As filed with the Securities and Exchange Commission on April 13, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
- ------------------- ---------------- ------------------ ------------------- ------------
<S> <C> <C> <C> <C>
Common Stock, 2,561,111 shares $6.0625 $14,320,896 $4,081
$.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, 1,336,111 are issuable upon exercise
of outstanding common stock purchase warrants at an exercise price of $5.16 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.
</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.
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<PAGE>
PROSPECTUS, Subject to Completion, dated April 13, 1999
TERA COMPUTER COMPANY
2,561,111 shares of Common Stock
These shares of common stock are being offered and sold from time to time
by certain of our current shareholders.
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 6. 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 April 12, 1999, the closing price for our common stock was $6.125 per
share.
-------------------------------
This shares offered in this prospectus involve a high degree of risk. You
should carefully consider the "Risk Factors" contained in our Annual Report on
Form 10-K for the year ended December 31, 1998, which is incorporated by
reference in this prospectus, 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
Subsequent Events ........................................... 4
Selling Shareholders ........................................ 5
Plan of Distribution ........................................ 6
Experts ..................................................... 7
Limitation of Liability and Indemnification ................. 7
Information Incorporated by Reference ....................... 8
Available Information ....................................... 8
You should rely only on information contained or incorporated by reference
in this prospectus. See "Information Incorporated by Reference" on page 8.
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, and recognized our first revenue from product sales. In
December 1998, this system was upgraded to a four-resource module system.
Following receipt of purchase orders, we plan to upgrade this system to larger
configurations in stages as we receive production printed circuit boards,
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>
SUBSEQUENT EVENTS
1. March Common Stock Financing - On March 10, 1999, Banca del Gottardo of
Lugano, Switzerland acquired 1,111,111 shares of our Common Stock (the "Initial
Shares") and warrants to purchase 1,111,111 shares of Common Stock at an
exercise price of $5.16 per share (the "March Transaction"). The warrants have a
five-year term and are exercisable only for cash. The exercise price is subject
to adjustment for stock splits, stock dividends, reorganizations, and other
common anti-dilution events, but does not adjust for changes in market price. We
also are obligated to issue additional shares of Common Stock to Banca del
Gottardo if the market price of our Common Stock is below a specified target
price, initially $6.00, on certain measurement dates. We also issued 88,889
shares of Common Stock and warrants to purchase 200,000 shares of Common Stock
to Banca del Gottardo and 25,000 shares of Common Stock and warrants to purchase
25,000 shares of Common Stock to Vijay Alimchandani (together with Banca del
Gottardo, the "selling shareholders") in connection with the March Transaction.
The March Transaction is described more fully in the Current Report on Form 8-K,
filed with the SEC on March 25, 1999, which is incorporated by reference in this
prospectus.
The Initial Shares and the shares issuable upon exercise of the warrants
issued in the March Transaction have been registered in the registration
statement of which this prospectus forms a part.
2. Convertible Note Financing - We issued 8% convertible promissory notes in the
principal amount of $2,494,291, and warrants to purchase 74,829 shares of Common
Stock at an exercise price of $5.00 per share, during the first quarter of 1999.
The notes are due on March 31, 2001 and are convertible into shares of Common
Stock at a conversion price of $5.00 per share.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information as of April 8, 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 2,045,650 shares issuable to the Banca del Gottardo upon
the exercise of an option to invest an additional $5,000,000 in the Company. The
information relating to the shares being offered hereby represents:
o the number of shares of common stock issued to the selling
shareholders in the March Transaction; and
o the number of shares of common stock issuable upon exercise of the
warrants issued to the selling shareholders in the March Transaction.
<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>
Banca del Gottardo of 2,511,111 2,511,111 - -
Lugano, Switzerland
Vijay Alimchandani 50,000 50,000 - -
</TABLE>
Neither the selling shareholders nor any officer or director of Banca del
Gottardo has 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
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<PAGE>
Banco del Gottardo pursuant to its adjustment rights described in the Current
Report on Form 8-K for the event of March 10, 1999, as filed with the SEC on
March 25, 1999, which is incorporated by reference in this prospectus.
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
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<PAGE>
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.
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, 1997 and
1998 and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
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.
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<PAGE>
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:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998;
2. Our Current Report on Form 8-K for the event of March 10, 1999, as filed
with the SEC on March 25, 1999;
3. Our Current Reports on Form 8-K for the event of March 22, 1999, as
filed with the SEC on March 25, 1999; and
4. 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.
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<PAGE>
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.
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..................................... $ 4,081
Nasdaq listing fee....................................... $ 17,500
Legal fees............................................... $ 4,000
Accountant's Fees........................................ $ 2,000
Printing Fees............................................ $ 0
Miscellaneous............................................ $ 409
--------
Total.................................................... $ 28,000
========
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.
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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)
3.2 Restated Bylaws of the Company (1)
4.1 Purchase Agreement, dated as of March 9, 1999, by and between the
Registrant and Banca del Gottardo of Lugano, Switzerland
4.2 Registration Rights Agreement, dated as of March 9, 1999, by and
between the Registrant and Banca del Gottardo of Lugano, Switzerland
4.3 Form of Warrant Issued by the Company to Banca del Gottardo of
Lugano, Switzerland
5 Opinion on Legality
23 Consent of Deloitte & Touche LLP
24 Power of Attorney (included on signature page hereof)
- --------------
(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.
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<PAGE>
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) 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
II - 3
<PAGE>
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.
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<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 April 9, 1999.
TERA COMPUTER COMPANY
By: /s/ JAMES E. ROTTSOLK
-------------------------------------
James E. Rottsolk
Chief Executive Officer
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<PAGE>
KNOW ALL BY THESE PRESENTS that each person whose signature appears below hereby
authorizes and appoints Burton J. Smith and James E. Rottsolk, and each of them,
with full power of substitution and full power to act without the other, as his
true and lawful attorney-in-fact and agent to act in his name, place and stead
and to execute in the name and on behalf of each file, any and all amendments to
this Registration Statement, including any and all post-effective amendments.
