As filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 333-67885
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
Form S-3 Registration Statement
Under the Securities Act of 1933
---------------
TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
---------------
WASHINGTON 93-0962605
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
411 First Avenue South
Suite 600
Seattle, WA 98104
(206) 701-2000 (telephone)
(206) 701-2500 (facsimile)
(Address, including zip code, and telephone and
facsimile numbers, including area code, of
principal executive offices)
---------------
Kenneth W. Johnson, Chief Financial Officer
Tera Computer Company
411 First Avenue South
Suite 600
Seattle, WA 98104
(206) 701-2000 (telephone)
(206) 701-2500 (facsimile)
(Name, address, including zip code, and
telephone and facsimile numbers, including area code, of
agent for service)
Copy to:
Christopher J. Voss
Stoel Rives LLP
One Union Square, 36th Floor
Seattle, WA 98101-3197
(206) 624-0900 (telephone)
(206) 386-7500 (facsimile)
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
<PAGE>
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with a dividend or
interest reinvestment plan, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Per Aggregate Offering Registration
Registered Registered (1) Share(2) Price (2) Fee(3)
- -------------------- -------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock, 1,497,929 shares $6.50 $6,173,430 $1,759
$.01 par value
=================================================================================================
(1) Pursuant to Rule 416 under the Securities Act of 1933, there are also being
registered such indeterminate number of additional shares of Common Stock as may
be issuable upon exercise of the Common Stock purchase warrants described herein
pursuant to the provisions thereof regarding adjustment for stock dividends,
stock splits or similar events.
(2) Of the shares being registered hereby, 161,344 are issuable upon exercise of
outstanding common stock purchase warrants at an exercise price of $6.00 per
share, and 536,585 are issuable upon exercise of outstanding common stock
purchase warrants at an exercise price of $0.01 per share. The proposed maximum
offering price per share and maximum aggregate offering price for the balance of
the shares being registered hereby is calculated in accordance with Rule 457(c)
under the Securities Act.
(3) A registration fee of $3,160 was paid upon filing of the initial
registration statement on November 24, 1998.
</TABLE>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
PROSPECTUS, Subject to Completion, dated March 26, 1999
TERA COMPUTER COMPANY
1,497,929 shares of Common Stock
These shares of common stock are being offered and sold from time to time
by certain of our current shareholders. We issued the shares, or reserved the
shares for issuance, to the selling shareholders in connection with investments
that the selling shareholders made in the Company in September and December
1998.
The selling shareholders may sell the shares from time to time at fixed
prices, market prices, prices computed with formulas based on market prices, or
at negotiated prices, and may engage a broker or dealer to sell the shares. For
additional information on the selling shareholders' possible methods of sale,
you should refer to the section of this prospectus entitled "Plan of
Distribution" on page 17. We will not receive any proceeds from the sale of the
shares, but will bear the costs relating to the registration of the shares.
Our common stock is traded on the Nasdaq National Market under the symbol
"TERA." On March 25, 1999, the closing price for our common stock was $6.375 per
share.
--------------------
This shares offered in this prospectus involve a high degree of risk. You
should carefully consider the "Risk Factors" beginning on page 4 in determining
whether to purchase shares of our common stock.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the shares, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------
The date of this Prospectus is _____, 1999.
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
Our Business .................................................... 3
Risk Factors .................................................... 4
Capitalization .................................................. 14
Selling Shareholders ............................................ 15
Plan of Distribution ............................................ 17
Experts ......................................................... 18
Limitation of Liability and Indemnification ..................... 18
Information Incorporated by Reference ........................... 18
Available Information ........................................... 19
You should rely only on information contained or incorporated by reference
in this prospectus. See "Information Incorporated by Reference" on Page 18.
Neither Tera nor the selling shareholders have authorized any other person to
provide you with information different from that contained in this prospectus.
The shares of common stock are not being offered in any jurisdiction where
the offering is not permitted.
The information contained in this prospectus is correct only as of the date
on the cover, regardless of the date this prospectus was delivered to you or the
date on which you acquired any of the shares.
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<PAGE>
OUR BUSINESS
We design and market high performance computer systems based on our unique
multi-threaded architecture, the "MTA system."
Our MTA system addresses a wide range of scientific and engineering
applications, such as simulating and visualizing complex mechanical and
biochemical systems. Examples of these applications include car crash
simulations and molecular modeling for pharmaceutical drug design. In addition,
the MTA system is suited for emerging commercial applications, such as
computer-aided design and visualization, and highly data-intensive applications,
such as information-on-demand across the Internet, portfolio analysis for
investment analysts, and the analysis of very large collections of data to
answer queries. Because it may be used to solve a wide variety of scientific,
industrial and commercial problems, the MTA system is considered a general
purpose supercomputer.
We were organized in December 1987, and since then have been working to
design, develop and manufacture the MTA system, including hardware and software.
In April 1998, we installed a two-resource module MTA system at the San Diego
Supercomputer Center, our first customer, and recognized our first revenue from
system sales. In December 1998, this system was upgraded to a four-resource
module system. We plan to upgrade this system to larger configurations in stages
as we receive production printed circuit boards, packaged integrated circuits
and other components from our vendors. We also plan additional shipments to
other customers in 1999, although we presently have no contracts for other
deliveries.
Our principal executive offices are located at Merrill Place, Suite 600, 411
First Avenue South, Seattle, WA 98104-2860, and our telephone number is (206)
701-2000.
--------------------
"Tera" and "MTA" are trademarks of the Company. This prospectus also
contains and incorporates trademarks of other companies.
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<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of Tera's common stock.
You should not purchase any of the shares unless you can afford a complete loss
of your investment.
- --------------------------------------------------------------------------------
We Have Not Completed Development of a Commercially Acceptable MTA System
The development of a new very high performance computer system is a lengthy
and technically challenging process and requires a significant investment of
capital and other resources. Several companies in this market experienced
extreme financial difficulty in the 1990s, including Thinking Machines
Corporation, Cray Computer Corporation, Kendall Square Research Corporation and
Supercomputer Systems, Inc. We first integrated multiple MTA resource modules
into commercially configured computer systems only in 1998, and have not yet
built the MTA system to meet stringent commercial reliability standards. To
date, we have sold one MTA system to the National Science Foundation which is
installed at the San Diego Supercomputer Center, and have no purchase orders for
additional systems. We may not be able to meet all of the technical challenges
required to integrate and complete MTA systems that satisfy internal performance
specifications and that are commercially acceptable.
Completing the Development of the MTA System Poses Ongoing Technical Challenges
From time to time during the development process of the MTA system, we have
been required to redesign certain components of the MTA system because of
previously unforeseen design flaws. For example, we have discovered certain
design flaws in certain application-specific integrated circuits, printed
circuit boards and flex circuits, all of which had to be redesigned. We also
continue to find certain flaws or "bugs" in our system software, which require
correction. This redesign work has been costly and caused delays in the
development of our prototype, in the delivery of our initial MTA system and in
upgrades to that system. We expect that additional modifications to the hardware
components, system software and the integrated system will be necessary as we
build larger MTA systems for the commercial market. Additional delays in
completing the various hardware components or software, or in integrating the
full system, would materially and adversely affect our business and results of
operations.
Our Suppliers May Not Deliver Acceptable Hardware Components
The manufacture of components for the MTA system is a difficult and complex
process, and few companies can meet our requirements. Our suppliers have
previously experienced problems in manufacturing MTA system components to our
design and quality specifications. In prior years we have been forced to
redesign certain components for manufacture by alternative suppliers because our
original suppliers were unable to consistently manufacture components of
satisfactory quality. In 1997 and 1998, we experienced varying (and sometimes
"zero") yields of gallium arsenide application-specific integrated circuits,
limited and delayed deliveries of such integrated circuits and deliveries of a
very limited number of reliable
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<PAGE>
printed circuit boards. Together, these supply constraints caused substantial
delays in our ability to deliver the initial MTA system to the San Diego
Supercomputer Center and upgrading that system to larger configurations.
Although we are working with our suppliers to solve these problems, there
can be no assurance that they will be able to manufacture the components to our
design and quality specifications. Future manufacturing difficulties or
limitations of the suppliers could result in:
o a limitation on the number of MTA systems that can be produced using such
components;
o unacceptably high prices for those components, with a resulting loss of
profitability and loss of competitiveness for our products; and
o increased demands on our financial resources, requiring additional equity
and/or debt financings to continue business operations.
We Will Need Additional Capital To Continue Business Operations
Present cash resources and revenue from anticipated sales of MTA systems
and existing service contracts will be insufficient to finance our planned
operations throughout 1999. We believe that we will need to raise at least $12
million to meet our contractual commitments and to continue our current levels
of business operations even if we receive revenues from system sales when
anticipated; we have raised approximately $7 million from financings in the
first quarter of 1999. If we do not receive any revenues from system sales when
anticipated, then we will need additional capital. Even after completing such
financings and reciving product revenue from sales, we may raise additional
equity capital in 1999 to enhance our financial position for future operations.
Financings may not be available to us when needed or, if available, may not be
available on satisfactory terms or may be dilutive to our shareholders. If no
financing is available to us or is available only on a limited basis, then we
would have to significantly reduce our current operations, including inventory
purchases, research and design expenditures and numbers of employees.
We Have Had Limited Revenues and No Earnings; This May Continue
We have experienced net losses in each year of operations, and had an
accumulated net loss of approximately $62.6 million as of December 31, 1998. We
incurred net losses $12.1 million in 1996, $15.8 million in 1997, and $19.8
million in 1998. We expect to incur substantial further losses until we make
sales on a regular basis. We do not expect to have a profitable fiscal quarter
prior to 2000, if then.
Whether we will achieve additional revenue, or any earnings, will depend
upon a number of factors, including:
o our ability to manufacture production quality MTA systems in commercial
quantities;
o our ability to achieve broad market acceptance of the MTA system;
o the level of revenue in any given period;
o the terms and conditions of sale or lease for an MTA system;
o the MTA system model or models sold; and
o our expense levels and manufacturing costs.
There can be no assurance that we will be successful in delivering and receiving
payments for any additional MTA systems, or that we will be able to generate
additional sales or achieve a profitable level of operations in the future.
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<PAGE>
Our Reliance on Third Party Suppliers Poses Significant Risks
We subcontract the manufacture of substantially all of our hardware
components, including integrated circuits, printed circuit boards, flex circuits
and power supplies, on a sole or limited source basis to third party suppliers.
We obtain our gallium arsenide integrated circuits from Vitesse Semiconductor
Corporation and TriQuint Corporation; printed circuit boards from Multek
Corporation and Johnson-Matthey Inc.; flex circuits from Compunectics Inc.;
power supplies from ABB Power Supplies, Inc.; uninterruptible power supplies
from Pillar GmbH; and cooling distribution units from C.H. Bull Company. We are
exposed to substantial risks because of our reliance on these and other limited
or sole source suppliers. For example:
o if a reduction or interruption of supply of our components occurred, it
could take us a considerable period of time to identify and qualify
alternative suppliers to redesign our products as necessary and recommence
manufacture;
o if we were ever unable to locate a supplier for a component, we would be
unable to assemble and deliver our products;
o one or more suppliers may make strategic changes in their product lines,
which may result in the delay or suspension of manufacture of our
components or systems; and
o some of our key suppliers are small companies with limited financial and
other resources, and consequently may be more likely to experience
financial difficulties than larger, well established companies.
CMOS Implementation Will Require Significant Resources and May Not Be Successful
Over the next couple of years we plan to replace in stages most of our
gallium arsenide integrated circuits with integrated circuits made of CMOS
(complementary metal-oxide silicon). We believe that CMOS application-specific
integrated circuits will enable us to offer larger, more cost effective systems.
For example, the 24 gallium arsenide application-specific integrated circuits
currently on each processor board likely will be replaced by one CMOS
microprocessor. This process requires the redesign of all integrated circuits,
application-specific integrated circuit packages and printed circuit boards,
which in turn involves significant effort by our engineers and requires us to
devote significant capital for non-recurring engineering expenses, including
payments to potential suppliers and for design assistance. If we encounter
significant problems with this redesign, we may be delayed substantially in
delivering larger systems, which would materially and adversely affect our
working capital, business and results of operations. If we are successful in
producing CMOS components as planned, we may not be able, or desire, to use any
of the then remaining inventory of gallium arsenide components, and we may incur
a substantial expense in writing off such inventory.
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<PAGE>
A Substantial Number of Our Shares Are Eligible for Future Sale and Could
Depress Market Prices
Sale of a substantial number of shares of our common stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the common stock. As of March 8, 1999, we had outstanding:
o 14,328,701 shares of common stock;
o 5,715 shares of Series B Convertible Preferred Stock convertible into an
indeterminate number of shares of common stock; and
o privately placed warrants to purchase another 1,845,521 shares of common
stock.
Almost all of our outstanding shares of common stock may be sold without
substantial restrictions. In addition, as of March 8, 1999, we had granted
options under our option plans to purchase an aggregate of 3,095,895 shares of
common stock. All of the shares purchased under the option plans are available
for sale in the public market, subject in some cases to volume and other
limitations.
Sales in the public market of substantial amounts of common stock,
including sales of common stock issuable upon conversion of the Series B
Convertible Preferred Stock or the exercise of the privately placed warrants,
could depress prevailing market prices for the common stock. Even the perception
that such sales could occur may impact market prices.
Additional Shares Issuable By Us Would Dilute Your Shareholdings and Could
Hinder Our Ability to Obtain Additional Financing
We may be required to issue substantial additional shares of common stock to
holders of our Series B Convertible Preferred Stock and to holders of common
stock with certain "adjustment" rights. The Series B Convertible Preferred Stock
has a variable conversion rate equal to the lowest market "sale" price (subject
to adjustment in certain circumstances) in the five trading days prior to each
conversion. The number of shares of common stock that would be issuable upon
conversion of the 5,715 shares of Series B Convertible Preferred Stock
outstanding as of March 8, 1999 (excluding any issuance of common stock in
payment of 5% per annum accrued dividends on the Series B) is illustrated below:
Number of Shares
of Common
Conversion Price Stock Issuable
$10.00 571,500
$8.00 714,375
$6.00 952,500
$4.00 1,428,750
The Series B convertible preferred stock may be converted at any time, but
holders tend to convert their shares when the market price of our common stock
increases significantly within short periods.
The shares of common stock sold to the selling shareholders in the
September 1998 and December 1998 private placements have certain "adjustment"
rights pursuant to which we are required to issue warrants to purchase
additional shares of common stock at an exercise price of $.01 per share to the
selling shareholders (or to their permitted assigns) if the market price of our
common stock is less than a specified target value on certain "measurement
dates."
We agreed with the selling shareholders that the first measurement date
would be on February 22, 1999, as of which date we became obligated to issue
warrants to acquire 536,585 additional shares of common stock (the "February
Adjustment Warrants") to the selling shareholders in accordance with the terms
of the adjustment provisions of the
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<PAGE>
subscription agreements for the September and December private placements. The
shares underlying the February Adjustment Warrants have been registered in the
Registration Statement of which this prospectus constitutes a part.
The next measurement date will be on May 22, 1999. Assuming that the
selling shareholders continue to hold all of the 800,000 shares issued to them
in the September and December private placements and all of the February
Adjustment Warrants, the number of warrants to purchase additional shares that
would be issued to the investors on that date is illustrated below:
Market Price of Number of
Common Stock Warrants Issuable
--------------- -----------------
$12.00 - 0 -
$10.00 80,000
$8.00 200,000
$6.00 478,048
$4.00 1,385,365
Subsequent measurement dates are every three months thereafter through
September 30, 2001, and each subsequent target value will be $12.00 or the
lowest target value for any prior measurement date.
For subsequent measurement dates, the adjustment provision operates
similarly. If the market price is less than the applicable target value for
measurement dates after May 22, 1999, then the number of shares to be issued
will be increased by 1.25%, which reflects a negotiated issuance premium.
Assuming that the market price of the common stock on May 22, 1999 was $8.00 per
share and the selling shareholders continue to hold the original 800,000 shares,
the February Adjustment Warrants, and the warrants to purchase an additional
200,000 shares assumed to be issued on May 22, 1999, our obligation to issue
warrants to acquire additional shares on August 22, 1999 (the third measurement
date) may be illustrated as follows:
Market Price of Number of
Common Stock Warrants Issuable
--------------- -----------------
$12.00 - 0 -
$10.00 - 0 -
$8.00 - 0 -
$6.00 300,731
$4.00 1,219,390
The existence of the Series B Convertible Preferred Stock and the
possibility of the issuance of warrants to acquire additional shares, as
described above, as well as the existence of other outstanding warrants and
options, may prove to be a hindrance to our future equity financings. Further,
the holders of such warrants and options may exercise them at a time when we
would otherwise be able to obtain additional equity capital on terms more
favorable to us. Such factors could materially and adversely affect our ability
to meet our capital needs.
Expected Sales Prices May Not Be Realizable
Most of our potential customers already own or lease very high performance
computer systems. Some of our competitors may offer trade-in allowances or
substantial discounts to potential customers, and we may not be able to match
such
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<PAGE>
sales incentives. We may be required to provide discounts to make sales or to
finance the leasing of our products, which would result in a deferral of our
receipt of cash for such systems. These developments could materially and
adversely affect our business and results of operations.
Continued Government Funding is Uncertain
We have targeted U.S. and foreign government agencies and research
laboratories for our early sales. Our first sale was to the U.S. National
Science Foundation for installation at the San Diego Supercomputer Center. The
U.S. government historically has facilitated the development of, and has
constituted a market for, new and enhanced very high performance computer
systems. If the U.S. government or foreign governments were to reduce or delay
funding of certain high technology programs employing high performance
computing, then one of our target markets would be seriously adversely affected.
The inability of U.S. and foreign government agencies to procure additional very
high performance computer systems, due to lack of funding or for any other
reason, would materially and adversely affect our business, results of
operations and need for capital.
Significant Sales Depends Upon the Porting of Third Party Application Software
In order to make sales in markets beyond the very high performance
scientific market, such as government agencies and research laboratories, to
engineering and other commercial markets, we must be able to attract independent
software vendors to port their software application programs so that they will
run on the MTA system. We also plan to modify and port third-party software
applications to the MTA system ourselves to facilitate the expansion of our
potential markets. There can be no assurance that we will be able to induce
independent software vendors to port their applications, or that we will
successfully port third-party applications to the MTA system, and the failure to
do so could materially and adversely affect our business and results of
operations.
Rapid Growth Could Strain Our Management and Financial Resources
If we are successful in manufacturing and marketing the MTA system, we
believe that Tera would undergo a period of rapid growth that could place a
significant strain on our management, financial and other resources. Our ability
to manage our growth will require us:
o to continue to improve our operational and financial systems;
o to motivate and effectively manage our employees;
o to complete the implementation of a new financial, budgeting and management
information system; and
o to enhance internal control systems.
Our success will depend on our management's ability to make these changes and to
manage our operations effectively over the long term.
Our Success Depends on Key Personnel
Our success also will depend in large part upon our ability:
o to attract and retain highly skilled technical and marketing and sales
personnel;
o to provide technological depth and support;
o to complete and enhance the MTA system hardware and software; and
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<PAGE>
o to develop implementations of the MTA system.
Competition for highly skilled management, technical, marketing and sales
personnel is intense. We may not succeed in attracting and retaining such
personnel.
We are dependent on Burton J. Smith, our Chairman of the Board and Chief
Scientist, and James E. Rottsolk, our Chief Executive Officer. The loss of
either officer's services could have a material impact on our ability to achieve
our business objectives. We are the beneficiary of key man life insurance
policies on the lives of Messrs. Smith and Rottsolk in the amount of $2 million
and $1 million, respectively. We have no employment contracts with either Mr.
Smith or Mr. Rottsolk, or with any other employee.
Our Quarterly Performance May Vary Significantly
If we are able to attain market acceptance of the MTA system, one or a few
system sales may account for a substantial percentage of our quarterly and
annual revenue. This is due to the anticipated high average sales price of the
MTA system models and the timing of purchase orders and product acceptances.
Because a number of our prospective customers receive funding from the U.S. or
foreign governments, the timing of orders from such customers may be subject to
the appropriation and funding schedules of the relevant government agencies. The
timing of orders and shipments also could be affected by other events outside
our control, such as:
o changes in levels of customer capital spending;
o the introduction or announcement of competitive products;
o the availability of components; or
o currency fluctuations and international conflicts or economic crises.
Because of these factors, revenue, net income or loss and cash flow are likely
to fluctuate significantly from quarter to quarter.
U.S. Export Controls Could Hinder Our Sales to Foreign Customers
The U.S. government regulates the export of high performance computer
systems such as the MTA system. Delay or denial in the granting of any required
licenses could materially and adversely affect our business and results of
operations.
We May Not Be Able to Keep Up With Rapid Technological Change
Our market is characterized by rapidly changing technology, accelerated
product obsolescence, and continuously evolving industry standards. Our success
will depend upon our ability to complete development of the MTA system and to
introduce new products and features in a timely manner to meet evolving customer
requirements. We may not succeed in these efforts. Our business and results of
operations will be materially and adversely affected if we incur delays in
developing our products or if such products do not gain broad market acceptance.
In addition, products or technologies developed by others may render our
products or technologies noncompetitive or obsolete.
Competition in the High Performance Computer Market is Intense
Our competitors include established companies that are well-known in the
high performance computer market and new entrants capitalizing on developments
in parallel processing and increased computer performance through networking.
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<PAGE>
The high performance computer market is highly competitive and has been
dominated by Cray Research, Inc., now a subsidiary of Silicon Graphics, Inc.
Other participants in the market include IBM Corporation and Japanese companies
such as NEC Corporation, Fujitsu, Ltd., and Hitachi, Ltd. Each of these
competitors has broader product lines and substantially greater research,
engineering, manufacturing, marketing and financial resources than we do. A
number of companies have developed or plan to develop parallel systems for the
high performance computer market. To date, these products have been limited in
applicability and scalability and are often difficult to program. A breakthrough
in architecture or software technology could change this situation. Such a
breakthrough would materially and adversely our business and results of
operations.
The performance of the MTA system may not be competitive with the computer
systems offered by our competitors, and we may not compete successfully over
time against new entrants or innovative competitors at the lower end of the
market. Furthermore, periodic announcements by our competitors of new high
performance computer systems and price adjustments may materially and adversely
affect our business and results of operations.
We May Not Be Able To Protect Our Proprietary Information and Rights Adequately
We rely on a combination of copyright and trade secret protection,
non-disclosure agreements and licensing arrangements to establish, protect and
enforce our proprietary information and rights. In addition, we have a number of
patent applications pending and plan to file additional patent applications.
There can be no assurance, however, that patents will be issued from the pending
applications or that any issued patents will protect adequately those aspects of
our technology to which such patents will relate. Despite our efforts to
safeguard and maintain our proprietary rights, there can be no assurance that we
will succeed in doing so or that our competitors will not independently develop
or patent technologies that are substantially equivalent or superior to our
technologies.
Although we are not a party to any present litigation regarding proprietary
rights, third parties may assert intellectual property claims against us in the
future. Such claims, if proved, could materially and adversely affect our
business and results of operations. In addition, even meritless claims require
management attention and cause us to incur significant expense.
