /s/ JAMES E. ROTTSOLK
-------------------------
James E. Rottsolk
Chief Executive Officer
/s/ KENNETH W. JOHNSON
-------------------------
Kenneth W. Johnson
Chief Financial Officer
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EXHIBIT 4.1
WAIVER AGREEMENT
THIS WAIVER AGREEMENT, dated as of December 23, 1997, is by and between
TERA COMPUTER COMPANY, a Washington corporation (the "Company"), and ADVANTAGE
FUND II LTD., a British Virgin Islands corporation (the "Buyer").
WHEREAS, the Company and the Buyer entered into a Subscription
Agreement, dated as of December 23, 1997 (the "Subscription Agreement"),
pursuant to which the Company issued to the Buyer certain shares of the
Company's Series A Convertible Preferred Stock, $.01 par value ("Preferred
Stock"), and warrants to purchase shares of the Company's common stock, $.01 par
value ("Common Stock"), and in connection therewith the Company and the Buyer
entered into a Registration Rights Agreement, dated as of December 23, 1997 (the
"Registration Rights Agreement"); and
WHEREAS, the Company and the Buyer have been informed that certain
provisions of the Statement of Rights and Preferences of the Preferred Stock
(the "Statement") may be construed, under generally accepted accounting
principles and rules and regulations of the Securities and Exchange Commission,
as requiring that the Company classify the shares of Preferred Stock issued to
the Buyer as "redeemable" shares of Preferred Stock on the Company's financial
statements; and
WHEREAS, neither the Company nor the Buyer intended that the shares of
Preferred Stock issued to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. (a) Notwithstanding Sections 4 and 8 and any other provision of the
Statement, if (A) an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (5) of Section 8(a) of
the Statement, or (B) the Company is required to redeem shares of Preferred
Stock by reason of the occurrence of an event described in Section 4(a) of the
Statement, and such occurrence is by reason of events which are not solely
within the control of the Company, then the Company, in its sole discretion, may
elect not to redeem any or all of the shares of Preferred Stock and, if the
Company so elects, then the Buyer hereby waives any and all rights to require
the Company to so redeem such shares of Preferred Stock under such provisions.
In order to make such election, the Company shall so notify the
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Buyer which has given either an Optional Redemption Notice or has given a notice
to the Company directing the Company to redeem shares of Preferred Stock
pursuant to Section 4(a)(2) (an "Inconvertibility Redemption Notice"), as the
case may be, and shall deliver to the Buyer an Auditor's Determination (as
defined below) within ten (10) Business Day's after the Company's receipt of an
Optional Redemption Notice or an Inconvertibility Redemption Notice.
(b) If the Company so elects and notifies the Buyer, then, for each
thirty (30) days that such Optional Redemption Event or Share Limitation Event
(as defined below), as the case may be, continues to exist, commencing as of the
first Business Day of the event which gave rise to such Optional Redemption
Event or such Share Limitation Event, the Conversion Percentage shall be
permanently reduced by six percentage points and the Ceiling Price shall be
permanently reduced by six percent of the amount the Ceiling Price otherwise
would have been without any reduction pursuant to this clause (such Conversion
Percentage and Ceiling Price reduction shall be pro rated for any period of, or
in case the Optional Redemption Event or Share Limitation Event ceases to exist
in, less than thirty (30) days), provided that the Conversion Percentage and
Ceiling Price shall not be so reduced if the Company duly and timely issues a
Shareholder Approval Notice and obtains Shareholder Approval pursuant to Section
4 of the Statement.
(c) With respect to a Share Limitation Event, on or after the date the
Company gives a Shareholder Approval Notice, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such Notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with the Statement and this
Agreement without regard to Rule 4460(i) of Nasdaq or any similar or successor
provision (the "Rule") and shall use its best efforts to obtain the Shareholder
Approval. The Company shall prepare and file with the SEC within 20 days after
such notice is given preliminary proxy materials which set forth a proposal to
seek such Shareholder Approval. The Company shall provide the Buyer an
opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Shareholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) the
Conversion Percentage and the Ceiling Price shall be reduced pursuant to
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Subsection (b) above and (2) the Company shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable under this
Agreement and (ii) upon filing such applications, request the immediate removal
of the Common Stock from listing on the securities market on which it is then
listed which restricts the issuance of shares of Common Stock under this
Agreement without the Shareholder Approval. Upon obtaining such Shareholder
Approval or listing, as the case may be, the Company shall issue promptly all
shares of Common Stock due through the date of such issuance.
For purposes of this Agreement, the term "Share Limitation Event" means a time
at which the Company is unable to redeem all shares of Preferred Stock otherwise
required to be redeemed pursuant to Section 4(a) of the Statement by reason of
events which are not solely within the control of the Company.
(d) For purposes of this Agreement, (A) an Optional Redemption Event
described in clause (1), (2) or (5) of the definition of the term "Optional
Redemption Event" or (B) a requirement of the Company to redeem shares pursuant
to Section 4(a) of the Statement shall be deemed to have occurred by reason of
events which are not solely within the control of the Company if a requirement
of the Company to redeem, or a right of any holder of shares of Preferred Stock
to require redemption of, shares of Preferred Stock by reason thereof, would
result in the Company being required to classify the Preferred Stock as
redeemable preferred stock on a balance sheet of the Company prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the SEC.
(e) For purposes of this Agreement, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Optional Redemption Event described in the
applicable clause (1), (2) or (5) of the definition of Optional Redemption Event
in Section 8(a) of the Statement or (B) a requirement of the Company to redeem
shares pursuant to Section 4(a) of the Statement, was due to the occurrence of
events which were not solely within the control of the Company, as such phrase
is defined in Subsection (d) immediately above. The Auditor's Determination
shall (i) set forth in reasonable detail all relevant facts considered by the
Auditors in connection therewith, (ii) set forth all applicable accounting
principles and assumptions used, and (iii) set forth in reasonable detail or
attach copies of all legal, expert and other advice or information used by the
Auditors in reaching their conclusion. To the extent any facts are assumed for
purposes of the Auditor's Determination, the validity of such conclusion or
determination shall depend upon such assumed facts being true and complete in
all material respects.
3
<PAGE> 4
For purposes of this Agreement, the term "Auditors" shall mean the nationally
recognized independent accounting firm then serving as the Company's auditors or
such other "big five" nationally recognized accounting firm (including
successors thereto) as the Company may designate. The fees and expenses of the
Auditors shall be paid by the Company.
2. This Agreement is binding upon the Buyer, any holder which acquires the
Preferred Stock from the Buyer, and any and all successors and assigns of the
Buyer. The Buyer hereby agrees to deliver this document to all transferees of
the Preferred Stock and to surrender the certificates evidencing the Preferred
Stock to the Company, at the Company's request, so that an appropriate legend
evidencing this Agreement may be added to such certificates.
3. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
4. This Agreement is effective as of December 23, 1997.
5. All defined terms not defined herein are used as defined in the Subscription
Agreement and the Statement.
6. The Company shall pay the Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
7. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. As between the Company, the Buyer and parties bound
hereby, if there are any provisions herein which are inconsistent with the
provisions of the Statement, the provisions hereof shall control and bind the
Company, the Buyer and such other parties. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington.
8. 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.
9. Except to the extent expressly provided hereby, the terms and provisions of
the Statement are hereby confirmed. The parties further confirm that the terms
4
<PAGE> 5
terms and provisions of the Subscription Agreement and the Registration Rights
Agreement remain in full force and effect.
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 first set forth above.
TERA COMPUTER COMPANY ADVANTAGE FUND II LTD.
By /s/ JAMES E. ROTTSOLK By /s/ WALTER REICH
- - - ------------------------ ---------------------
James E. Rottsolk Name: Walter Reich
President Title: Secretary
5
<PAGE> 1
EXHIBIT 4.2
WAIVER AGREEMENT
THIS WAIVER AGREEMENT, dated as of December 23, 1997, is by and between
TERA COMPUTER COMPANY, a Washington corporation (the "Company"), and GENESEE
FUND LIMITED - PORTFOLIO B., a British Virgin Islands corporation (the "Buyer").
WHEREAS, the Company and the Buyer entered into a Subscription
Agreement, dated as of December 23, 1997 (the "Subscription Agreement"),
pursuant to which the Company issued to the Buyer certain shares of the
Company's Series A Convertible Preferred Stock, $.01 par value ("Preferred
Stock"), and warrants to purchase shares of the Company's common stock, $.01 par
value ("Common Stock"), and in connection therewith the Company and the Buyer
entered into a Registration Rights Agreement, dated as of December 23, 1997 (the
"Registration Rights Agreement"); and
WHEREAS, the Company and the Buyer have been informed that certain
provisions of the Statement of Rights and Preferences of the Preferred Stock
(the "Statement") may be construed, under generally accepted accounting
principles and rules and regulations of the Securities and Exchange Commission,
as requiring that the Company classify the shares of Preferred Stock issued to
the Buyer as "redeemable" shares of Preferred Stock on the Company's financial
statements; and
WHEREAS, neither the Company nor the Buyer intended that the shares of
Preferred Stock issued to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. (a) Notwithstanding Sections 4 and 8 and any other provision of the
Statement, if (A) an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (5) of Section 8(a) of
the Statement, or (B) the Company is required to redeem shares of Preferred
Stock by reason of the occurrence of an event described in Section 4(a) of the
Statement, and such occurrence is by reason of events which are not solely
within the control of the Company, then the Company, in its sole discretion, may
elect not to redeem any or all of the shares of Preferred Stock and, if the
Company so elects, then the Buyer hereby waives any and all rights to require
the Company to so redeem such shares of Preferred Stock under such provisions.
In order to make such election, the Company shall so notify the
1
<PAGE> 2
Buyer which has given either an Optional Redemption Notice or has given a notice
to the Company directing the Company to redeem shares of Preferred Stock
pursuant to Section 4(a)(2) (an "Inconvertibility Redemption Notice"), as the
case may be, and shall deliver to the Buyer an Auditor's Determination (as
defined below) within ten (10) Business Day's after the Company's receipt of an
Optional Redemption Notice or an Inconvertibility Redemption Notice.
(b) If the Company so elects and notifies the Buyer, then, for each
thirty (30) days that such Optional Redemption Event or Share Limitation Event
(as defined below), as the case may be, continues to exist, commencing as of the
first Business Day of the event which gave rise to such Optional Redemption
Event or such Share Limitation Event, the Conversion Percentage shall be
permanently reduced by six percentage points and the Ceiling Price shall be
permanently reduced by six percent of the amount the Ceiling Price otherwise
would have been without any reduction pursuant to this clause (such Conversion
Percentage and Ceiling Price reduction shall be pro rated for any period of, or
in case the Optional Redemption Event or Share Limitation Event ceases to exist
in, less than thirty (30) days), provided that the Conversion Percentage and
Ceiling Price shall not be so reduced if the Company duly and timely issues a
Shareholder Approval Notice and obtains Shareholder Approval pursuant to Section
4 of the Statement.
(c) With respect to a Share Limitation Event, on or after the date the
Company gives a Shareholder Approval Notice, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such Notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with the Statement and this
Agreement without regard to Rule 4460(i) of Nasdaq or any similar or successor
provision (the "Rule") and shall use its best efforts to obtain the Shareholder
Approval. The Company shall prepare and file with the SEC within 20 days after
such notice is given preliminary proxy materials which set forth a proposal to
seek such Shareholder Approval. The Company shall provide the Buyer an
opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Shareholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) the
Conversion Percentage and the Ceiling Price shall be reduced pursuant to
2
<PAGE> 3
Subsection (b) above and (2) the Company shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable under this
Agreement and (ii) upon filing such applications, request the immediate removal
of the Common Stock from listing on the securities market on which it is then
listed which restricts the issuance of shares of Common Stock under this
Agreement without the Shareholder Approval. Upon obtaining such Shareholder
Approval or listing, as the case may be, the Company shall issue promptly all
shares of Common Stock due through the date of such issuance.
For purposes of this Agreement, the term "Share Limitation Event" means a time
at which the Company is unable to redeem all shares of Preferred Stock otherwise
required to be redeemed pursuant to Section 4(a) of the Statement by reason of
events which are not solely within the control of the Company.
(d) For purposes of this Agreement, (A) an Optional Redemption Event
described in clause (1), (2) or (5) of the definition of the term "Optional
Redemption Event" or (B) a requirement of the Company to redeem shares pursuant
to Section 4(a) of the Statement shall be deemed to have occurred by reason of
events which are not solely within the control of the Company if a requirement
of the Company to redeem, or a right of any holder of shares of Preferred Stock
to require redemption of, shares of Preferred Stock by reason thereof, would
result in the Company being required to classify the Preferred Stock as
redeemable preferred stock on a balance sheet of the Company prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the SEC.