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 12th day of April, 1999:
Signature and Title
- -------------------
/s/ BURTON J. SMITH /s/ DANIEL J. EVANS
- ------------------------------------ ------------------------------------
Burton J. Smith Daniel J. Evans, Director
Chairman of the Board of Directors
/s/ JAMES E. ROTTSOLK /s/ KENNETH W. KENNEDY
- ------------------------------------ ------------------------------------
James E. Rottsolk Kenneth W. Kennedy, Director
Chief Executive Officer and Director
/s/ KENENTH W. JOHNSON /s/ JOHN W. TITCOMB
- ------------------------------------ ------------------------------------
Kenneth W. Johnson John W. Titcomb, Jr., Director
Chief Financial Officer
/s/ PHILISSA SARGIN /s/ DAVID N. CUTLER
- ------------------------------------ ------------------------------------
Philissa Sargin David N. Cutler, Director
Chief Accounting Officer
II - 6
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated as of March 9, 1999, is by and between TERA
COMPUTER COMPANY, a Washington corporation, with headquarters located at 411
First Avenue South, Suite 600, Seattle, WA 98104-2860 (the "Company"), and the
INVESTORS identified on the signature page of this Agreement (collectively, the
"Investors").
W I T N E S S E T H:
WHEREAS, the Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Investors 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. AGREEMENT TO PURCHASE; CLOSING
(a) Subscription for Initial Shares. Each Investor hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
each Investor, shares of Common Stock (the "Initial Shares") for the total
purchase price set forth on the signature page hereof by such Investor's name
for an aggregate purchase price for all Investors of not less than $5,000,000.
The purchase price per share shall be equal to the lower of (i) $4.50 or (ii)
87.5% of the Market Price of the Common Stock at the Closing Date (the "Purchase
Price"). The number of Initial Shares to be purchased by each Investor shall be
the whole number of shares determined by dividing the total purchase price for
each Investor by the Purchase Price. For purposes of this Agreement the term
"Market Price" for any date means the arithmetic average of the last bid prices
for the five consecutive trading days ending on the day prior to the date in
question.
(b) Warrants. In connection with the purchase of the Initial Shares by
each Investor, the Company agrees to issue warrants to purchase shares of Common
Stock issuable upon exercise of the Warrants, in the form set forth in Appendix
II (the "Warrants"). The aggregate number of shares of Common Stock covered by
the Warrants issued to the Investors shall equal the aggregate number of shares
<PAGE>
purchased by the Investors pursuant to Section 1(a). The Warrants shall have an
initial Exercise Price equal to the Market Price of the Common Stock at the
Closing Date.
(c) Form and Method of Payment. Each Investor shall pay the purchase
price for the number of Initial Shares purchased thereby directly to the Company
in United States Dollars by certified or bank check or wire transfer to an
account designated in writing by the Company against issuance to such Investor
of its portion of the Initial Shares and the Warrants. The Company shall deliver
(i) the certificates for the Initial Shares directly to each Investor, and (ii)
the Warrants directly to each Investor against payment of the purchase price for
the Initial Shares to the Company on the Closing Date.
(d) Closing. The date and time of the issuance and sale of the Initial
Shares and issuance of the Warrants (the "Closing Date") shall be at 10:00 a.m.,
Seattle Time, on March 10, 1999 at the offices of Company's counsel in Seattle,
Washington, or at such other mutually agreed date, time and place.
(e) The Company's Conditions Precedent to Sale and Issuance of the
Initial Shares and Warrants. The Investors understand that the Company's
obligation to sell and issue the Initial Shares and to issue the Warrants to the
Investors on the Closing Date is conditioned upon:
(i) Delivery by the Investor to the Company of good funds as
payment in full of an amount equal to the aggregate purchase price from all
Investors for all of the Initial Shares in accordance with Section 1(a) hereof;
(ii) The execution and delivery by all of the Investors of the
Registration Rights Agreement, substantially in the form of Appendix I hereto
(the "Registration Rights Agreement"); and
(iii) The accuracy on the Closing Date of the representations and
warranties of the Investors contained in this Agreement as if made on the
Closing Date and the performance by the Investors on or before the Closing Date
of all covenants and agreements of the Investors required to be performed on or
before the Closing Date.
(f) The Investors' Conditions Precedent to the Sale and Issuance of
the Initial Shares and Warrants. The Company understands that each Investor's
obligations to purchase the Initial Shares and to acquire the Warrants on the
Closing Date is conditioned upon:
(i) Delivery by the Company to the Investors of the certificates
for the Initial Shares and the Warrants in accordance with this Agreement;
(ii) The execution and delivery by the Company of the
Registration Rights Agreement:
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(iii) 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 Investors 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 Investors may
reasonably request; and
(iv) Receipt by the Investors on the Closing Date of an opinion
of the general counsel for the Company, dated the Closing Date, in form, scope
and substance reasonably satisfactory to the Investors, to the effect set forth
in Annex III.
In addition, at the Closing, the Company shall pay to the Investors the sum of
$100,000 for their transaction expenses.
2. OPTION TO PURCHASE ADDITIONAL SHARES AND WARRANTS
(a) Option. Pursuant to the terms of this Section 2, the Investors may
exercise an one-time option to purchase from the Company shares of Common Stock
(the "Option Shares") for a total purchase price equal to $5,000,000 at a price
per share equal to the Market Price at the Closing Date (the " Option"). The
Option shall be exercisable at any time after the Closing and shall expire
ninety (90) days after the Registration Statement described in Section 2(a)(i)
of the Registration Rights Agreement is declared effective by the Securities and
Exchange Commission ("SEC").