The laws of certain foreign countries do not protect intellectual property
rights to the same extent or in the same manner as do the laws of the United
States. Although we continue to implement protective measures and intend to
defend our proprietary rights vigorously, there can be no assurance that these
efforts will succeed.
Our Stock Price May Be Volatile
The trading price of our common stock could be subject to significant
fluctuations in response to, among other factors:
o variations in quarterly operating results;
o changes in analysts' estimates;
o announcements of technological innovations by us or our competitors; and
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<PAGE>
o general conditions in the high performance computer industry.
In addition, the stock market is subject to price and volume fluctuations that
particularly affect the market prices for small capitalization, high technology
companies. These fluctuations are often unrelated to the operating performance
of these companies.
It May Become More Difficult to Sell Our Stock in the Public Market
Our common stock is quoted on the Nasdaq National Market. In order to
remain listed on this market, the Company must meet Nasdaq's listing maintenance
standards. If the price of our common stock falls below minimum price levels for
an extended period, or we are unable to continue to meet Nasdaq's standards for
any other reason, the common stock could be delisted from the Nasdaq National
Market.
If the common stock is delisted, we likely would seek to list the common
stock on the Nasdaq SmallCap Market or for quotation on the American Stock
Exchange or a regional stock exchange. However, listing or quotation on such
market or exchange could reduce the liquidity of the market for the common
stock.
If the common stock were not listed or quoted on another market or
exchange, trading of the common stock would be conducted in the over-the-counter
market on an electronic bulletin board established for unlisted securities or in
what are commonly referred to as the "pink sheets." As a result, an investor
would find it more difficult to dispose of, or to obtain accurate quotations for
the price of, the common stock. In addition, such delisting from the Nasdaq
National Market and failure to obtain listing or quotation on such other market
or exchange would subject our securities to so-called "penny stock" rules that
impose additional sales practice and market-making requirements on
broker-dealers who sell and/or make a market in such securities. Consequently,
removal from the Nasdaq National Market and failure to obtain listing or
quotation on another market or exchange could affect the ability or willingness
of broker-dealers to sell and/or make a market in the common stock and the
ability of purchasers of the common stock to sell their securities in the
secondary market. In addition, if the market price of the common stock falls to
below $5.00 per share, we may become subject to certain penny stock rules even
if our common stock is still quoted on the Nasdaq National Market. While such
penny stock rules should not affect the quotation of our common stock on the
Nasdaq National Market, such rules may further limit the market liquidity of the
common stock and the ability of investors to sell the common stock in the
secondary market.
We Do Not Anticipate Declaring Any Dividends
We have not previously paid any dividends on our common stock and for the
foreseeable future we intend to continue our policy of retaining any earnings to
finance the development and expansion of our business.
Certain Provisions of our Articles and Bylaws Could Make a Proposed Acquisition
That is Not Approved by Our Management More Difficult
Certain provisions of our Restated Articles of Incorporation and Restated Bylaws
could make it more difficult for a third party to acquire us. These provisions
could limit the price that certain investors might be willing to pay in the
future for our common stock.
For example, our Articles and Bylaws provide for:
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<PAGE>
o a staggered Board of Directors, so that only two of six new directors are
elected each year;
o removal of a director for cause only upon the affirmative vote of not less
than two-thirds of the shares entitled to vote to elect directors;
o the issuance of preferred stock, without shareholder approval, with rights
senior to those of the common stock;
o no cumulative voting of shares;
o a special meeting of the shareholders only upon demand by the holders of
not less than 30% of the shares entitled to vote at such a meeting;
o amendments to the Articles of Incorporation require the affirmative vote of
not less than two-thirds of the outstanding shares entitled to vote on the
amendment, unless the amendment was approved by a majority of "continuing
directors" (as that term is defined in our Articles);
o special voting requirements for mergers and other business combinations,
unless the proposed transaction was approved by a majority of continuing
directors;
o special procedures to bring matters before our shareholders at our annual
shareholders' meeting; and
o special procedures for nominating members for election to the Board of
Directors.
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<PAGE>
- --------------------------------------------------------------------------------
Special Note Regarding Forward-Looking Statements
Some of the statements contained in this prospectus discuss future expectations,
contain projections or results of operations or financial condition or state
other "forward-looking" information. These statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ from those contemplated by the statements and, therefore,
these statements are not guarantees of our future performance.
- --------------------------------------------------------------------------------
-14-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998, excluding (i) 2,583,036 shares issuable upon exercise of
outstanding stock options as of December 31, 1998 and (ii) 1,072,936 shares of
common stock currently issuable upon exercise of certain privately placed
warrants.
December 31, 1998
-----------------
Long-term portion of capital leases .............................$ 573,054
Shareholders' equity:
Preferred Stock, $.01 par value:
5,000,000 shares authorized; issued
and outstanding, 6,000 shares of
Series B Convertible ........................................ 5,674,406
Common Stock, $.01 par value:
25,000,000 shares authorized; issued
and outstanding, 14,235,085 shares ...................... 68,744,437
Preferred Stock dividend distributable ...................... 75,000
Accumulated deficit ............................................. (62,604,556)
Total shareholders' equity .................................. 11,889,287
Total capitalization ....................................$ 12,462,341
============
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<PAGE>
SELLING SHAREHOLDERS
On September 30, 1998, Advantage Fund II Ltd. ("Advantage") and Koch
Industries, Inc. (Koch") each acquired 300,000 shares of common stock and
warrants to purchase 60,504 shares of common stock (the "September Private
Placement"). On December 16, 1998, Genesee Fund Limited - Portfolio B
("Genesee") and Koch each acquired 100,000 shares of common stock and warrants
to purchase 20,168 shares of common stock (the "December Private Placement").
Advantage, Koch, and Genesee are sometimes referred to in this prospectus
individually as a "selling shareholder" and collectively as the "selling
shareholders." Except with respect to the parties to the transactions and the
number of shares and warrants issued by Tera, the terms and conditions of the
September Private Placement and the December Private Placement were identical in
all material respects. The material terms of the subscription agreements
pursuant to which the selling shareholders acquired the shares of common stock,
warrants, and February Adjustment Warrants are described fully in the Current
Report on Form 8-K, as filed with the SEC on March 25, 1999, which report is
incorporated by reference in this prospectus.
The common stock purchase warrants issued by Tera to the selling
shareholders in the September Private Placement and December Private Placement
are exercisable at $6.00 per share. This exercise price is subject to adjustment
in the event of stock splits, stock dividends, recapitalizations,
reclassifications, and other common anti-dilution events. The exercise price
does not adjust for changes in market price or other performance criteria. The
warrants contain provisions which permit "cashless exercises" pursuant to which,
at the time of exercise, the exercising holders may surrender to Tera a number
of underlying shares of common stock having a market value equal to the
aggregate exercise price of the warrants being exercised, reducing the total
number of shares to be issued by the Company upon exercise.
The shares issued to the selling shareholders in the September Private
Placement and the December Private Placement, the shares issuable upon exercise
of the warrants issued in those transactions, and the shares issuable upon
exercise of the February Adjustment Warrants have been registered in the
registration statement of which this prospectus forms a part.
The following table sets forth certain information as of March 22, 1999,
regarding the ownership of the common stock by the selling shareholders and as
adjusted to give effect to the sale of the shares offered hereby. The
information relating to the shares owned by the selling shareholders prior to
the offering excludes:
o the number of shares issuable upon exercise of the warrants issued in
the September Private Placement and the December Private Placement;
o the number of shares issuable upon exercise of the February Adjustment
Warrants;
o shares of common stock issuable upon conversion of the 5,197 shares of
Series B Convertible Preferred Stock issued by the Company to
Advantage and Genesee in June 1998 that were outstanding as of March
22, 1999, and accrued dividends thereon payable in shares of common
stock; and
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<PAGE>
o shares issuable upon the exercise of common stock purchase warrants
issued by the Company to Advantage and Genesee in December 1997 and
June 1998 that were outstanding as of March 22, 1999.
The information relating to the shares being offered hereby represents:
o the number of shares of common stock sold to the selling shareholders
in the September Private Placement and December Private Placement;
o the number of shares of common stock issuable upon exercise of the
warrants issued to the selling shareholders in the September Private
Placement and December Private Placement; and
o the number of shares issuable upon exercise of the February Adjustment
Warrants.
<TABLE>
<CAPTION>
Ownership After Offering
Shares if All Shares Offered
Owned Prior to Shares Being Hereby Are Sold
Selling Shareholder Offering Offered Shares Percent
------------------- -------- ------- ------ -------
<S> <C> <C> <C> <C>
Advantage Fund II Ltd. 300,000 561,723 - 0 - -
Genesee Fund Limited -Portfolio B 100,217 187,241 - 0 - -
Koch Industries, Inc. 400,000 748,965 - 0 - -
</TABLE>
The selling shareholders and their respective officers and directors have
not held any positions or office or had any other material relationship with
Tera or any of its affiliates within the past three years.
In recognition of the fact that the selling shareholders may wish to be
legally permitted to sell their shares when they deem appropriate, the Company
agreed with the selling shareholders to file with the SEC, under the Securities
Act, a registration statement on Form S-3, of which this prospectus forms a
part, with respect to the resale of the shares, and has agreed to prepare and
file such amendments and supplements to the registration statement as may be
necessary to keep the registration statement effective until the shares are no
longer required to be registered for the sale thereof by the selling
shareholders. The Company also has agreed to file additional registration
statements in the future to register for resale any additional shares of common
stock issuable to the selling shareholders pursuant to their adjustment rights
described in the "Risk Factor" entitled "Additional Shares Issuable By Us Would
Dilute Your Shareholdings and Could Hinder Our Ability to Obtain Additional
Financing" on page 7 hereof and in the Current Report on Form 8-K, as filed with
the SEC on March 25, 1999, which report is incorporated by reference in this
prospectus.
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<PAGE>
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by the
selling shareholders or by their pledgees, donees, transferees or other
successors in interest. Sales may be made on one or more exchanges or in the
over-the-counter market (including the National Market), in privately negotiated
transactions, through the writing of options on the shares, or otherwise at
market prices then prevailing or at prices related to the then-current market
price, at fixed prices that may be changed, or at negotiated prices. Any shares
covered by this Prospectus that qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under such Rule rather pursuant to this Prospectus.
The shares may be sold to or through brokers or dealers, who may act as
agent or principal, or in direct transactions between the selling shareholders
and purchasers. In addition, the selling shareholders may, from time to time,
sell short the common stock, and in such instances this prospectus may be
delivered in connection with such short sale and the shares offered hereby may
be used to cover the short sale.
Transactions involving brokers or dealers may include (a) ordinary
brokerage transactions, (b) transactions in which the broker or dealer solicits
purchasers, (c) block trades in which the broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction, and (d) purchases by a broker or dealer
as a principal and resale by such broker or dealer for its account. In effecting
sales, brokers and dealers engaged by the selling shareholders or from the
purchasers of the shares may arrange for other brokers or dealers to
participate. Participating brokers or dealers may receive discounts, concessions
or commissions from the selling shareholders, the purchasers of the shares for
whom such broker or dealer may act as agent or to whom they may sell as
principal. Any such compensation payable to a broker or dealer may exceed
customary commissions. The Selling Shareholders and such brokers and dealers who
act in connection with the sale of shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by them
and any profit on any resale of the shares as principal may be deemed to be
underwriting discounts and commissions under the Securities Act.
In connection with distributions of the common stock, the selling
shareholders may enter into hedging transactions with brokers or dealers and the
brokers or dealers may engage in short sales of the common stock in the course
of hedging the positions they assume with the selling shareholders. The selling
shareholders also may enter into option or other transactions with brokers or
dealers that involve the delivery of the common stock to the brokers or dealers,
who may then resell or otherwise transfer such common stock. The selling
shareholders also may loan or pledge the common stock to a broker or dealer and
the broker or dealer may sell the common stock so loaned or upon default may
sell or otherwise transfer the pledged common stock.
Advantage and Genesee have agreed to limit their sales of the Company's
common stock on the public market to no more than 5,000 shares, in the
aggregate, per day through May 31, 1999. This limitation will not apply if and
as long as the bid price for the common stock exceeds $13.00 per share.
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<PAGE>
Tera is bearing all costs relating to the registration of the shares. Any
commissions, discounts or other fees payable to brokers or dealers in connection
with any sale of the shares will be borne by the selling shareholders, the
purchasers of the shares, or both. Tera will receive none of the proceeds from
the sale of the shares by the selling shareholders. The Company and the selling
shareholders each have agreed to indemnify the other against certain
liabilities, including liabilities arising under the Securities Act, that relate
to statements or omissions in the registration statement of which this
prospectus forms a part.
EXPERTS
The balance sheets of Tera Computer Company as of December 31, 1996 and
1997 and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997, and
period from December 7, 1987 (inception) through December 31, 1997, incorporated
by reference into this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports with respect thereto. Such
financial statements have been so incorporated in reliance on the reports of
such firm given upon their authority as experts in accounting and auditing.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Articles of Incorporation provide that, to the
fullest extent permitted by the Washington Business Corporation Act, the
Company's directors will not be liable for monetary damages to the Company or
its shareholders, excluding, however, liability for acts or omissions involving
intentional misconduct or knowing violations of law, illegal distributions or
transactions from which the director receives benefits to which the director is
not legally entitled. The Company's Restated Bylaws provide that the Company
will indemnify its directors and, by action of the Board of Directors, may
indemnify its officers, employees and other agents of the Company to the fullest
extent permitted by applicable law, except for any legal proceeding that is
initiated by such directors, officers, employees or agents without authorization
of the Board of Directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in those documents is considered part of this prospectus. Information
that we file with the SEC subsequent to the date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the selling shareholders have sold all the shares.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
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<PAGE>
1. Our Annual Report on Form 10-K for the year ended December 31, 1997, and
Amendments No. 1 and No. 2 on Form 10-K/A for the year ended December 31, 1997;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31,1998,
and Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 1998;
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30,1998,
and Amendment No. 1 on Form 10-Q/A for the quarter ended June 30, 1998;
4. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1998;
5. Our Current Reports on Form 8-K as filed with the SEC on January 7,
1998, January 22, 1998, October 8, 1998, November 8, 1998, and December 23,
1998, and March 25, 1999; and
6. The description of our common stock set forth in our Registration
Statement on Form SB-2 (Registration No. 33-95460-LA), including any amendment
or report filed for the purpose of updating such description, as incorporated by
reference in our Registration Statement on Form 8-A (Registration No. 0-26820),
including the amendment thereto on Form 8-A/A.
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference, other than exhibits to
such documents. You should direct any requests for documents to Investor
Relations, Tera Computer Company, 411 First Avenue South, Suite 600, Seattle,
Washington 98104, Telephone (206) 701-2000.
The information relating to the Company contained in this prospectus is not
comprehensive and should be read together with the information contained in the
incorporated documents.
AVAILABLE INFORMATION
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the SEC. Certain information in the Registration Statement has been
omitted from this prospectus in accordance with SEC rules.
We file annual, quarterly and special reports and other information with
the SEC. You may read and copy the Registration Statement and any other document
that we file at the SEC's public reference rooms located at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov or through our web site at http://www.tera.com.
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<PAGE>
Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each instance
you should refer to the copy of such contract or other document filed as an
exhibit to the Registration Statement.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
All expenses in connection with the issuance and distribution of the
securities being registered will be paid by the Company. The following is an
itemized statement of these expenses (all amounts are estimated except for the
SEC and Nasdaq listing fees):
SEC Registration fee.............................. $ 3,160
Nasdaq listing fee................................ $ 17,500
Legal fees........................................ $ 40,000
Accountant's Fees................................. $ 15,000
Printing Fees..................................... $ 500
Miscellaneous..................................... $ 840
-----------
Total............................................. $ 77,000
Item 15. Indemnification of Officers and Directors.
Article XII of the Company's Restated Articles of Incorporation and Section
11 of the Company's Restated Bylaws require indemnification of directors,
officers, employees and agents of the Company to the fullest extent permitted by
the Washington Business Corporation Act (the "Act"). Sections 23B.08.500 through
23B.08.000 of the Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act.
Section 23B.08.320 of the Act authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, self-dealing or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Article XI of the Company's Restated Articles of Incorporation
contains provisions implementing, to the fullest extent permitted by Washington
law, such limitations on a director's liability to the Company and its
shareholders.
II-1
<PAGE>
Item 16. Exhibits.
3.1 Restated Articles of Incorporation of the Company (1)
3.1.1 Articles of Amendment Containing the Statement of Rights and
Preferences of the Series B Convertible Preferred Stock of the Company
(2)
3.1.2 Articles of Amendment Containing the Statement of Rights and
Preferences of the Series A Convertible Preferred Stock of the Company
(3)
3.1.3 Articles of Amendment Containing the Statement of Rights and
Preferences of the Series C Convertible Preferred Stock of the Company
(4)
3.2 Restated Bylaws of the Company (1)
4.1 Subscription Agreement, dated as of September 30, 1998, by and between
the Registrant and each of Advantage Fund II Ltd. and Koch Industries,
Inc. (5)
4.2 Registration Rights Agreement, dated as of September 30, 1998, by and
between the Registrant and Advantage Fund II Ltd. (6)
4.3 Registration Rights Agreement, dated as of September 30, 1998, by and
between the Registrant and Koch Industries, Inc. (6)
4.4 Form of Warrant Issued by the Company to Advantage Fund II Ltd., Koch
Industries, Inc., and Genesee Fund Limited - Portfolio B (6)
4.5 Amendment to Subscription Agreement, dated as of September 30, 1998,
by and between the Registrant and each of Advantage Fund II Ltd. and
Koch Industries, Inc. (5)
4.6 Subscription Agreement, dated as of December 16, 1998, by and between
the Registrant and each of Genesee Fund Limited - Portfolio B and Koch
Industries, Inc.
4.7 Registration Rights Agreement, dated as of December 16, 1998, by and
between the Registrant and Genesee Fund Limited - Portfolio B
4.8 Registration Rights Agreement, dated as of December 16, 1998, by and
between the Registrant and Koch Industries, Inc.
4.9 Amendment Agreement, dated as of March 22, 1999, by and among
Registrant, Advantage Fund II Ltd. and Koch Industries, Inc.
II-2
<PAGE>
4.10 Amendment Agreement, dated as of March 22, 1999, by and among
Registrant, Genesee Fund Limited - Portfolio B and Koch Industries,
Inc.
4.11 Form of Warrant issuable to Advantage Fund II Ltd., Genesee Fund
Limited - Portfolio B, and Koch Industries, Inc.
4.12 Market Sales Agreement, dated as of March 22, 1999, by and between
Registrant and each of Advantage Fund II Ltd. and Genesee Fund Limited
- Portfolio B
5 Opinion on Legality
23 Consent of Deloitte & Touche LLP
24 Power of Attorney (6)
- --------------
(1) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form SB-2, Registration No. 33-95460-LA, filed with the
Commission on September 22, 1995
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, Registration No. 333-60167, filed with the Commission on July 30,
1998.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-3, Registration No. 333-44137, filed with the Commission on February 3,
1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-3, Registration No. 333-37465, filed with the Commission on October 8,
1997.
(5) Incorporated by reference to the Company's Form 10-Q for the Quarterly
Period Ended September 30, 1998.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-3, Registration No. 333-67885, filed with the Commission on November 24,
1998
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) that,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question,
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seattle, State of Washington, on March 25, 1999.
TERA COMPUTER COMPANY
By: /s/ JAMES E. ROTTSOLK
-------------------------------------
James E. Rottsolk
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 25th day of March, 1999:
Signature and Title
- -------------------
/s/ BURTON J. SMITH * /s/ DAVID N. CUTLER
- ---------------------------------- ----------------------------------
Burton J. Smith David N. Cutler, Director
Chairman of the Board of Directors
/s/ JAMES E. ROTTSOLK * /s/ DANIEL J. EVANS
- ---------------------------------- ----------------------------------
James E. Rottsolk Daniel J. Evans, Director
Chief Executive Officer and
Director
/s/ KENNETH W. JOHNSON * /s/ KENNETH W. KENNEDY
- ---------------------------------- ----------------------------------
Kenneth W. Johnson Kenneth W. Kennedy, Director
Principal Financial Officer
/s/ PHILISSA SARGIN * /s/ JOHN W. TITCOMB
- ---------------------------------- ----------------------------------
Philissa Sargin John W. Titcomb, Jr., Director
Principal Accounting Officer
/s/ JAMES E. ROTTSOLK
- ---------------------------------
* By James E. Rottsolk,
Attorney-in-fact
II-5
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of December 16, 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 GENESEE FUND LIMITED - PORTFOLIO B, a British Virgin Islands corporation
("Genesee"), and KOCH INDUSTRIES, INC., a Kansas corporation ("Koch" and,
collectively with Genesee, 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
May Adjustment Date and ending on the same day (as the May 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, the May Adjustment 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
<PAGE>
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.
(d) "Adjustment Shares" means the shares of Common Stock issuable by
the Company to the Buyers upon exercise of Adjustment Warrants issued 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 December 16, 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: (i) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (ii) the Nasdaq, if the Nasdaq constitutes the principal
market for the Common Stock on such date, or (iii) the Nasdaq SmallCap Market,
if the Nasdaq SmallCap Market 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;
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(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 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 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
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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 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
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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 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
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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 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 (i) Amendments No. 1 and No. 2 to the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
1997; (ii) the Company's Quarterly Reports on Form 10-Q/A for the fiscal
quarters ended March 31, 1998, June 30, 1998, and its Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998; (iii) the Company's
Current Reports on Form 8-K dated October 8, 1998, November 19, 1998, and
December 23, 1998; and (iv) the proxy statement for the Company's 1998 Annual
Meeting as filed with the SEC on April 1, 1998.
(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 February 22, 1999.
(l) "Initial Shares" means an aggregate of 200,000 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.
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(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.
(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.
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(t) "SEC" means the United States Securities and Exchange Commission.
(u) "Securities" means the Common Shares, the Warrants and the
Adjustment Warrants.
(v) "Tender Offer" means a tender offer as defined for the purposes of
Regulation 14D and Rule 13e-4 under the Securities Exchange Act of 1934, as
amended (the "1934 Act").
(w) "Term" means the period commencing on the Closing Date and ending
September 30, 2001.
(x) "Trading Day" means a day on whichever of the national securities
exchange, the Nasdaq or 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.
(aa) "Adjustment Warrants" means warrants to purchase shares of Common
Stock issuable pursuant to Section 3 hereof, such warrants having the terms and
conditions set forth in the form of Adjustment Warrant attached to the Amendment
Agreement as Annex I.
(bb) "Amendment Agreement" means the Amendment Agreement, dated as of
March __, 1999, by and between the Company and the Buyers which, among other
things, amends this Agreement.
(cc) "May Adjustment Date" means May 22, 1999.
(dd) "Pool A Adjustment Shares" means Adjustment Shares issuable upon
exercise of Adjustment Warrants issued pursuant to Section 3(a).