(e) For purposes of this Agreement, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Optional Redemption Event described in the
applicable clause (1), (2) or (5) of the definition of Optional Redemption Event
in Section 8(a) of the Statement or (B) a requirement of the Company to redeem
shares pursuant to Section 4(a) of the Statement, was due to the occurrence of
events which were not solely within the control of the Company, as such phrase
is defined in Subsection (d) immediately above. The Auditor's Determination
shall (i) set forth in reasonable detail all relevant facts considered by the
Auditors in connection therewith, (ii) set forth all applicable accounting
principles and assumptions used, and (iii) set forth in reasonable detail or
attach copies of all legal, expert and other advice or information used by the
Auditors in reaching their conclusion. To the extent any facts are assumed for
purposes of the Auditor's Determination, the validity of such conclusion or
determination shall depend upon such assumed facts being true and complete in
all material respects.
3
<PAGE> 4
For purposes of this Agreement, the term "Auditors" shall mean the nationally
recognized independent accounting firm then serving as the Company's auditors or
such other "big five" nationally recognized accounting firm (including
successors thereto) as the Company may designate. The fees and expenses of the
Auditors shall be paid by the Company.
2. This Agreement is binding upon the Buyer, any holder which acquires the
Preferred Stock from the Buyer, and any and all successors and assigns of the
Buyer. The Buyer hereby agrees to deliver this document to all transferees of
the Preferred Stock and to surrender the certificates evidencing the Preferred
Stock to the Company, at the Company's request, so that an appropriate legend
evidencing this Agreement may be added to such certificates.
3. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
4. This Agreement is effective as of December 23, 1997.
5. All defined terms not defined herein are used as defined in the Subscription
Agreement and the Statement.
6. The Company shall pay the Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
7. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. As between the Company, the Buyer and parties bound
hereby, if there are any provisions herein which are inconsistent with the
provisions of the Statement, the provisions hereof shall control and bind the
Company, the Buyer and such other parties. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington.
8. 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.
9. Except to the extent expressly provided hereby, the terms and provisions of
the Statement are hereby confirmed. The parties further confirm that the
4
<PAGE> 5
terms and provisions of the Subscription Agreement and the Registration Rights
Agreement remain in full force and effect.
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 first set forth above.
TERA COMPUTER COMPANY GENESEE FUND LIMITED -
PORTFOLIO B
By /s/ JAMES E. ROTTSOLK By /s/ WALTER REICH
- - - ------------------------ ---------------------
James E. Rottsolk Name: Walter Reich
President Title: Secretary
5
<PAGE> 1
EXHIBIT 4.3
WAIVER AGREEMENT
THIS WAIVER AGREEMENT, dated as of June 30, 1998, is by and between TERA
COMPUTER COMPANY, a Washington corporation (the "Company"), and ADVANTAGE FUND
II LTD., a British Virgin Islands corporation (the "Buyer").
WHEREAS, the Company and the Buyer entered into a Subscription
Agreement, dated as of June 30, 1998 (the "Subscription Agreement"), pursuant to
which the Company issued to the Buyer certain shares of the Company's Series B
Convertible Preferred Stock, $.01 par value ("Preferred Stock"), and warrants to
purchase shares of the Company's common stock, $.01 par value ("Common Stock"),
and in connection therewith the Company and the Buyer entered into a
Registration Rights Agreement, dated as of June 30, 1998 (the "Registration
Rights Agreement"); and
WHEREAS, the Company and the Buyer have been informed that certain
provisions of the Statement of Rights and Preferences of the Preferred Stock
(the "Statement") may be construed, under generally accepted accounting
principles and rules and regulations of the Securities and Exchange Commission,
as requiring that the Company classify the shares of Preferred Stock issued to
the Buyer as "redeemable" shares of Preferred Stock on the Company's financial
statements; and
WHEREAS, neither the Company nor the Buyer intended that the shares of
Preferred Stock issued to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. (a) Notwithstanding Sections 4 and 8 and any other provision of the
Statement, if (A) an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (5) of Section 8(a) of
the Statement, or (B) the Company is required to redeem shares of Preferred
Stock by reason of the occurrence of an event described in Section 4(a) of the
Statement, and such occurrence is by reason of events which are not solely
within the control of the Company, then the Company, in its sole discretion, may
elect not to redeem any or all of the shares of Preferred Stock and, if the
Company so elects, then the Buyer hereby waives any and all rights to require
the Company to so redeem such shares of Preferred Stock under such provisions.
In order to make such election, the Company shall so notify the
1
<PAGE> 2
Buyer which has given either an Optional Redemption Notice or has given a notice
to the Company directing the Company to redeem shares of Preferred Stock
pursuant to Section 4(a)(2) (an "Inconvertibility Redemption Notice"), as the
case may be, and shall deliver to the Buyer an Auditor's Determination (as
defined below) within ten (10) Business Day's after the Company's receipt of an
Optional Redemption Notice or an Inconvertibility Redemption Notice.
(b) If the Company so elects and notifies the Buyer, then, for each
thirty (30) days that such Optional Redemption Event or Share Limitation Event
(as defined below), as the case may be, continues to exist, commencing as of the
first Business Day of the event which gave rise to such Optional Redemption
Event or such Share Limitation Event, the Conversion Percentage shall be
permanently reduced by six percentage points and the Ceiling Price shall be
permanently reduced by six percent of the amount the Ceiling Price otherwise
would have been without any reduction pursuant to this clause (such Conversion
Percentage and Ceiling Price reduction shall be pro rated for any period of, or
in case the Optional Redemption Event or Share Limitation Event ceases to exist
in, less than thirty (30) days), provided that the Conversion Percentage and
Ceiling Price shall not be so reduced if the Company duly and timely issues a
Shareholder Approval Notice and obtains Shareholder Approval pursuant to Section
4 of the Statement.
(c) With respect to a Share Limitation Event, on or after the date the
Company gives a Shareholder Approval Notice, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such Notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with the Statement and this
Agreement without regard to Rule 4460(i) of Nasdaq or any similar or successor
provision (the "Rule") and shall use its best efforts to obtain the Shareholder
Approval. The Company shall prepare and file with the SEC within 20 days after
such notice is given preliminary proxy materials which set forth a proposal to
seek such Shareholder Approval. The Company shall provide the Buyer an
opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Shareholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) the
Conversion Percentage and the Ceiling Price shall be reduced pursuant to
2
<PAGE> 3
Subsection (b) above and (2) the Company shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable under this
Agreement and (ii) upon filing such applications, request the immediate removal
of the Common Stock from listing on the securities market on which it is then
listed which restricts the issuance of shares of Common Stock under this
Agreement without the Shareholder Approval. Upon obtaining such Shareholder
Approval or listing, as the case may be, the Company shall issue promptly all
shares of Common Stock due through the date of such issuance.
For purposes of this Agreement, the term "Share Limitation Event" means a time
at which the Company is unable to redeem all shares of Preferred Stock otherwise
required to be redeemed pursuant to Section 4(a) of the Statement by reason of
events which are not solely within the control of the Company.
(d) For purposes of this Agreement, (A) an Optional Redemption Event
described in clause (1), (2) or (5) of the definition of the term "Optional
Redemption Event" or (B) a requirement of the Company to redeem shares pursuant
to Section 4(a) of the Statement shall be deemed to have occurred by reason of
events which are not solely within the control of the Company if a requirement
of the Company to redeem, or a right of any holder of shares of Preferred Stock
to require redemption of, shares of Preferred Stock by reason thereof, would
result in the Company being required to classify the Preferred Stock as
redeemable preferred stock on a balance sheet of the Company prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the SEC.
(e) For purposes of this Agreement, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Optional Redemption Event described in the
applicable clause (1), (2) or (5) of the definition of Optional Redemption Event
in Section 8(a) of the Statement or (B) a requirement of the Company to redeem
shares pursuant to Section 4(a) of the Statement, was due to the occurrence of
events which were not solely within the control of the Company, as such phrase
is defined in Subsection (d) immediately above. The Auditor's Determination
shall (i) set forth in reasonable detail all relevant facts considered by the
Auditors in connection therewith, (ii) set forth all applicable accounting
principles and assumptions used, and (iii) set forth in reasonable detail or
attach copies of all legal, expert and other advice or information used by the
Auditors in reaching their conclusion. To the extent any facts are assumed for
purposes of the Auditor's Determination, the validity of such conclusion or
determination shall depend upon such assumed facts being true and complete in
all material respects.
3
<PAGE> 4
For purposes of this Agreement, the term "Auditors" shall mean the nationally
recognized independent accounting firm then serving as the Company's auditors or
such other "big five" nationally recognized accounting firm (including
successors thereto) as the Company may designate. The fees and expenses of the
Auditors shall be paid by the Company.
2. This Agreement is binding upon the Buyer, any holder which acquires the
Preferred Stock from the Buyer, and any and all successors and assigns of the
Buyer. The Buyer hereby agrees to deliver this document to all transferees of
the Preferred Stock and to surrender the certificates evidencing the Preferred
Stock to the Company, at the Company's request, so that an appropriate legend
evidencing this Agreement may be added to such certificates.
3. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
4. This Agreement is effective as of June 30, 1998.
5. All defined terms not defined herein are used as defined in the Subscription
Agreement and the Statement.
6. The Company shall pay the Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
7. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. As between the Company, the Buyer and parties bound
hereby, if there are any provisions herein which are inconsistent with the
provisions of the Statement, the provisions hereof shall control and bind the
Company, the Buyer and such other parties. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington.
8. 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.
9. Except to the extent expressly provided hereby, the terms and provisions of
the Statement are hereby confirmed. The parties further confirm that the
4
<PAGE> 5
terms and provisions of the Subscription Agreement and the Registration Rights
Agreement remain in full force and effect.
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 first set forth above.
TERA COMPUTER COMPANY ADVANTAGE FUND II LTD.
By /s/ JAMES E. ROTTSOLK By /s/ WALTER REICH
- - - ------------------------ ---------------------
JAMES E. Rottsolk Name: Walter Reich
President Title: Secretary
5
<PAGE> 1
EXHIBIT 4.4
WAIVER AGREEMENT
THIS WAIVER AGREEMENT, dated as of June 30, 1998, is by and between TERA
COMPUTER COMPANY, a Washington corporation (the "Company"), and GENESEE FUND
LIMITED - PORTFOLIO B., a British Virgin Islands corporation (the "Buyer").
WHEREAS, the Company and the Buyer entered into a Subscription
Agreement, dated as of June 30, 1998 (the "Subscription Agreement"), pursuant to
which the Company issued to the Buyer certain shares of the Company's Series B
Convertible Preferred Stock, $.01 par value ("Preferred Stock"), and warrants to
purchase shares of the Company's common stock, $.01 par value ("Common Stock"),
and in connection therewith the Company and the Buyer entered into a
Registration Rights Agreement, dated as of June 30, 1998 (the "Registration
Rights Agreement"); and
WHEREAS, the Company and the Buyer have been informed that certain
provisions of the Statement of Rights and Preferences of the Preferred Stock
(the "Statement") may be construed, under generally accepted accounting
principles and rules and regulations of the Securities and Exchange Commission,
as requiring that the Company classify the shares of Preferred Stock issued to
the Buyer as "redeemable" shares of Preferred Stock on the Company's financial
statements; and
WHEREAS, neither the Company nor the Buyer intended that the shares of
Preferred Stock issued to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. (a) Notwithstanding Sections 4 and 8 and any other provision of the
Statement, if (A) an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (5) of Section 8(a) of
the Statement, or (B) the Company is required to redeem shares of Preferred
Stock by reason of the occurrence of an event described in Section 4(a) of the
Statement, and such occurrence is by reason of events which are not solely
within the control of the Company, then the Company, in its sole discretion, may
elect not to redeem any or all of the shares of Preferred Stock and, if the
Company so elects, then the Buyer hereby waives any and all rights to require
the Company to so redeem such shares of Preferred Stock under such provisions.
In order to make such election, the Company shall so notify the
1
<PAGE> 2
Buyer which has given either an Optional Redemption Notice or has given a notice
to the Company directing the Company to redeem shares of Preferred Stock
pursuant to Section 4(a)(2) (an "Inconvertibility Redemption Notice"), as the
case may be, and shall deliver to the Buyer an Auditor's Determination (as
defined below) within ten (10) Business Day's after the Company's receipt of an
Optional Redemption Notice or an Inconvertibility Redemption Notice.