(b) Warrants Issuable Upon Exercise of Option. In connection with the
Investor's exercise of the Option, the Company agrees to issue to the Investors
warrants having the terms and conditions included in the form of warrant
attached hereto as Annex II (the "Additional Warrants"). The Additional Warrants
shall have an initial Exercise Price per share equal to the Market Price at the
Closing Date, and the number of shares of Common Stock issuable upon exercise of
the Warrants shall equal 111.11% of the shares of Common Stock issued to the
Investors pursuant to Section 2(a).
(c) Exercise of Option. In order to exercise the Option, the Investors
holding not less than a majority of the Initial Shares must deliver a notice of
exercise (the "Exercise Notice") to the Company not later than 90 days after the
Registration Statement is declared effective by the SEC. The Option must be
exercised for all, and not less than all, $5,000,000 of Option Shares. The
Exercise Notice shall specify the Option Closing Date (as defined below), which
shall be no more than 10 days after the delivery of the Exercise Notice, and
shall specify the number of Option Shares and Additional Warrants to be issued
to each Investor delivering the Exercise Notice. Once delivered, the Company
shall be obligated to sell the Option Shares and issue the Additional Warrants
to the Investors delivering the Exercise Notice, and such Investors shall be
obligated to
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purchase the Option Shares and receive the Additional Warrants from the Company,
upon the terms and subject to the conditions of this Agreement.
(d) Option Closing Date. The date and time of the issuance and sale of
the Option Shares and the issuance of the Additional Warrants (the "Option
Closing Date") shall be 10:00 a.m., Seattle time, on the date specified in the
Exercise Notice, at the offices of the Company's counsel in Seattle, Washington,
or as otherwise mutually agreed to by the parties hereto.
(e) Form and Method of Payment. The Investors shall pay the purchase
price for the Option Shares in United States dollars directly to the Company by
certified or bank check or wire transfer to an account designated in writing by
the Company against issuance and delivery to the Investors of the Option Shares
and the Additional Warrants, and the Company shall deliver the certificates for
the Option Shares and Additional Warrants directly to the Investors against
payment of the purchase price for the Option Shares to the Company on the Option
Closing Date.
(f) Conditions Precedent to Sale and Issuance of the Option Shares and
Issuance of the Additional Warrants. The Investors understand that the Company's
obligation to sell and issue the Option Shares and to issue the Additional
Warrants to the Investors is conditioned upon:
(i) Delivery by the Investors to the Company of good funds in the
aggregate amount of $5,000,000 as payment in full of all of the Option Shares;
(ii) The accuracy on the Option Closing Date of the
representations and warranties of the Investors contained in this Agreement as
if made on the Option Closing Date and the performance by the Investors on or
before the Option Closing Date of all covenants and agreements of the Investors
required to be performed on or before the Option Closing Date; and
(iii) No Change of Control of the Company shall have occurred on
or after the Closing Date. "Change of Control" means the occurrence of any of
(i) an acquisition on or after the Closing Date by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the 1934 Act) of
in excess of 50% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's Board of Directors which is
not approved by those individuals who are members of the Board of Directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, or the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
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(g) Investors' Conditions Precedent to Purchase of the Option Shares
and Acquisition of the Additional Warrants. The Company understands that the
Investors' obligation to purchase the Option Shares and to acquire the
Additional Warrants on the Option Closing Date is conditioned upon:
(i) Delivery by the Company to the Investors of the certificates
for the Option Shares and the Additional Warrants in accordance with this
Agreement;
(ii) The accuracy on the Option Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Option Closing Date and the performance by the Company on or before
the Option Closing Date of all covenants and agreements of the Company required
to be performed on or before the Option Closing Date and receipt by the
Investors of a certificate, dated the Option Closing Date, of the Chief
Executive Officer or the Chief Financial Officer of the Company confirming such
matters and the satisfaction of the conditions precedent set forth in this
Section 2; and
(iii) Receipt by the Investor on the Option Closing Date of an
opinion of the general counsel of the Company, dated the Option Closing Date, in
form, scope and substance reasonably satisfactory to the Investor, substantially
to the effect set forth in Annex III attached hereto.
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3. INVESTORS' RIGHT TO ADDITIONAL ISSUANCES OF COMMON STOCK
(a) Initial Adjustment Date.
(i) If the Adjustment Price for the Initial Adjustment Date is
less than the Purchase Price at the initial Closing, then the Company shall
issue to each Investor the number of Adjustment Shares calculated in accordance
with the following formula:
[ (A x C) / B ] - A
where:
A = Number of Initial Shares and Option Shares (if applicable)
outstanding and beneficially owned by Investor on the Initial
Adjustment Date,
B = Adjustment Price for the Initial Adjustment Date, and
C = Purchase Price at the initial Closing.
(ii) If the Company issues any additional shares of Common Stock
upon the Initial Adjustment Date to the Investors pursuant to Section 3(a)(i),
then it shall also issue to the Investors an equal number of Warrants with the
same exercise price per share as the Warrants issued in the initial Closing
based on the Initial Shares outstanding.
(b) Subsequent Issuances of Adjustment Shares. On each subsequent
Adjustment Date, if the Adjustment Price for that Adjustment Date is less than
the lower of (i) the Purchase Price at the initial Closing or (ii) the lowest
Adjustment Price used with respect to any prior Adjustment Date, then the
Company shall issue to each Investor the number of Adjustment Shares calculated
in accordance with the following formula:
[ (A x C) / B ] - A
where:
A = Number of Initial Shares, Option Shares (if applicable) and
Adjustment Shares (if applicable) outstanding and beneficially owned
by such Investor on the Adjustment Date,
B = Adjustment Price applicable to the Adjustment Date, and
C = The lower of (i) the Purchase Price at the initial Closing or (ii)
the Lowest Adjustment Price used with respect to any prior Adjustment
Date.