(ee) "Pool A Initial Shares" means one-half of the Initial Shares
issued to each Buyer, as represented by stock certificates nos. ____ and ____ or
any replacement certificates, and any other securities in to which or for which
such shares may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
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SEA1-170766.5 73543-0016
<PAGE>
(ff) "Pool B Initial Shares" means one-half of the Initial shares
issued to each Buyer, as represented by stock certificates nos. ____ and ____ or
any replacement certificates, an any other securities into which or for which
such shares may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
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
$2,000,000 from both Buyers.
(b) Warrants. In connection with the purchase of the Initial Shares by
each Buyer, the Company agrees to issue warrants to purchase the number of
Warrant Shares 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 RECEIVE ADJUSTMENT WARRANTS
(a) Initial Issuance of Adjustment Warrants (Pool A). On the date of
execution and delivery of the Amendment Agreement, the Company shall issue to
the Buyers Adjustment Warrants with respect to the Initial Adjustment Date for
the Pool A Initial Shares as follows:
Genesee 67,073
Koch 67,073
(b) May 1999 Issuance of Adjustment Warrants.
(1) Pool B. If the Adjustment Price for the May Adjustment Date
is less than the Floor Price, then the Company shall issue to each Buyer
Adjustment Warrants to purchase the number of Adjustment Shares calculated in
accordance with the following formula:
[ (A / B) x C ] - C
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where:
A = Floor Price;
B = Adjustment Price for the May Adjustment Date, and
C = Number of Pool B Initial Shares beneficially owned by Buyer on the
May Adjustment Date.
(2) Pool A. If the Adjustment Price for the may Adjustment Date
is less than $6.50, then, in addition to the Adjustment Warrants issued to each
Buyer in accordance with Section 3(b)(1), the Company shall issue to each Buyer
Adjustment Warrants to purchase the number of Adjustment Shares calculated in
accordance with the following formula:
[($6.50 / A) x B ] - B
where:
A = Adjustment Price for the May Adjustment Date;
B = Number of Pool A Initial Shares and Pool A Adjustment Shares beneficially
owned by Buyer on the May Adjustment Date, including all Pool A Adjustment
shares issuable upon exercise of outstanding Adjustment Warrants
determined without regard to any limitation on beneficial ownership
contained in Section 1.1(d) of the Adjustment Warrants.
References to $6.50 in this Section 3(b)(2) are 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 the Amendment Agreement.
(c) Subsequent Issuances of Adjustment Warrants. On each Adjustment
Date, if the Adjustment Price for that Adjustment Date is less than the lowest
Adjustment Price for the May Adjustment Date or any prior Adjustment Date, then
the Company shall issue to each Buyer Adjustment Warrants to purchase the number
of Adjustment Shares calculated in accordance with the following formula:
[(1.0125 x A x B) / C ] - A
where:
A = Number of Initial Shares and Adjustment Shares beneficially owned by
Buyer on the Adjustment Date, including all Adjustment Shares issuable
upon exercise of outstanding Adjustment Warrants determined without
regard to any limitation on beneficial ownership contained in Section
1.1(d) of the Adjustment Warrants.
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B = Lowest Adjustment Price for the May Adjustment Date or any prior
Adjustment Date, and
C = Adjustment Price applicable to the Adjustment Date.
(d) 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 Warrants in
accordance with Section 10(h) hereof, then such Buyer shall so notify the
Company not less than ten days before the May Adjustment Date or 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 Warrants 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 Warrants upon the terms and subject to the conditions
of this Agreement, and all applicable references hereinafter to the "Buyers"
shall include such assignee(s).
(e) No Fractional Shares. No fractional shares of Common Stock shall
be issued as Adjustment Shares upon exercise of the Adjustment Warrants but, in
lieu of any fraction of a share of Common Stock that would otherwise be issuable
upon exercise of an Adjustment Warrant, the Company shall pay in cash an amount
equal to the product of (i) the Adjustment Price and (ii) such fraction of a
share.
(f) Delivery of Adjustment Warrants. The Company shall issue and
deliver to each Buyer the Adjustment Warrants not later than 4:00 p.m., Pacific
Time, on or before the third Business Day following the May Adjustment Date and
each Adjustment Date, or as otherwise agreed to by the parties hereto. Delivery
of the Adjustment Warrants shall be made at a location mutually agreed to by the
parties hereto. The Company's obligation to issue and deliver the Adjustment
Warrants 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 Adjustment Warrants pursuant to this Section 3(f) as and when
required to do so following the May Adjustment Date and each Adjustment Date, in
addition to any other liabilities the Company may have hereunder and under
applicable law (i) 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
(ii) the Adjustment Price used to determine the number of Adjustment Shares
issuable upon exercise of
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such Adjustment Warrants 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 Adjustment Warrants and, accordingly, the Buyer shall be entitled to
receive the additional Adjustment Warrants resulting from such reduced
Adjustment Price.
(g) Condition Precedent to Issuance of Adjustment Warrants. Each Buyer
understands that the Company's obligation to issue the Adjustment Warrants to
such Buyer in accordance with this Agreement is conditioned upon the accuracy in
all material respects on the May Adjustment Date or the particular Adjustment
Date, as applicable, of the representations and warranties of the Buyer
contained in (i) Sections 4(a), (b), (c), (d), (f) and (g) of this Agreement and
(ii) Sections 3(a), (b), (c), (d) and (f) of the Amendment Agreement, in each
case as if made on such 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 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 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
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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.
(h) Current Holdings. As of December 14, 1998, Genesee owns 270 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"), no shares of Common Stock, and
warrants to purchase 87,500 shares of Common Stock. As of the date hereof, Koch
owns no shares of Series A Stock, no shares of Series B Stock, 300,000 shares of
Common Stock, and warrants to purchase 60,504 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
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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 December 14, 1998, the authorized capital
stock of the Company consisted of (i) 25,000,000 shares of Common Stock, of
which 13,543,875 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 1,785 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 December 14,
1998, the Company had outstanding options entitling the holders thereof to
purchase 2,597,961 shares of Common Stock and outstanding warrants entitling the
holders thereof to purchase 1,032,600 shares of Common Stock. As of the Closing
Date, there will have been no material increase from December 14, 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 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.
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<PAGE>
(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 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, 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
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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, 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
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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
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
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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 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 that 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) (collectively, "Rule 4460(i)")
and that 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 Rule
4460(i), 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 and the Adjustment 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
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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 Warrants, 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):
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.
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<PAGE>
(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 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. As promptly as practicable, the Company shall
take such action as shall be necessary to qualify, or to obtain an exemption
from qualification for the Adjustment Warrants and the Adjustment Shares for
issuance to the Buyers under such of the securities or "blue sky" laws of
jurisdictions as shall be applicable to the offer of the Adjustment Warrants and
the Adjustment Shares pursuant to the Amendment 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
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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.
(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 (x) issue any Adjustment Shares or Warrant Shares in excess of the
number of shares permitted by Rule 4460(i) or (y) 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) and which would be
integrated with the sale of the Initial Shares to the Buyers, or the issuance of
Adjustment Shares, Adjustment Warrants 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).
(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 and the Adjustment Warrants, as and to the extent required under
Rule 4460(i).
(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
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(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.
(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, the Adjustment Warrants
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 Genesee 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
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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 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 Adjustment Warrants or Common Shares
then outstanding shall have the right thereafter to receive Adjustment Warrants
or Adjustment Shares in the form of the kind of warrants or shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of warrants or 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 and Adjustment Warrants to receive
Adjustment Warrants and 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 or Adjustment Warrants 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 AND ADJUSTMENT WARRANTS
(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
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Event (as defined in Section 7(b)), to require the Company to repurchase all or
a portion of its Common Shares and Adjustment Warrants 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;
(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 or Adjustment Shares who is entitled
to exercise its repurchase right under this Section 7 to sell 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.
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 this Section 7(b), 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 Adjustment Warrants and, if the Company so elects, each
Buyer hereby waives any and all rights to require the Company to so repurchase
such Common Shares and Adjustment Warrants under such clauses. In order to make
such
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election, the Company shall so notify each Buyer that 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 Business Days after the
Company's receipt of the Repurchase Notice. If the Company so elects and
notifies each such Buyer, then for each 30 days that such Repurchase Event
continues to exist, which period shall commence as of the first Business Day of
the event that 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 of the number of Common Shares acquired hereunder or issuable upon
exercise of Adjustment Warrants 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 Events 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 to 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 or Adjustment Shares to require
repurchase of, Common Shares or Adjustment 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 met 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 determination shall depend upon such assumed
facts being true and complete in all material respects.
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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.
(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
and Adjustment Warrants to be repurchased. Any Repurchase Notice shall state (i)
that such Buyer is thereby requiring the Company to repurchase Common Shares and
Adjustment Warrants pursuant to this Section 7, (ii) the Repurchase Event giving
rise to such repurchase, and (iii) the number of Common Shares and Adjustment
Warrants 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 and Adjustment Warrants 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 and Adjustment Warrants that have not been repurchased.
Only whole Common Shares and Adjustment Warrants to purchase whole Common Shares
may be repurchased.
(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 sum of the number of Common Shares to be repurchased and
the number of Adjustment shares issuable upon the exercise of the Adjustment
Warrants 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 Genesee 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.
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(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
date of exercise of any Adjustment Warrants by reason of the restrictions set
forth in Rule 4460(i), each Buyer shall be entitled, at its option, by notice to
the Company given within 90 days after such exercise 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 exercise date which the Company is unable to issue by reason of Rule
4460(i) 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 Rule 4460(i). 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 exercise 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 and Adjustment 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 and
Adjustment Warrants 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 (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 and Adjustment Warrants repurchased pursuant
to this Agreement.
(h) Share Limitation Event. 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
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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 and Adjustment Warrants
without regard to Rule 4460(i) 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 approval in accordance with Section 7(f),
(ii) the failure to obtain the Shareholder Approval at the special meeting
provided in this paragraph or (iii) 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
that will not restrict the number of shares of Common Stock issuable under this
Agreement and Adjustment Warrants 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 that restricts the issuance of shares of
Common Stock under this Agreement and Adjustment Warrants 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 Rule 4460(i) and the Company has not obtained a waiver
thereof.
7.1 COMPANY'S RIGHT TO REPURCHASE THE COMMON SHARES.
(a) Right to Repurchase. So long as (i) the Company shall be in
compliance in all material respects with its obligations to the Buyers
(including, without limitation, its obligations under this Agreement and the
Registration Rights Agreement), (ii) on the date the Company Repurchase Notice
(as defined below) is given and at all times until the date of repurchase, the
Registration Statement is effective and available for use by the buyers for the
resale of their Common Shares and (iii) on Repurchase Event shall have occurred
with
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respect to which, on the date a Company Repurchase Notice is to be given or on
the redemption date, a Buyer (A) shall be entitled to exercise optional
repurchase rights under Section 7 by reason of such Repurchase Event or (B)
shall have exercised optional repurchase rights under Section 7 by reason of
such Repurchase Event and the Company shall not have paid the Repurchase Price
to such Buyer, then the Company shall have the right, exercisable by giving a
Company Repurchase Notice not less than 20 Trading Days or more than 30 Trading
Days prior to the repurchase date to the Buyer, at any time on or after the
Closing Date to repurchase all or a portion of the Common Shares and Adjustment
Warrants then held by the Buyers. Prior to any repurchase date, whether or not a
Company Repurchase Notice has been given, the Buyers may sell or transfer any of
their Common Shares and Adjustment Warrants.
(b) Repurchase Notice. To exercise the right of repurchase under
Section 7.1(a), the Company shall deliver a notice of repurchase (a "Company
Repurchase Notice") to each Buyer from which the Company desires to repurchase
Common Shares, Adjustment Warrants, or both. The Company Repurchase Notice shall
(i) state that the Company is exercising its right to repurchase the Buyer's
Common shares, Adjustment Warrants, or both pursuant to this Section 7.1, (ii)
indicate the number of Common Shares and Adjustment warrants which are to be
repurchased, (iii) state the Company Repurchase Price (as defined below) and the
formula for determining the same, and (iv) provide the Buyer with instructions
with respect to the delivery to the Company of the buyer's certificate(s) for
the Common Shares and the Adjustment Warrants to be repurchased. Promptly and in
no event later than three Business Days after the company's receipt of the
Buyer's certificate(s) for the Common shares and the Adjustment Warrants to be
repurchased, the Company shall make payment in immediately available funds of
the Company Repurchase Price applicable on the date of such repurchase with
respect to the Common Shares and Adjustment Warrants to be repurchased to or
upon the order of the Buyer as specified in the Company Repurchase Notice. Upon
repurchase of less than all of the Common Shares evidenced by a particular
certificate or the Adjustment Shares evidenced by a particular Adjustment
Warrant, promptly, but in no event later than three Business Days after
surrender of such certificate or Adjustment Warrant to the Company, the Company
shall issue a replacement certificate for the Common shares and a replacement
warrant for the portion of the Adjustment Warrants that have not been
repurchased. Only whole Common Shares and portions of Adjustment Warrants to
purchase whole Common Shares may be repurchased.
(c) Company Repurchase Price. As used in this Section 7.1, "Company
Repurchase Price" means the product of (i) the sum of the number of Common
shares to be repurchased and the number of Adjustment shares issuable upon the
exercise of the Adjustment Warrants 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 as of the date of
repurchase.
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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 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
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(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, 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)
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<PAGE>
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: Genesee Fund Limited - Portfolio B, 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 Warrants 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 Warrants so assigned and makes the same representations and
warranties with respect thereto as the Buyer makes in this Agreement, whereupon
the Buyer shall be relieved of any further obligations, responsibilities, and
liabilities with respect to the acquisition of such Adjustment Warrants, 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 Warrants 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.
(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;
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(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 December 18, 1998, other than solely by reason of a breach of this
Agreement by a Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyers. Upon such termination, the Buyers shall have no further obligation to
the Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(l) Further Assurances. Each party to this Agreement will perform any
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
(m) Public Statements, Press Releases, Etc. The Company and the Buyers
shall have the right to approve before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyers, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyers shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(n) Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyers and
the Company by their respective officers thereunto duly authorized as of the
date set forth above.
GENESEE FUND LIMITED - PORTFOLIO B
By: /s/
-------------------------------------
Title:
----------------------------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Number of Initial Shares to be purchased:
100,000
Purchase Price: $10.00 per share
Number of Warrant Shares: 20,168
KOCH INDUSTRIES, INC.
By: /s/
-------------------------------------
Title:
----------------------------------
Address: 4111 East 37th Street North
Wichita, KS 67270
Facsimile: (316) 828-7947
Number of Initial Shares to be purchased:
100,000
Purchase Price: $10.00 per share
Number of Warrant Shares: 20,168
TERA COMPUTER COMPANY
By: /s/
-------------------------------------
Name: Kenneth W. Johnson
Title: Chief Financial Officer
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 16, 1998 (this
"Agreement"), is made by and between TERA COMPUTER COMPANY, a Washington
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
December 16, 1998, between the Initial Investor, another buyer of Common Stock
(the "Other Buyer"), and the Company (the "Subscription Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Subscription
Agreement, to issue and sell to the Initial Investor an aggregate of 100,000
shares (the "Initial Shares") of Common Stock, $.01 par value (the "Common
Stock"), and warrants (the "Warrants") to purchase an aggregate of 20,168 shares
of Common Stock of the Company as provided in the Subscription Agreement;
WHEREAS, under the conditions set forth in the Subscription Agreement, the
Company may be obligated from time to time to issue to the Investor additional
shares of Common Stock (the "Adjustment Shares"); and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Common Shares and the Warrant Shares (as such terms are defined in Section 1(a)
below);
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 Company and the Initial
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession, directly or
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<PAGE>
indirectly, of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Common Shares" means the Initial Shares and the Adjustment Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Period" means any period during which the Company is
entitled to suspend trading of the Common Stock by any Investor pursuant to
Section 4(f) pertaining to a "Negotiation Event" (as therein defined) or
due to a transfer by the Investor contemplated by Section 10(g).
"Investors" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in
accordance with Section 10 hereof.
"Nasdaq" means the Nasdaq National Market.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the
Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
"Registrable Securities" means the Common Shares, the Warrant Shares
and the Repurchase Shares.
"Registration Period" means the period from the Closing Date to the
earliest of (i) the date which is three years after the date on which the
last Adjustment Shares may be issued pursuant to the Subscription
Agreement, (ii) the date on which each Investor may sell all of its
Registrable Securities (including Adjustment Shares which may be issued
pursuant to the Subscription Agreement) without registration under the
Securities Act pursuant to Rule 144, without restriction on the manner of
sale or the volume of securities which may be sold in any period and
without the requirement for the giving of any notice to, or the making of
any filing with, the SEC and (iii) the date on which the Investors no
longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of the Company
under the Securities Act, including any amendment thereto.
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"Rule 144" means Rule 144 as promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit
a holder of any securities to sell securities of the Company to the public
without registration under the Securities Act.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(b) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement, or, if applicable,
in the Warrants.
2. Mandatory Registration for Resale.
(a) The Company shall prepare and, on or before January 6, 1999, file
with the SEC a Registration Statement on Form S-3, which on the SEC Filing Date
covers the resale of a number of shares of Common Stock equal to at least the
sum of (i) 170% of the number of Initial Shares, (ii) the number of Adjustment
Shares which would be required to be issued pursuant to the Subscription
Agreement with respect to the initial issuance of Adjustment Shares if the
Initial Adjustment Date was the SEC Filing Date, and (iii) the number of Warrant
Shares issuable to the Investors upon exercise of the Warrants. The Registration
Statement shall also cover the resale of shares of Common Stock issuable to the
Other Buyer consisting of (x) 100,000 shares of Common Stock and (y) 20,168
shares of Common Stock issuable upon the exercise of warrants, which shares are
required to be registered by the Company pursuant to an agreement dated the date
hereof in substantially the form of this Agreement. If at any time the number of
shares of Common Stock included in the Registration Statement required to be
filed as provided in the first sentence of this Section 2(a) shall be
insufficient to cover the Adjustment Shares and Repurchase Shares or the number
of shares of Common Stock issuable upon exercise of unexercised Warrants, then
promptly, but in no event later than 20 days after such insufficiency shall
occur, the Company shall file with the SEC an additional Registration Statement
on Form S-3 (which shall not constitute a post-effective amendment to the
Registration Statement filed pursuant to the first sentence of this Section
2(a)) covering such number of shares of Common Stock as shall be sufficient to
cover such Adjustment Shares and Repurchase Shares and permit such exercises.
For all purposes of this Agreement such additional Registration Statement shall
be deemed to be the Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
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(b) If any offering pursuant to a Registration Statement under Section
2(a) hereof involves an underwritten offering, the Investors who hold a majority
in interest of the Registrable Securities subject to such underwritten offering
shall have the right to select legal counsel and an investment banker or bankers
and manager or managers to administer the offering, which investment banker(s)
or manager(s) shall be reasonably satisfactory to the Company. The Investors who
hold the Registrable Securities to be included in such underwritten offering
shall pay all underwriting discounts and selling commissions and other fees and
expenses of such investment banker(s) and manager(s) (other than registration
expenses payable by the Company pursuant to Section 6 hereof) with respect to
their Registrable Securities and the fees and disbursements of such legal
counsel selected by the Investors.
(c) The Company, without the prior consent of the holders of a
majority in interest of the outstanding Common Shares, will not file another
registration statement with the SEC covering shares of the Company's Common
Stock prior to the effectiveness of the Registration Statement described in
Section 2(a), other than Registration Statements on Forms S-4 or S-8.
(d) The Company meets the requirements for the use of Form S-3 for
registration of the Registrable Securities for resale by the Investors. The
Company shall file all reports required to be filed by the Company with the SEC
in a timely manner so as to maintain such eligibility for the use of Form S-3.
3. Company Registration and Underwritten Offering.
(a) If at any time or from time to time the Company shall determine to
register any of its shares of Common Stock for its own account for offer and
sale in a firmly underwritten public offering, it shall (i) promptly give
written notice thereof to each Investor that owns of record any Registrable
Securities as of the date of such notice, and (ii) include in such registration
and underwritten offering all Registrable Securities requested to be so included
by any such Investor in a writing delivered to the Company within 20 days after
receipt of such written notice from the Company by the Investor, except as set
forth below.
(b) Investors proposing to distribute all or a portion of their
Registrable Securities through such underwritten offering shall (together with
the Company and any other shareholders distributing their securities through
such underwritten offering) enter into an underwriting agreement in usual and
customary form with the managing underwriter(s) selected for such underwritten
offering by the Company. Notwithstanding any other provision of this Section 3,
if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
in its sole discretion may limit the number of Registrable Securities to be
included in the registration, or may exclude Registrable Securities entirely
from such registration. In such case, the Company shall so advise all Investors
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whose Registrable Securities otherwise would be included in such registration,
and the number of shares of Registrable Securities that may be included in such
registration and underwritten offering shall be allocated among the Investors
requesting registration in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each of such Investors at
the date of filing of the Registration Statement. If any Investor disapproves of
the terms and conditions of the underwritten offering, such Investor may
withdraw therefrom by written notice to the Company and the managing
underwriter(s). Any Registrable Securities excluded or withdrawn from such
underwritten offering shall be withdrawn from such registration.
(c) Each Investor hereby agrees that, if requested by the Company and
the managing underwriter(s), it will enter into a customary form of "lock-up"
agreement with the Company and the managing underwriter(s) with respect to any
Registrable Securities then held by such Investor (other than those included in
the registration and underwritten offering described in this Section 3), which
agreement shall contain such terms and conditions no more restrictive on the
Investor's ability to sell or otherwise transfer such Registrable Securities
than those contained in any other such agreements then entered into by the
Company and the managing underwriter(s) with other comparable holders of the
Company's Common Stock.
(d) Promptly following the expiration or termination of any such
lock-up agreement, the Company will take all reasonable steps, including filing
a Registration Statement in accordance with Section 2(a) hereof (or, in
accordance with Section 4(a) hereof, a post-effective amendment or supplement to
any Registration Statement and prospectus contained therein that previously was
filed in accordance with Section 2(a)), to enable Investors to sell their
remaining Registrable Securities free from restrictions under applicable
securities laws.
(e) The Company shall have the right to terminate or withdraw any
registration initiated by the Company under this Section 3 prior to the
effectiveness of such registration whether or not any Investor has elected to
include Registrable Securities in such registration.