(b) If the Company so elects and notifies the Buyer, then, for each
thirty (30) days that such Optional Redemption Event or Share Limitation Event
(as defined below), as the case may be, continues to exist, commencing as of the
first Business Day of the event which gave rise to such Optional Redemption
Event or such Share Limitation Event, the Conversion Percentage shall be
permanently reduced by six percentage points and the Ceiling Price shall be
permanently reduced by six percent of the amount the Ceiling Price otherwise
would have been without any reduction pursuant to this clause (such Conversion
Percentage and Ceiling Price reduction shall be pro rated for any period of, or
in case the Optional Redemption Event or Share Limitation Event ceases to exist
in, less than thirty (30) days), provided that the Conversion Percentage and
Ceiling Price shall not be so reduced if the Company duly and timely issues a
Shareholder Approval Notice and obtains Shareholder Approval pursuant to Section
4 of the Statement.
(c) With respect to a Share Limitation Event, on or after the date the
Company gives a Shareholder Approval Notice, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such Notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with the Statement and this
Agreement without regard to Rule 4460(i) of Nasdaq or any similar or successor
provision (the "Rule") and shall use its best efforts to obtain the Shareholder
Approval. The Company shall prepare and file with the SEC within 20 days after
such notice is given preliminary proxy materials which set forth a proposal to
seek such Shareholder Approval. The Company shall provide the Buyer an
opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Shareholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) the
Conversion Percentage and the Ceiling Price shall be reduced pursuant to
2
<PAGE> 3
Subsection (b) above and (2) the Company shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable under this
Agreement and (ii) upon filing such applications, request the immediate removal
of the Common Stock from listing on the securities market on which it is then
listed which restricts the issuance of shares of Common Stock under this
Agreement without the Shareholder Approval. Upon obtaining such Shareholder
Approval or listing, as the case may be, the Company shall issue promptly all
shares of Common Stock due through the date of such issuance.
For purposes of this Agreement, the term "Share Limitation Event" means a time
at which the Company is unable to redeem all shares of Preferred Stock otherwise
required to be redeemed pursuant to Section 4(a) of the Statement by reason of
events which are not solely within the control of the Company.
(d) For purposes of this Agreement, (A) an Optional Redemption Event
described in clause (1), (2) or (5) of the definition of the term "Optional
Redemption Event" or (B) a requirement of the Company to redeem shares pursuant
to Section 4(a) of the Statement shall be deemed to have occurred by reason of
events which are not solely within the control of the Company if a requirement
of the Company to redeem, or a right of any holder of shares of Preferred Stock
to require redemption of, shares of Preferred Stock by reason thereof, would
result in the Company being required to classify the Preferred Stock as
redeemable preferred stock on a balance sheet of the Company prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the SEC.
(e) For purposes of this Agreement, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Optional Redemption Event described in the
applicable clause (1), (2) or (5) of the definition of Optional Redemption Event
in Section 8(a) of the Statement or (B) a requirement of the Company to redeem
shares pursuant to Section 4(a) of the Statement, was due to the occurrence of
events which were not solely within the control of the Company, as such phrase
is defined in Subsection (d) immediately above. The Auditor's Determination
shall (i) set forth in reasonable detail all relevant facts considered by the
Auditors in connection therewith, (ii) set forth all applicable accounting
principles and assumptions used, and (iii) set forth in reasonable detail or
attach copies of all legal, expert and other advice or information used by the
Auditors in reaching their conclusion. To the extent any facts are assumed for
purposes of the Auditor's Determination, the validity of such conclusion or
determination shall depend upon such assumed facts being true and complete in
all material respects.
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For purposes of this Agreement, the term "Auditors" shall mean the nationally
recognized independent accounting firm then serving as the Company's auditors or
such other "big five" nationally recognized accounting firm (including
successors thereto) as the Company may designate. The fees and expenses of the
Auditors shall be paid by the Company.
2. This Agreement is binding upon the Buyer, any holder which acquires the
Preferred Stock from the Buyer, and any and all successors and assigns of the
Buyer. The Buyer hereby agrees to deliver this document to all transferees of
the Preferred Stock and to surrender the certificates evidencing the Preferred
Stock to the Company, at the Company's request, so that an appropriate legend
evidencing this Agreement may be added to such certificates.
3. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
4. This Agreement is effective as of June 30, 1998.
5. All defined terms not defined herein are used as defined in the Subscription
Agreement and the Statement.
6. The Company shall pay the Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
7. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. As between the Company, the Buyer and parties bound
hereby, if there are any provisions herein which are inconsistent with the
provisions of the Statement, the provisions hereof shall control and bind the
Company, the Buyer and such other parties. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington.
8. 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.
9. Except to the extent expressly provided hereby, the terms and provisions of
the Statement are hereby confirmed. The parties further confirm that the
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<PAGE> 5
terms and provisions of the Subscription Agreement and the Registration Rights
Agreement remain in full force and effect.
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 first set forth above.
TERA COMPUTER COMPANY GENESEE FUND LIMITED -
PORTFOLIO B
By /s/ JAMES E. ROTTSOLK By /s/ WALTER REICH
- - - ------------------------ ---------------------
JAMES E. Rottsolk Name: Walter Reich
President Title: Secretary
5
<PAGE> 1
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 2815 Eastlake Avenue East, Seattle, Washington 98102 (the "Company"),
and ADVANTAGE FUND II LTD., a British Virgin Islands corporation ("Advantage"),
and KOCH INDUSTRIES, INC., a Kansas corporation ("Koch" 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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<PAGE> 4
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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<PAGE> 5
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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<PAGE> 11
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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<PAGE> 12
(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, Koch 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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<PAGE> 13
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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<PAGE> 14
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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<PAGE> 15
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 sue 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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<PAGE> 16
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 mark 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 1934 Act. 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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<PAGE> 17
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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<PAGE> 18
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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<PAGE> 20
(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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<PAGE> 21
(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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<PAGE> 22
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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<PAGE> 23
(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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<PAGE> 24
(d) REPURCHASE 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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<PAGE> 25
(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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<PAGE> 26
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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<PAGE> 27
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 (206) 323-1318), with a copy to Stoel Rives
LLP, Suite 3600, One Union Square, 600 University Street, Seattle, WA 98101,
Attn: Christopher J. Voss, Esq. (facsimile number (206) 386-7500) 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., 10500 N.E. 8th Street,
Suite 1920, Bellevue, Washington 98004-4332 (facsimile number (425) 462-4645) 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 N.E. 8th Street, Suite 1920, Bellevue,
Washington 98004-4332 (facsimile number (425) 462-4645), 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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<PAGE> 28
(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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<PAGE> 29
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: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands 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
KOCH INDUSTRIES, INC.
By: ________________________________
Title: ______________________________
Address: 4111 East 37th Street North
Wichita, KS 67270
Facsimile: (316) 828-7947
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: James E. Rottsolk
Title: President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.6
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT, dated as of September 30, 1998, is by and
among TERA COMPUTER COMPANY, a Washington corporation (the "Company"), and
ADVANTAGE FUND II LTD., a British Virgin Islands corporation ("Advantage"), and
KOCH INDUSTRIES, INC., a Kansas corporation ("Koch" and, collectively with
Advantage, the "Buyers").
WHEREAS, the Company and the Buyers entered into a Subscription
Agreement, dated as of September 30, 1998 (the "Subscription Agreement"),
pursuant to which the Company issued to the Buyers certain shares of the
Company's common stock, $.01 par value ("Common Stock"), and warrants to
purchase shares of Common Stock, and in connection therewith the Company and
each of the Buyers entered into separate Registration Rights Agreements, dated
as of September 30, 1998 (the "Registration Rights Agreements"); and
WHEREAS, the Company and the Buyers have been informed that certain
provisions of the Subscription Agreement may be construed, under generally
accepted accounting principles and rules and regulations of the Securities and
Exchange Commission, as requiring that the Company classify the shares of Common
Stock issued or issuable to the Buyers as "redeemable" shares of Common Stock on
the Company's financial statements; and
WHEREAS, neither the Company nor the Buyers intended that the shares of
Common Stock issued or issuable to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. The Subscription Agreement is hereby amended by adding the following clauses
to the end of Section 7(b) thereof:
"Notwithstanding Sections 7(a), 7(c) and any other provision of this
Agreement, if a Repurchase Event occurs by reason of the occurrence of an event
described in clause (i), (ii) or (v) of Section 7(b) above, and such occurrence
is by reason of events which are not solely within the control of the Company,
then the Company, in its sole discretion, may elect not to repurchase any or all
of the Common Shares and, if the Company so elects, each Buyer hereby waives any
and all rights to require the Company to so repurchase such Common Shares under
such clauses. In order to make such
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<PAGE> 2
election, the Company shall so notify each Buyer which has submitted a
Repurchase Notice with respect to such event and shall deliver to each such
Buyer an Auditor's Determination (as defined below) within ten (10) Business
Days after the Company's receipt of the Repurchase Notice. If the Company so
elects and notifies each such Buyer, then for each thirty (30) days that such
Repurchase Event continues to exist, which period shall commence as of the first
Business Day of the event which gave rise to such Repurchase Event, the Company
shall issue to each such Buyer shares of Common Stock (the "Repurchase Shares")
equal to six percent (6%) of the number of Common Shares acquired hereunder and
beneficially held on the Determination Date (as defined below) by the Buyer (pro
rated for any period of, or in case the Repurchase Event ceases to exist in,
less than thirty (30) days). For purposes of this Section 7(b), a "Determination
Date" means the last day of each calendar month in which the Repurchase Event
continues. Such Repurchase Shares shall be issued by the Company within three
Business Days after each Determination Date. When issued and delivered to such
Buyer, the Repurchase Shares shall be duly authorized, validly issued, fully
paid and nonassessable.
"For purposes of this Section 7, (A) a Repurchase Event described in
clause (i), (ii) or (v) of the definition of the term "Repurchase Event" in
Section 7(b) or (B) a requirement of the Company to make a payment pursuant
Section 7(f), shall be deemed to have occurred by reason of events which are not
solely within the control of the Company if a requirement of the Company to
repurchase, or a right of any holder of Common Shares to require repurchase of,
Common Shares pursuant to such clauses of Section 7(b), or the requirement of
the Company to make a payment pursuant to Section 7(f), would result in the
Company being required to classify the Common Shares as redeemable common stock
on a balance sheet of the Company prepared in accordance with generally accepted
accounting principles and Regulation S-X of the Securities and Exchange
Commission.
"For purposes of this Section 7, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Repurchase Event described in the applicable
clause (i), (ii) or (v) of the definition of Repurchase Event in Section 7(b) or
(B) the requirement of the Company to make a payment pursuant to Section 7(f),
was due to the occurrence of events which were not solely within the control of
the Company, as such phrase is defined in the immediately preceding paragraph.
The Auditors' Determination shall (i) set forth in reasonable detail all
relevant facts considered by the Auditors in connection therewith, (ii) set
forth all applicable accounting principles and assumptions used, and (iii) set
forth in reasonable detail or attach copies of all legal, expert and other
advice or information used by the Auditors in reaching their conclusion. To the
extent any facts are assumed for purposes of the Auditor's Determination, the
validity of such conclusion or
2
<PAGE> 3
determination shall depend upon such assumed facts being true and complete in
all material respects.
"For purposes of this Section 7, the term "Auditors" shall mean the
nationally recognized independent accounting firm then serving as the Company's
auditors or such other "big five" nationally recognized independent accounting
firm (including successors thereto) as the Company may designate. The fees and
expenses of the Auditors shall be paid by the Company."
2. The Subscription Agreement is hereby amended by adding a new Section 7(h) at
the end of Section 7 thereof:
(h) SHARE LIMITATION EVENTS. Notwithstanding any other provision
of this Agreement, if a Share Limitation Event (as defined below) occurs by
reason of events which are not solely within the control of the Company, the
Company shall have the right to give a notice (a "Share Limitation Notice"),
accompanied by an Auditor's Determination, to the Buyer at any time after such
Share Limitation Event occurs and prior to the earlier of (1) the date on which
the Buyer's right (other than as limited by this Section 7(h)) to receive a cash
payment pursuant to Section 7(f) by reason of the occurrence of such Share
Limitation Event expires and (2) the date on which the Company is obligated to
make a payment to the Buyer pursuant to Section 7(f). If the Company timely
gives a Share Limitation Notice and an Auditor's Determination to the Buyer,
then, in lieu of making the payment required by Section 7(f) or issuing
Repurchase Shares pursuant to Section 7(b), pursuant to a notice given by the
Buyer by reason of such Share Limitation Event, on the next Adjustment Date to
occur the Adjustment Price shall be reduced to 80% of the amount such Adjustment
Price would otherwise be. On or after the date the Company gives such Share
Limitation Notice, upon notice from the Buyer, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with this Agreement without regard
to the Rule and shall use its best efforts to obtain the Shareholder Approval.