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(c) Certain Definitions. For purposes of this Section 3, the following
terms shall have the indicated meanings:
"Adjustment Date" means the last day of each Adjustment Period
during the Term.
"Adjustment Period" means a period commencing on the day after
the Initial Adjustment Date and ending on the same day (as the Initial
Adjustment Date) of each third month thereafter until there have been three
Adjustment Dates (in addition to the Initial Adjustment Date) and on the same
day on each sixth month thereafter until there have been two more Adjustment
Dates.
"Adjustment Price" means the product of 75% times the arithmetic
average of the Closing Price of the Common Stock during the Measurement Period
ending on the Trading Day immediately preceding the Initial Adjustment Date or
an Adjustment Date, as the case may be.
"Closing Price" of the Common Stock on any date means the last
bid price for one share of Common Stock 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.
"Initial Adjustment Date" means the date on which the
Registration Statement described in Section 2(a)(i) of the Registration Rights
Agreement) is declared effective by the SEC.
"Measurement Period" means, with respect to any date, the period
of five (5) consecutive Trading Days ending on the Trading Day prior to such
date.
"Term" means the period commencing on the Closing Date and ending
on the last Adjustment Date.
"Trading Day" means a day on whichever of the national securities
exchange or other market which at the time constitutes the principal securities
market for the Common Stock, is open for general trading.
(d) No Fractional Shares. No fractional shares of Common Stock shall
be issued as Adjustment Shares but, in lieu of any fraction of a share of Common
Stock that would otherwise be issuable as Adjustment Shares, the Company shall
pay in cash an amount equal to the product of (i) the applicable Adjustment
Price and (ii) such fraction of a share.
(e) Delivery of Adjustment Shares. The Company shall issue and deliver
to each Investor certificates for the Adjustment Shares on or before the fifth
business day following any Adjustment Date, or as otherwise agreed to by the
parties
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hereto. Delivery of certificates for the Adjustment Shares shall be made at a
location mutually agreed to by the parties hereto or through the Depository
Trust Company Fast Automated Securities Transfer program, as the parties may
agree.
(f) Condition Precedent to Issuance of Adjustment Shares. Each
Investor understands that the Company's obligation to issue the Adjustment
Shares to such Investor in accordance with this Agreement is conditioned upon
the accuracy in all material respects on the Adjustment Date of the
representations and warranties of the Investor contained in Sections 4(a), (b),
(c), (d), (f) and (g) of this Agreement as if made on the Adjustment Date. In
addition, each Investor shall certify to the Company the number of shares of
Common Stock held by such Investor as of the Initial Adjustment Date and each
subsequent Adjustment Date.
(g) Issuance in Lieu of Adjustment Shares. If the issuance of any
Adjustment Shares would result in an Investor beneficially owning more than 4.9%
of the then outstanding shares of the Company's Common Stock, the Company, in
lieu of issuing the Adjustment Shares, shall issue warrants to purchase the
number of Adjustment Shares. Such warrants shall be in the form of the Warrants
set forth in Appendix II, provided that the exercise price shall be $0.01 per
share. For purposes of this provision, beneficial ownership shall be determined
in accordance with Section 13(d) of the 1934 Act and Regulation 13D-G
thereunder.
(h) Termination. The Company's obligation to issue Adjustment Shares
shall terminate upon the following:
(i) Upon the closing of a firmly underwritten public offering of
the Company's Common Stock with price to public of not less than $10.00 per
share;
(ii) Upon the closing of a merger, consolidation or sale of all
or substantial all of the Company's assets pursuant to which the Company's
shareholders are entitled to receive consideration in cash and/or securities
with a value of not less than $10.00 per share; or
(iii) The Company has issued the Maximum Share Amount (as such
term is defined in Section 6(h)) permitted by Nasdaq Rule 4460(i).
4. INVESTORS' REPRESENTATIONS AND WARRANTIES
Each Investor represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Purchase for Investment. The Investor is purchasing the Initial
Shares and acquiring the Warrants and, upon exercise of the Option, will
purchase the Option Shares and acquire the Additional Warrants, and upon
issuance of any Adjustment
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Shares, will acquire the Adjustment Shares, and upon exercise of the Warrants or
Additional Warrants, will acquire the shares of Common Stock issuable upon such
exercise (the "Warrant Shares"), for its own account for investment only and not
with a view towards the public sale or distribution thereof. The Initial Shares,
the Option Shares, the Warrants, the Additional Warrants, the Adjustment Shares
and the Warrant Shares are collectively referred to as the "Securities." The
Investor understands that its investment in the Securities involves a high
degree of risk.
(b) Accredited Investor; No Broker-Dealer. The Investor 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 Investor 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 Investor 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. Each Investor understands that the Initial
Shares are being offered and sold, the Warrants are being issued, and the Option
Shares, Additional Warrants, Adjustment Shares and Warrant 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 each Investor's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Investors set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investors to acquire
the Securities.
(e) Information Provided. Each Investor 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
Securities, that have been requested by the Investor. The Investor 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.
(f) Absence of Approvals. Each Investor 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) Purchase Agreement. This Agreement has been duly and validly
authorized, executed, and delivered on behalf of each Investor and is a valid
and binding agreement of each Investor enforceable in accordance with its terms,
subject to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
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5. COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to, and covenants and agrees with,
the Investors 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, the Additional Warrants and the Registration Rights Agreement, and the
other agreements to be executed and delivered by the Company in connection with
this Agreement, and to consummate the transactions contemplated hereby and
thereby. The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions wherein such qualification is
necessary and where failure so to qualify could have a material adverse effect
on the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company. The Company has no subsidiaries.
(b) Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Common Stock, $.01 par value, and (ii)
5,000,000 shares of Preferred Stock, $.01 par value. The Company's outstanding
securities are as set forth in Schedule 5(b). 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 in the
Disclosure Documents, in this Agreement or 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. Except as set forth on
Schedule 5(b), 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 Agreement).