4. Obligations of the Company. In connection with the registration of the
Registrable Securities pursuant to Sections 2 and 3 hereof, as applicable, the
Company shall:
(a) prepare promptly, and file with the SEC not later than January 6,
1999, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause each Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period; submit to the SEC, within five business days after the Company learns
that no review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
the Registration Statement to a time and date not later than two Business Days
after the submission of such request; notify the Investors of the effectiveness
of the Registration
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<PAGE>
Statement on the date that the Company is advised by the SEC that the
Registration Statement has been declared effective; and the Company represents
and warrants to, and covenants and agrees with, the Investors that the
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein), at the time it is first filed with the SEC, at
the time it is ordered effective by the SEC and at all times during which it is
required to be effective hereunder (and each such amendment and supplement at
the time it is filed with the SEC and at all times during which it is available
for use in connection with the offer and sale of the Registrable Securities)
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep such Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement until such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (i) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of written correspondence from the SEC or the staff of the
SEC relating to such Registration Statement (other than any portion of any
thereof that contains information for which the Company has sought confidential
treatment) and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such securities or blue
sky laws of such jurisdictions as the Investors who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto (I) to
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<PAGE>
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(d), (II) to subject itself to general
taxation in any such jurisdiction, (III) to file a general consent to service of
process in any such jurisdiction, (IV) to provide any undertakings that cause
more than nominal expense or burden to the Company or (V) to make any change in
its articles of incorporation or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its shareholders;
(e) in the event that the Registrable Securities are being offered in
an underwritten offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities as
promptly as practicable, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request. If such
event is the conduct of negotiations with respect to a transaction, the
disclosure of which the Company reasonably concludes would be detrimental to the
Company (each, a "Negotiation Event"), the Company shall be entitled, upon
giving notice of a Negotiation Event to each holder (the "Negotiation Notice")
and upon the reasonable determination of the Company, after consulting with
counsel, that failure to disclose the Negotiation Event would constitute an
omission to state a material fact required to be stated in the Registration
Statement, to require the Investors to suspend sales of the Common Stock
pursuant to the Registration Statement for a period of up to fifteen (15) days
after the giving of the Negotiation Notice; provided, however, that the Company
shall not give more than one (1) Negotiation Notice in any twelve-month period;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
shareholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, provided, that to the extent that the
failure of such counsel to respond promptly hereunder results in a delay in the
filing of the
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<PAGE>
registration statement beyond January 6, 1999, or results in the delay in the
effective date thereof beyond the 90-day period specified in the definition of
"Reset Date" in Section 1 of the Subscription Agreement, the January 6, 1999,
filing deadline and such 90-day period shall be extended by the amount of such
resulting delay;
(i) make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in
underwritten public offerings, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement and a
single firm of counsel and a single firm of accountants or other agents retained
by any such Investor and one firm of attorneys retained by all such underwriters
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information that any Inspector reasonably may
request for purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (iii) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
4(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the
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<PAGE>
Company and allow the Company, at the Company's own expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. The Company shall hold in confidence and
shall not make any disclosure of information concerning an Investor provided to
the Company pursuant to Sections 5(a) and 5(e) hereof unless (i) disclosure of
such information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor, at such Investor's own expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(l) use its best efforts (i) to cause all the Registrable Securities
covered by the Registration Statement to be listed on Nasdaq or such other
principal securities market on which securities of the same class or series
issued by the Company are then listed or traded or (ii) if securities of the
same class or series as the Registrable Securities are not then listed on Nasdaq
or any such other securities market, to cause all of the Registrable Securities
covered by the Registration Statement to be listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq SmallCap Market;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an instruction substantially in the form attached hereto as Exhibit 1
and shall deliver to the Investors (with a copy to the Company's transfer agent)
an opinion of its general counsel, in the form attached hereto as Exhibit 2;
(o) during the Registration Period the Company shall not bid for or
purchase any Common Stock or any right to purchase Common Stock or attempt to
induce any person to
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purchase any such security or right if such bid, purchase or attempt would in
any way limit the right of the Investors to sell Registrable Securities by
reason of the limitations in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
5. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least four days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires from
each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one business day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested thereby
in connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, or if an Investor seeks to participate in a registration and
underwritten offering pursuant to Section 3 hereof, each Investor or each such
participating Investor, as the case may be, agrees to enter into and perform
such Investor's obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter(s) of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
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has notified the Company in writing of such Investor's election to exclude all
or a portion of such Investor's Registrable Securities from the Registration
Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4(f) or
4(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 4(f) or 4(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(e) No Investor may participate in any registration relating to an
underwritten offering hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to approve such
arrangements, with respect to an underwritten offering under Section 2 hereof,
or approved by the Company, with respect to an underwritten offering under
Section 3 hereof; (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements; and (iii) agrees to
pay its pro rata share of all underwriting discounts and selling commissions
(and, with respect to an underwritten offering pursuant to Section 2(b) hereof,
any other fees and expenses) of any investment banker(s) and manager(s) with
respect to its Registrable Securities sold in such offering and of the fees and
expenses of counsel selected by the Investors; and
(f) Each Investor agrees that it will not effect any disposition of
the Registrable Securities except as contemplated in the Registration Statement
or as is otherwise in compliance with applicable securities laws and that it
will promptly notify the Company of any material change in the information set
forth in the Registration Statement regarding such Investor's plan of
distribution. Each Investor agrees (a) to notify the Company in writing in the
event that such Investor enters into any material agreement with a broker or a
dealer for the sale of the Registrable Securities through a block trade, special
offering or exchange distribution and (b) in connection with such agreement, to
provide to the Company in writing the information necessary to enable the
Company to prepare, at the Company's sole cost and expense, any supplemental
prospectus pursuant to Rule 424(c) under the Securities Act which is required
with respect to such transaction. In connection with any sale of Registrable
Securities which is made pursuant to the Registration Statement, each Investor
shall instruct its broker or brokers to deliver the prospectus to the purchaser
or purchasers in connection with such sale, shall supply copies of such
prospectus to such broker or brokers and shall otherwise use its reasonable best
efforts to comply with the prospectus delivery requirements of the Securities
Act.
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6. Expenses of Registration. All reasonable expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, listing, qualification, and filing fees, printing and accounting
expenses, fees and disbursements of counsel for the Company, shall be borne by
the Company; provided, however, that the Investors shall pay all (i)
underwriting discounts and selling commissions (and, with respect to an
underwritten offering pursuant to Section 2(b) hereof, any other fees and
expenses) of any investment banker(s) and manager(s) applicable to the sale of
Registrable Securities in an underwritten offering and (ii) fees and
disbursements of counsel to the Investors, in accordance with Sections 2(b) and
5(e) hereof.
7. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 7(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement
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contained in this Section 7(a): (I) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement, the prospectus or any such amendment
thereof or supplement thereto, if such prospectus was timely made available by
the Company pursuant to Section 4(c) hereof; (II) with respect to any
preliminary prospectus shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 4(c) hereof; and (III) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 10.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 7(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under this Section
7(b) for only that amount of a Claim as does not exceed the amount by which the
net proceeds to such Investor from the sale of Registrable Securities pursuant
to such Registration Statement exceeds the cost of such Registrable Securities
to such Investor. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 10. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 7(b) with
respect to any preliminary
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<PAGE>
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 7 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
7, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 7 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
8. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 7 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 7, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent
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<PAGE>
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
9. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
10. Assignment of Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee who (1) holds, or upon
such assignment will hold, at least 20% of the Registrable Securities (or
Warrants exercisable into 20% of the Registrable Securities) (or any equivalent
combination of Warrants and Registrable Securities) or (2) is an Affiliate of
such Investor only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned; (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws; (d) at
or before the time the Company received the written notice contemplated by
clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein; (e) such
transfer shall have been made in accordance with the applicable requirements of
the Subscription Agreement; (f) such transferee shall be an "accredited
investor" as that term defined in Rule 501 of Regulation D promulgated under the
Securities Act but shall not be a broker-dealer or a member of the National
Association of Securities Dealers, Inc.; and (g) in the event the assignment
occurs subsequent to the date of effectiveness of the Registration Statement
required to be filed pursuant to Section 2(a) and the assignment is not made
pursuant to Section 2(c) of the Subscription Agreement, such assignee or
transferee agrees to pay
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<PAGE>
all reasonable expenses of amending or supplementing such Registration Statement
to reflect such assignment. In connection with any such transfer the Company
shall promptly after such assignment take such actions as shall be reasonably
acceptable to the Initial Investor and such transferee to assure that the
Registration Statement and related prospectus are available for use by such
transferee for sales of the Registrable Securities in respect of which the
rights to registration have been so assigned. In connection with any such
assignment, each Investor shall have the right to assign to such transferee such
Investor's rights under the Subscription Agreement by notice of such assignment
to the Company. Following such notice of assignment of rights under the
Subscription Agreement, the Company shall be obligated to such transferee to
perform all of its covenants under the Subscription Agreement as if such
transferee were the Buyer under the Subscription Agreement.
11. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold or have the right to
acquire a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon each
Investor and the Company.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand or courier) or delivered by facsimile: (i) if to the Company, at Tera
Computer Company, 2815 Eastlake Avenue East, Seattle, Washington 98102,
Attention: Chief Executive Officer, facsimile No. (206) 323-1318, with a copy to
Stoel Rives LLP, One Union Square, 36th Floor, Seattle, Washington 98101,
Attention: Christopher J. Voss, facsimile no. (206) 386-7500; (ii) if to the
Initial Investor, c/o Genesee International, Inc., 10500 N.E. 8th Street, Suite
1920, Bellevue, Washington 98004-4332, facsimile no. (425) 462-4645; and (iii)
if to any other Investor, at such address as such Investor shall have provided
in writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 12(b), and shall be effective,
when personally delivered, upon receipt, and when sent by facsimile, upon
receipt of confirmation of successful transmission.
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<PAGE>
(c) 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,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Washington applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 10 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 4(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay; provided, however, that in no event shall the total
damages recoverable by the Investors for claims arising from or related to this
Agreement exceed 150% of the aggregate purchase price paid by the Initial
Investor to the Company for the Initial Shares, less all amounts received by the
Investors from market resales of shares of Common Stock as contemplated by this
Agreement.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
TERA COMPUTER COMPANY
By: /s/
-------------------------------------
Name: Kenneth W. Johnson
Title: Chief Financial Officer
GENESEE FUND LIMITED - PORTFOLIO B
By: /s/
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE>
EXHIBIT 1
to
Registration Rights Agreement
[Company Letterhead]
[Date]
ChaseMellon Shareholder Services, L.L.C.
as Transfer Agent and Registrar
520 Pike Street, Suite 1220
Seattle, WA 98101
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction to
you (1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value (the "Common Stock"), of Tera Computer Company, a
Washington corporation (the "Company"), represented by certificate numbers
_______ and _______ for an aggregate of _______ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
upon surrender of such certificate(s) to you, notwithstanding the legend
appearing on such certificates, and (2) to issue shares (the "Underlying
Shares") of Common Stock to or upon the order of the holder from time to time
upon exercise of Common Stock purchase warrants exercisable for Common Stock,
issued by the Company upon receipt by you of a Form of Subscription from such
holder in the form enclosed herewith. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Underlying Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Kenneth W. Johnson, general counsel to the
Company, as to registration of the resale of the Outstanding Shares and the
Underlying Shares under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact me.
Very truly yours,
TERA COMPUTER COMPANY
By:
Name:
Title:
Enclosures
cc: [Names of Investors]
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<PAGE>
EXHIBIT 2
to
Registration Rights Agreement
[Date]
TERA COMPUTER COMPANY
Shares of Common Stock
To the Investors listed on Schedule A
ChaseMellon Shareholder Services, L.L.C.
as Transfer Agent and Registrar
520 Pike Street, Suite 1220
Seattle, WA 98101
Ladies and Gentlemen:
I have acted as counsel to Tera Computer Company, a Washington corporation
(the "Company"), and I understand that [Names of Investors] (the "Holders") have
purchased from the Company an aggregate of ____________ shares (the "Initial
Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), and
acquired warrants to purchase _______ shares of Common Stock (the "Warrants").
The Initial Shares were purchased and Warrants were acquired by the Holders
pursuant to the Subscription Agreement, dated as of December 16, 1998, by and
between each Holder and the Company (the "Subscription Agreement"). Pursuant to
the several Registration Rights Agreements, dated as of December 16, 1998, by
and between the Company and each Holder (the "Registration Rights Agreements")
entered into in connection with the purchase by the Holders of the Initial
Shares, the Company agreed with each Holder, among other things, to register for
resale the Initial Shares, the Adjustment Shares (as defined in the Subscription
Agreement) and the shares of Common Stock issuable upon and exercise of the
Warrants (collectively, the "Common Shares") under the Securities Act of 1933,
as amended (the "Securities Act"), upon the terms provided in the Registration
Rights Agreements. Pursuant to the Registration Rights Agreements, on
__________, the Company filed a Registration Statement on Form S-3 (File No.
333- __________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Common Shares, which names the Holders as
selling shareholders thereunder.
I advise you that, on ________, 1998, the Registration Statement became
effective under the Securities Act with respect to the resale of the Common
Shares and Warrants held by or which may be issued to the Holders. Therefore, I
am of the opinion that the Common Shares may be
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<PAGE>
resold by the selling shareholders named in the Prospectus included in the
Registration Statement and the certificates evidencing the Common Shares need
not bear any Securities Act restrictive legend.
I have participated in the preparation of the Registration Statement and
the Prospectus, including review and discussions with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although I am not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to our attention that leads us to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that I have not
been requested to and do not express any view with respect to the financial
statements and schedules and other financial and statistical data included or
incorporated by reference in the Registration Statement or the Prospectus
contained therein).
Very truly yours,
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<PAGE>
Schedule A
List of Investors
-23-
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 16, 1998 (this
"Agreement"), is made by and between TERA COMPUTER COMPANY, a Washington
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
December 16, 1998, between the Initial Investor, another buyer of Common Stock
(the "Other Buyer"), and the Company (the "Subscription Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Subscription
Agreement, to issue and sell to the Initial Investor an aggregate of 100,000
shares (the "Initial Shares") of Common Stock, $.01 par value (the "Common
Stock"), and warrants (the "Warrants") to purchase an aggregate of 20,168 shares
of Common Stock of the Company as provided in the Subscription Agreement;
WHEREAS, under the conditions set forth in the Subscription Agreement, the
Company may be obligated from time to time to issue to the Investor additional
shares of Common Stock (the "Adjustment Shares"); and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Common Shares and the Warrant Shares (as such terms are defined in Section 1(a)
below);
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 Company and the Initial
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession, directly or
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<PAGE>
indirectly, of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Common Shares" means the Initial Shares and the Adjustment Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Period" means any period during which the Company is
entitled to suspend trading of the Common Stock by any Investor pursuant to
Section 4(f) pertaining to a "Negotiation Event" (as therein defined) or
due to a transfer by the Investor contemplated by Section 10(g).
"Investors" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in
accordance with Section 10 hereof.
"Nasdaq" means the Nasdaq National Market.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the
Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
"Registrable Securities" means the Common Shares, the Warrant Shares
and the Repurchase Shares.
"Registration Period" means the period from the Closing Date to the
earliest of (i) the date which is three years after the date on which the
last Adjustment Shares may be issued pursuant to the Subscription
Agreement, (ii) the date on which each Investor may sell all of its
Registrable Securities (including Adjustment Shares which may be issued
pursuant to the Subscription Agreement) without registration under the
Securities Act pursuant to Rule 144, without restriction on the manner of
sale or the volume of securities which may be sold in any period and
without the requirement for the giving of any notice to, or the making of
any filing with, the SEC and (iii) the date on which the Investors no
longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of the Company
under the Securities Act, including any amendment thereto.
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<PAGE>
"Rule 144" means Rule 144 as promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit
a holder of any securities to sell securities of the Company to the public
without registration under the Securities Act.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(b) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement, or, if applicable,
in the Warrants.
2. Mandatory Registration for Resale.
(a) The Company shall prepare and, on or before January 6, 1999, file
with the SEC a Registration Statement on Form S-3, which on the SEC Filing Date
covers the resale of a number of shares of Common Stock equal to at least the
sum of (i) 170% of the number of Initial Shares, (ii) the number of Adjustment
Shares which would be required to be issued pursuant to the Subscription
Agreement with respect to the initial issuance of Adjustment Shares if the
Initial Adjustment Date was the SEC Filing Date, and (iii) the number of Warrant
Shares issuable to the Investors upon exercise of the Warrants. The Registration
Statement shall also cover the resale of shares of Common Stock issuable to the
Other Buyer consisting of (x) 100,000 shares of Common Stock and (y) 20,168
shares of Common Stock issuable upon the exercise of warrants, which shares are
required to be registered by the Company pursuant to an agreement dated the date
hereof in substantially the form of this Agreement. If at any time the number of
shares of Common Stock included in the Registration Statement required to be
filed as provided in the first sentence of this Section 2(a) shall be
insufficient to cover the Adjustment Shares and Repurchase Shares or the number
of shares of Common Stock issuable upon exercise of unexercised Warrants, then
promptly, but in no event later than 20 days after such insufficiency shall
occur, the Company shall file with the SEC an additional Registration Statement
on Form S-3 (which shall not constitute a post-effective amendment to the
Registration Statement filed pursuant to the first sentence of this Section
2(a)) covering such number of shares of Common Stock as shall be sufficient to
cover such Adjustment Shares and Repurchase Shares and permit such exercises.
For all purposes of this Agreement such additional Registration Statement shall
be deemed to be the Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
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<PAGE>
(b) If any offering pursuant to a Registration Statement under Section
2(a) hereof involves an underwritten offering, the Investors who hold a majority
in interest of the Registrable Securities subject to such underwritten offering
shall have the right to select legal counsel and an investment banker or bankers
and manager or managers to administer the offering, which investment banker(s)
or manager(s) shall be reasonably satisfactory to the Company. The Investors who
hold the Registrable Securities to be included in such underwritten offering
shall pay all underwriting discounts and selling commissions and other fees and
expenses of such investment banker(s) and manager(s) (other than registration
expenses payable by the Company pursuant to Section 6 hereof) with respect to
their Registrable Securities and the fees and disbursements of such legal
counsel selected by the Investors.
(c) The Company, without the prior consent of the holders of a
majority in interest of the outstanding Common Shares, will not file another
registration statement with the SEC covering shares of the Company's Common
Stock prior to the effectiveness of the Registration Statement described in
Section 2(a), other than Registration Statements on Forms S-4 or S-8.
(d) The Company meets the requirements for the use of Form S-3 for
registration of the Registrable Securities for resale by the Investors. The
Company shall file all reports required to be filed by the Company with the SEC
in a timely manner so as to maintain such eligibility for the use of Form S-3.
3. Company Registration and Underwritten Offering.
(a) If at any time or from time to time the Company shall determine to
register any of its shares of Common Stock for its own account for offer and
sale in a firmly underwritten public offering, it shall (i) promptly give
written notice thereof to each Investor that owns of record any Registrable
Securities as of the date of such notice, and (ii) include in such registration
and underwritten offering all Registrable Securities requested to be so included
by any such Investor in a writing delivered to the Company within 20 days after
receipt of such written notice from the Company by the Investor, except as set
forth below.
(b) Investors proposing to distribute all or a portion of their
Registrable Securities through such underwritten offering shall (together with
the Company and any other shareholders distributing their securities through
such underwritten offering) enter into an underwriting agreement in usual and
customary form with the managing underwriter(s) selected for such underwritten
offering by the Company. Notwithstanding any other provision of this Section 3,
if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
in its sole discretion may limit the number of Registrable Securities to be
included in the registration, or may exclude Registrable Securities entirely
from such registration. In such case, the Company shall so advise all Investors
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whose Registrable Securities otherwise would be included in such registration,
and the number of shares of Registrable Securities that may be included in such
registration and underwritten offering shall be allocated among the Investors
requesting registration in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each of such Investors at
the date of filing of the Registration Statement. If any Investor disapproves of
the terms and conditions of the underwritten offering, such Investor may
withdraw therefrom by written notice to the Company and the managing
underwriter(s). Any Registrable Securities excluded or withdrawn from such
underwritten offering shall be withdrawn from such registration.
(c) Each Investor hereby agrees that, if requested by the Company and
the managing underwriter(s), it will enter into a customary form of "lock-up"
agreement with the Company and the managing underwriter(s) with respect to any
Registrable Securities then held by such Investor (other than those included in
the registration and underwritten offering described in this Section 3), which
agreement shall contain such terms and conditions no more restrictive on the
Investor's ability to sell or otherwise transfer such Registrable Securities
than those contained in any other such agreements then entered into by the
Company and the managing underwriter(s) with other comparable holders of the
Company's Common Stock.
(d) Promptly following the expiration or termination of any such
lock-up agreement, the Company will take all reasonable steps, including filing
a Registration Statement in accordance with Section 2(a) hereof (or, in
accordance with Section 4(a) hereof, a post-effective amendment or supplement to
any Registration Statement and prospectus contained therein that previously was
filed in accordance with Section 2(a)), to enable Investors to sell their
remaining Registrable Securities free from restrictions under applicable
securities laws.
(e) The Company shall have the right to terminate or withdraw any
registration initiated by the Company under this Section 3 prior to the
effectiveness of such registration whether or not any Investor has elected to
include Registrable Securities in such registration.