The Company shall prepare and file with the SEC within 20 days after such notice
is given preliminary proxy materials which set forth a proposal to seek such
Shareholder Approval. The Company shall provide the Buyer an opportunity to
consult with the Company regarding the content of such proxy materials insofar
as it relates to the Shareholder Approval by providing copies of such
preliminary proxy materials and any revised preliminary proxy materials to the
Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain Shareholder
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<PAGE> 4
Approval in accordance with Section 7(f), (ii) the failure to obtain the
Shareholder Approval at the special meeting provided in this paragraph or (ii)
the failure to hold such special meeting within such 60-day period provided in
this paragraph, the Company shall so notify the Buyer and such of the following
as shall be specified by notice to the Company from the Buyer shall occur: (1)
on the next Adjustment Date to occur the Adjustment Price shall be reduced to
70% of the amount such Adjustment Price would otherwise be and (2) the Company
shall promptly file applications and take all other actions necessary to (i)
list the Common Stock for trading and quotation on the OTC Bulletin Board or
such other securities market or exchange which will not restrict the number of
shares of Common Stock issuable under this Agreement and (ii) upon filing such
applications, request the immediate removal of the Common Stock from listing on
the securities market on which it is then listed which restricts the issuance of
shares of Common Stock under this Agreement without the Shareholder Approval.
Upon obtaining such Shareholder Approval or listing, as the case may be, the
Company shall promptly issue all Adjustment Shares and Repurchase Shares due
through the date of such issuance.
For purposes of this Section 7, the term "Share Limitation Event" means
a time at which the Company is unable to issue all Adjustment Shares or
Repurchase Shares otherwise required to be issued by this Agreement by reason of
the restrictions set forth in the Rule and the Company has not obtained a waiver
thereof.
3. Each of the respective Registration Rights Agreements is hereby amended as
follows:
(a) The definition of "Registrable Securities" in Section 1 thereof is
amended to read in its entirety as follows: "Registrable Securities" means the
Common Shares, the Warrant Shares and the Repurchase Shares."
(b) Clause (i) of Section 2(a) is hereby amended to change the term
"150%" to "170%."
(c) The third sentence of Section 2(a) is hereby amended to insert the
words "and Repurchase Shares" after each of the two references to "Adjustment
Shares" in such sentence.
4. This Agreement is binding upon each Buyer, any holder which acquires the
Common Shares from the Buyers (other than by transfers consummated pursuant to
the Registration Statement and Prospectus or pursuant to Rule 144 or another
exemption from registration under the 1933 Act), and any and all successors and
assigns of the Buyers. The Buyers hereby agree to deliver this document to all
assignees of the Subscription Agreement, the Registration Rights Agreements and
of the Common Shares (other than
4
<PAGE> 5
pursuant to transfers consummated pursuant to the Registration Statement and
Prospectus, or pursuant to Rule 144 or another exemption from registration under
the 1933 Act).
5. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
6. This Agreement is effective as of September 30, 1998.
7. All defined terms not defined herein are used as defined in the Subscription
Agreement.
8. The Company shall pay each Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
9. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Washington.
10. 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 the Agreement bearing a signature
on behalf of a party hereto shall be legal and binding on such party.
11. Except to the extent expressly amended hereby, the terms and provisions of
the Subscription Agreement and the Registration Rights Agreements are hereby
confirmed.
5
<PAGE> 6
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 first set forth above.
TERA COMPUTER COMPANY ADVANTAGE FUND II LTD.
By /s/ James E. Rottsolk By /s/ Walter Reich
James E. Rottsolk Name: Walter Reich
President Title: Secretary
KOCH INDUSTRIES, INC.
By /s/ Josh Taylor
Name: Josh Taylor
Title: Vice President- Equity Arb.
6
<PAGE> 1
EXHIBIT 10.1
Tera Computer Company
and
Unisys Corporation
Date: October 1, 1998
Agreement No.: ATO 980901
Revision: A
<PAGE> 2
AGREEMENT NO.: ATO 980901
CONTENTS
<TABLE>
<S> <C>
1. AGREEMENT...................................................................1
2. RECITALS....................................................................1
3. DEFINITIONS.................................................................1
4. EFFECTIVE DATE AND TERM.....................................................2
4.1 TERM....................................................................2
5. PRODUCTS....................................................................3
5.1 PRODUCT LIST............................................................3
6. SPECIFICATIONS..............................................................3
7. ORDERS, SHIPPING, & ACCEPTANCE.............................................3
7.1 PURCHASE ORDERS.........................................................3
7.2 DELIVERY................................................................3
7.3 SHIPPING AND FOB........................................................4
7.4 FORECAST................................................................4
7.5 LEAD TIME AND SCHEDULING OF SHIPMENTS...................................4
7.6 RESCHEDULING OF PURCHASE ORDERS.........................................4
7.7 CANCELLATION............................................................4
7.8 SOURCE INSPECTION, ACCEPTANCE, AND REJECTION............................5
7.9 REJECTION...............................................................5
8. PRICE, PAYMENT, AND MATERIAL HANDLING.......................................5
8.1 PRICE SCHEDULE - ASSEMBLY AND TEST ONLY................................5
8.2 PAYMENT TERMS...........................................................5
8.3 MATERIAL SUPPLY RESPONSIBILITY..........................................5
8.4 QUARTERLY BUSINESS REVIEWS..............................................7
8.5 SUBCONTRACT MANAGEMENT..................................................6
8.6 DISCLOSURE TO SUBCONTRACTORS............................................6
8.7 APPROVED SOURCES........................................................7
8.8 TAXES...................................................................7
8.9 DISCREPANT MATERIAL/ QUALITY ASSURANCE SYSTEM...........................7
8.10 SERIALIZATION/TRACKING PLAN............................................7
9. WARRANTIES AND INDEMNITIES..................................................7
9.1 PATENT INDEMNITY........................................................7
9.2 BUYER INDEMNITY.........................................................8
9.3 WARRANTIES..............................................................8
9.4 WARRANTY EXCLUSIONS.....................................................8
9.5 DISCLAIMER..............................................................8
9.6 REMEDY LIMITATION.......................................................9
9.7 SUPPORT UNDER WARRANTY..................................................9
9.8 SELLER RECALLS..........................................................9
10. LIMITATION OF LIABILITY....................................................9
10.1 SELLER LIABILITY LIMITATION............................................9
10.2 TERA LIABILITY LIMITATION..............................................9
10.3 MEDICAL USE EXCLUSION..................................................9
10.4 GOVERNMENT CONTRACT CLAUSE............................................10
11. PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY RIGHTS..................10
11.1 PROPRIETARY INFORMATION MARKING.......................................10
11.2 RIGHTS IN PROPRIETARY INFORMATION.....................................10
11.3 DUTY OF CARE..........................................................10
11.4 DURATION OF OBLIGATION................................................11
11.5 JUDICIALLY ORDERED DISCLOSURE.........................................11
11.6 DISPOSITION OF PROPRIETARY INFORMATION................................11
12. TRADEMARKS, TRADE NAMES AND PUBLICITY.....................................11
12.1 LICENSING LIMITATION..................................................11
12.2 PUBLICITY LIMITATION..................................................11
13. TERMINATION...............................................................11
13.1 CANCELLATION FOR CAUSE................................................11
13.2 TERMINATION AND CANCELLATION..........................................12
13.3 OUTSTANDING PURCHASE ORDERS AND MATERIAL DISPOSITION..................12
13.4 INTELLECTUAL PROPERTY RIGHTS..........................................13
</TABLE>
ii
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AGREEMENT NO. ATO 980901
<TABLE>
<S> <C>
14. MISCELLANEOUS.............................................................13
14.1 INSURANCE.............................................................13
14.2 CHANGES...............................................................13
14.3 RESPONSIBILITY FOR PROPERTY...........................................14
14.4 EXPORT REGULATIONS....................................................14
14.5 INDEPENDENT CONTRACTOR................................................14
14.6 ACCESS TO SAN DIEGO MANUFACTURING FACILITY............................14
14.7 NON INTERFERENCE......................................................14
14.8 GOVERNING LAW.........................................................14
14.9 ASSIGNMENT............................................................15
14.10 FORCE MAJEURE........................................................15
14.11 PROGRESSIVE DISPUTE NEGOTIATION PROCEDURES...........................15
14.12 AGENCY PRODUCT SUBMISSIONS...........................................16
14.13 HEADINGS.............................................................16
14.14 INQUIRIES............................................................16
14.15 NON WAIVER...........................................................16
14.16 NOTICES..............................................................17
</TABLE>
EXHIBIT "A" PRICING SCHEDULE
EXHIBIT "B" PRODUCT SPECIFICATIONS
EXHIBIT "C" QUARTERLY BUSINESS REVIEW AGENDA
EXHIBIT "D" TERA PROPERTY
1. AGREEMENT
THIS AGREEMENT, effective October 1, 1998 (Effective Date) is made by and
between Tera Computer Company, a Washington Corporation having a place of
business at 2815 Eastlake Avenue East, Seattle, WA, 98102-3027 (hereinafter
Tera), and Unisys Corporation, a Delaware Corporation, having a place of
business at 10850 Via Frontera, San Diego, CA 92127 (hereinafter Unisys).
2. RECITALS
Unisys and Tera entered into an Agreement on December 5, 1995, wherein Unisys
provided Manufacturing Services to Tera ("hereafter Manufacturing Services
Agreement"); and
Unisys and Tera replaced the original Manufacturing Services Agreement with
Agreement Number 0100 dated August 16, 1996 wherein Unisys provided Assembly and
Test Services of Application Specific Integrated Circuit (ASIC) devices. This
current Agreement ("hereafter ASIC Agreement") replaces Agreement Number 0100;
and
NOW THEREFORE, in consideration of the premises, and the covenants and promises
of the parties set forth herein, and other good and valuable consideration, the
parties intending to be legally bound, it is agreed as follows:
3. DEFINITIONS
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<PAGE> 4
AGREEMENT NO. ATO 980901
Words shall have their normally accepted meanings as employed in the Agreement.
The terms "herein" and "hereof", unless specifically limited, shall have
reference to the entire Agreement. The word "shall" is mandatory, the word "may"
is permissive, the word "or" is not exclusive, the words "includes" and
"including" are not limiting, and the singular includes the plural unless
otherwise specified. The following terms shall have the described meanings:
3.1 "Assembly" shall mean the process of packaging semiconductor device
Products.
3.2 "Billable Product" shall mean Product assembled by Unisys that conforms to
Unisys physical and workmanship standards. (This Product is commonly referred to
as Bin 1 or Bin 2 Product.)
3.3 "Bin 1 Product" shall mean all Product that passes the ITS 9000 tests and
350KE and 350KB options that also pass root controller tests.
3.4 "Bin 2 Product" shall mean Product that does not pass tests due to a die or
interposer fault that is beyond Unisys control.
3.5 "Build Package" shall mean a package of data used to manufacture Products
meeting requirements of the Specification and defining the requirements of
Services to be provided by Unisys. The Build Package may include electronic
data, electrical testing requirements, mechanical drawings, component
definition, material definitions, quality requirements, and referenced
specifications, together with such other items as necessary to fully define
Tera's requirements.
3.6 "Delivery Date" shall mean the date that Products, Services or test results
shipped by Unisys arrive at the designated Tera destination. Such date shall be
mutually agreed to and specified on the TERA supplied Purchase Order or
forecast. Notwithstanding the above, the FOB point which shall be where goods
are transferred to the carrier.
3.7 "Documentation" shall mean tangible embodiment of Information in eye
readable or machine readable form.
3.8 "Proprietary Information" shall mean information, written, visual, or oral,
or samples of, concerning the disclosing party's current or future products,
business plans, financial information, marketing plans or customer lists, or
other information which is clearly marked as confidential or proprietary,
including but not limited to data, knowledge, know-how, designs, programs
formulas, compilations, and methods, and media embodying same.
3.9 "Manufacturing Process" shall mean the processes by which Unisys can
manufacture Products for Tera.
3.10 "Product" shall mean certified (see "Product Certification:) Application
Specific Integrated Circuits (ASIC) in packaged unit form, except "Prototypes",
designed by Tera and manufactured by Unisys for Tera.
3.11 "Product Certification" shall mean "Product manufactured using a certified
process, operators and materials.
3.12 "Prototypes" shall mean initial working development units of the "Product"
that conform to the mutually agreed upon prototype specifications.
3.13 "Services" shall mean the fabrication, assembly and test of the "Product".