(c) Concerning the Securities. The Securities have been duly
authorized and the Initial Shares and Option Shares, when issued and paid for in
accordance with this Agreement, the Adjustment Shares, when issued, and the
Warrant Shares, when issued upon due exercise of the Warrants and/or the
Additional 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
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to acquire any of the Initial Shares, the Option Shares, the Adjustment Shares
or the Warrant Shares. The Common Stock currently is listed for trading on the
Nasdaq National Market System ("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 in the last three years 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 Stock will not be eligible for listing on
Nasdaq.
(d) Purchase Agreement; Warrants; Registration Rights Agreement. This
Agreement, the Warrants, the Additional Warrants and the Registration Rights
Agreement have been duly and validly authorized by the Company, this Agreement
has been duly executed and delivered on behalf of the Company and this Agreement
is, and the Warrants, the Additional Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject 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 Securities, as contemplated
by this Agreement, and completion of the other transactions contemplated in this
Agreement, the Registration Rights Agreement, the Warrants and the Additional
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 or Nasdaq
is required to be obtained by the Company for (i) the issuance and sale of the
Initial Shares and the Option Shares and the issuance of the Warrants, the
Additional 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 and Listing
Applications on Nasdaq.
(g) Information Provided. The Company has made available to the
Investors copies of all periodic reports, statements and other documents that
the Company
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has filed with the SEC under the Exchange Act since January 1, 1996
(collectively, the "Disclosure Documents"), each in the form (including exhibits
and any amendments thereto) required to be filed with the SEC. All information
provided by or on behalf of the Company to the Investors in connection with the
transactions contemplated by the Agreement, including, without limitation, the
Disclosure Documents, 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 Schedule 5(h)
or the Disclosure Documents, since September 30, 1998, 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 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
September 30, 1998, 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 or described in Schedule 5(h).
(i) Absence of Certain Proceedings. There is no action, suit or
proceeding, before or by any court, public board or body or governmental agency
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.
(j) 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.
(k) 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 any person authorized
to act on its behalf will sell or offer for sale any shares of Common Stock, the
Warrants or the Additional Warrants, or solicit any offers to buy any shares of
Common Stock, the Warrants or the Additional Warrants, so as thereby to cause
the issuance or sale of any of the Securities to be in violation of Section 5 of
the 1933 Act.
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(l) Certain Issuances of Securities. Except as set forth on Schedule
5(l), 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)").
6. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
(a) Transfer Restrictions. Each Investor acknowledges that (i) the
Warrants and Additional Warrants have not been and are not being registered
under the 1933 Act, and, except as provided in the Registration Rights
Agreement, the other Securities 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 Investor shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope, and substance to the
Company, to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration; (ii) any sale of
the Securities made in reliance on Rule 144 promulgated under the 1933 Act may
be made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any such resale of Securities under circumstances in which
the seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) 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 Agreement).
(b) Restrictive Legend. Each Investor acknowledges and agrees that,
until such time as any of the Securities have been registered under the 1933 Act
as contemplated by the Registration Rights Agreement, the certificates for the
such Securities 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.
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Once the applicable Registration Statement required to be filed by the Company
pursuant to Section 2 of the Registration Rights Agreement has been declared
effective, thereafter (i) upon request of a Investor the Company will substitute
certificates without the above-referenced legend for certificates for any
Securities 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 Securities, but in no event later
than five Business Days after surrender of such certificates by such Investor,
and (ii) the Company shall not place any restrictive legend on certificates for
any Securities issued or impose any stop-transfer restriction thereon.
(c) 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 Investors promptly after such
filing. Each Investor agrees to cooperate with the Company in connection with
such filing and, upon request of the Company, to provide all information
relating to such Investor reasonably required for such filing.
(d) 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, the Company shall file a listing application
for the Initial Shares and Warrant Shares with the Nasdaq and shall provide
evidence of such filing to each Investor, and the Company, on or before the date
that is 30 days after the issuance thereof, file a listing application for the
Option Shares, Adjustment Shares and Warrant Shares relating to Additional
Warrants. 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.
(e) 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 Initial Shares and Option Shares will be
used for general working capital purposes and in the operation of the Company's
business. 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.
(f) 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 and Option Shares for sale to the
Investors pursuant to this Agreement and the Warrants, the Additional Warrants,
the Adjustment Shares and the
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Warrant Shares for issuance to the Investors, under such of the securities or
"blue sky" laws of jurisdictions as shall be applicable to the offer and sale of
the Initial Shares, Option Shares, the issuance of the Warrants and Additional
Warrants, and the offer of the Adjustment Shares pursuant to this Agreement. The
Company shall furnish copies of all filings, applications, orders, and grants or
confirmations of exemptions relating to such securities or "blue sky" laws to
the Investors within five days of filing or receipt thereof, as the case may be.
(g) Certain Expenses and Fees. Whether or not the closing of the
transactions contemplated hereby occurs, the Company shall pay or reimburse the
Investors for all reasonable expenses (including, without limitation, legal fees
and expenses of counsel to the Investors of up to $15,000) incurred by the
Investors 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
Investors, and the Investors 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 Additional
Warrants and the Registration Rights Agreement (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 Investors 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 Investors, as
the case may be, from paying any amount due the Investors or the Company, as the
case may be, in which the party seeking such enforcement or restructuring
prevails.
(h) Shareholder Approval.