4. Obligations of the Company. In connection with the registration of the
Registrable Securities pursuant to Sections 2 and 3 hereof, as applicable, the
Company shall:
(a) prepare promptly, and file with the SEC not later than January 6,
1999, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause each Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period; submit to the SEC, within five business days after the Company learns
that no review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
the Registration Statement to a time and date not later than two Business Days
after the submission of such request; notify the Investors of the effectiveness
of the Registration
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<PAGE>
Statement on the date that the Company is advised by the SEC that the
Registration Statement has been declared effective; and the Company represents
and warrants to, and covenants and agrees with, the Investors that the
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein), at the time it is first filed with the SEC, at
the time it is ordered effective by the SEC and at all times during which it is
required to be effective hereunder (and each such amendment and supplement at
the time it is filed with the SEC and at all times during which it is available
for use in connection with the offer and sale of the Registrable Securities)
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep such Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement until such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (i) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of written correspondence from the SEC or the staff of the
SEC relating to such Registration Statement (other than any portion of any
thereof that contains information for which the Company has sought confidential
treatment) and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such securities or blue
sky laws of such jurisdictions as the Investors who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto (I) to
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<PAGE>
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(d), (II) to subject itself to general
taxation in any such jurisdiction, (III) to file a general consent to service of
process in any such jurisdiction, (IV) to provide any undertakings that cause
more than nominal expense or burden to the Company or (V) to make any change in
its articles of incorporation or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its shareholders;
(e) in the event that the Registrable Securities are being offered in
an underwritten offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities as
promptly as practicable, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request. If such
event is the conduct of negotiations with respect to a transaction, the
disclosure of which the Company reasonably concludes would be detrimental to the
Company (each, a "Negotiation Event"), the Company shall be entitled, upon
giving notice of a Negotiation Event to each holder (the "Negotiation Notice")
and upon the reasonable determination of the Company, after consulting with
counsel, that failure to disclose the Negotiation Event would constitute an
omission to state a material fact required to be stated in the Registration
Statement, to require the Investors to suspend sales of the Common Stock
pursuant to the Registration Statement for a period of up to fifteen (15) days
after the giving of the Negotiation Notice; provided, however, that the Company
shall not give more than one (1) Negotiation Notice in any twelve-month period;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
shareholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, provided, that to the extent that the
failure of such counsel to respond promptly hereunder results in a delay in the
filing of the
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<PAGE>
registration statement beyond January 6, 1999, or results in the delay in the
effective date thereof beyond the 90-day period specified in the definition of
"Reset Date" in Section 1 of the Subscription Agreement, the January 6, 1999,
filing deadline and such 90-day period shall be extended by the amount of such
resulting delay;
(i) make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in
underwritten public offerings, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement and a
single firm of counsel and a single firm of accountants or other agents retained
by any such Investor and one firm of attorneys retained by all such underwriters
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information that any Inspector reasonably may
request for purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction or (iii) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
4(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the
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<PAGE>
Company and allow the Company, at the Company's own expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. The Company shall hold in confidence and
shall not make any disclosure of information concerning an Investor provided to
the Company pursuant to Sections 5(a) and 5(e) hereof unless (i) disclosure of
such information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor, at such Investor's own expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(l) use its best efforts (i) to cause all the Registrable Securities
covered by the Registration Statement to be listed on Nasdaq or such other
principal securities market on which securities of the same class or series
issued by the Company are then listed or traded or (ii) if securities of the
same class or series as the Registrable Securities are not then listed on Nasdaq
or any such other securities market, to cause all of the Registrable Securities
covered by the Registration Statement to be listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq SmallCap Market;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an instruction substantially in the form attached hereto as Exhibit 1
and shall deliver to the Investors (with a copy to the Company's transfer agent)
an opinion of its general counsel, in the form attached hereto as Exhibit 2;
(o) during the Registration Period the Company shall not bid for or
purchase any Common Stock or any right to purchase Common Stock or attempt to
induce any person to
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<PAGE>
purchase any such security or right if such bid, purchase or attempt would in
any way limit the right of the Investors to sell Registrable Securities by
reason of the limitations in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
5. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least four days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires from
each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one business day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested thereby
in connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, or if an Investor seeks to participate in a registration and
underwritten offering pursuant to Section 3 hereof, each Investor or each such
participating Investor, as the case may be, agrees to enter into and perform
such Investor's obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter(s) of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
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<PAGE>
has notified the Company in writing of such Investor's election to exclude all
or a portion of such Investor's Registrable Securities from the Registration
Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4(f) or
4(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 4(f) or 4(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(e) No Investor may participate in any registration relating to an
underwritten offering hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to approve such
arrangements, with respect to an underwritten offering under Section 2 hereof,
or approved by the Company, with respect to an underwritten offering under
Section 3 hereof; (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements; and (iii) agrees to
pay its pro rata share of all underwriting discounts and selling commissions
(and, with respect to an underwritten offering pursuant to Section 2(b) hereof,
any other fees and expenses) of any investment banker(s) and manager(s) with
respect to its Registrable Securities sold in such offering and of the fees and
expenses of counsel selected by the Investors; and
(f) Each Investor agrees that it will not effect any disposition of
the Registrable Securities except as contemplated in the Registration Statement
or as is otherwise in compliance with applicable securities laws and that it
will promptly notify the Company of any material change in the information set
forth in the Registration Statement regarding such Investor's plan of
distribution. Each Investor agrees (a) to notify the Company in writing in the
event that such Investor enters into any material agreement with a broker or a
dealer for the sale of the Registrable Securities through a block trade, special
offering or exchange distribution and (b) in connection with such agreement, to
provide to the Company in writing the information necessary to enable the
Company to prepare, at the Company's sole cost and expense, any supplemental
prospectus pursuant to Rule 424(c) under the Securities Act which is required
with respect to such transaction. In connection with any sale of Registrable
Securities which is made pursuant to the Registration Statement, each Investor
shall instruct its broker or brokers to deliver the prospectus to the purchaser
or purchasers in connection with such sale, shall supply copies of such
prospectus to such broker or brokers and shall otherwise use its reasonable best
efforts to comply with the prospectus delivery requirements of the Securities
Act.
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<PAGE>
6. Expenses of Registration. All reasonable expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, listing, qualification, and filing fees, printing and accounting
expenses, fees and disbursements of counsel for the Company, shall be borne by
the Company; provided, however, that the Investors shall pay all (i)
underwriting discounts and selling commissions (and, with respect to an
underwritten offering pursuant to Section 2(b) hereof, any other fees and
expenses) of any investment banker(s) and manager(s) applicable to the sale of
Registrable Securities in an underwritten offering and (ii) fees and
disbursements of counsel to the Investors, in accordance with Sections 2(b) and
5(e) hereof.
7. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 7(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement
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contained in this Section 7(a): (I) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement, the prospectus or any such amendment
thereof or supplement thereto, if such prospectus was timely made available by
the Company pursuant to Section 4(c) hereof; (II) with respect to any
preliminary prospectus shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 4(c) hereof; and (III) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 10.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 7(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under this Section
7(b) for only that amount of a Claim as does not exceed the amount by which the
net proceeds to such Investor from the sale of Registrable Securities pursuant
to such Registration Statement exceeds the cost of such Registrable Securities
to such Investor. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 10. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 7(b) with
respect to any preliminary
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prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 7 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
7, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 7 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
8. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 7 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 7, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent
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misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
9. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
10. Assignment of Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee who (1) holds, or upon
such assignment will hold, at least 20% of the Registrable Securities (or
Warrants exercisable into 20% of the Registrable Securities) (or any equivalent
combination of Warrants and Registrable Securities) or (2) is an Affiliate of
such Investor only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned; (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws; (d) at
or before the time the Company received the written notice contemplated by
clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein; (e) such
transfer shall have been made in accordance with the applicable requirements of
the Subscription Agreement; (f) such transferee shall be an "accredited
investor" as that term defined in Rule 501 of Regulation D promulgated under the
Securities Act but shall not be a broker-dealer or a member of the National
Association of Securities Dealers, Inc.; and (g) in the event the assignment
occurs subsequent to the date of effectiveness of the Registration Statement
required to be filed pursuant to Section 2(a) and the assignment is not made
pursuant to Section 2(c) of the Subscription Agreement, such assignee or
transferee agrees to pay
-15-
<PAGE>
all reasonable expenses of amending or supplementing such Registration Statement
to reflect such assignment. In connection with any such transfer the Company
shall promptly after such assignment take such actions as shall be reasonably
acceptable to the Initial Investor and such transferee to assure that the
Registration Statement and related prospectus are available for use by such
transferee for sales of the Registrable Securities in respect of which the
rights to registration have been so assigned. In connection with any such
assignment, each Investor shall have the right to assign to such transferee such
Investor's rights under the Subscription Agreement by notice of such assignment
to the Company. Following such notice of assignment of rights under the
Subscription Agreement, the Company shall be obligated to such transferee to
perform all of its covenants under the Subscription Agreement as if such
transferee were the Buyer under the Subscription Agreement.
11. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold or have the right to
acquire a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 11 shall be binding upon each
Investor and the Company.
12. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand or courier) or delivered by facsimile: (i) if to the Company, at Tera
Computer Company, 2815 Eastlake Avenue East, Seattle, Washington 98102,
Attention: Chief Executive Officer, facsimile no. (206) 323-1318, with a copy to
Stoel Rives LLP, One Union Square, 36th Floor, Seattle, Washington 98101,
Attention: Christopher J. Voss, facsimile no. (206) 386-7500; (ii) if to the
Initial Investor, Koch Industries, Inc., 4111 East 37th Street North, Wichita,
KS 67270, Attn: Mr. Josh Taylor, facsimile no. (316) 828-7947; and (iii) if to
any other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 12(b), and shall be effective, when
personally delivered, upon receipt, and when sent by facsimile, upon receipt of
confirmation of successful transmission.
-16-
<PAGE>
(c) 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,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Washington applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 10 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 4(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay; provided, however, that in no event shall the total
damages recoverable by the Investors for claims arising from or related to this
Agreement exceed 150% of the aggregate purchase price paid by the Initial
Investor to the Company for the Initial Shares, less all amounts received by the
Investors from market resales of shares of Common Stock as contemplated by this
Agreement.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
TERA COMPUTER COMPANY
By: /s/
-------------------------------------
Name: Kenneth W. Johnson
Title: Chief Financial Officer
KOCH INDUSTRIES, INC.
By: /s/
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
-18-
<PAGE>
EXHIBIT 1
to
Registration Rights Agreement
[Company Letterhead]
[Date]
ChaseMellon Shareholder Services, L.L.C.
as Transfer Agent and Registrar
520 Pike Street, Suite 1220
Seattle, WA 98101
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction to
you (1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value (the "Common Stock"), of Tera Computer Company, a
Washington corporation (the "Company"), represented by certificate numbers
_______ and _______ for an aggregate of _______ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
upon surrender of such certificate(s) to you, notwithstanding the legend
appearing on such certificates, and (2) to issue shares (the "Underlying
Shares") of Common Stock to or upon the order of the holder from time to time
upon exercise of Common Stock purchase warrants exercisable for Common Stock,
issued by the Company upon receipt by you of a Form of Subscription from such
holder in the form enclosed herewith. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Underlying Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Kenneth W. Johnson, general counsel to the
Company, as to registration of the resale of the Outstanding Shares and the
Underlying Shares under the Securities Act of 1933, as amended.
-19-
<PAGE>
Should you have any questions concerning this matter, please contact me.
Very truly yours,
TERA COMPUTER COMPANY
By:
Name:
Title:
Enclosures
cc: [Names of Investors]
-20-
<PAGE>
EXHIBIT 2
to
Registration Rights Agreement
[Date]
TERA COMPUTER COMPANY
Shares of Common Stock
To the Investors listed on Schedule A
ChaseMellon Shareholder Services, L.L.C.
as Transfer Agent and Registrar
520 Pike Street, Suite 1220
Seattle, WA 98101
Ladies and Gentlemen:
I have acted as counsel to Tera Computer Company, a Washington corporation
(the "Company"), and I understand that [Names of Investors] (the "Holders") have
purchased from the Company an aggregate of ____________ shares (the "Initial
Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), and
acquired warrants to purchase _______ shares of Common Stock (the "Warrants").
The Initial Shares were purchased and Warrants were acquired by the Holders
pursuant to the Subscription Agreement, dated as of December 16, 1998, by and
between each Holder and the Company (the "Subscription Agreement"). Pursuant to
the several Registration Rights Agreements, dated as of December 16, 1998, by
and between the Company and each Holder (the "Registration Rights Agreements")
entered into in connection with the purchase by the Holders of the Initial
Shares, the Company agreed with each Holder, among other things, to register for
resale the Initial Shares, the Adjustment Shares (as defined in the Subscription
Agreement) and the shares of Common Stock issuable upon and exercise of the
Warrants (collectively, the "Common Shares") under the Securities Act of 1933,
as amended (the "Securities Act"), upon the terms provided in the Registration
Rights Agreements. Pursuant to the Registration Rights Agreements, on
__________, the Company filed a Registration Statement on Form S-3 (File No.
333- __________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Common Shares, which names the Holders as
selling shareholders thereunder.
I advise you that, on ________, 1998, the Registration Statement became
effective under the Securities Act with respect to the resale of the Common
Shares and Warrants held by or which may be issued to the Holders. Therefore, I
am of the opinion that the Common Shares may be
-21-
<PAGE>
resold by the selling shareholders named in the Prospectus included in the
Registration Statement and the certificates evidencing the Common Shares need
not bear any Securities Act restrictive legend.
I have participated in the preparation of the Registration Statement and
the Prospectus, including review and discussions with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although I am not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to our attention that leads us to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that I have not
been requested to and do not express any view with respect to the financial
statements and schedules and other financial and statistical data included or
incorporated by reference in the Registration Statement or the Prospectus
contained therein).
Very truly yours,
-22-
<PAGE>
Schedule A
List of Investors
-23-
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT, dated as of March 22, 1999 (this "Amendment
Agreement"), is by and between TERA COMPUTER COMPANY, a Washington corporation,
with headquarters located at 411 First Avenue South, Suite 600, Seattle,
Washington 98104 (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 Buyers purchased shares of common stock, $.01 par value, of
the Company (the "Common Stock"), acquired the right to receive additional
shares of Common Stock and acquired warrants (the "Warrants") exercisable for
shares of Common Stock pursuant to the Subscription Agreement, dated as of
September 30, 1998, as amended by the Amendment Agreement, dated as of September
30, 1998, by and between the Buyers and the Company (the "Subscription
Agreement") (capitalized terms used in this Amendment Agreement without
definition have the meanings given them in the Subscription Agreement);
WHEREAS, in connection with the Subscription Agreement, each of the Buyers
entered into separate Registration Rights Agreements, dated as of September 30,
1998, with the Company; and
WHEREAS, the parties desire to make certain amendments to the Subscription
Agreement, the Registration Rights Agreements and the Warrants as set forth
herein;
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. AMENDMENT OF SUBSCRIPTION AGREEMENT
The Subscription Agreement is hereby amended as set forth below in this
Section 1.
(a) Existing Definitions. The following existing definitions in
Section 1 of the Subscription Agreement are amended and restated in their
entirety to read as follows:
(b) "Adjustment Period" means a period commencing on the day
after the May Adjustment Date and ending on the same day (as the May
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, the May
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.
(d) "Adjustment Shares" means the shares of Common Stock issuable
by the Company to the Buyers upon exercise of Adjustment Warrants issued
pursuant to Section 3 hereof and any other securities into which or for
which the
<PAGE>
Common Stock may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(i) "Disclosure Documents" means (i) Amendments No. 1 and No. 2
to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997; (ii) the Company's Quarterly Reports on Form 10-Q/A for
the fiscal quarters ended March 31, 1998, and June 30, 1998, and its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998; (iii) the Company's Current Reports on Form 8-K dated October 8,
1998, November 19, 1998, and December 23, 1998; and (iv) the proxy
statement for the Company's 1998 Annual Meeting, as filed with the SEC on
April 1, 1998.
(k) "Initial Adjustment Date" means February 22, 1999.
(u) "Securities" means the Common Shares, the Warrants and the
Adjustment Warrants.
(b) New Definitions. Section 1 of the Subscription Agreement is
amended to add the following new definitions at the end thereof:
(aa) "Adjustment Warrants" means warrants to purchase shares of
Common Stock issuable pursuant to Section 3 hereof, such warrants having
the terms and conditions set forth in the form of Adjustment Warrant
attached to the Amendment Agreement as Annex I.
(bb) "Amendment Agreement" means the Amendment Agreement, dated
as of March 22, 1999, by and between the Company and the Buyers which,
among other things, amends this Agreement.
(cc) "May Adjustment Date" means May 22, 1999.
(dd) "Pool A Adjustment Shares" means Adjustment Shares issuable
upon exercise of Adjustment Warrants issued pursuant to Section 3(a).
(ee) "Pool A Initial Shares" means one-half of the Initial Shares
issued to each Buyer, as represented by stock certificates nos. T01493 (for
Advantage) and T01497 (for Koch) or any replacement certificates, and any
other securities into which or for which such shares may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(ff) "Pool B Initial Shares" means one-half of the Initial Shares
issued to each Buyer, as represented by stock certificates nos. T01494 (for
Advantage) and T01498 (for Koch) or any replacement certificates, and any
other securities into which or for which such shares may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) Adjustment Warrants. Section 3 of the Subscription Agreement is
amended and restated in its entirety to read as follows:
3. BUYERS' RIGHT TO RECEIVE ADJUSTMENT WARRANTS
(a) Initial Issuance of Adjustment Warrants (Pool A). On the date
of execution and delivery of the Amendment Agreement, the Company shall
isue to the Buyers Adjustment Warrants with respect to the Initial
Adjustment Date for the Pool A Initial Shares as follows:
-2-
<PAGE>
Buyer No. Adjustment Warrants
----- -----------------------
Advantage 201,219
Koch 201,220
(b) May 1999 Issuance of Adjustment Warrants.
(1) Pool B. If the Adjustment Price for the May Adjustment Date
is less than the Floor Price, then the Company shall issue to each Buyer
Adjustment Warrants to purchase the number of Adjustment Shares calculated
in accordance with the following formula:
[ (A / B) x C ] - C
where:
A = Floor Price;
B = Adjustment Price for the May Adjustment Date, and
C = Number of Pool B Initial Shares beneficially owned by Buyer on the
May Adjustment Date
(2) Pool A. If the Adjustment Price for the May Adjustment Date
is less than $6.50, then, in addition to the Adjustment Warrants issued to
each Buyer in accordance with Section 3(b)(1), the Company shall issue to
each Buyer Adjustment Warrants to purchase the number of Adjustment Shares
calculated in accordance with the following formula:
[($6.50 / A) x B] - B
where:
A = Adjustment Price for the May Adjustment Date; and
B = Number of Pool A Initial Shares and Pool A Adjustment Shares
beneficially owned by Buyer on the May Adjustment Date, including all
Pool A Adjustment Shares issuable upon exercise of outstanding
Adjustment Warrants determined without regard to any limitation on
beneficial ownership contained in Section 1.1(d) of the Adjustment
Warrants.
References to $6.50 in this Section 3(b)(2) are 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 commerces on or after the date of the
Amendment Agreement.
(c) Subsequent Issuances of Adjustment Warrants.
(1) Pool B. On each Adjustment Date, if the Adjustment Price for
that Adjustment Date is less than the Floor Price and the lowest Adjustment
Price for the May Adjustment Date or any prior Adjustment Date, then the
Company shall issue to each Buyer Adjustment Warrants to purchase the
number of Adjustment Shares calculated in accordance with the following
formula:
[(1.0125 x A x B) / C ] - A
-3-
<PAGE>
where:
A = Number of Pool B Shares and Pool B Adjustment Shares beneficially
owned by Buyer on the Adjustment Date, including all Pool B
Adjustment Shares issuable upon exercise of outstanding Adjustment
Warrants determined without regard to any limitation on beneficial
ownership contained in Section 1.1(d) of the Adjustment Warrants,
B = Lowest Adjustment Price for the May Adjustment Date or any prior
Adjustment Date, and
C = Adjustment Price applicable to the Adjustment Date.
(2) Pool A. On each Adjustment Date, if the Adjustment Price for
that Adjustment Date is less than $6.50 and the lowest Adjustment Price for
the May Adjustment Date or any prior Adjustment Date, then the Company
shall issue to each Buyer Adjustment Warrants to purchase the number of
Adjustment Shares calculated in accordance with the following formula:
[(1.0125 x A x B) / C ] - A
where:
A = Number of Pool A Shares and Pool A Adjustment Shares beneficially
owned by Buyer on the Adjustment Date, including all Pool A
Adjustment Shares issuable upon exercise of outstanding Adjustment
Warrants determined without regard to any limitation on beneficial
ownership contained in Section 1.1(d) of the Adjustment Warrants,
B = Lowest Adjustment Price for the May Adjustment Date or any prior
Adjustment Date, and
C = Adjustment Price applicable to the Adjustment Date.
References to $6.50 in this Section 3(c)(2) are 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 commerces on or after the date of the Amendment Agreement.
(d) 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 Warrants in accordance with Section 10(h) hereof, then such
Buyer shall so notify the Company not less than ten days before the May
Adjustment Date or 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 Warrants 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 Warrants upon the terms and subject to the conditions
of this Agreement, and all applicable references hereinafter to the
"Buyers" shall include such assignee(s).
-4-
<PAGE>
(e) No Fractional Shares. No fractional shares of Common Stock
shall be issuable as Adjustment Shares upon exercise of the Adjustment
Warrants but, in lieu of any fraction of a share of Common Stock that would
otherwise be issuable upon exercise of an Adjustment Warrant, the Company
shall pay in cash an amount equal to the product of (i) the Adjustment
Price and (ii) such fraction of a share.
(f) Delivery of Adjustment Warrants. The Company shall issue and
deliver to each Buyer the Adjustment Warrants not later than 4:00 p.m.,
Pacific Time, on or before the third Business Day following the May
Adjustment Date and each Adjustment Date, or as otherwise agreed to by the
parties hereto. Delivery of the Adjustment Warrants shall be made at a
location mutually agreed to by the parties hereto. The Company's obligation
to issue and deliver the Adjustment Warrants 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 Adjustment Warrants pursuant
to this Section 3(f) as and when required to do so following the May
Adjustment Date and each Adjustment Date, in addition to any other
liabilities the Company may have hereunder and under applicable law (i) 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 (ii)
the Adjustment Price used to determine the number of Adjustment Shares
issuable upon exercise of such Adjustment Warrants 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 Adjustment Warrants
and, accordingly, the Buyer shall be entitled to receive the additional
Adjustment Warrants resulting from such reduced Adjustment Price.
(g) Condition Precedent to Issuance of Adjustment Warrants. Each
Buyer understands that the Company's obligation to issue the Adjustment
Warrants to such Buyer in accordance with this Agreement is conditioned
upon the accuracy in all material respects on the May Adjustment Date or
the particular Adjustment Date, as applicable, of the representations and
warranties of the Buyer contained in (i) Sections 4(a), (b), (c), (d), (f)
and (g) of this Agreement and (ii) Sections 3(a), (b), (c), (d) and (f) of
the Amendment Agreement, in each case as if made on such date.
(d) Certain Covenants and Acknowledgments. Section 6 of the
Subscription Agreement is amended as follows:
(1) Section 6(a) is amended by inserting the words "and the Adjustment
Warrants" after the words "the Warrants" at the beginning of clause (i) thereof.
(2) Section 6(b) is amended by inserting the words "the Adjustment
Warrants," after the words "the Initial Shares" in the first sentence thereof.
(3) Section 6(g) is amended by inserting the following additional
sentence after the first sentence thereof:
As promptly as practicable, the Company shall take such action as shall be
necessary to qualify, or to obtain an exemption from qualification for the
Adjustment Warrants and the Adjustment Shares for issuance to the Buyers
under such of the securities or "blue sky"
-5-
<PAGE>
laws of jurisdictions as shall be applicable to the offer of the Adjustment
Warrants and the Adjustment Shares pursuant to the Amendment Agreement.
(4) Clause (i) of Section 6(i) is amended by
(A) inserting the words "(x) issue any Adjustment Shares or Warrant
Shares in excess of the number of shares permitted by Rule 4460(i) or (y)" after
the words "the Company will not" therein, and
(B) inserting the words ", Adjustment Warrants" after the words "the
issuance of Adjustment Shares" therein.
(5) Clause (ii) of Section 6(i) is amended by inserting the words "and
the Adjustment Warrants" after the words "upon the exercise of the Warrants"
therein.
(6) Section 6(k) is amended by inserting the words ", the Adjustment
Warrants" after the words "Registration Rights Agreements" in the first sentence
thereof.
(7) The first sentence of Section 6(m) is amended and restated in its
entirety to read as follows:
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 Adjustment Warrants or Common Shares then
outstanding shall have the right thereafter to receive Adjustment Warrants
or Adjustment Shares in the form of the kind of warrants or shares of stock
and other securities and property receivable upon such consolidation,
merger, sale, transfer, or share exchange by a holder of warrants or 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 and Adjustment Warrants to receive Adjustment Warrants and
Adjustment Shares on a basis as nearly as practical as such rights exist
hereunder prior thereto.
(8) Section 6(n) is amended by inserting the words "or Adjustment
Warrants" after the words "Common Shares" therein.
(e) Buyers' Right to Require Repurchase of the Common Shares and
Adjustment Warrants. Section 7 of the Subscription Agreement is amended as
follows:
(1) The caption of Section 7 is amended by adding the words "AND
ADJUSTMENT WARRANTS" at the end thereof.
(2) Section 7(a) is amended by inserting the words "and Adjustment
Warrants" after the words "its Common Shares" therein.