3.14 "Specification" shall mean mutually agreed upon data in eye readable or
machine readable form that define physical, mechanical and electrical
characteristics and tolerances of the Products, materials, components, or
applicable Manufacturing Processes for Products or to define Services.
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<PAGE> 5
AGREEMENT NO. ATO 980901
3.15 "Subcontractor" shall mean a manufacturer or supplier under contract with a
party to buy from or build and supply materials or services to such party.
3.16 "Tooling" shall mean drawings, materials, or other physical devices
provided by Tera or made in whole or in part by Unisys and used in
manufacturing, shipping, or testing the Products.
3.17 "Unit Price" shall mean the price for each unit of a specified "Product"
identified in Section 5 and is the price for assembly and test exclusive of die
and packages.
3.18 "Last Time Buy" shall mean sufficient materials to cover the time necessary
to select a new supplier and begin receiving production quantities from them.
4. EFFECTIVE DATE AND TERM.
4.1 TERM
This Agreement shall commence on October 1, 1998 and shall remain in effect
through June 30, 1999 and may be renewed annually thereafter by mutual agreement
of the parties. Either party may terminate this Agreement after giving the other
party six (6) months written notice of such intention of termination.
5. PRODUCTS.
5.1 PRODUCT LIST
The Tera Products covered by this Agreement are as listed in Exhibit A hereof.
These Products and the Processes listed in Exhibit B can be revised in
accordance with the procedure called out in Section 14.2 hereof.
6. SPECIFICATIONS.
Attached hereto as Exhibit "B" is an outline of the Specifications for the
Product. All Products provided hereunder shall be manufactured in accordance
with the mutually agreed upon Specifications. Tera recognizes that the quality
of Products manufactured using Build Packages, tooling or other materials
furnished by Tera depends on, among other things, the quality of such materials.
Unisys shall not be responsible for any defects in such Products caused by a
defect in the Build Package, tooling or other material supplied by Tera.
Any changes to the Specification or Build Package will not be effective until
the change is documented in a change order that is agreed upon and is signed by
both parties hereto. Changes may be accepted by either party subject to charges
specified in a change order agreed upon between the parties. With respect to
such change order, and subject to mutual agreement of both parties, Tera shall
pay for all work in process that does not meet the Specifications set forth in
the change order, any special tooling not previously purchased, any inventory
that is purchased by Unisys pursuant to the Build Package that cannot be used to
meet the requirements specified in the change order, provided that materials on
hand do not exceed ninety (90) days worth of supply, and any other direct costs
to Unisys that are associated with the change order.
7. ORDERS, SHIPPING, & ACCEPTANCE
5
<PAGE> 6
AGREEMENT NO. ATO 980901
7.1 PURCHASE ORDERS
Tera will order Products by issuing written, facsimile or electronic purchase
orders. Each purchase order will specify items such as: Products, quantity,
delivery, destination, any additional Specifications / Acceptance Criteria (as
applicable), and price.
The following statement shall be on the face of Tera's Purchase Orders: This
P.O. is issued under the terms and conditions of Agreement ATO 980901 , Revision
A, dated: October 1, 1998.
7.2 DELIVERY
Unisys shall prepare and pack the Products to prevent damage and deterioration,
and comply with carrier tariffs. Charges for preparation and packing are
included in the Unit Price unless separately specified on the purchase order.
Shipments or deliveries, as specified in this Agreement, shall be strictly in
accordance with: the specified quantities, allowing overshipment of ten (10)
percent of the specified quantity or four (4) units whichever is larger, without
shortage; the specified schedules, neither more than three (3) business days
ahead nor more than two (2) business days behind schedule; and the other
requirements of this Agreement. Unisys shall promptly notify Tera of any
anticipated or actual delay, the reasons thereof, and the actions being taken by
Unisys to overcome or minimize the delay. If requested by Tera, Unisys shall, at
Unisys expense, ship via expedited transportation to avoid or minimize the delay
to the maximum extent possible.
7.3 SHIPPING AND FOB
Unisys shall comply with Tera's directions regarding shipment, including without
limitation the choice of carrier, method of shipment and destination, and shall
be responsible for placing the Products in the hands of the carrier. Unisys
shall at Tera's request, obtain insurance against all losses or damages to the
Products in shipment, in amounts specified by Tera, and cost of such insurance
shall be billable to Tera. Unit Price does not include freight or insurance.
Products will be shipped freight collect or, if authorized by Tera in advance,
freight prepaid by Unisys, and Tera will pay the appropriate freight and
insurance charges. Risk of loss and title to the Products shall pass to Tera
upon delivery of the Product to the carrier. Unisys will provide copies or
originals of all shipping documents to Tera upon Tera's request, and will
cooperate with and assist Tera in the filing of any claims against the carrier.
The FOB point shall be Rancho Bernardo, California.
7.4 FORECAST
Tera will provide Unisys with a unit volume forecast by Part Number covering a
rolling twelve (12) month time period. The forecast will be by month for the
first six (6) months, and by quarter thereafter. The initial three months of
this forecast shall be firm requirements which authorize Unisys to procure
materials and schedule manufacturing and test capacity. The forecast will be
revised and updated at the quarterly business meeting.
7.5 LEAD TIME AND SCHEDULING OF SHIPMENTS
Standard lead time for Products is twenty one (21) days for a volume not to
exceed 500 units per month. Volumes exceeding this limit shall be mutually
addressed as required. The estimated shipping date stated in the purchase orders
assumes timely receipt of the Tera supplied materials; the applicable Build
Package and necessary drawings and artwork or data bases, all of which must be
complete and in sufficient detail to permit Unisys to begin production, and may
not be changed except by written agreement signed by an authorized
representative of each party.
There may be occasions when Tera needs to issue Purchase Orders with less than
the standard lead times. Unisys requires additional compensation to accomplish
these needs. Pricing for "Accelerated Lead Time" (six work days) and "Premium
Lead Time" (six calendar days) are included in EXHIBIT A.
7.6 RESCHEDULING OF PURCHASE ORDERS
Unless otherwise agreed between the parties, Tera may reschedule delivery of any
products on a Purchase Order with Unisys within the following guidelines with no
additional charge:
6
<PAGE> 7
AGREEMENT NO. ATO 980901
0-21 calendar days from scheduled ship date: No changes
22-60 calendar days from scheduled ship date: pushout up to 30 calendar days
Tera shall not push out any orders beyond the originally scheduled calendar
quarter unless mutually agreed to by both parties. Only one reschedule per
purchase order is allowed. Any efforts to reschedule Products inside the twenty
one (21) calendar day minimum lead time are subject to mutual agreement of the
parties and Accelerated Lead Time or Premium Lead Time charges in EXHIBIT A will
apply.
7.7 CANCELLATION
Unless otherwise agreed between the parties, Tera may cancel delivery of any
Firm Commitments of Products to Unisys within the following guidelines:
<TABLE>
<CAPTION>
Number of calendar days from Cancellation charge
scheduled shipment at expressed as a
time of receipt of notice percentage of Unit Price
------------------------- ------------------------
<S> <C>
0-21 calendar days 100%
22-45 calendar days 50%
Over 45 calendar days 0%, Mutually agreed upon
unique or long lead materials only
</TABLE>
Tera shall pay for any supplier cancellation charges, supplier restocking
charges, and for any special materials made obsolete by the cancellation.
7.8 SOURCE INSPECTION, ACCEPTANCE, AND REJECTION
Tera reserves the right to inspect all Prototype assembly work in process and
perform source inspection of all completed Production Product, and accept or
reject such Product which is not strictly in conformance with all of the
requirements of this Agreement.
7.9 REJECTION
In the regular course of its business, Tera may reject, refuse acceptance or
revoke acceptance ("rejection" herein) of any or all of the Products or any
tender thereof which are not strictly in conformance with all of the
requirements of this Agreement. Tera shall notify Unisys of such rejection in
writing. All repair, replacement and other correction shall be accomplished via
a Returned Material Authorization number issued by Unisys within a (2) business
day period following notification of such rejection. Any Product shall be
repaired or replaced within ten (10) business days from date of issuance of
Returned Goods Authorization number, provided all required Tera supplied
materials are available. Repairs or replacements shall be accompanied by a
written notification specifying that such items are repaired or are
replacements. Any Products repaired or furnished in replacement shall be subject
to all the provisions of this Agreement to the same extent as Products initially
furnished.
8. PRICE, PAYMENT, AND MATERIAL HANDLING.
8.1 PRICE SCHEDULE - Assembly and test only
Pricing for assembly and test shall be as shown in Exhibit A hereof.
8.2 PAYMENT TERMS
Tera shall issue payment within net thirty (30) calendar days after the receipt
of Billable Product. Unisys shall not issue any invoice prior to the scheduled
or actual delivery date, whichever is later.
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<PAGE> 8
AGREEMENT NO. ATO 980901
Payment will be made after shipment of Product and receipt of correct invoice.
Unisys shall promptly repay to Tera any amounts paid in excess of amounts due
Unisys.
8.3 MATERIAL SUPPLY RESPONSIBILITY
8.3.1 Tera Provided Material
Tera shall provide to Unisys on a consigned basis, ASIC dice in wafer form and
interposers as listed in Exhibit A to this Agreement. Unisys and Tera, jointly
acknowledge the objective to achieve Product Certification. Unisys shall not be
liable for damage to components or materials resulting from malfunction, failure
or inability to meet specified performance requirements; or for failure of any
testing program to screen any defective components or materials.
Tera shall provide the following items required for testing the Product: Test
sockets, Test Load Boards, Test cooling fixtures, Wafer chuck, Test Programs for
the ASICs, Root Controllers, test programs and Support items. (See Exhibit D for
details.)
The status of the Tera owned material shall be addressed during the Quarterly
Business Review.
Unisys shall not be responsible for delays, loss, or destruction of parts or
materials where unavoidable or beyond its control, but shall notify Tera of any
such loss or destruction. If any such case occurs, Unisys shall be excused from
performance without liability to Tera except for return of payment to Tera for
which Tera has not received consideration.
8.3.2 Unisys Provided Material
Unisys shall procure the required materials in response to Tera Purchase Orders
or three month firm forecast for packaged and tested Product and Tera Purchase
Orders covering safety stock: In the event of a schedule change or cancellation,
Tera will be financially responsible for Product and raw materials authorized by
such releases.
Tera liability shall include materials for up to three (3) months of forecasted
demand, authorized safety stock, minimum buys imposed by suppliers, and any
cancellation charges on open material Purchase Orders. Tera approval is required
for any materials purchased in excess of three (3) month forecasted demand plus
safety stock.
The above materials are considered to be the special materials referred to in
section 7.7.
8.4 QUARTERLY BUSINESS REVIEWS
Tera and Unisys agree to conduct Quarterly Business Review meetings throughout
the term of this Agreement. Each party shall ensure the participation of the
appropriate technical and management personnel at the Quarterly Business Review
meetings. The Outline for the Quarterly Business Review meeting Agenda is
included in Exhibit C hereof. The final Agenda for each meeting and tentative
list of attendees shall be mutually agreed upon no later than two (2) weeks
prior to each scheduled meeting.
8.5 SUBCONTRACT MANAGEMENT
Unisys is responsible for the management of its
subcontractors/suppliers/vendors. Unisys shall ensure that each lower tier
subcontract contains all applicable specifications, special requirements, and
clauses needed to comply with the requirements of this Agreement. Any technical,
schedule, or cost problems encountered by Unisys or its subcontractors shall be
promptly reported to Tera.
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AGREEMENT NO. ATO 980901
8.6 DISCLOSURE TO SUBCONTRACTORS
Notwithstanding the limitations of Section 11 Unisys is authorized to disclose
to bona fide subcontractors such information as may be necessary to permit them
to perform their contracts with Unisys, provided that such subcontractors agree
to maintain such information in confidence and to protect such information from
disclosure to others to the same extent required of Unisys under Section 11.
8.7 APPROVED SOURCES
Unisys shall procure materials from Tera's documented approved sources of
supply. Any proposed substitutions shall constitute a deviation and require the
completion of a deviation authorization, accepted by Tera, before making such
substitution.
Unisys shall use its own specifications and sources of supply for any materials
required for the assembly of "Product" not specified by Tera.
8.8 TAXES
The Unit Price excludes all taxes upon sale of Products which Unisys is required
to pay or collect from Tera. Unisys shall separately state on all invoices any
taxes imposed by federal, state, or local governments applicable to furnishing
the Products or Services. If purchase orders claim exemption for taxes upon the
sale, and Unisys accordingly does not collect such taxes from Tera, Tera agrees
to indemnify Unisys against liability for payment of such taxes. Tera shall
furnish an appropriate exemption certificate as requested by Unisys. Tera shall
pay or reimburse Unisys for the gross amount of any present or future sales,
use, excise, value-added, or other tax applicable to the furnishing of any
Products or Services hereunder, excepting, however, any taxes based on Unisys
income. In the alternative, Tera shall provide Unisys with tax exemption
evidence acceptable to the taxing authorities.