(i) Notwithstanding any other provision herein, unless
Shareholder Approval (as defined in Section 6(h)(iii) below) shall have been
obtained from the shareholders of the Company or waived by the Nasdaq, the
Company shall not be required to issue pursuant to this Agreement, whether as
Initial Shares, Option Shares, Adjustment Shares and Warrant Shares more than
2,862,872 shares of Common or such greater number as permitted by the rules of
the Nasdaq (such amount to be subject to equitable adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the Closing Date
(the "Maximum Share Amount"). The Maximum Share Amount shall be allocated among
the holders of Initial Shares, Option Shares and Adjustment Shares pro rata
based on the total number of such shares then outstanding. The Company shall
maintain records which show the number of shares of Common Stock issued by the
Company pursuant to this Agreement, which records shall be controlling in the
absence of manifest error.
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(ii) The Company shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder, and any holder
may at any time after the occurrence give notice to the Company, in either case,
if on any ten trading days within any period of 20 consecutive trading days the
Company would not have been able to issue Option Shares, Adjustment Shares or
Warrant Shares as a consequence of the limitations set forth in Section 6(h)(i).
If the Company shall have given or been required to give any such notice, or if
a holder shall have given any such notice, then within twenty business days
after such notice is given or was required to be given, then the Company
thereafter shall convene a meeting of the shareholders of the Company as soon as
practicable and obtain the Shareholder Approval. In circumstances in which it
appears likely that the Company may issue the Maximum Share Amount, the Company
and the Investors shall discuss and negotiate in good faith whether it would be
appropriate to seek Shareholder Approval prior to time the Company would
otherwise be required to seek Shareholder Approval pursuant to this Section
6(h).
(iii) 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), 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 Investors on the Closing Date and
Option Closing Date, on all Adjustment Dates, and upon the exercise of the
Warrants and Additional Warrants, as and to the extent required under Rule
4460(i).
(i) 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 as the case may be, of this Agreement on
the Closing Date and, if the Option has been exercised, to sell and purchase the
Option Shares on the Option Closing Date.
(j) Certain Trading Restrictions. So long as the Company is in
compliance in all material respects with its obligations to the Investor
pursuant to this Agreement, the Registration Rights Agreement and the Warrants
and Additional Warrants, each Investor agrees that it and its affiliates (i)
shall not engage in short sales or other hedging transactions relating to the
Common Stock of the Company from the date of this Agreement through the end of
the Term, and (ii) shall not sell on the market any shares of Common Stock of
the Company during any ten day period prior to the Initial Adjustment Date or
any subsequent Adjustment Date if the market price for the Common Stock is less
than 125% of the then applicable reset price.
(l) Reservation of Common Stock. The Company shall take all action
necessary so that a number of shares of the authorized but unissued Common Stock
sufficient to provide for the issuance of all Adjustment Shares and Warrant
Shares issuable hereunder are at all times reserved by the Company, free from
preemptive rights. If the Company shall issue any securities or make any change
in its capital structure which would
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<PAGE>
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 Adjustment Shares and Warrant 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) Trading Reports. Each Investor shall promptly report to the
Company all market sales of shares of Common Stock of the Company by such
Investor.
(n) Brokers' or Finders' Fees. The Company and the Investors
represents and warrants to each other that they have not incurred any obligation
or liability, contingent or otherwise, for brokerage or finders' fees, or
agents' commission or other like payment in connection with this Agreement or
the transactions contemplated hereby. Each party agrees to indemnify and hold
the other parties harmless from and against any obligation or liability for
brokers' or finders' fees or agents' commissions or other like payment based in
any way on agreements, arrangements or understandings claimed to have been made
by such indemnifying party with any third party.
(o) Right of First Opportunity. For a period of two years after the
Closing Date, the Company will not offer for sale any securities for cash in an
offering exempt from the registration requirements of the 1933 Act without
having first provided to the Investors holding at least 25% of the total of the
Initial Shares, Option Shares and Adjustment Shares then outstanding the
opportunity to purchase such securities on specified terms. The Company shall
provide such Investors at least twenty days prior notice of any such offer and
the Investors shall either commit to purchase all such securities on such terms
within ten days of receipt of such notice or not so commit. If the Investors do
not purchase of such securities, then the Company may offer such terms (but not
more favorable terms) to third parties, provided that such offering be completed
within 90 days after the Investors elect not to purchase. This Section does not
apply to any transaction between the Company and its employees and consultants
pursuant to a stock purchase plan or stock option or similar incentive or
compensatory plan nor to any non-registered offering for at least $7.5 million
headed by a nationally recognized investment banking firm.
7. MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Washington.
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(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 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 Investors 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)
701-2218), 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 Investor, at its address shown on
the signature page of this Agreement, with a copy to the Law Offices of Gary L.
Blum, 3278 Wilshire Blvd, Suite 603, Los Angeles, CA 90010 (facsimile number
(213) 384-1035), 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 Investor hereby designates as its address for any
notice required or permitted to be given to the Investor pursuant to the
Warrants the address shown on the signature page of this Agreement, until such
Investor shall designate another address for such purpose.
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<PAGE>
(h) Survival. The respective representations, warranties, covenants,
and agreements of each Investor 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 Option Shares,
the issuance of the Warrants, the Additional 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.
(i) 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.
(j) Termination. The Company and Investors shall have the right to
terminate this Agreement by giving notice to the Company or the Investors, as
the case may be, at any time at or prior to the Closing Date if:
(i) the other party shall have failed, refused, or been unable at
or prior to the date of such termination of this Agreement to perform its
obligations hereunder;
(ii) any other condition of the obligations of the other party
hereunder is not fulfilled; or
(iii) the closing shall not have occurred on a Closing Date on or
before March 16, 1999, other than solely by reason of a breach of this Agreement
by the other party.
Any such termination shall be effective upon the giving of notice thereof by the
Company or the Investors, as applicable. Upon such termination, the terminating
party shall have no further obligation to the other party hereunder and the
other party 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.
(k) 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.
(l) Public Statements, Press Releases, Etc. The Company and the
Investors 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 Investors, 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 Investors shall be consulted
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<PAGE>
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).
(m) Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Investors and the Company by their respective officers thereunto duly authorized
as of the date set forth above.