(3) Clause (iii) of the definition of "Repurchase Event" in Section
7(b) is amended by
(A) inserting the words "or Adjustment Shares" after the words "any
holder of Common Shares" therein, and
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(B) deleting the word "such" after the words "under this Section 7 to
sell" therein.
(4) The second paragraph of Section 7(b) (commencing with the words
"Notwithstanding Sections 7(a)...") is amended by
(A) inserting the words "and Adjustment Warrants" after the words
"Common Shares" in each of the two places in the first sentence of such
paragraph where "Common Shares" appears, and
(B) inserting the words "or issuable upon exercise of Adjustment
Warrants" after the words "the number of Common Shares acquired hereunder" in
the third sentence of such paragraph.
(5) The third paragraph of Section 7(b) (commencing with the words
"For purposes of this Section 7, (A) a Repurchase Event...") is amended by
inserting the words "or Adjustment Shares" after the words "Common Shares" in
each of the first two places in such paragraph where "Common Shares" first
appears.
(6) Section 7(c) is amended by
(A) inserting the words "and Adjustment Warrants" after the words
"Common Shares" in each of the following five places in section 7(c): (i) in the
first sentence thereof, (ii) in clause (i) of the second sentence thereof, (iii)
in clause (iii) of the second sentence thereof, (iv) in the third sentence
thereof and (v) the second place in the fourth sentence thereof where "Common
Shares" appears,
(B) inserting the words "or Adjustment Shares" after the words "Common
Shares" in the first place in the fourth sentence thereof where "Common Shares"
appears, and
(C) inserting the words "and Adjustment Warrants to purchase whole
Common Shares" after the words "Common Shares" in the fifth sentence thereof.
(7) Section 7(d) is amended by deleting clause (2)(i) thereof in its
entirety and substituting in lieu thereof the following:
(i) the sum of the number of Common Shares to be repurchased and the number
of Adjustment Shares issuable upon the exercise of the Adjustment Warrants
to be repurchased and
(8) Section 7(f) is amended by
(A) deleting the words "Adjustment Date" after the words "with respect
to any" in the first sentence of Section 7(f) and substituting in lieu thereof
the words "date of exercise of any Adjustment Warrants",
(B) deleting the words "Adjustment Date" and substituting in lieu
thereof the words "exercise date" in each of the following three places in
Section 7(f): (i) the second place in the first sentence thereof where
"Adjustment Date" appears, (ii) the third place in the first sentence thereof
where "Adjustment Date" appears and (iii) in the third sentence thereof, and
(C) inserting the words "and Adjustment Shares" after the words
"Common Shares" in the fourth sentence thereof.
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(9) Section 7(g) is amended by inserting the words "and Adjustment
Warrants" after the words "Common Shares" in each of the first and second
sentences of Section 7(g).
(10) Section 7(h) is amended by inserting the words "and Adjustment
Warrants" after the words "this Agreement" in each of the following three places
in Section 7(h): (i) in the third sentence thereof, (ii) in clause 2(i) of the
seventh sentence thereof and (iii) in clause 2(ii) of the seventh sentence
thereof.
(f) Company's Right to Repurchase the Common Shares and Adjustment
Warrants. The Subscription Agreement is amended to add the following new Section
7.1:
7.1 COMPANY'S RIGHT TO REPURCHASE THE COMMON SHARES.
(a) Right to Repurchase. So long as (i) the Company shall be in
compliance in all material respects with its obligations to the Buyers
(including, without limitation, its obligations under this Agreement and
the Registration Rights Agreement), (ii) on the date the Company Repurchase
Notice (as defined below) is given and at all times until the date of
repurchase, the Registration Statement is effective and available for use
by the Buyers for the resale of their Common Shares and (iii) no Repurchase
Event shall have occurred with respect to which, on the date a Company
Repurchase Notice is to be given or on the redemption date, a Buyer (A)
shall be entitled to exercise optional repurchase rights under Section 7 by
reason of such Repurchase Event or (B) shall have exercised optional
repurchase rights under Section 7 by reason of such Repurchase Event and
the Company shall not have paid the Repurchase Price to such Buyer, then
the Company shall have the right, exercisable by giving a Company
Repurchase Notice not less than 20 Trading Days or more than 30 Trading
Days prior to the repurchase date to the Buyer, at any time on or after the
Closing Date to repurchase all or a portion of the Common Shares and
Adjustment Warrants then held by the Buyers. Prior to any repurchase date,
whether or not a Company Repurchase Notice has been given, the Buyers may
sell or transfer any of their Common Shares and Adjustment Warrants.
(b) Repurchase Notice. To exercise the right of repurchase under
Section 7.1(a), the Company shall deliver a notice of repurchase (a
"Company Repurchase Notice") to each Buyer from which the Company desires
to repurchase Common Shares, Adjustment Warrants, or both. The Company
Repurchase Notice shall (i) state that the Company is exercising its right
to repurchase the Buyer's Common Shares, Adjustment Warrants, or both
pursuant to this Section 7.1, (ii) indicate the number of Common Shares and
Adjustment Warrants which are to be repurchased, (iii) state the Company
Repurchase Price (as defined below) and the formula for determining the
same, and (iv) provide the Buyer with instructions with respect to the
delivery to the Company of the Buyer's certificate(s) for the Common Shares
and the Adjustment Warrants to be repurchased. Promptly and in no event
later than three Business Days after the Company's receipt of the Buyer's
certificate(s) for the Common Shares and the Adjustment Warrants to be
repurchased, the Company shall make payment in immediately available funds
of the Company Repurchase Price applicable on the date of such repurchase
with respect to the Common Shares and Adjustment Warrants to be repurchased
to or upon the order of the Buyer as specified in the Company Repurchase
Notice. Upon repurchase of less than all of the Common Shares evidenced by
a particular certificate or the Adjustment Shares evidenced by a particular
Adjustment Warrant, promptly, but in no event later than three Business
Days after surrender of such certificate or Adjustment Warrant to the
Company, the Company shall
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<PAGE>
issue a replacement certificate for the Common Shares and a replacement
warrant for the portion of the Adjustment Warrants that have not been
repurchased. Only whole Common Shares and portions of Adjustment Warrants
to purchase whole Common Shares may be repurchased.
(c) Company Repurchase Price. As used in this Section 7.1,
"Company Repurchase Price" means the product of (i) the sum of the number
of Common Shares to be repurchased and the number of Adjustment Shares
issuable upon the exercise of the Adjustment Warrants 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 as of the date of repurchase.
(g) Assignment. Section 10(h) of the Subscription Agreement is amended
by deleting the words "Adjustment Shares" in all four places in Section 10(h)
where such words appear and in each case substituting in lieu thereof the words
"Adjustment Warrants".
(h) Incorporation of Amendments in Subscription Agreement. For ease of
reference, the foregoing amendments to the Subscription Agreement together with
the amendments effected by the Amendment Agreement, dated as September 30, 1998,
have been incorporated in the form of subscription agreement attached hereto as
Annex II. Any inconsistency between such form of subscription agreement and the
terms of the foregoing amendments shall be governed by such foregoing terms as
set forth above in this Agreement.
2. AMENDMENT OF REGISTRATION RIGHTS AGREEMENTS
Each of the Registration Rights Agreements is hereby amended as set forth
below in this Section 2:
(a) The first recital to each Registration Rights Agreement is amended
by inserting the words "as amended from time to time," following the initial
parenthesis at the beginning of the parenthetical definition "(the "Subscription
Agreement")".
(b) The definition of "Adjustment Shares" in the second recital to
each Registration Rights Agreement is amended by inserting the words "upon
exercise of the Adjustment Warrants" after the words "additional shares of
Common Stock".
(c) The definition of "Registration Period" in Section 1 of each
Registration Rights Agreement is amended
(1) by deleting the words "Adjustment Shares" in clause (i) thereof
and substituting in lieu thereof the words "Adjustment Warrants", and
(2) by inserting the words "and the Adjustment Warrants" after the
words "Subscription Agreement" in clause (ii) thereof.
(d) Section 2(a) of each Registration Rights Agreement is amended by
deleting clause (ii) of the first sentence thereof in its entirety and
substituting in lieu thereof the following:
(ii) the number of Adjustment Shares which would be required to be issued
pursuant to the Subscription Agreement and the Adjustment Warrants with
respect to the initial issuance of Adjustment Warrants if the Initial
Adjustment Date was the SEC Filing Date, and
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<PAGE>
3. AMENDMENT OF WARRANTS
The Company hereby amends each of the following outstanding Warrants
issued to each of the Buyers to reduce, in each case, the initial Purchase Price
(as such term is defined in the Warrants) to $6.00 per share, subject to
adjustment as provided in the respective Warrants:
(a) The Warrant, dated September 30, 1998, to purchase 60,504 shares
of Common Stock issued to Advantage with an original Purchase Price of $10.04;
and
(b) The Warrant, dated September 30, 1998, to purchase 60,504 shares
of Common Stock issued to Koch with an original Purchase Price of $10.04.
At the request of Advantage or Koch, within five Business Days after
Advantage or Koch surrenders to the Company their original Warrants, the Company
shall issue in exchange therefor amended warrants of like tenor which reflect
the $6.00 initial Purchase Price effected by this Amendment Agreement. However,
the failure for any reason to so exchange outstanding Warrants for new warrants
shall not affect the validity or enforceability of such outstanding Warrants as
amended hereby.
4. BUYER REPRESENTATIONS AND WARRANTIES
Each Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) Purchase for Investment. Upon issuance of any Adjustment Warrants,
the Buyer will acquire the Adjustment Warrants, for its own account for
investment only and not with a view towards the public sale or distribution
thereof. The Buyer understands that its investment in the Adjustment Warrants
involves a high degree of risk.
(b) Reoffers and Resales. All subsequent offers and sales of the
Adjustment Warrants by the Buyer shall be made pursuant to registration of the
Adjustment Warrants being offered and sold under the 1933 Act or pursuant to an
exemption from registration.
(c) Company Reliance. The Buyer understands that the Adjustment
Warrants 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 receive an
offer of the Adjustment Warrants.
(d) 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 of the Adjustment
Warrants 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.
(e) 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 Adjustment Warrants.
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<PAGE>
(f) Amendment Agreement. This Amendment 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.
5. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and covenants and agrees with, each
Buyer that:
(a) Organization and Authority. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and
has all requisite corporate power and authority (i) to own, lease, and operate
its properties and to carry on its business as now being conducted, and (ii) to
execute, deliver, and perform its obligations under this Agreement and the
Registration Rights Agreements, and the other agreements to be executed and
delivered or amended 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) Concerning the Adjustment Warrants and the Adjustment Shares. The
Adjustment Warrants and the Adjustment Shares have been duly authorized and the
Adjustment Warrants, when issued, and the Adjustment Shares, when issued upon
exercise of the Adjustment 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.
(c) Amendment Agreement. This Amendment Agreement has been duly and
validly authorized by the Company, this Amendment Agreement has been duly
executed and delivered on behalf of the Company and this Amendment Agreement is,
and the Adjustment Warrants, 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.
(d) Non-contravention. The execution and delivery of this Amendment
Agreement by the Company and the issuance by the Company of the Adjustment
Warrants and the Adjustment Shares, as contemplated by this Amendment Agreement,
and completion of the other transactions contemplated in this Amendment
Agreement and the Registration Rights Agreements, 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 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.
(e) Approvals. Except as set forth in Schedule 5(f) to the
Subscription Agreement, 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 of the Adjustment Warrants as contemplated
by this Amendment Agreement, and (ii) the issuance of Adjustment
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<PAGE>
Shares upon exercise of the Adjustment 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.
(f) Information Provided. The information provided by or on behalf of
the Company to the Buyers in connection with the transactions contemplated by
this Amendment Agreement, including, without limitation, the information
referred to in Section 4(d) of this Amendment 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.
(g) Absence of Certain Changes. Except as disclosed in the Disclosure
Documents, 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.
(h) 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.
(i) 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 that 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) (collectively, "Rule 4460(i)")
and that would be integrated with the sale of the Initial Shares to the Buyers
or the issuance of Adjustment Warrants or Adjustment Shares for purposes of Rule
4460(i), other than the Company's Series B Convertible Preferred Stock.
6. LIMITED WAIVER
The Buyers hereby agree that (i) the date by which the Company is required
to file the Registration Statement with the SEC, pursuant to Section 2(a) of the
Registration Rights Agreement, is changed to March 26, 1999, and (ii) that a
Reset Date (as defined in the Subscription Agreement) shall not be deemed to
have occurred by reason of the Registration Statement not being declared
effective by the SEC within 90 days after the Closing Date if the Registration
Statement is declared effective on or before April 30, 1999.
7. EFFECTIVENESS
This Amendment Agreement shall become effective on the date (the "Effective
Date") when (a) the Buyers shall have received an opinion of counsel for the
Company, dated the Effective Date, in form scope and substance reasonably
satisfactory to the Buyers, to the effect set forth in Annex III attached hereto
and (b) counterparts hereof shall have been executed and delivered by the
Company and each of the Buyers. From and after the Effective Date, all
references in the Subscription Agreement to the Subscription Agreement and the
Warrants shall be deemed to be references to the Subscription Agreement and the
Warrants as amended hereby and all references in the Registration Rights
Agreements to the Registration Rights
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<PAGE>
Agreement and the Warrants shall be deemed to be references to such Registration
Rights Agreement and the Warrants as amended hereby.
8. CONFIRMATION OF AGREEMENTS; ENTIRE AGREEMENT
Except as amended by this Amendment Agreement, the Subscription Agreement
and each of the Registration Rights Agreements and the Warrants shall remain in
effect in accordance with their respective terms. This Amendment Agreement and
the annexes attached hereto set forth the entire agreement between the parties
with respect to the subject matter hereof.
9. MISCELLANEOUS
(a) Governing Law. This Amendment Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington.
(b) Counterparts. This Amendment 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 Amendment 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
Amendment 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 Amendment 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 Amendment Agreement or the validity or enforceability of this
Amendment Agreement in any other jurisdiction.
(e) Amendments. No amendment, modification, waiver, discharge or
termination of any provision of this Amendment 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 Amendment Agreement.
(f) Waivers. Failure of any party to exercise any right or remedy
under this Amendment 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 Amendment Agreement shall be delivered in accordance with the
notice provisions of the Subscription Agreement, the Registration Rights
Agreements and the Warrants.
(h) Certain Expenses and Fees. The Company shall pay or reimburse the
Buyers for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the Buyers) incurred by the Buyers in connection with
this Amendment 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
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<PAGE>
Warrants, the Adjustment 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.
(i) Survival. The respective representations, warranties, covenants,
and agreements of each Buyer and the Company contained in this Amendment
Agreement or made by or on behalf of them, respectively, pursuant to this
Amendment Agreement shall survive the Effective Date and the issuance of the
Adjustment Warrants and the Adjustment 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) Further Assurances. Each party to this Amendment 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 Amendment Agreement and to carry out its provisions.
(k) Construction. The language used in this Amendment 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>
IN WITNESS WHEREOF, this Amendment 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.
ADVANTAGE FUND II LTD.
By: /s/
-------------------------------------
Title:
----------------------------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
KOCH INDUSTRIES, INC.
By: /s/
---------------------------------------
Title:
------------------------------------
Address: 4111 East 37th Street North
Wichita, KS 67270
Facsimile No.: (316) 828-7947
TERA COMPUTER COMPANY
By: /s/
---------------------------------------
Kenneth W. Johnson
Vice President - Finance and
Chief Financial Officer
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AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT, dated as of March 22, 1999 (this "Amendment
Agreement"), is by and between TERA COMPUTER COMPANY, a Washington corporation,
with headquarters located at 411 First Avenue South, Suite 600, Seattle,
Washington 98104 (the "Company"), and GENESEE FUND LIMITED - PORTFOLIO B, a
British Virgin Islands corporation ("Genesee"), and KOCH INDUSTRIES, INC., a
Kansas corporation ("Koch" and, collectively with Genesee, the "Buyers").
W I T N E S S E T H:
WHEREAS, the Buyers purchased shares of common stock, $.01 par value, of
the Company (the "Common Stock"), acquired the right to receive additional
shares of Common Stock and acquired warrants (the "Warrants") exercisable for
shares of Common Stock pursuant to the Subscription Agreement, dated as of
December 16, 1998, by and between the Buyers and the Company (the "Subscription
Agreement") (capitalized terms used in this Amendment Agreement without
definition have the meanings given them in the Subscription Agreement);
WHEREAS, in connection with the Subscription Agreement, each of the Buyers
entered into separate Registration Rights Agreements, dated as of December 16,
1998, with the Company; and
WHEREAS, the parties desire to make certain amendments to the Subscription
Agreement, the Registration Rights Agreements and the Warrants as set forth
herein;
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. AMENDMENT OF SUBSCRIPTION AGREEMENT
The Subscription Agreement is hereby amended as set forth below in this
Section 1.
(a) Existing Definitions. The following existing definitions in
Section 1 of the Subscription Agreement are amended and restated in their
entirety to read as follows:
(b) "Adjustment Period" means a period commencing on the day
after the May Adjustment Date and ending on the same day (as the May
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, the May
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.
(d) "Adjustment Shares" means the shares of Common Stock issuable
by the Company to the Buyers upon exercise of Adjustment Warrants issued
pursuant to Section 3 hereof and any other securities into which or for
which the
<PAGE>
Common Stock may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(i) "Disclosure Documents" means (i) Amendments No. 1 and No. 2
to the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997; (ii) the Company's Quarterly Reports on Form 10-Q/A for
the fiscal quarters ended March 31, 1998, and June 30, 1998, and its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1998; (iii) the Company's Current Reports on Form 8-K dated October 8,
1998, November 19, 1998, and December 23, 1998; and (iv) the proxy
statement for the Company's 1998 Annual Meeting, as filed with the SEC on
April 1, 1998.
(k) "Initial Adjustment Date" means February 22, 1999.
(u) "Securities" means the Common Shares, the Warrants and the
Adjustment Warrants.
(b) New Definitions. Section 1 of the Subscription Agreement is
amended to add the following new definitions at the end thereof:
(aa) "Adjustment Warrants" means warrants to purchase shares of
Common Stock issuable pursuant to Section 3 hereof, such warrants having
the terms and conditions set forth in the form of Adjustment Warrant
attached to the Amendment Agreement as Annex I.
(bb) "Amendment Agreement" means the Amendment Agreement, dated
as of March 22, 1999, by and between the Company and the Buyers which,
among other things, amends this Agreement.
(cc) "May Adjustment Date" means May 22, 1999.
(dd) "Pool A Adjustment Shares" means Adjustment Shares issuable
upon exercise of Adjustment Warrants issued pursuant to Section 3(a).
(ee) "Pool A Initial Shares" means one-half of the Initial Shares
issued to each Buyer, as represented by stock certificates nos. T01499 (for
Genesee) and T01495 (for Koch) or any replacement certificates, and any
other securities into which or for which such shares may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(ff) "Pool B Initial Shares" means one-half of the Initial Shares
issued to each Buyer, as represented by stock certificates nos. T01500 (for
Genesee) and T01496 (for Koch) or any replacement certificates, and any
other securities into which or for which such shares may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) Adjustment Warrants. Section 3 of the Subscription Agreement is
amended and restated in its entirety to read as follows:
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3. BUYERS' RIGHT TO RECEIVE ADJUSTMENT WARRANTS
(a) Initial Issuance of Adjustment Warrants (Pool A). On the date
of execution and delivery of the Amendment Agreement, the Company shall
isue to the Buyers Adjustment Warrants with respect to the Initial
Adjustment Date for the Pool A Initial Shares as follows:
Buyer No. Adjustment Warrants
----- -----------------------
Genesee 67,073
Koch 67,073
(b) May 1999 Issuance of Adjustment Warrants.
(1) Pool B. If the Adjustment Price for the May Adjustment Date
is less than the Floor Price, then the Company shall issue to each Buyer
Adjustment Warrants to purchase the number of Adjustment Shares calculated
in accordance with the following formula:
[(A / B) x C ] - C
where:
A = Floor Price;
B = Adjustment Price for the May Adjustment Date, and
C = Number of Pool B Initial Shares beneficially owned by Buyer on the
May Adjustment Date
(2) Pool A. If the Adjustment Price for the May Adjustment Date
is less than $6.50, then, in addition to the Adjustment Warrants issued to
each Buyer in accordance with Section 3(b)(1), the Company shall issue to
each Buyer Adjustment Warrants to purchase the number of Adjustment Shares
calculated in accordance with the following formula:
[( $6.50 / A) x B] - B
where:
A = Adjustment Price for the May Adjustment Date; and
B = Number of Pool A Initial Shares and Pool A Adjustment Shares
beneficially owned by Buyer on the May Adjustment Date, including all
Pool A Adjustment Shares issuable upon exercise of outstanding
Adjustment Warrants determined without regard to any limitation on
beneficial ownership contained in Section 1.1(d) of the Adjustment
Warrants.
References to $6.50 in this Section 3(b)(2) are 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 commerces on or after the date of the
Amendment Agreement.
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(c) Subsequent Issuances of Adjustment Warrants.
(1) Pool B. On each Adjustment Date, if the Adjustment Price for
that Adjustment Date is less than the Floor Price and the lowest Adjustment
Price for the May Adjustment Date or any prior Adjustment Date, then the
Company shall issue to each Buyer Adjustment Warrants to purchase the
number of Adjustment Shares calculated in accordance with the following
formula:
[(1.0125 x A x B) / C] - A
where:
A = Number of Pool B Shares and Pool B Adjustment Shares beneficially
owned by Buyer on the Adjustment Date, including all Pool B
Adjustment Shares issuable upon exercise of outstanding Adjustment
Warrants determined without regard to any limitation on beneficial
ownership contained in Section 1.1(d) of the Adjustment Warrants,
B = Lowest Adjustment Price for the May Adjustment Date or any prior
Adjustment Date, and
C = Adjustment Price applicable to the Adjustment Date.
(2) Pool A. On each Adjustment Date, if the Adjustment Price for
that Adjustment Date is less than $6.50 and the lowest Adjustment Price for
the May Adjustment Date or any prior Adjustment Date, then the Company
shall issue to each Buyer Adjustment Warrants to purchase the number of
Adjustment Shares calculated in accordance with the following formula:
[(1.0125 x A x B) / C] - A
where:
A = Number of Pool A Shares and Pool A Adjustment Shares beneficially
owned by Buyer on the Adjustment Date, including all Pool A
Adjustment Shares issuable upon exercise of outstanding Adjustment
Warrants determined without regard to any limitation on beneficial
ownership contained in Section 1.1(d) of the Adjustment Warrants,
B = Lowest Adjustment Price for the May Adjustment Date or any prior
Adjustment Date, and
C = Adjustment Price applicable to the Adjustment Date.
References to $6.50 in this Section 3(c)(2) are 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 commerces on or after the date of the
Amendment Agreement.
(d) 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 Warrants in accordance with Section 10(h) hereof, then such
Buyer shall so notify the Company not less than ten days before the May
Adjustment Date or any Adjustment Date. Each such notice of assignment by a
Buyer shall specify the name(s) of the assignee(s) and the
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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 Warrants 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 Warrants upon the terms and subject to the
conditions of this Agreement, and all applicable references hereinafter to
the "Buyers" shall include such assignee(s).