8.9 DISCREPANT MATERIAL/ QUALITY ASSURANCE SYSTEM
Unisys agrees to maintain a Discrepant Material and Quality Control System that
meets the requirements of ISO9001.
8.10 SERIALIZATION/TRACKING PLAN
Unisys agrees to maintain an ASIC serialization/lot tracking plan that will
support identification of each packaged component. Each device will be marked
with its lot number and the sequential serial number within that lot.
9. WARRANTIES AND INDEMNITIES
9.1 PATENT INDEMNITY
Unisys assumes no responsibility for patent infringement or copyright
infringement of the TERA BGA package concept or any unique assembly process it
mandates. Unisys agrees to indemnify and hold harmless Tera, its subsidiaries,
third parties and end users, from any liability, damage or expense including but
not limited to legal expenses, arising out of a claim of U.S. patent
infringement, copyright infringement or misappropriation of trade secrets based
solely upon the use or sale of Products; provided such indemnification shall be
limited to the Unisys Assembly processes covering heat spreader attach, die
attach, wirebonding, encapsulation and marking. Unisys agrees to defend or
settle at Unisys expense, all suits or proceedings arising out of the foregoing,
provided that Tera shall give Unisys prompt written notice of all suits or
threats of suit against Tera, its Subsidiaries, Third Parties and
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AGREEMENT NO. ATO 980901
End Users. In any event, Tera at its own expense, shall have the right to
participate in the defense of any such action through Tera's own counsel. If any
Unisys assembly process as defined above is held to be an infringement or
misappropriation for which Tera is indemnified by Unisys, and its use is
enjoined, Unisys shall:
a) procure for Tera and its customers the right to utilize the Product
granted herein, or
b) replace or modify it so it becomes non-infringing (without
compromising Tera's intended use of said Products), or
c) if neither of the foregoing is feasible, remove said Goods and refund
the purchase price and the transportation and installation cost thereof less
depreciation.
Unisys will not be liable if the infringing item has been modified by any of the
parties indemnified hereunder and such modification is the cause of any such
infringement or misappropriation, or if the infringement is due to the
combination of the Product with product not sold or licensed by Unisys
hereunder.
9.2 BUYER INDEMNITY
Tera agrees to indemnify and hold harmless Unisys and its subsidiaries from any
liability, damage or expense including but not limited to legal expenses,
arising out of a claim based upon representations, acts of negligence of Tera,
its subsidiaries or third parties in connection with the promotion, sale or
licensing of Product to end users or a claim of any end user made directly
against Unisys or its subsidiaries based on promotion, sale or licensing of the
Product to end users by Tera, its subsidiaries or third parties. Tera agrees to
defend or settle, at Tera's expense, all suits or proceedings arising out of any
of the foregoing; provided that Unisys shall give Tera prompt written notice of
all suits or threats of suit against Unisys and its Subsidiaries. In any event,
Unisys, at its own expense, shall have the right to participate in the defense
of any such action through its own counsel.
The obligations of Tera under this Section 9.2 shall be limited to the extent
the claim indemnified against is not a result of any violation by Unisys of its
obligations under this Agreement, or is not a result of any act of negligence of
Unisys.
9.3 WARRANTIES
Unisys warrants to Tera that for a period of twelve (12) months after shipment
to Tera the Product shall: (a) conform in all respects to all of the
requirements and Specifications in this Agreement; and (b) be free from all
defects in workmanship. Because the use to which these Products may be put and
the manner of storage, handling, next level assembly and rework are beyond
control of Unisys, this warranty is limited to defects that can be proven to be
present at the time of shipment or delivery of the Products to the carrier.
9.4 WARRANTY EXCLUSIONS
Unisys shall have no obligation under this Section 9 to repair or replace
Products when the defects result from accident, disaster, neglect, abuse,
misuse, transportation, alteration, improper storage, or improperly performed
repairs or activities once Product has been consigned to carrier and is out of
the control of Unisys.
Warranties granted hereunder are given to and enforceable only by Tera. No
warranties shall be assignable or transferable to subsequent purchasers or
lessors.
9.5 DISCLAIMER
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AGREEMENT NO. ATO 980901
THE WARRANTIES OF THIS SECTION 9 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER WRITTEN, ORAL, STATUTORY, EXPRESS, OR IMPLIED, AND UNISYS
DISCLAIMS ALL WARRANTIES OF MERCHANTABILTY AND FITNESS FOR A PARTICULAR PURPOSE,
AND ALL WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE.
9.6 REMEDY LIMITATION
The remedies provided in this Section 9 are Tera's sole remedies for any failure
of Unisys to comply with its warranty obligations.
9.7 SUPPORT UNDER WARRANTY
During the warranty period, Tera shall contact Unisys to request repair or
replacement under warranty for Product failure due to a defect in workmanship,
or the Manufacturing Process defects. Unisys shall promptly repair or replace
such component at no cost to Tera within a reasonable time period. Unisys will
bear all shipping costs, and risk of loss of material in transit in both
directions.
9.8 SELLER RECALLS
Unisys will bear all shipping costs and risk of loss of material in transit in
both directions for return of all recalls if Unisys notifies Tera of a recall
due to material, manufacturing, or Assembly issues. Replacement will be at
Unisys expense or, if unable to replace, Tera will be credited for the full
amount of the unit price as shown in Exhibit A hereof.
10. LIMITATION OF LIABILITY.
10.1 SELLER LIABILITY LIMITATION
IN NO EVENT WILL UNISYS BE LIABLE FOR (A) ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO LOSS OF USE, REVENUES,
PROFITS OR SAVINGS ARISING OUT OF, RESULTING FROM, OR IN ANY WAY CONNECTED WITH
THE PERFORMANCE OR BREACH OF THIS AGREEMENT, EVEN IF UNISYS KNEW OR SHOULD HAVE
KNOWN, OF THE POSSIBILITY OF SUCH DAMAGES OR (B) CLAIMS, DEMANDS OR ACTIONS
AGAINST TERA BY ANY PERSON, EXCEPT AS PROVIDED IN THIS PARAGRAPH. EXCEPT FOR
UNISYS OBLIGATIONS UNDER THIS PARAGRAPH, UNISYS LIABILITY FOR ANY AND ALL
CAUSES, WHETHER BASED ON NEGLIGENCE, BREACH OF CONTRACT, WARRANTY OR OTHER LEGAL
THEORY, SHALL NOT EXCEED THE ACTUAL AMOUNT PAID BY TERA FOR THE SPECIFIC
PRODUCTS OR SERVICES GIVING RISE TO THE CLAIM. TERA ACKNOWLEDGES AND AGREES THAT
THE PURCHASE PRICE FOR THE PRODUCTS AND SERVICES REFLECTS THE ALLOCATION OF
RISKS AND THE LIMITATIONS OF UNISYS LIABILITY HEREUNDER.
10.2 TERA LIABILITY LIMITATION
IN NO EVENT WILL TERA BE LIABLE FOR (A) ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO LOSS OF USE, REVENUES,
PROFITS OR SAVINGS ARISING OUT OF, RESULTING FROM, OR IN ANY WAY CONNECTED WITH
THE PERFORMANCE OR BREACH OF THIS AGREEMENT, EVEN IF TERA KNEW OR SHOULD HAVE
KNOWN OF THE POSSIBILITY OF SUCH DAMAGES OR (B) CLAIMS, DEMANDS OR ACTIONS
AGAINST UNISYS BY ANY PERSON, EXCEPT AS PROVIDED IN THIS PARAGRAPH.
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AGREEMENT NO. ATO 980901
10.3 MEDICAL USE EXCLUSION
It is agreed that the Products or the services shall not be used or intended for
use in life support devices or systems where malfunction or failure of the
Product can reasonably be expected to result in death or personal injury. Life
support devices or systems are those which: a) are intended for surgical implant
into the body; b) support or sustain life and whose failure to perform, when
properly used in accordance with instruction for use, can reasonably be expected
to result in significant injury to a user. If it is later determined that a
Product or service performed hereunder is used or is to be used in a life
support device or system, Tera hereby expressly agrees to do so at its own risk
and further agrees to indemnify Unisys for any and all damages that may be
incurred due to or resulting from use of the component in a life support device
or system.
10.4 GOVERNMENT CONTRACT CLAUSE
It is agreed that the Products and Services which are to be provided by Unisys
must meet all the terms and conditions that are expressly recited in this
Agreement only; additional terms required for government contracting shall be
the responsibility of Tera.
11. PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY RIGHTS
11.1 PROPRIETARY INFORMATION MARKING
Whenever used in this Agreement, the term "Proprietary Information" will mean
information (written, visual, or oral), or samples of, concerning the disclosing
party's current or future products, business plans, financial information,
marketing plans or customer lists, including but not limited to data, knowledge,
know-how, designs, programs formulas, compilations, and methods, and media
embodying same, or other information which is clearly marked as confidential or
proprietary. Notwithstanding the foregoing, the term "Proprietary Information"
will not include any information which (a) was known by the receiving party
prior to receiving the same directly or indirectly from or in connection with
the disclosing party, and without any restriction as to use or disclosure, (b)
is independently developed by the receiving party without use of the Proprietary
Information, (c) is at any time rightfully received from a third party which has
the right and transmits it to the receiving party without any obligation of
confidentiality, or (d) is or becomes a part of the public domain through no
fault or action of the receiving party. Neither party will remove, obscure or
alter any notice of confidentiality, patent, copyright, trade secret or other
proprietary right without the other party's prior written authorization.
11.2 RIGHTS IN PROPRIETARY INFORMATION
Tera and Unisys acknowledge that any Proprietary Information received from the
other party is valuable trade secret, confidential and proprietary information
of the disclosing party. Title, or the right to possess proprietary information,
as between the parties shall, except as otherwise provided herein, remain with
the party which furnishes it to the other party. No rights are granted by either
party to the other with respect to Proprietary Information, except as expressly
stated herein. Neither party shall use, disclose or copy any Proprietary
Information of the other party except for the purposes of and to the extent
necessary for performance under this Agreement, except as expressly stated
herein.
11.3 DUTY OF CARE
Each party shall exercise the degree of care, in no case less than reasonable
care, sufficient to preclude disclosure of the other party's Proprietary
Information to any third party, unless authorized by the disclosing party, and
shall permit disclosure only to its personnel who are involved with the
Agreement and have agreed in writing to be bound by the confidentiality
provisions of this Agreement. The access and use restrictions imposed by each
party under this Section 11 will be at least as stringent as those applied to
the receiving party's most valuable confidential and proprietary information.
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AGREEMENT NO. ATO 980901
11.4 DURATION OF OBLIGATION
For a period of five (5) years from the date of disclosure of the Proprietary
Information, each party shall have the obligations stated in this Section 11
regarding Proprietary Information both during and after the expiration,
termination or cancellation of this Agreement, and shall be released from such
obligations only as Proprietary Information is:
(a) at any time in the public domain other than by breach of this
Agreement on the part of the receiving party; or
(b) at any time rightfully received from a third party which has the
right and transmits it to the receiving party without any obligation
of confidentiality; or
(c) independently developed by personnel of the receiving party who have
not had access to Proprietary Information of the other party; or
(d) rightfully known to the receiving party without any limitation on use
or disclosure prior to receipt thereof from the furnishing party, as
substantiated by tangible evidence antedating disclosure by the
furnishing party to the receiving party.
11.5 JUDICIALLY ORDERED DISCLOSURE
Neither party is restricted from disclosing Proprietary Information of the other
party pursuant to a judicial or governmental order, but any such disclosure
shall be made only to the extent so ordered and provided only that the party
receiving an order: (1) notifies the other party in a timely manner so that it
may intervene in response to such order, or (2) if timely notice cannot be given
then seeks to obtain a protective order from the court or government for such
information.
11.6 DISPOSITION OF PROPRIETARY INFORMATION
Each party shall promptly return or destroy and certify destruction of all
Proprietary Information furnished by the other party along with all copies
thereof in its possession including copies stored in any computer memory or
storage medium upon demand of the disclosing party or upon the expiration,
termination, or cancellation of this Agreement, whichever first occurs.
12. TRADEMARKS, TRADE NAMES AND PUBLICITY.
12.1 LICENSING LIMITATION
Nothing contained in this Agreement shall be construed as licensing either party
to use any trademark or trade name owned by or used by the other party without
the prior written consent of the other party.