TERA COMPUTER COMPANY
By: /s/ JAMES E. ROTTSOLK
-------------------------------
Name: JAMES E. ROTTSOLK
Title: PRESIDENT AND CEO
INVESTOR(S)
BANCA DEL GOTTARDO
By: /s/ FABIO TESTORI /s/ CLAUDIO POLI
-------------------------------------------------------
Name: FABIO TESTORI CLAUDIO POLI
Title: MEMBER OF EXECUTIVE BOARD OFFICER
Address: viale S. Franscini 8
6901 Lugano
Switzerland
Telephone: 011-4191-808-1111
Facsimile: 011-4191-808-2454/43
Purchase Price for Initial Shares: $5,000,000.00
21
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 10, 1999 (this
"Agreement"), is made by and between TERA COMPUTER COMPANY, a Washington
corporation (the "Company"), and the persons named on the signature page hereto
(the "Investors").
W I T N E S S E T H:
WHEREAS, in connection with the Purchase Agreement, dated as March 9, 1999,
between the Investors and the Company (the "Purchase Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Purchase
Agreement, to issue and sell to the Initial Investors an aggregate of 1,111,111
shares (the "Initial Shares") of Common Stock, $.01 par value (the "Common
Stock"), and warrants (the "Warrants") to purchase an aggregate of 1,111,111
shares of Common Stock of the Company as provided in the Purchase Agreement; and
WHEREAS, pursuant to the Purchase Agreement, at the option of the
Investors, the Company may issue and sell to the Initial Investors 968,992
additional shares of Common Stock (the "Option Shares") and Additional Warrants
to purchase up to an aggregate of 1,076,658 shares of Common Stock; and
WHEREAS, under the conditions set forth in the Purchase Agreement, the
Company may be obligated from time to time to issue to the Investors additional
shares of Common Stock (the "Adjustment Shares"); and
WHEREAS, to induce the Initial Investors to execute and deliver the
Purchase 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
Initial Shares, the Option Shares, the Adjustment Shares and the Warrant Shares;
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
Investors hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Purchase Agreement, or, if
applicable, in the Warrants.
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2. Mandatory Registration for Resale.
(a) (i) The Company shall prepare and, on or before 30 days after the
Closing Date, file with the SEC a Registration Statement on Form S-3, which
covers the resale of the Initial Shares and the shares of Common Stock issuable
to the Investors upon exercise of the Warrants.
(ii) If the Investors exercise the Option, the Company shall
prepare and, on or before 20 days after the Option Closing Date, file with SEC a
Registration Statement on Form S-3, which covers the resale of the Option Shares
and the shares of Common Stock issuable to the Investors upon exercise of the
Additional Warrants (together, with the shares of Common Stock issuable upon
exercise of the Warrants, the "Warrant Shares").
(iii) If the Company issues any Adjustment Shares, then the
Company shall prepare and, on or before 20 days after the issuance of such
Adjustment Shares, file with the SEC a Registration Statement on Form S-3, which
covers the resale of such Adjustment Shares.
(iv) If at any time the number of shares of Common Stock included
in a Registration Statement required to be filed as provided in this Section
2(a) shall be insufficient to cover the Adjustment 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
covering such number of shares of Common Stock as shall be sufficient to cover
such Adjustment Shares and permit such exercises.
(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 aggregate of the Initial Shares, the Option Shares, the
Adjustment Shares and the Warrant Shares (collectively, 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 meets the requirements for the use of Form S-3 for
registration of the Registrable Securities for resale by the Investors. The
Company believes that it may register all of the Registrable Securities, when
issued, under the Securities Act on Form S-3. The Company shall file all reports
required to be filed by the
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<PAGE>
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
(d) If the Registration Statement described in Section 2(a)(i) is not
declared effective by the SEC within 90 days after the Closing Date, the Company
will pay to the Investors the sum of $33,333.00 for each full month that the
Registration Statement is not declared effective, such amount to be pro-rated
for each partial month.
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
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
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<PAGE>
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, a Registration Statement
with respect to the number of Registrable Securities as 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 each Registration Statement effective pursuant to Rule 415
at all times during the the period from the Closing Date to the earliest of (i)
the date which is two years after the date on which the last Adjustment Shares
may be issued pursuant to the Purchase 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 Purchase 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 (the "Registration Period"); submit to the SEC,
within five business days after the Company learns that no review of a
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 such Registration Statement
to a time and date not later than five business days after the submission of
such request; notify the Investors of the effectiveness of such Registration
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
4
<PAGE>
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 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
5
<PAGE>
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 registration statement;
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(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 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
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<PAGE>
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 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;
(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;
(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 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 is 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
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<PAGE>
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
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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
(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 Purchase 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), such assignee or transferee agrees to pay 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 Purchase Agreement by notice of such assignment to
the Company. Following such notice of assignment of rights under the Purchase
Agreement, the Company shall be obligated to such transferee to perform all of
its covenants under the Purchase Agreement as if such transferee were the Buyer
under the Purchase 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
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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, 411 First Avenue South, Suite 600, Seattle, Washington
98104-2860, Attention: Chief Executive Officer, facsimile No. (206) 701-2218,
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 Investors at their respective addresses set forth on the
signature page hereof, with a copy to the Law Offices of Gary L. Blum, 3278
Wilshire Blvd, Suite 603, Los Angeles, CA 90010 (facsimile number (213)
384-1035); 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.
(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
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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) 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.
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.
INVESTOR(S) TERA COMPUTER COMPANY
BANCA DEL GOTTARDO By /s/ JAMES E. ROTTSOLK
--------------------------------------
Name: James E. Rottsolk
Title: President and CEO
By /s/ FABIO TESTORI
---------------------------------
Name: FABIO TESTORI
Title: MEMBER OF THE EXECUTIVE BOARD
By /s/ C. POLI
----------------------------------
Name: C. Poli,
Title: OFFICER
Address: Viale S. Franscini 8
6900 Lugano
Switzerland
Facsimile: 011-4191-808-2443
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "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 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.