(e) No Fractional Shares. No fractional shares of Common Stock
shall be issuable as Adjustment Shares upon exercise of the Adjustment
Warrants but, in lieu of any fraction of a share of Common Stock that would
otherwise be issuable upon exercise of an Adjustment Warrant, the Company
shall pay in cash an amount equal to the product of (i) the Adjustment
Price and (ii) such fraction of a share.
(f) Delivery of Adjustment Warrants. The Company shall issue and
deliver to each Buyer the Adjustment Warrants not later than 4:00 p.m.,
Pacific Time, on or before the third Business Day following the May
Adjustment Date and each Adjustment Date, or as otherwise agreed to by the
parties hereto. Delivery of the Adjustment Warrants shall be made at a
location mutually agreed to by the parties hereto. The Company's obligation
to issue and deliver the Adjustment Warrants 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 Adjustment Warrants pursuant
to this Section 3(f) as and when required to do so following the May
Adjustment Date and each Adjustment Date, in addition to any other
liabilities the Company may have hereunder and under applicable law (i) 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 (ii)
the Adjustment Price used to determine the number of Adjustment Shares
issuable upon exercise of such Adjustment Warrants 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 Adjustment Warrants
and, accordingly, the Buyer shall be entitled to receive the additional
Adjustment Warrants resulting from such reduced Adjustment Price.
(g) Condition Precedent to Issuance of Adjustment Warrants. Each
Buyer understands that the Company's obligation to issue the Adjustment
Warrants to such Buyer in accordance with this Agreement is conditioned
upon the accuracy in all material respects on the May Adjustment Date or
the particular Adjustment Date, as applicable, of the representations and
warranties of the Buyer contained in (i) Sections 4(a), (b), (c), (d), (f)
and (g) of this Agreement and (ii) Sections 3(a), (b), (c), (d) and (f) of
the Amendment Agreement, in each case as if made on such date.
(d) Certain Covenants and Acknowledgments. Section 6 of the
Subscription Agreement is amended as follows:
(1) Section 6(a) is amended by inserting the words "and the Adjustment
Warrants" after the words "the Warrants" at the beginning of clause (i) thereof.
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(2) Section 6(b) is amended by inserting the words "the Adjustment
Warrants," after the words "the Initial Shares" in the first sentence thereof.
(3) Section 6(g) is amended by inserting the following additional
sentence after the first sentence thereof:
As promptly as practicable, the Company shall take such action as shall be
necessary to qualify, or to obtain an exemption from qualification for the
Adjustment Warrants and the Adjustment Shares for issuance to the Buyers
under such of the securities or "blue sky" laws of jurisdictions as shall
be applicable to the offer of the Adjustment Warrants and the Adjustment
Shares pursuant to the Amendment Agreement.
(4) Clause (i) of Section 6(i) is amended by
(A) inserting the words "(x) issue any Adjustment Shares or Warrant
Shares in excess of the number of shares permitted by Rule 4460(i) or (y)" after
the words "the Company will not" therein, and
(B) inserting the words ", Adjustment Warrants" after the words "the
issuance of Adjustment Shares" therein.
(5) Clause (ii) of Section 6(i) is amended by inserting the words "and
the Adjustment Warrants" after the words "upon the exercise of the Warrants"
therein.
(6) Section 6(k) is amended by inserting the words ", the Adjustment
Warrants" after the words "Registration Rights Agreements" in the first sentence
thereof.
(7) The first sentence of Section 6(m) is amended and restated in its
entirety to read as follows:
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 Adjustment Warrants or Common Shares then
outstanding shall have the right thereafter to receive Adjustment Warrants
or Adjustment Shares in the form of the kind of warrants or shares of stock
and other securities and property receivable upon such consolidation,
merger, sale, transfer, or share exchange by a holder of warrants or 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 and Adjustment Warrants to receive Adjustment Warrants and
Adjustment Shares on a basis as nearly as practical as such rights exist
hereunder prior thereto.
(8) Section 6(n) is amended by inserting the words "or Adjustment
Warrants" after the words "Common Shares" therein.
(e) Buyers' Right to Require Repurchase of the Common Shares and
Adjustment Warrants. Section 7 of the Subscription Agreement is amended as
follows:
(1) The caption of Section 7 is amended by adding the words "AND
ADJUSTMENT WARRANTS" at the end thereof.
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(2) Section 7(a) is amended by inserting the words "and Adjustment
Warrants" after the words "its Common Shares" therein.
(3) Clause (iii) of the definition of "Repurchase Event" in Section
7(b) is amended by
(A) inserting the words "or Adjustment Shares" after the words "any
holder of Common Shares" therein, and
(B) deleting the word "such" after the words "under this Section 7 to
sell" therein.
(4) The second paragraph of Section 7(b) (commencing with the words
"Notwithstanding Sections 7(a)...") is amended by
(A) inserting the words "and Adjustment Warrants" after the words
"Common Shares" in each of the two places in the first sentence of such
paragraph where "Common Shares" appears, and
(B) inserting the words "or issuable upon exercise of Adjustment
Warrants" after the words "the number of Common Shares acquired hereunder" in
the third sentence of such paragraph.
(5) The third paragraph of Section 7(b) (commencing with the words
"For purposes of this Section 7, (A) a Repurchase Event...") is amended by
inserting the words "or Adjustment Shares" after the words "Common Shares" in
each of the first two places in such paragraph where "Common Shares" first
appears.
(6) Section 7(c) is amended by
(A) inserting the words "and Adjustment Warrants" after the words
"Common Shares" in each of the following five places in section 7(c): (i) in the
first sentence thereof, (ii) in clause (i) of the second sentence thereof, (iii)
in clause (iii) of the second sentence thereof, (iv) in the third sentence
thereof and (v) the second place in the fourth sentence thereof where "Common
Shares" appears,
(B) inserting the words "or Adjustment Shares" after the words "Common
Shares" in the first place in the fourth sentence thereof where "Common Shares"
appears, and
(C) inserting the words "and Adjustment Warrants to purchase whole
Common Shares" after the words "Common Shares" in the fifth sentence thereof.
(7) Section 7(d) is amended by deleting clause (2)(i) thereof in its
entirety and substituting in lieu thereof the following:
(i) the sum of the number of Common Shares to be repurchased and the number
of Adjustment Shares issuable upon the exercise of the Adjustment Warrants
to be repurchased and
(8) Section 7(f) is amended by
(A) deleting the words "Adjustment Date" after the words "with respect
to any" in the first sentence of Section 7(f) and substituting in lieu thereof
the words "date of exercise of any Adjustment Warrants",
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(B) deleting the words "Adjustment Date" and substituting in lieu
thereof the words "exercise date" in each of the following three places in
Section 7(f): (i) the second place in the first sentence thereof where
"Adjustment Date" appears, (ii) the third place in the first sentence thereof
where "Adjustment Date" appears and (iii) in the third sentence thereof, and
(C) inserting the words "and Adjustment Shares" after the words
"Common Shares" in the fourth sentence thereof.
(9) Section 7(g) is amended by inserting the words "and Adjustment
Warrants" after the words "Common Shares" in each of the first and second
sentences of Section 7(g).
(10) Section 7(h) is amended by inserting the words "and Adjustment
Warrants" after the words "this Agreement" in each of the following three places
in Section 7(h): (i) in the third sentence thereof, (ii) in clause 2(i) of the
seventh sentence thereof and (iii) in clause 2(ii) of the seventh sentence
thereof.
(f) Company's Right to Repurchase the Common Shares and Adjustment
Warrants. The Subscription Agreement is amended to add the following new Section
7.1:
7.1 COMPANY'S RIGHT TO REPURCHASE THE COMMON SHARES.
(a) Right to Repurchase. So long as (i) the Company shall be in
compliance in all material respects with its obligations to the Buyers
(including, without limitation, its obligations under this Agreement and
the Registration Rights Agreement), (ii) on the date the Company Repurchase
Notice (as defined below) is given and at all times until the date of
repurchase, the Registration Statement is effective and available for use
by the Buyers for the resale of their Common Shares and (iii) no Repurchase
Event shall have occurred with respect to which, on the date a Company
Repurchase Notice is to be given or on the redemption date, a Buyer (A)
shall be entitled to exercise optional repurchase rights under Section 7 by
reason of such Repurchase Event or (B) shall have exercised optional
repurchase rights under Section 7 by reason of such Repurchase Event and
the Company shall not have paid the Repurchase Price to such Buyer, then
the Company shall have the right, exercisable by giving a Company
Repurchase Notice not less than 20 Trading Days or more than 30 Trading
Days prior to the repurchase date to the Buyer, at any time on or after the
Closing Date to repurchase all or a portion of the Common Shares and
Adjustment Warrants then held by the Buyers. Prior to any repurchase date,
whether or not a Company Repurchase Notice has been given, the Buyers may
sell or transfer any of their Common Shares and Adjustment Warrants.
(b) Repurchase Notice. To exercise the right of repurchase under
Section 7.1(a), the Company shall deliver a notice of repurchase (a
"Company Repurchase Notice") to each Buyer from which the Company desires
to repurchase Common Shares, Adjustment Warrants, or both. The Company
Repurchase Notice shall (i) state that the Company is exercising its right
to repurchase the Buyer's Common Shares, Adjustment Warrants, or both
pursuant to this Section 7.1, (ii) indicate the number of Common Shares and
Adjustment Warrants which are to be repurchased, (iii) state the Company
Repurchase Price (as defined below) and the formula for determining the
same, and (iv) provide the Buyer with instructions with respect to the
delivery to the Company of the Buyer's certificate(s) for the Common Shares
and the Adjustment Warrants to be repurchased. Promptly and in no event
later than three
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Business Days after the Company's receipt of the Buyer's certificate(s) for
the Common Shares and the Adjustment Warrants to be repurchased, the
Company shall make payment in immediately available funds of the Company
Repurchase Price applicable on the date of such repurchase with respect to
the Common Shares and Adjustment Warrants to be repurchased to or upon the
order of the Buyer as specified in the Company Repurchase Notice. Upon
repurchase of less than all of the Common Shares evidenced by a particular
certificate or the Adjustment Shares evidenced by a particular Adjustment
Warrant, promptly, but in no event later than three Business Days after
surrender of such certificate or Adjustment Warrant to the Company, the
Company shall issue a replacement certificate for the Common Shares and a
replacement warrant for the portion of the Adjustment Warrants that have
not been repurchased. Only whole Common Shares and portions of Adjustment
Warrants to purchase whole Common Shares may be repurchased.
(c) Company Repurchase Price. As used in this Section 7.1,
"Company Repurchase Price" means the product of (i) the sum of the number
of Common Shares to be repurchased and the number of Adjustment Shares
issuable upon the exercise of the Adjustment Warrants 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 as of the date of repurchase.
(g) Assignment. Section 10(h) of the Subscription Agreement is amended
by deleting the words "Adjustment Shares" in all four places in Section 10(h)
where such words appear and in each case substituting in lieu thereof the words
"Adjustment Warrants".
(h) Incorporation of Amendments in Subscription Agreement. For ease of
reference, the foregoing amendments to the Subscription Agreement have been
incorporated in the form of subscription agreement attached hereto as Annex II.
Any inconsistency between such form of subscription agreement and the terms of
the foregoing amendments shall be governed by such foregoing terms as set forth
above in this Agreement.
2. AMENDMENT OF REGISTRATION RIGHTS AGREEMENTS
Each of the Registration Rights Agreements is hereby amended as set forth
below in this Section 2:
(a) The first recital to each Registration Rights Agreement is amended
by inserting the words "as amended from time to time," following the initial
parenthesis at the beginning of the parenthetical definition "(the "Subscription
Agreement")".
(b) The definition of "Adjustment Shares" in the second recital to
each Registration Rights Agreement is amended by inserting the words "upon
exercise of the Adjustment Warrants" after the words "additional shares of
Common Stock".
(c) The definition of "Registration Period" in Section 1 of each
Registration Rights Agreement is amended
(1) by deleting the words "Adjustment Shares" in clause (i) thereof
and substituting in lieu thereof the words "Adjustment Warrants", and
(2) by inserting the words "and the Adjustment Warrants" after the
words "Subscription Agreement" in clause (ii) thereof.
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(d) Section 2(a) of each Registration Rights Agreement is
amended by deleting clause (ii) of the first sentence thereof in its entirety
and substituting in lieu thereof the following:
(ii) the number of Adjustment Shares which would be required to be
issued pursuant to the Subscription Agreement and the Adjustment
Warrants with respect to the initial issuance of Adjustment Warrants if
the Initial Adjustment Date was the SEC Filing Date, and
3. AMENDMENT OF WARRANTS
The Company hereby amends each of the following outstanding Warrants
issued to each of the Buyers to reduce, in each case, the initial Purchase Price
(as such term is defined in the Warrants) to $6.00 per share, subject to
adjustment as provided in the respective Warrants:
(a) The Warrant, dated December 16, 1998, to purchase 20,168 shares of
Common Stock issued to Genesee with an original Purchase Price of $10.04; and
(b) The Warrant, dated December 16, 1998, to purchase 20,168 shares of
Common Stock issued to Koch with an original Purchase Price of $10.04.
At the request of Genesee or Koch, within five Business Days after
Genesee or Koch surrenders to the Company their original Warrants, the Company
shall issue in exchange therefor amended warrants of like tenor which reflect
the $6.00 initial Purchase Price effected by this Amendment Agreement. However,
the failure for any reason to so exchange outstanding Warrants for new warrants
shall not affect the validity or enforceability of such outstanding Warrants as
amended hereby.
4. BUYER REPRESENTATIONS AND WARRANTIES
Each Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) Purchase for Investment. Upon issuance of any Adjustment Warrants,
the Buyer will acquire the Adjustment Warrants, for its own account for
investment only and not with a view towards the public sale or distribution
thereof. The Buyer understands that its investment in the Adjustment Warrants
involves a high degree of risk.
(b) Reoffers and Resales. All subsequent offers and sales of the
Adjustment Warrants by the Buyer shall be made pursuant to registration of the
Adjustment Warrants being offered and sold under the 1933 Act or pursuant to an
exemption from registration.
(c) Company Reliance. The Buyer understands that the Adjustment
Warrants 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 receive an
offer of the Adjustment Warrants.
(d) 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 of the Adjustment
Warrants that have been requested by the
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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.
(e) 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 Adjustment Warrants.
(f) Amendment Agreement. This Amendment 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.
5. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and covenants and agrees with, each
Buyer that:
(a) Organization and Authority. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and
has all requisite corporate power and authority (i) to own, lease, and operate
its properties and to carry on its business as now being conducted, and (ii) to
execute, deliver, and perform its obligations under this Agreement and the
Registration Rights Agreements, and the other agreements to be executed and
delivered or amended 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) Concerning the Adjustment Warrants and the Adjustment Shares. The
Adjustment Warrants and the Adjustment Shares have been duly authorized and the
Adjustment Warrants, when issued, and the Adjustment Shares, when issued upon
exercise of the Adjustment 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.
(c) Amendment Agreement. This Amendment Agreement has been duly and
validly authorized by the Company, this Amendment Agreement has been duly
executed and delivered on behalf of the Company and this Amendment Agreement is,
and the Adjustment Warrants, 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.
(d) Non-contravention. The execution and delivery of this Amendment
Agreement by the Company and the issuance by the Company of the Adjustment
Warrants and the Adjustment Shares, as contemplated by this Amendment Agreement,
and completion of the other transactions contemplated in this Amendment
Agreement and the Registration Rights Agreements, 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 or order of any court,
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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.
(e) Approvals. Except as set forth in Schedule 5(f) to the
Subscription Agreement, 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 of the Adjustment Warrants as contemplated
by this Amendment Agreement, and (ii) the issuance of Adjustment Shares upon
exercise of the Adjustment 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.
(f) Information Provided. The information provided by or on behalf of
the Company to the Buyers in connection with the transactions contemplated by
this Amendment Agreement, including, without limitation, the information
referred to in Section 4(d) of this Amendment 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.
(g) Absence of Certain Changes. Except as disclosed in the Disclosure
Documents, 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.
(h) 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.
(i) 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 that 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) (collectively, "Rule 4460(i)")
and that would be integrated with the sale of the Initial Shares to the Buyers
or the issuance of Adjustment Warrants or Adjustment Shares for purposes of Rule
4460(i), other than the Company's Series B Convertible Preferred Stock.
6. LIMITED WAIVER
The Buyers hereby agree that (i) the date by which the Company is required
to file the Registration Statement with the SEC, pursuant to Section 2(a) of the
Registration Rights Agreement, is changed to March 26, 1999, and (ii) that a
Reset Date (as defined in the Subscription Agreement) shall not be deemed to
have occurred by reason of the Registration Statement not being declared
effective by the SEC within 90 days after the Closing Date if the Registration
Statement is declared effective on or before April 30, 1999.
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7. EFFECTIVENESS
This Amendment Agreement shall become effective on the date (the "Effective
Date") when (a) the Buyers shall have received an opinion of counsel for the
Company, dated the Effective Date, in form scope and substance reasonably
satisfactory to the Buyers, to the effect set forth in Annex III attached hereto
and (b) counterparts hereof shall have been executed and delivered by the
Company and each of the Buyers. From and after the Effective Date, all
references in the Subscription Agreement to the Subscription Agreement and the
Warrants shall be deemed to be references to the Subscription Agreement and the
Warrants as amended hereby and all references in the Registration Rights
Agreements to the Registration Rights Agreement and the Warrants shall be deemed
to be references to such Registration Rights Agreement and the Warrants as
amended hereby.
8. CONFIRMATION OF AGREEMENTS; ENTIRE AGREEMENT
Except as amended by this Amendment Agreement, the Subscription Agreement
and each of the Registration Rights Agreements and the Warrants shall remain in
effect in accordance with their respective terms. This Amendment Agreement and
the annexes attached hereto set forth the entire agreement between the parties
with respect to the subject matter hereof.
9. MISCELLANEOUS
(a) Governing Law. This Amendment Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington.
(b) Counterparts. This Amendment 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 Amendment 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
Amendment 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 Amendment 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 Amendment Agreement or the validity or enforceability of this
Amendment Agreement in any other jurisdiction.
(e) Amendments. No amendment, modification, waiver, discharge or
termination of any provision of this Amendment 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 Amendment Agreement.
(f) Waivers. Failure of any party to exercise any right or remedy
under this Amendment 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.
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<PAGE>
(g) Notices. Any notices required or permitted to be given under the
terms of this Amendment Agreement shall be delivered in accordance with the
notice provisions of the Subscription Agreement, the Registration Rights
Agreements and the Warrants.
(h) Certain Expenses and Fees. The Company shall pay or reimburse the
Buyers for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the Buyers) incurred by the Buyers in connection with
this Amendment 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, the Adjustment 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.
(i) Survival. The respective representations, warranties, covenants,
and agreements of each Buyer and the Company contained in this Amendment
Agreement or made by or on behalf of them, respectively, pursuant to this
Amendment Agreement shall survive the Effective Date and the issuance of the
Adjustment Warrants and the Adjustment 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) Further Assurances. Each party to this Amendment 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 Amendment Agreement and to carry out its provisions.
(k) Construction. The language used in this Amendment 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>
IN WITNESS WHEREOF, this Amendment 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.
GENESEE FUND LIMITED - PORTFOLIO B
By: /s/
-------------------------------------
Title:
----------------------------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
KOCH INDUSTRIES, INC.
By: /s/
-------------------------------------
Title:
----------------------------------
Address: 4111 East 37th Street North
Wichita, KS 67270
Facsimile No.: (316) 828-7947
TERA COMPUTER COMPANY
By: /s/
-------------------------------------
Kenneth W. Johnson
Vice President - Finance and
Chief Financial Officer
-15-
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THE SALE TO THE
HOLDER OF THIS SECURITY OF THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS SECURITY ARE NOT COVERED BY A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR REGISTRATION UNDER STATE SECURITIES LAWS. THIS SECURITY HAS BEEN
ACQUIRED, AND SUCH SHARES OF COMMON STOCK MUST BE ACQUIRED, FOR INVESTMENT ONLY
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF
THE RESALE THEREOF OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE IN FORM, SCOPE
AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
SECTION 1.1(C) HEREOF PERMITS THE HOLDER OF THIS WARRANT TO EXERCISE THIS
WARRANT WITHOUT BEING REQUIRED TO SURRENDER THIS WARRANT TO THE COMPANY UNLESS
THIS WARRANT IS EXERCISED FOR ALL OF THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF. CONSEQUENTLY, FOLLOWING EXERCISE OF ANY PORTION OF THIS
WARRANT, THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH THIS WARRANT IS THEN
EXERCISABLE MAY BE LESS THAN THE NUMBER OF SHARES STATED HEREON.
Right to Purchase _______Shares of
Common Stock of Tera Computer Company
TERA COMPUTER COMPANY
Common Stock Purchase Warrant
No. _____
TERA COMPUTER COMPANY, a Washington corporation (the "Company"),
hereby certifies that, for value received, __________________________________,
or registered assigns (the "Holder"), is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time after
the date hereof, and before 5:00 p.m., New York City time, on the Expiration
Date (as defined herein), ________ fully paid and nonassessable shares
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of Common Stock, $.01 par value, of the Company at a purchase price per share
equal to the Purchase Price (as hereinafter defined). The number of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided in
this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Business Day" as used herein shall mean a day on which
the New York Stock Exchange is open for business.
(b) The term "Common Stock" includes the Company's Common Stock, $.01
par value per share, as authorized on the date 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.
(c) The term "Company" shall include Tera Computer Company and any
corporation that shall succeed to or assume the obligations of Tera
Computer Company hereunder.
(d) The term "Expiration Date" refers to [INSERT DATE WHICH IS TEN
YEARS AFTER THE DATE OF ISSUANCE OF THIS WARRANT].
(e) The term "Other Securities" refers to any capital stock (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the Holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
(f) The term "Purchase Price" shall mean $.01 or such higher amount
which shall be the par value per share of the Common Stock at the time of
exercise of this Warrant, subject to adjustment as provided in this
Warrant.
(g) The term "Purchase Price Reserve" means the funds received from
time to time by the Company from the Holder pursuant to Section 1.1(b) as
prepayments of the Purchase Price which funds are held in trust by the
Company for the account of the Holder unless and until required to be paid
to the Company as the Purchase Price per share upon exercise of this
Warrant.
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<PAGE>
(h) The term "Subscription Agreement" means the Subscription
Agreement, dated as of December 16, 1998, between the original Holder of
this Warrant, the Company, and the other party thereto, as amended by the
Amendment Agreement dated as of September 30, 1998, between the original
Holder of this Warrant, the Company, and the other party thereto, as
amended by the Amendment Agreement dated as of March __, 1999, between the
original Holder of this Warrant, the Company and the other party thereto,
and as further amended or modified from time to time.
(i) The term "Subscription Form" means the Form of Subscription
annexed hereto pursuant to which the Holder may exercise this Warrant.