12.2 PUBLICITY LIMITATION
Tera or Unisys shall not, except as may be required by law or federal
regulation, or except with the prior written permission of the other party,
publicly advertise the Agreement or disclose its contents.
13. TERMINATION AND CANCELLATION
13.1 CANCELLATION FOR CAUSE
In the event of a material breach of this Agreement by either party, the other
party may, upon not less than sixty (60) calendar days' prior written notice to
the party in breach, terminate this Agreement unless the breach is cured prior
to the end of the notice period. If a material breach is not cured within sixty
(60) calendar days after the notice of default, the other party may pursue its
remedies as follows. Neither party shall exercise these rights without having
first attempted to resolve any dispute in accordance with the provisions of the
Progressive Dispute Negotiation Procedures set forth in Section 14.11.
(a) If Unisys is in material breach of its obligations under Section 9.
WARRANTIES AND INDEMNITIES, Tera's sole and exclusive remedies shall
be as set forth therein.
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<PAGE> 14
AGREEMENT NO. ATO 980901
(b) If Tera is in material breach Unisys may terminate this Agreement and
(1) require Tera to take delivery of and to pay for all finished
Products scheduled for shipment at the time of Tera's default; (2)
discontinue all work-in-process unless Tera requests completion and
delivery and provides assurances of payment therefor acceptable to
Unisys; (3) recover from Tera all costs incurred by Unisys for raw
materials and labor for unfinished Products ordered by Tera, to the
extent that Unisys is unable to return such raw materials for credit,
or apply such raw materials and labor to the completion of Products
for purchase by Tera or other Unisys customers; (4) recover from Tera
all amounts due, but unpaid, for Products previously shipped to Tera
and, (5) pursue any and all other remedies at law to which Unisys may
be entitled.
Should any provision of this Agreement be finally determined to contravene any
applicable law or governmental regulation, such provision shall be automatically
terminated and performance thereof by both parties shall be waived to the extent
of such contravention. Should such provision be considered by either party to be
an essential element of this Agreement, the parties hereto agree to negotiate a
new, applicable provision in good faith.
13.2 TERMINATION
Either party may terminate this Agreement for convenience at any time, providing
six (6) months advance, written notice. Tera will have the right within such
notice period to place a "last time buy" purchase order in reasonable
quantities, with volume and delivery to be mutually agreed upon.
13.3 OUTSTANDING PURCHASE ORDERS AND MATERIAL DISPOSITION
Notwithstanding anything in this Agreement to the contrary, Tera, at its option,
may require Unisys to fulfill the terms of any purchase order that has been
accepted by Unisys as of the date of any cancellation, expiration, or
termination of this Agreement. All completed work, raw materials, parts,
work-in-progress, capital tooling, maintenance parts, and consumable supplies in
Unisys possession, which are owned by Tera shall be returned, or disposed of as
directed by Tera in writing. Unisys shall return all proprietary and
confidential tapes, documentation, and any and all related design material which
are owned by Tera to Tera.
13.4 INTELLECTUAL PROPERTY RIGHTS
Should Unisys request termination of this Agreement, Unisys grants to Tera a
royalty-free, non-exclusive, non-transferable, worldwide perpetual license under
Unisys intellectual property rights, to use and license others to use, Unisys
tooling, parts, Manufacturing Processes, drawings, libraries, and technical data
as listed in Exhibits B and D hereof, to permit Tera's establishment of a viable
alternative source. In the event this Agreement is terminated under Unisys
initiative, Unisys shall provide reasonable assistance to Tera in locating and
developing a compatible alternate source for Product. Such assistance shall be
limited to:
1. Identification of prospective sources
2. Surveys of prospective sources,
3. Technical assistance to establish the process at the
prospective source, All costs in providing this assistance shall be borne by
Tera. Pending the availability of such alternate source, Unisys shall strive to
provide an uninterrupted supply of Product to Tera. Tera shall use this royalty
free, non-exclusive license for its sole use in Tera's Products. Unisys shall,
upon direction of Tera, protect and preserve property encompassed in this
paragraph in the possession
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<PAGE> 15
AGREEMENT NO. ATO 980901
of Unisys. Payment for completed Products delivered to and accepted by Tera
shall be in an amount consistent with prices specified herein.
In the event of the commencement of a case against Unisys under the U.S.
bankruptcy laws, whether voluntary or involuntary, Tera may elect to retain its
rights under this Agreement pursuant to 11 U.S.C. # 365(n). In this regard, the
designs, Manufacturing Processes, drawings libraries, and technical data
licensed to Tera under Section 12.1(c) shall be deemed to be "intellectual
property" within the meaning of 11 U.S.C. # 101. Unisys obligations under this
Agreement shall be binding on Unisys successors including any trustee or debtor
in possession that may succeed to Unisys rights under this Agreement.
14. MISCELLANEOUS
14.1 INSURANCE
Unisys agrees to carry at all times, a minimum level of insurance of the
following kinds listed as items 1, 2, and 3 below and Tera agrees to provide
while present on Unisys premises, a minimum level of insurance of the following
kinds listed as items 1 and 2 below:
1. Workers Compensation Statutory limits in each state in
which Unisys is required to provide
Worker's Compensation coverage.
2. Employer's Liability $500,000
3. Blanket General Liability $5,000,000 combined single unit
including completed products and
services and combined single unit
(umbrella).
Blanket General Liability shall be reviewed annually to assure appropriate
amount of coverage is maintained to protect Tera owned property and materials. A
proof of insurance certificate shall be mailed to Tera at the time this
Agreement is executed.
14.2 CHANGES
Current specifications are listed in Exhibit B hereof. Any change in the (a)
Product technical requirements and descriptions, specifications, statement of
work, drawings or designs: (b) shipment or packing methods; (c) place of
delivery; (d) amount of Tera furnished material or property; or (e) Product
production methods and processes which may affect form, fit, function,
interchange ability, reliability, or safety of the Products, shall require the
prior mutual, written consent of Tera and Unisys, which consent shall not be
unreasonably withheld. If any such changes causes an increase or decrease in the
cost of or the time required for performance of this Agreement, an equitable
adjustment in the prices and schedules of this Agreement shall be made to
reflect such increase or decrease and this Agreement shall be modified in
writing accordingly. Unless otherwise agreed to in writing, any claim by Unisys
or Tera for adjustment must be delivered to the other party in writing within
forty five (45) calendar days after such change and the change shall be put into
effect within fifteen (15) days thereafter.
14.3 RESPONSIBILITY FOR PROPERTY
Unless otherwise specified, Unisys assumes responsibility for any theft, loss,
or damage, other than ordinary wear and tear, for tooling, materials, parts,
data, and any other property of Tera's, upon its delivery to Unisys or its
manufacture or acquisition by Unisys on Tera's behalf. Property owned by
15
<PAGE> 16
AGREEMENT NO. ATO 980901
Tera and provided to Unisys for Unisys use in relation to the manufacture and
delivery of Products will be identified in Exhibit "D", hereto. Tera Property is
an agenda item for the quarterly reviews and Exhibit D will be updated to
reflect any changes agreed upon at such reviews. Unisys agrees to address this
property during the Quarterly Reviews at Tera's option. All tooling, fixturing,
and equipment paid for directly, or indirectly through Non Recurring Engineering
Charges are the property of Tera.
Unisys will on Tera's request affix suitable labels that indicate Tera's
ownership of tooling, fixtures, equipment, materials, parts, data, and any other
property of Tera's covered by this Section, and such property. Unisys will on
request execute and deliver to Tera for filing in any relevant jurisdiction one
or more UCC-1 Financing Statements, indicating Tera's ownership of such property
and its consignment or bailment to Unisys pursuant to this Agreement.
Upon Tera's request, Unisys shall promptly return such property to Tera in the
condition received by Unisys, ordinary wear and tear accepted. Unisys agrees
that it is obligated to return such property to Tera, notwithstanding any
pending dispute between the parties, including but not limited to disputes
related to the quality or quantity of Products delivered and disputes related to
amounts owed by one party to the other.
14.4 EXPORT REGULATIONS
Tera acknowledges that if the Products purchased hereunder are to be exported,
they may be subject to the US Commerce Department or State Department Export
Regulations, and Tera accepts full responsibility for and agrees to fully comply
with such regulations, including obtaining export licenses and re-export
permission, and agrees to hold Unisys harmless from all claims, damages, fines,
or charges that may arise due to Unisys failure to so comply.
14.5 INDEPENDENT CONTRACTOR
In providing Products or Services hereunder, Unisys is acting as an independent
contractor and not as an agent of Tera. Neither party has the authority
hereunder to assume or create any obligation or responsibility, express or
implied, on behalf of, or in the name of the other party hereto, in any way
whatsoever.
14.6 ACCESS TO SAN DIEGO MANUFACTURING FACILITY
Unisys shall provide reasonable access to the manufacturing and test areas and
Manufacturing Processes designated for manufacture of Products for designated
Tera employees during normal working hours and upon reasonable notice to Unisys.
Such designated Tera employees may audit and inspect the properties of Tera in
Unisys possession. Tera agrees to observe Unisys work site and security rules
and maintain insurance coverage as indicated is section 14.1 while present on
Unisys premises.
14.7 NON INTERFERENCE
Each Party agrees not to hire, or seek to hire any employee of the other during
the Term of this Agreement or for a period of six (6) months after termination
hereof without prior written consent and approval of both parties.
14.8 GOVERNING LAW
This Agreement shall be governed by the laws of the State of Washington except
with respect to conflict of laws and constitutes the complete agreement between
the parties. Each party will comply with all applicable federal, state, and
local laws, regulations and ordinances including, but not limited to, the
regulations of the U.S. Government relating to export and re-export of software
and technical data. The parties agree to comply with the letter and spirit of
all laws, ordinances, codes, rules, regulations, license and permit provisions,
guidelines, and directives of any other, state or federal governmental authority
having appropriate jurisdiction over environmental protection.
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AGREEMENT NO. ATO 980901
14.9 ASSIGNMENT
A party's rights under this Agreement may not be assigned in whole or in part by
operation of law or otherwise without the other party's prior express written
consent, and any attempted assignment of any rights, duties or obligations
hereunder without such consent shall be void; provided, however, that if Unisys
sells substantially all of its assets required to complete its obligations under
this Agreement, Tera shall, at its sole discretion, have the option to (a)
terminate this Agreement, or to (b) require the Purchaser of such assets of
Unisys to assume all of Unisys obligation under this Agreement, or to exercise
"Last Time Buy" rights provided under Section 13.2 (TERMINATION) in addition to
the rights indicated in (a) and (b) in this paragraph.
14.10 FORCE MAJEURE
Neither party shall be liable or be in breach of this agreement if the
performance of this Agreement or of any obligation hereunder (except payment of
monies due) is prevented, restricted or interfered with by any act or condition
beyond the reasonable control of the party affected thereby, including without
limitation: fire or other casualty or accident; strikes or labor disputes; war
or other violence; unavailability of or delays in procuring materials,
utilities, or supplies; or any law, order, proclamation, regulation, ordinance,
demand or requirement of any governmental or intergovernmental agency or body.
The party so affected shall be excused from such performance to the extent of
such prevention, restriction or interference and shall promptly give notice of
such prevention, restriction, or interference to the other party. If such Force
Majeure prevents or delays the performance of Unisys hereunder, Tera may, at its
option, either (a) delete from this Agreement any quantities of the products it
otherwise should have purchased from Unisys but for such Force Majeure event and
shall receive credit, or (b) may extend the Agreement for a period of time equal
to the period of Force Majeure of Unisys.
14.11 PROGRESSIVE DISPUTE NEGOTIATION PROCEDURES
This section will govern any dispute between the parties arising from or related
to the subject matter of this Agreement that is not resolved by agreement
between the respective personnel of the parties for day to day administration
and performance of the Agreement. Prior to filing of any suit with respect to
such a dispute (other than a suit seeking injunctive relief with respect to
intellectual property rights), the party believing itself aggrieved (the
"Invoking Party") will call for progressive management involvement in the
dispute negotiation by written notice to the other party. Such a notice will be
without prejudice to the Invoking Party's right to any other remedy permitted by
this Agreement.
The parties will use their best efforts to arrange personal meetings or
telephone conferences, as needed, at mutually convenient times and places
between negotiators for the parties at the following successive management
levels, each of which will have a period of allotted time, as specified below,
in which to attempt to resolve the dispute.
<TABLE>
<CAPTION>
Level TERA UNISYS Allotted Time
----- ---- ------ -------------
<S> <C> <C> <C>
First Director Director 10 business days
Manufacturing Manufacturing
Second Division VP Division VP 20 business days
Third Designated Designated 30 business days
Corporate Corporate
Officer Officer
</TABLE>
No resolution of disputes involving intellectual property or patents will be
undertaken without first consulting and obtaining the consent of the
Intellectual Property/legal counsel of both parties. The allotted time for the
first level negotiators will begin on the effective date of the Invoking Party's
written notice.