No. __________ Right to Purchase _____________ Shares
of Common Stock of Tera Computer
Company
TERA COMPUTER COMPANY
Common Stock Purchase Warrant
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., Seattle time, on March __, 2004, ______________ (______________)
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Company at an Exercise Price per share initially equal to $______________. The
number of such shares of Common Stock and the Exercise Price are subject to
adjustment as provided in this Warrant.
1. Exercise at Option of Holder. 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, by surrender of this
Warrant and the subscription form annexed hereto (duly executed) by such Holder
to the Company and by making payment, in cash or by certified or official bank
check payable to the order of the Company or wire transfer to the Company's
account, in the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the Holder in the subscription form by (b) the
Exercise Price then in effect. 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.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within five
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be
<PAGE>
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 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 of one full
share, together with any other stock or other securities any property (including
cash, where applicable) to which such Holder is entitled upon such exercise
pursuant to Section 1 or otherwise.
3. Dilution.
a. Dividends, Etc. If the Company shall pay to the holders of
its Common Stock a dividend in shares of Common Stock or in securities
convertible into Common Stock, the Exercise Price in effect immediately prior to
the record date fixed for the determination of the holders of Common Stock
entitled to such dividend shall be proportionately decreased, effective at the
opening of business on the next following full business day.
b. Splits, Combinations, Etc. If the Company shall split the
outstanding shares of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller number, the Exercise Price in
effect immediately prior to such action shall be proportionately decreased in
the case of a split or increased in the case of a combination, effective at the
opening of business on the full business day next following the day such action
becomes effective.
4. Protection in Case or Reclassification, Etc. In case of any
reclassification or change of the terms of the outstanding shares of the class
of Common Stock issuable upon the exercise of this Warrant, then upon exercise
of this Warrant (other than a change relating to par value, or as a result of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another company (other than a merger in which the Company
is the continuing company or which does not result in any reclassification or
change of outstanding shares of Common Stock of the class issuable upon exercise
of this Warrant, other than a split or combination of shares), or in case of any
sale or conveyance to any other person or entity of all or substantially all of
the assets of the Company, the Company shall use its best efforts to execute an
agreement providing that the holder of this Warrant shall have the right
thereafter to exercise this Warrant for the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, change,
dividend, distribution, consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock of the Company for which this Warrant might
have been exercised immediately prior to such reclassification, change,
dividend, distribution, consolidation, merger, sale or conveyance. This Section
4 shall apply to successive reclassifications and changes of and dividends and
distributions on shares of Common Stock and to successive consolidations,
mergers, sales or conveyances. Notice of the execution of any agreement
pertaining to such reclassification, change, dividend, distribution,
consolidation, merger, sale or conveyance shall be given to the holder of this
Warrant as soon as practicable and in any event not less than ten (10) business
days before any such transaction is consummated.
2
<PAGE>
5. 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 from time
to time issuable on the exercise of this Warrant.
6. 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.
7. 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 6, 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.
8. 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 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.
9. Warrant Agent. The Company will act as the exercise agent for the
purpose of issuing Common Stock 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 on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, 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.
10. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company, until properly exercised.
11. 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 6.
12. Miscellaneous. 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. This Warrant shall be
3
<PAGE>
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: ________________, 1999 TERA COMPUTER COMPANY
By:
-------------------------------------
Name:
Title:
4
<PAGE>
FORM OF SUBSCRIPTION
COMMON STOCK PURCHASE WARRANT
OF TERA COMPUTER COMPANY
(To be signed only on exercise of Warrant)
TO: Tera Computer Company
411 First Avenue South, Suite 600
Seattle, Washington 98104-2860
1. The undersigned Holder of the attached original, executed Warrant
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 pays 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.
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)
-------------------------------------
-------------------------------------
(Address)
5
April 9, 1999
Board of Directors of
Tera Computer Company
Dear Sirs:
I have supervised the corporate proceedings relative to the issuance of:
1. 1,111,111 shares of common stock, $.01 par value (the "Common Stock"),
of Tera Computer Company, a Washington corporation (the "Company"),
and warrants to purchase 1,111,111 shares of Common Stock, and of the
authorization of shares of Common Stock issuable upon exercise of such
warrants, pursuant to the Purchase Agreement, dated as of March 9,
1999, by and between the Company and Banca del Gottardo of Lugano,
Switzerland (the "March Placement");
2. 88,889 shares of Common Stock and warrants to purchase 200,000 shares
of Common Stock, and of the authorization of shares of Common Stock
issuable upon exercise of such warrants, to Banca del Gottardo in
connection with the March Placement; and
3. 25,000 shares of Common Stock and warrants to purchase 25,000 shares
of Common Stock, and of the authorization of shares of Common Stock
issuable upon exercise of such warrants, to Vijay Alimchandani in
connection with the March Placement.
The shares of Common Stock issued to Banca del Gottardo and Vijay Alimchandani
pursuant to the above-referenced Purchase Agreement and in connection with the
March Placement, as the case may be, are referred to herein as the "Shares." The
warrants issued to Banca del Gottardo and Vijay Alimchandani pursuant to the
above-referenced Purchase Agreement and in connection with the March Placement,
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.
2. The Shares have been duly authorized by appropriate corporate action and
are validly issued, fully paid, and nonassessable.
<PAGE>
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,
/s/ 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 Registration Statement on
Form S-3 of Tera Computer Company of our report dated March 22, 1999, which
includes an explanatory paragraph concerning the Company's ability to continue
as a going-concern, appearing in the Annual Report on Form 10-K of Tera Computer
Company for the year ended December 31, 1998, 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
Deloitte & Touche LLP
Seattle, Washington
April 13, 1999