1. Exercise of Warrant.
1.1 Exercise at Option of Holder. (a) This Warrant may be exercised by
the Holder hereof in full or in part at any time or from time to time during the
exercise period specified in the first paragraph hereof until the Expiration
Date by delivering the Subscription Form (duly executed by such Holder) to the
Company's transfer agent and registrar for the Common Stock and, if insufficient
funds are then held in the Purchase Price Reserve, by making payment, in cash or
by certified or official bank check payable to the Company, or by wire transfer
to an account designated by the Company, in the amount equal to the difference
between (1) the product of (A) the number of shares of Common Stock designated
by the Holder in the Subscription Form times (B) the Purchase Price then in
effect and (2) the amount of funds held in the Purchase Price Reserve.
(b) The Holder may from time to time prepay the Purchase Price for
some or all of the shares of Common Stock issuable upon exercise of this Warrant
by making payment to the Company in the manner specified in Section 1.1(a). Such
prepayments shall be held by the Company in trust for the account of the Holder
in the Purchase Price Reserve. Upon each exercise of this Warrant, the Holder
hereby authorizes and directs the Company to deduct from the Purchase Price
Reserve the aggregate Purchase Price due to the Company pursuant to Section
1.1(a)(1). Upon request, the Company will provide the Holder with a statement of
the balance held in the Purchase Price Reserve. The company shall return to the
Holder all amounts held in the Purchase Price Reserve (which are not then due to
the Company in connection with any exercise of this Warrant) within ten Business
Days of receiving a request therefor from the Holder.
(c) If the Holder elects to exercise this Warrant, the Holder shall
not be required to surrender this Warrant to the Company unless the remaining
balance of this Warrant is being exercised in full. The Holder and the Company
shall maintain records showing the number of shares of Common Stock for which
this Warrant has been exercised and the dates of such exercises or shall use
such other method, satisfactory to the Holder and the Company, so as not to
require physical delivery of this Warrant upon each such exercise. In the event
of any dispute or discrepancy, such records of the Company shall be controlling
and determinative in the absence of manifest error. The
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<PAGE>
Holder acknowledges and agrees that (1) by reason of the provisions of this
Section 1.1(c), following exercise of any portion of this Warrant, the number of
shares of Common Stock issuable upon exercise of this Warrant may be less than
the number of shares stated hereon, and (2) the Company may place a legend on
this Warrant which refers to or describes the provisions of this Section 1.1(c).
If the Holder elects to surrender this Warrant on any partial exercise, the
Company will forthwith issue and deliver to or upon the order of the Holder
hereof a new Warrant or Warrants of like tenor, in the name of the Holder hereof
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may request, providing in the aggregate on the face or faces thereof for the
purchase of the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
(d) Notwithstanding any other provision of this Warrant, in no event
shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and all persons whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposed of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D-G thereunder, (each such person other than the Holder an "Aggregated Person"
and all such persons other than the Holder, collectively, the "Aggregated
Persons") (other than shares of Common Stock deemed beneficially owned through
the ownership by the Holder and all Aggregated Persons of the Holder of the
unexercised portion of this Warrant and any other security of the Company which
contains similar provisions) and (2) the number of shares of Common Stock
issuable upon exercise of the portion of this Warrant with respect to which the
determination in this sentence is being made, would result in beneficial
ownership by the Holder and all Aggregated Persons of the Holder of more than
4.9% of the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13D-G thereunder, except as
otherwise provided in clause (1) of the immediately preceding sentence. For
purposes of the second preceding sentence, the Company shall be entitled to
rely, and shall be fully protected in relying, on any statement or
representation made by the Holder to the Company in connection with a particular
exercise of this Warrant, without any obligation on the part of the Company to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock.
1.2 Net Issuance. Notwithstanding anything to the contrary contained
in Section 1.1, the Holder may elect to exercise this Warrant in whole or in
part by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant at the principal office of the Company together with the Subscription
Form (duly executed by the Holder), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
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<PAGE>
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to
the Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a specified
date shall mean with respect to each share of Common Stock the average of the
closing bid prices of the Common Stock on the principal securities market on
which the Common Stock may at the time be traded over a period of five Business
Days consisting of the day as of which the current fair market value of a share
of Common Stock is being determined (or if such day is not a Business Day, the
Business Day next preceding such day) and the four consecutive Business Days
prior to such day. If on the date for which current fair market value is to be
determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (other than a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within three
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the name
of and delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, in such denominations as may be requested by such Holder, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current fair market value (as
determined
5
<PAGE>
in accordance with subsection 1.2) of one full share, together with any other
stock or other securities or property (including cash, where applicable) to
which such Holder is entitled upon such exercise pursuant to Section 1 or
otherwise. In lieu of delivering physical certificates representing such shares,
provided that the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, upon request
of the Holder, the Company shall cause its transfer agent to electronically
transmit such shares by crediting the account of the Holder or the Holder's
broker with the DTC through its Deposit Withdrawal Agent Commission system. Upon
exercise of this Warrant as provided herein, the Company's obligation to issue
and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of any action or inaction by the Holder 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 Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with such exercise. If the Company fails to issue and deliver the certificates
for the Common Stock to the Holder pursuant to the first sentence of this
paragraph as and when required to do so, in addition to any other liabilities
the Company may have hereunder and under applicable law, (a) the Company shall
pay or reimburse the Holder on demand for all out-of-pocket expenses including,
without limitation, fees and expenses of legal counsel incurred by the Holder as
a result of such failure and (b) the Adjustment Price shall be reduced in
accordance with Section 3(e) of the Subscription Agreement.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, all the holders
of Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such
6
<PAGE>
case the Holder of this Warrant, on the exercise hereof as provided in Section
1, shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in subdivisions (b) and (c) of
this Section 3) which such Holder would hold on the date of such exercise if on
the date hereof the Holder had been the holder of record of the number of shares
of Common Stock called for on the face of this Warrant and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and all such other or additional stock and other
securities and property (including cash in the case referred to in subdivisions
(b) and (c) of this Section 3) receivable by the Holder as aforesaid during such
period, giving effect to all adjustments called for during such period by
Section 4.
4. Exercise upon Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, (c) effect an exchange of
outstanding shares of the Company for securities of any other person or (d)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, share exchange, sale or conveyance, the Company shall
cause effective provisions to be made so that the Holder shall have the right
thereafter, by exercising this Warrant (in lieu of the shares of Common Stock of
the Company purchasable and receivable upon exercise of the rights represented
hereby immediately prior to such transaction) to purchase the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reorganization, consolidation, merger, share exchange, sale or
conveyance by a holder of the number of shares of Common Stock that might have
been received upon exercise of this Warrant immediately prior to such
reorganization, consolidation, merger, share exchange, sale or conveyance;
provided, however, that in the event (x) the value of the stock, securities or
other assets or property (determined in good faith by the Board of Directors of
the Company) issuable or payable with respect to one share of Common Stock of
the Company purchasable and receivable upon the exercise of the rights
represented hereby immediately prior to such transaction is in excess of the
Purchase Price hereof in effect at the time of such reorganization,
consolidation, merger, share exchange, sale or conveyance (after giving effect
to any adjustment in such Purchase Price required to be made under the terms of
this Warrant), and (y) the securities, if any, to be received in such
reorganization, consolidation, merger, share exchange, sale or conveyance are
publicly traded, then if the Company gives the Holder at least 20 Business Days
(or such lesser period as the Company gives notice of such transaction to the
holders of the outstanding shares of Common Stock) prior notice of such
reorganization, merger, share exchange, sale or conveyance this Warrant shall
expire unless exercised prior to such reorganization, consolidation, merger,
share exchange, sale or conveyance. Any such provision shall include provisions
for adjustments in respect of such shares of stock and other securities and
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The provisions of this Section shall
apply to successive reorganizations, consolidations, mergers, share exchanges,
sales and conveyances.
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<PAGE>
5. Adjustment for Extraordinary Events. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide or reclassify its
outstanding shares of Common Stock, or (c) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the Purchase Price in effect immediately prior
to such event by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 5. The Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock which would be issuable on such exercise as of
immediately prior to such issuance by a fraction of which (x) the numerator is
the Purchase Price in effect immediately prior to such issuance and (y) the
denominator is the Purchase Price in effect on the date of such exercise.
6. Further Assurances. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
7. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
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<PAGE>
dividend, distribution or right; (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up; and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or a favorable
vote of shareholders, if either is required. Such notice shall be mailed at
least ten days prior to the date specified in such notice on which any such
action is to be taken or the record date, whichever is earlier.
8. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
9. Transfer of Warrant. This Warrant shall inure to the benefit of the
successors to and assigns of the Holder. This Warrant and all rights hereunder,
in whole or in part, is registrable at the office or agency of the Company
referred to below by the Holder hereof in person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed.
10. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each successor and prior owner of such Warrant. The Company
shall be entitled to treat the person in whose name this Warrant is so
registered as the sole and absolute owner of this Warrant for all purposes.
11. Exchange of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Holder hereof at the office or agency of the Company referred to
in Section 10, for one or more new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for purchase hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares as
shall be designated by said Holder hereof at the time of such surrender.
12. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such
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loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
13. Warrant Agent. Prior to the issuance of this Warrant, the Company will
instruct ChaseMellon Shareholder Services, L.L.C. (the "Transfer Agent") to act
as the exercise agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1. The Company
may, by written notice to the Holder, appoint an agent having an office in the
United States of America, for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 11, and replacing this Warrant pursuant to
Section 12, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
16. Notices, etc. All notices and other communications from the Company to
the registered Holder of this Warrant shall be mailed by first class certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or at the address shown for such Holder on the
register of Warrants referred to in Section 10.
17. Investment Representations. By acceptance of this Warrant, the Holder
represents to the Company that this Warrant is being acquired for the Holder's
own account and for the purpose of investment and not with a view to, or for
sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of the Warrant. The Holder acknowledges that the Holder has been
afforded the opportunity to meet with the management of the Company and to ask
questions of, and receive answers from, such management and the Company's
counsel about the business and affairs of the Company and concerning the terms
and conditions of the offering of this Warrant, and to obtain any additional
10
<PAGE>
information, to the extent that the Company possessed such information or could
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information otherwise obtained by or furnished to the Holder in
connection with the offering of this Warrant. The Holder asserts that it may be
considered to be a sophisticated investor, is familiar with the risks inherent
in speculative investments such as in the Company, has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment in this Warrant and the Common Stock
issuable upon exercise of this Warrant, and is able to bear the economic risk of
the investment. The Holder acknowledges and agrees that this Warrant and, except
as otherwise provided in the Registration Rights Agreement between the original
Holder of this Warrant and the Company, as amended or modified from time to time
(the "Registration Rights Agreement"), the shares of Common Stock issuable upon
exercise of this Warrant (if any) have not been (and at the time of acquisition
by the Holder, will not have been or will not be) registered under the
Securities Act or under the securities laws of any state, in reliance upon
certain exemptive provisions of such statutes. The Holder recognizes and
acknowledges that such claims of exemption are based, in part, upon the
representations of the Holder contained herein. The Holder further recognizes
and acknowledges that because this Warrant and, except as provided in the
Registration Rights Agreement, the Common Stock issuable upon exercise of this
Warrant (if any) are unregistered, they may not be eligible for resale, and may
only be resold in the future pursuant to an effective registration statement
under the Securities Act and any applicable state securities laws, or pursuant
to a valid exemption from such registration requirements. Unless the shares of
Common Stock have theretofore been registered for resale or are otherwise exempt
from registration under the Securities Act, the Company may require, as a
condition to the issuance of Common Stock upon the exercise of this Warrant (i)
in the case of an exercise in accordance with Section 1.1 hereof, a confirmation
as of the date of exercise of the Holder's representations pursuant to this
Section 17 or (ii) in the case of an exercise in accordance with Section 1.2
hereof, an opinion of counsel (in form, scope and substance reasonably
satisfactory to the Company) that the shares of Common Stock to be issued upon
such exercise may be issued without registration under the Securities Act.
18. Legend. Unless theretofore registered for resale under the Securities
Act or otherwise exempt from registration under the Securities Act when issued
upon exercise of this Warrant and when resold thereafter, each certificate for
shares issued upon exercise of this Warrant shall bear the following legend:
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
reasonably satisfactory in form, scope and substance to the
Company that registration is not required under said Act.
11
<PAGE>
19. Amendment; Waiver. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement or such change, waiver, discharge or termination
is sought. Notwithstanding any other provision of this Warrant, the Subscription
Agreement or any other agreement between the Company and the Holder, in addition
to the requirements of the immediately preceding sentence, any amendment of (x)
Section 1.1(d), (y) the definition of the term Aggregated Person or (z) this
sentence shall require approval by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock, present in person or
represented by proxy at a duly convened meeting of stockholders of the Company
and entitled to vote, or the consent thereto in writing by holders of a majority
of the outstanding shares of Common Stock, and the stockholders of the Company
are hereby expressly made third party beneficiaries of this sentence.
20. Miscellaneous. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of Washington.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS WHEREOF, Tera Computer Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.
Dated: ____________
TERA COMPUTER COMPANY
By:
-------------------------------------
Name:
Title:
12
<PAGE>
FORM OF SUBSCRIPTION
COMMON STOCK PURCHASE WARRANT
OF TERA COMPUTER COMPANY
(To be signed only on exercise of Warrant)
TO: ChaseMellon Shareholder Services, LLC,
as Exercise Agent
520 Pike Street
Suite 1220
Seattle, Washington 98101
1. The undersigned Holder of Warrant No. _____ dated _________ hereby
elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, (as defined in the Warrant) of Tera
Computer Company, a Washington corporation (the "Company").
2. The undersigned Holder (check one):
[ ] (a) elects to pay the aggregate purchase price for such shares of
Common Stock (i) by lawful money of the United States or the enclosed certified
or official bank check payable in United States dollars to the order of the
Company in the amount of $___________, or (ii) by wire transfer of United States
funds to the account of the Company in the amount of $____________, which
transfer has been made before or simultaneously with the delivery of this Form
of Subscription pursuant to the instructions of the Company;
[ ] (b) elects to pay the aggregate purchaser price for such shares of
Common Stock by authorizing the Company to deduct such amount from the Holder's
Purchase Price Reserve (as defined in the Warrant); or
[ ] (c) elects to receive shares of Common Stock having a value equal to
the value of the Warrant calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
Name:
-----------------------------------
Address:
-------------------------------
-------------------------------
Dated:
--------------------------- -----------------------------------------
(Signature must conform to name of Holder
as specified on the face of the Warrant)
-----------------------------------------
Print Name
-----------------------------------------
(Address)
13
MARKET SALES AGREEMENT
This MARKET SALES AGREEMENT, dated as of March 22, 1999, is by and among Tera
Computer Company, a Washington corporation (the "Company"), Advantage Fund II
Ltd., a British Virgin Islands corporation ("Advantage"), and Genesee Fund
Limited - Portfolio B, a British Virgin Islands corporation ("Genesee").
WHEREAS, on December 23, 1997, Advantage and Genesee purchased 7,000 shares
and 3,000 shares, respectively, of the Company's Series A Convertible Preferred
Stock, $.01 par value, convertible into shares of the Company's Common Stock,
$.01 par value ("Common Stock"), and acquired certain warrants to purchase
shares of the Common Stock;
WHEREAS, on June 30, 1998, Advantage and Genesee each purchased 3,000
shares of the Company's Series B Convertible Preferred Stock, $.01 par value
(the "Series B Preferred Stock"), which is convertible into shares of the
Company's Common Stock, $.01 par value ("Common Stock"), and acquired certain
warrants to purchase shares of the Common Stock;
WHEREAS, the Company, Advantage and Genesee have agreed to certain
limitations on open market sales of the Common Stock held by Advantage and
Genesee;
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants in this Agreement, the parties hereto agree as follows:
1. Market Sales. Except as the Company otherwise may agree, Advantage and
Genesee, severally, for themselves and their respective affiliates, each hereby
agree that from the date hereof through May 31, 1999, they will enter no sales
orders and make no sales of the Company's Common Stock, however acquired, on the
Nasdaq National Market System ("Nasdaq") or any other public market, including
without limitation any hedging transactions or short sales, provided, however,
that Advantage, Genesee and their respective affiliates collectively may sell up
to an aggregate of 5,000 shares of Common Stock on any day on which the Nasdaq
(or other principal securities market for the Common Stock) is open for general
trading, on a non-cumulative basis. The restrictions in this Section 1 do not
apply if and as long as the bid price quoted on Nasdaq is $13.00 per share or
higher.
2. Warrant Exercise Price. The Company hereby amends each of the following
warrants to purchase shares of Common Stock (collectively, the "Warrants")
issued to Advantage and/or Genesee to reduce, in each case, the initial Purchase
Price (as such term is defined in the Warrants) to $6.00 per share, subject to
adjustments as provided in the respective Warrants:
1
<PAGE>
(a) The warrants, dated December 23, 1997 (the "December 1997
Warrants"), for 87,500 shares of Common Stock issued to Advantage and for
37,500 shares issued to Genesee, each with an initial Purchase Price of
$19.185 per share; and
(b) The warrants, dated June 30, 1998 (the "June 1998 Warrants"), for
50,000 shares of Common Stock issued to each of Advantage and Genesee with
an initial Purchase Price of $15.00 per share.
3. Exchange of Warrant Certificates. At the request of Advantage or
Genesee, within five business days after Advantage or Genesee surrenders to the
Company their original Warrants, the Company shall issue in exchange therefor
amended warrants of like tenor which reflect the $6.00 initial Purchase Price
effected by this Agreement. However, the failure for any reason to so exchange
outstanding Warrants for new warrants shall not affect the validity or
enforceability of such outstanding Warrants as amended hereby.
4. Registration Rights. The Company acknowledges that each of the two
groups of Warrants referred to in clauses (a) and (b) of Section 2 are subject
to the terms of Registration Rights Agreements between the Company and the
holders of such Warrants dated as of December 23, 1997 and June 30, 1998,
respectively (the "Registration Rights Agreements"). The Company further
acknowledges that the shares of Common Stock issuable upon the exercise of the
December 1997 Warrants and the June 1998 Warrants have been registered for
resale under the Securities Act of 1933, as amended (the "1933 Act"), on
Registration Statements No. 333- 44137 and No. 333-60167 (the "Initial
Registration Statements"). The Company shall continue to comply with its
obligations under the Registration Rights Agreements, including without
limitation, taking all actions necessary to ensure that the Initial Registration
Statements and the prospectuses included therein are available to permit the
resale of the shares covered thereby after taking into account the amendments to
the December 1997 Warrants and the June 1998 Warrants effected by this
Agreement. Such actions shall include, if and to the extent necessary,
supplementing or amending the prospectuses included in the Initial Registration
Statements and amending applicable Nasdaq listing applications.
5. Company Representations. The Company represents and warrants to, and
covenants and agrees with, Advantage and Genesee that:
(a) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Company and this Agreement is, and the Warrants
as amended in accordance with Section 2, 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;
2
<PAGE>
(b) The execution and delivery of this Agreement by the Company, the
amendment of the Warrants as contemplated by this Agreement, and the
completion of the other transactions contemplated by this Agreement, 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 (including the 1933 Act), rule or
regulation or any applicable decree, judgment 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; and
(c) 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 the amendment of the Warrants, as contemplated by this
Agreement, and the issuance of shares of Common Stock upon exercise of the
Warrants.
6. Assignments. This Agreement is binding upon Advantage, Genesee and their
respective affiliates, and all holders which acquire the Series B Preferred
Stock or Common Stock directly from Advantage or Genesee, other than through
market sales permitted by this Agreement, and all successors and assigns of
Advantage and Genesee. Prior to June 1, 1999, Advantage and Genesee agree to
deliver this document to all transferees of their Series B Preferred Stock and
Common Stock, other than such transferees which acquire Common Stock through
market sales permitted by this Agreement.
7. Miscellaneous.
(a) 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 the all of the parties hereto. This Agreement shall be governed
by and interpreted in accordance with the internal laws of the State of
Washington.
(b) This Agreement may be executed in 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.
3
<PAGE>
(c) The Company shall pay the reasonable expenses, including
attorney's fees and costs, incurred by Advantage and Genesee in connection
with the preparation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by each
party by their respective officers thereunto duly authorized as of the date
first set forth above.
TERA COMPUTER COMPANY ADVANTAGE FUND II LTD.
By /s/ By /s/
------------------------------- -------------------------------
Name: Name:
---------------------------- ----------------------------
GENESEE FUND LIMITED -
PORTFOLIO B
By /s/
-------------------------------
Name:
----------------------------
4
March 25, 1999
Board of Directors of
Tera Computer Company
Dear Sirs:
I have supervised the corporate proceedings relative to the issuance of:
1. 600,000 shares of common stock, $.01 par value (the "Common Stock"),
and warrants to purchase 523,447 shares of Common Stock, of Tera
Computer Company, a Washington corporation (the "Company"), and of the
authorization of shares of Common Stock issuable upon exercise of such
warrants pursuant to the Subscription Agreement, dated September 30,
1998, between the Company and Advantage Fund II Ltd. ("Advantage") and
Koch Industries, Inc. ("Koch"), as amended by the Amendment Agreement,
dated March 22, 1999, between Tera, Advantage, and Koch (the
"September Subscription Agreement"); and
2. 200,000 shares of Common Stock and warrants to purchase 174,482 shares
of Common Stock, and of the authorization of shares of Common Stock
issuable upon exercise of the such warrants, pursuant to the
Subscription Agreement, dated December 16, 1998, between the Company
and Genesee Fund Limited - Portfolio B ("Genesee") and Koch, as
amended by the Amendment Agreement, dated March 22, 1999, between
Tera, Genesee, and Koch (the "December Subscription Agreement").
The shares of Common Stock issued to Advantage, Genesee, and Koch pursuant to
the September Subscription Agreement and the December Subscription Agreement, as
the case may be, are referred to herein as the "Shares." The warrants issued to
Advantage, Genesee, and Koch pursuant to the September Subscription Agreement
and the December Subscription Agreement, as the case may be, are referred to
herein as the "Warrants."
I also am familiar with the corporate proceedings relative to the
incorporation of the Company and to its present corporate status. Based upon the
foregoing and having regard for such legal considerations as I have deemed
relevant, I am of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington, with full corporate power to issue
the Shares and the Warrants, and to issue the Common Stock reserved for issuance
upon exercise of the Warrants.
<PAGE>
2. The Shares have been duly authorized by appropriate corporate action and
are validly issued, fully paid, and nonassessable.
3. The shares of Common Stock issuable upon exercise of the Warrants have
been duly authorized and reserved for such purpose by appropriate corporate
action. The shares of Common Stock issuable upon exercise of the Warrants will
be validly issued, fully paid, and nonassessable upon such exercise.
Very truly yours,
KENNETH W. JOHNSON
Kenneth W. Johnson, Esq.
Vice President - Finance
and General Counsel
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-67885 on Form S-3 of Tera Computer Company of our
report dated January 21, 1998, November 13, 1998 as to Note 13 (which expresses
an unqualified opinion and includes an explanatory paragraph relating to the
restatement described in Note 13), appearing in the Amended Annual Report on
Form 10-K/A of Tera Computer Company for the year ended December 31, 1997, and
to the reference to Deloitte & Touche LLP under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 26, 1999