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AGREEMENT NO. ATO 980901
If resolution is not achieved by negotiators at any given management level at
the end of their allotted time, then the allotted time for the negotiators at
the next management level, if any, will begin immediately. If resolution is not
achieved by negotiators at the final level within the allotted time, the parties
agree within forty-five (45) calendar days to select a form of alternative
dispute resolution (ADR) from informal non binding arbitration, private judging,
mini-trial, summary jury trial, moderated settlement conference, mediation or
other, and negotiate and ADR agreement for an ADR process. The ADR agreement
shall at least include provisions governing the ADR procedure, rules, discovery,
timing and cost allocations. In no event will such ADR process result in the
imposition of any element of punitive damages in the event of any awards.
If the ADR agreement is not agreed to by the parties within the time as set
forth in this Section 14.11 hereof, then either party may bring suit to resolve
the dispute in a court of competent jurisdiction. In the event of any material
breach between the parties hereto relating to this Agreement or the breach of
this Agreement, the prevailing party in any resulting litigation shall be
entitled to recover from the other party thereto the costs and expenses,
including reasonable attorneys fees, incurred in taking or defending such
action, including on any appeal.
14.12 AGENCY PRODUCT SUBMISSIONS
If Tera seeks regulatory or safety agency approval for Product, Unisys shall
cooperate and fully support Tera. Such cooperation primarily shall consist of
providing design and test data to support the submission.
14.13 HEADINGS
The Section headings are provided for ease of reference and do not form a part
of the Agreement, and shall not be used in interpretation or governing the
meaning of the Agreement.
14.14 INQUIRIES
If any governmental agency contacts Unisys to inquire about or investigate any
product manufactured by Unisys or Tera, Unisys shall use its best efforts to
give notice thereof to Tera within 24 hours of receipt of such contact.
14.15 NON WAIVER
These terms and conditions set forth the entire understanding between the
parties with reference to the subject matter hereof. The failure of either party
to enforce at any time any of the provision hereof shall not constitute a waiver
of such provision or a waiver of the right to enforce any or all provision at
another time. Any modification to this Agreement shall be by mutual agreement,
shall be in writing, and attached as an addendum to this Agreement.
14.16 NOTICES
Any notice given under this agreement shall be written or sent by facsimile.
Written notice shall be sent registered or certified mail, postage prepaid,
return receipt requested, or by any other overnight delivery service which
delivers to the noticed destination, and provides proof of delivery to sender.
Any facsimile notice must be followed within three (3) business days by written
notice. All notices shall be effective when first received at the following
addresses:
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AGREEMENT NO. ATO 980901
If to Tera: If to Unisys:
Tera Computer Company Unisys Corporation
2815 Eastlake Ave. E. 10850 Via Frontera
Seattle, WA 98102 San Diego, CA 92127
Attn.: Kathy Rowe Attn.: John Morgen
Dave Kirkwood
In WITNESS WHEREOF, The authorized representatives of the parties have executed
this agreement under seal as of the date(s) set forth below.
DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY ARE INCLUDED HEREIN.
TERA COMPUTER COMPANY UNISYS CORPORATION
By: /s/ Katherine L. Rowe By: /s/ David L. Kirkwood
Printed: Kathy Rowe Printed: Dave Kirkwood
Title: Vice President - Manufacturing Title: Vice President and General
Manager ATO and Supplier
Quality
Date: October 16, 1998 Date: October 19, 1998
By: /s/ John Morgen
Printed John Morgen
Title: Director of Manufacturing
Date: October 16, 1998
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<PAGE> 20
AGREEMENT NO. ATO 980901
EXHIBIT A
ASSEMBLY AND TEST
Prices shown in this Exhibit apply to Bin 1 and Bin 2 parts. Tera will not
be charged for those parts which do not complete the process due to a Unisys
cause.
Volume price breaks are for a single part number.
LEAD TIMES
Standard Lead Time shall be twenty one (21) calendar days from sorted and
diced die issued into the line to shipment of the finished Product.
Accelerated Lead Time shall be six (6) work days from sorted and diced die
issued into the line to shipment of the finished Product.
Premium Lead Time shall be six (6) calendar days including weekends from
sorted and diced die issued into the line to shipment of the finished
Product.
PRICING
Unit Pricing is per part, regardless of part number, and includes wafer
sorting and dicing.
The Unit price for lot sizes from 1 through 19 parts shall be $ *
The Unit price for lot sizes from 20 through 99 parts shall be $ *
The Unit price for lot sizes from 100 parts and up shall be $ *
SETUP COSTS
The Small Lot Setup Charge Adder shall be $ * A small lot consists of 1
The Medium Lot Setup Charge shall be $ * A Medium Lot consists of 6
through 9 parts of a single part number.
The Large Lot Setup Charge shall be $ * A Large Lot consists of 10 or
more parts of a single part number.
EXPEDITE CHARGES
The charge for Accelerated Lead Time Processing shall be two times the sum
of unit prices and the lot Setup charges.
The charge for Premium Lead Time Processing shall be two times the sum of
unit prices and the lot Setup charges plus $ * per lot.
ROOT CONTROLLER TESTING
Charge for Root Controller Testing shall be $ * per hour.
<PAGE> 21
AGREEMENT NO. ATO 980901
EXHIBIT A
SONOSCAN TESTING
Sonoscan services requested by Tera shall be billed at cost. Tera shall be
responsible for all shipping charges.
AXIOM RETURNS
Charge for testing Returns from Axiom shall be $ * per device with a
minimum charge of $ * per lot of the same part type. Parts must be of
testable quality as received. Rework, if required, will be billed at cost.
Such rework requires Tera approval.
WAFER CARCASSES
Wafer carcasses will be stored in nitrogen.
* Confidential treatment requested.
<PAGE> 22
AGREEMENT NO. ATO 980901
EXHIBIT B
SPECIFICATIONS FOR TERA SERVICE AGREEMENT
Table 1 lists the materials defined and specified per this agreement. Unisys
and/or Tera specification numbers are listed where available. Any Form, Fit, or
Function changes to the items listed that affect existing inventory or assembly
processes shall be subject to the conditions stated in Section 6.
TABLE 1
<TABLE>
<CAPTION>
Material Unisys Specification # Tera Specification #
-------- ---------------------- --------------------
<S> <C> <C>
ASIC
Vitesse No Unisys Part number All KB and KE options
Triquint Scan Controller
Interposers
Large cavity ES000322-00 Rev B 20000410
Small cavity ES000323-00 Rev A 20000200
Heatspreader ES000417-00 Rev A
Lamination adhesive preforms
Large cavity ES001020-01 Rev B
Small cavity ES000223-00 Rev A
Lamination conductive adhesive, & ES000309-00 Rev A
large cavity die attach
Small cavity die attach adhesive ES000422-00 Rev A
Gold wire
Gold ball bond ES000153-01 Rev E
Gold wedge bond ES000153-02 Rev E
Encapsulants
Stress coat ES000425-00 Rev B
Hard cap ES000152-00 Rev C
Solder balls ES000062-01 Rev C
Solder flux EX000430-00 Rev B
</TABLE>
Table 2 lists the processes defined and specified per this agreement. Unisys
and/or Tera specification numbers are listed where available. Any Form, Fit, or
Function changes to the items listed that affect existing inventory or assembly
processes shall be subject to the conditions stated in Section 6.
TABLE 2
<TABLE>
<CAPTION>
Process Unisys Eng. Specification #
------- ---------------------------
<S> <C>
Wafer inspection 2823 4151
Wafer probe per part number rev, see Exhibit A
Die prep ES000320-00 Rev C
Marking ES001056-00
Interposer Clean & Bake ES000182-00 Rev F
Heatspreader Lamination ES000182-00 Rev F
Small Cavity Die Attach ASSY-077 Rev A
Large Cavity Die Attach ASSY-067 Rev A
Wirebond ES000321-00 Rev B
Pre-seal test per part number rev, see Exhibit A
Encapsulation 1 ES000435-00 Rev B
Encapsulation 2 ES000186-00 Rev E
Solder Ball Attach ES000225-00 Rev F
Final Test per part number rev, see Exhibit A
Root Controller per part number rev, see Exhibit A
Carrier ins/pack 2832 4374
</TABLE>
<PAGE> 23
AGREEMENT NO. ATO 980901
EXHIBIT C
AGENDA FOR QUARTERLY BUSINESS REVIEW MEETING
FORECAST
- - - - provide a unit volume forecast by Part Number by month for at least the
subsequent six months.
DELIVERY
- - - - report delivery performance addressing timeliness and volume of shipments.
- - - - report status of current backlog.
LEAD TIME
- - - - report on required changes to lead time.
PRICING
- - - - reach agreement on pricing to be used for subsequent quarter.
INVENTORY
- - - - report current inventory levels consigned Die, consigned Packages, Finished
Goods, and Unisys supplied materials.
QUALITY
- - - - Unisys report on outgoing defect levels.
- - - - Tera report on incoming defect levels.
QUALITY IMPROVEMENT PROGRAM
- - - - Unisys report on status of Quality Improvement Program.
- - - - Tera identification of desired quality improvements.
ASSEMBLY
- - - - Unisys report on any assembly issues.
CORRECTIVE ACTIONS
- - - - Unisys report on status of corrective action requests submitted by Tera.
COST REDUCTION PROGRAM
- - - - Unisys report on status of Cost Reduction Program.
- - - - Tera report on opportunities for implementing cost reductions.
TERA PROPERTY
- - - - review property status.
- - - - determine requirements for repair, upgrades.
<PAGE> 24
AGREEMENT NO. ATO 980901
EXHIBIT D
TERA PROPERTY
The following tooling, fixtures, equipment, and software are furnished by Tera
to facilitate the assembly and test of the Tera ASICs (quantities in
parentheses):
WAFER TEST
Custom wafer chuck top (1)
Probe Cards
350KE (3)
350KB (2)
SC3/4 (2)
Opticals (26)
NOTE: Unisys to maintain and control
TEST PROGRAMS
Test Programs for each option, used for wafer sort, pre-seal & final
test (26)
NOTE: Tera to maintain and control
ASIC ASSEMBLY
Lamination tooling
Vacuum, 16-up (1)
Spring force, single up (10)
Die attach package positioner (to be acquired as volumes increase)
Wirebond workholders (3)
K & S 1484 (1)
Hughes 2460 for downbonding (1)
Delvotec for future wirebonding of SC3/4 (1)
Encapsulation dispense fixture (3)
Solder ball plate (1)
Solder ball flux transfer plate (1)
NOTE: Unisys to maintain and control
ASIC ITS 9000 TEST
preseal pogo pin fixtures (2)
1 additional pogo pin fixture needed for the SC3/SC4 load board
Load Boards (used for preseal and post seal)
350KB (2)
350KE (2)
Scan Controller (2)
Postseal testing
Ice pad
Fuzzbutton sockets
Note: The above two items are consumable and require replenishment
at Tera's expense
ROOT CONTROLLER
Tera designed root controller tester (1)
Test fixtures
350KB (1)
350KE (1)
NES Lab Chiller (1)
Operating System
Test programs (25)
Note: Tera is responsible for maintaining the root controller equipment, test
fixtures, operating system and test programs.
<PAGE> 1
Exhibit 11.
TERA COMPUTER COMPANY
COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE
SHARES OUTSTANDING 10,331,862 12,258,238 8,064,929 11,785,680
NET LOSS $ (4,774,801) $ (4,759,910) $(11,156,167) $(14,344,763)
NET LOSS PER SHARE $ (0.46) $ (0.39) $ (1.38) $ (1.22)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF TERA COMPUTER COMPANY FOR THE THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,277,276
<SECURITIES> 0
<RECEIVABLES> 383,815
<ALLOWANCES> 0
<INVENTORY> 7,265,678
<CURRENT-ASSETS> 17,753,713
<PP&E> 5,946,615
<DEPRECIATION> (3,413,259)
<TOTAL-ASSETS> 20,450,121
<CURRENT-LIABILITIES> 5,136,509
<BONDS> 0
0
8,784,990
<COMMON> 64,590,707
<OTHER-SE> (58,789,109)
<TOTAL-LIABILITY-AND-EQUITY> 20,450,121
<SALES> 0
<TOTAL-REVENUES> 231,655
<CGS> 0
<TOTAL-COSTS> 209,383
<OTHER-EXPENSES> 4,259,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,738
<INCOME-PRETAX> (4,153,877)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,153,877)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,759,910)
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
