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Exhibit 10.4
SERVICES CONTRACT AGREEMENT
SERVICES CONTRACT AGREEMENT, dated as of March 31, 2000 (this
"Agreement"), by and between SILICON GRAPHICS, INC., a Delaware corporation (the
"Contractor"), and TERA COMPUTER COMPANY, a Washington corporation (the
"Company"). The Contractor and the Company are sometimes hereinafter
collectively referred to as the "Parties."
RECITALS
A. The Contractor and the Company are parties to an Asset Purchase
Agreement, dated as of March 1, 2000, as amended March 31, 2000 (the "Asset
Purchase Agreement"), pursuant to which Company has agreed to acquire certain
business and assets of the Contractor.
B. The Contractor provides maintenance and services pursuant to various
service agreements with its customers pertaining to the Products (the "Service
Contracts").
C. The Company is willing to provide the services of Contractor under
the Service Contracts upon consummation of the Asset Purchase Agreement.
D. The execution and delivery of this Agreement is a condition to the
consummation of the Asset Purchase Agreement.
NOW, THEREFORE, the Parties, in consideration of the premises and the
mutual covenants and agreements contained herein, and intending to become
legally bound, hereby agree as follows:
SECTION 1
AGREEMENT TO PROVIDE SERVICES
1.1 Definitions. Except as otherwise defined in this Contract Services
Agreement, all capitalized terms shall have the respective meanings assigned to
them in the Asset Purchase Agreement.
1.2 Service Contracts. Attached hereto as Schedule A is a list of
Service Contracts showing, among other matters, the name of the customer, the
equipment as to which services are to be provided, the date each Service
Contract expires and the scheduled monthly payments for such services
(irrespective of whether such payments have been prepaid or are billed monthly
or on some other basis). The Parties recognize that all Service Contracts are
not yet listed on Schedule A, and they shall work together in good faith to
complete the listing of all Service Contracts as soon as possible. In addition,
the Parties shall update
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Schedule A monthly to reflect the changing status of Service Contracts, and
changes in computer installations, such as additional or fewer modules and other
configuration changes, that result in changes in service payments under the
Service Contracts. If a Service Contract is renewed or a new Service Contract is
entered into by either Party that covers service prior to and after the date of
this Agreement, then related service revenue shall be shared proportionally
between the Contractor and the Company based upon the periods of service prior
to and after the date of this Agreement
1.3 Provision of Services. The Company shall provide all the services
required to be provided by the Contractor under each Service Contract for the
period beginning on the day after the Closing Date and ending on the date which
is twelve (12) months thereafter, except as otherwise specified on Schedule A or
pursuant to Section 3.1. The Company shall use commercially reasonable efforts
to perform all the services in accordance with the applicable Service Agreement,
which shall be of a nature and quality consistent with the services provided by
the Contractor prior to the date of this Agreement.
SECTION 2
PAYMENT; INDEPENDENT CONTRACTOR
2.1 Payment. The Company will deliver an invoice for its services to the
Contractor as of the first of the month for which the services are to be
performed under all Service Contracts for that month. The amount of the invoice
shall be the scheduled payment shown on Schedule A for such month, subject, in
the case of foreign contracts, to any adjustments for fluctuations in exchange
rates at the time of collection and subject to agreed to changes pursuant to
this Agreement. The first such invoice shall be for April 2000. Invoiced amounts
shall be due and payable by the 15th of such month. Invoices not paid when due
shall be subject to late charges for each month and portion thereof that the
invoice is overdue, with such late charges calculated at the lesser of (i) 18%
and (ii) the maximum rate allowed by applicable law.
2.2 Billings. The Contractor shall be responsible for billing each of
the customers shown on Schedule A pursuant to the terms of each Service Contract
and collecting all funds from such billings. It shall retain all amounts so
received. Subject to Section 2.3, the Contractor's collection of such funds
shall have no effect on its obligation to pay the Company's invoices under
Section 2.1. The Company and the Contractor shall cooperate and work with each
other in good faith with respect to any disputed amounts.
2.3 Payment Adjustments for Early Termination. If any customer fails to
make payments under any Service Contract beyond the applicable grace period,
Contractor may terminate such Service Contract and upon such termination,
Contractor shall not be required to make any further payments to the Company in
respect of such Service Contract and Schedule A shall be deemed amended to
delete such Service Contract. If any customer
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shown on Schedule A terminates the Service Contract applicable to such customer,
invokes penalties thereunder or otherwise ceases to make payments thereunder,
prior to the scheduled expiration date of such Service Contract, as set forth on
Schedule A, due to a breach of such Service Contract by Contractor arising from
the Company's failure to perform the services contemplated by this Agreement
under such Service Contract, appropriate adjustment shall be made to the payment
amounts shown on Schedule A. If any customer shown on Schedule A commences, or
has entered against it, a voluntary or involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization, or other
similar law or any other case or proceeding to be adjudicated as bankrupt or
insolvent, prior to the scheduled expiration date of such Service Contract, as
set forth on Schedule A, appropriate adjustment shall be made to the payment
amounts shown on Schedule A.
2.4 Right of Offset. If the Company fails to make (i) any payment under
the Promissory Note when due, whether by regular installment, by acceleration,
upon maturity or otherwise, (ii) any payment under the Asset Purchase Agreement
when due, or (iii) any payment under the Transition Services Agreement when due,
the Contractor may deduct the amount of such delinquent payment from any payment
due from the Contractor to the Company hereunder.
2.5 Transition Provisions. If any Transferred Employee who is required
by the Company to perform services hereunder is unable to commence his
employment with the Company on the Closing Date due to the laws of any
jurisdiction, or if any material Contract required by the Company to perform
services hereunder cannot be assigned as of the Closing Date, the Contractor
will use commercially reasonable efforts to provide to the Company the services
of such Transferred Employee and benefits of such Contract pending assignment or
transfer to the Company; provided that the Company shall reimburse the
Contractor for such services pursuant to the Transition Services Agreement.
2.6 Independent Contractor. All services performed by the Company under
this Contract Services Agreement shall be performed by the Company as an
independent contractor, and employees of the Company or any other entities
providing services shall at all times be under the Company's sole discretion and
control. Neither the Company nor any other person or entity performing any
services hereunder shall be deemed for any purpose to be the agent, servant,
employee, or representative of the Contractor in the performance of this
Contract Services Agreement. Nothing in this Contract Services Agreement shall
be construed to mean that the Company is a partner of the Contractor or a joint
venturer with the Contractor. The relationship of the Company to the Contractor
under this Contract Services Agreement, and with respect to the services, shall
be that of an independent contractor. The Company shall be responsible for and
shall withhold or pay, or both, as may be required by law, all taxes pertaining
to the employment of its personnel and/or performance by it of the services. The
Company also assumes full responsibility for the payment of all payroll burdens,
fringe benefits and payroll taxes, whether federal, state, municipal or
otherwise, as to its employees, servants or agents engaged in the performance of
any services.
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SECTION 3
SERVICE CONTRACTS
3.1 Term of Services. The provision of services shall commence on the
day immediately following the date hereof and, with respect to services on each
Service Contract listed in Schedule A, shall terminate when each such Service
Contract expires, as set forth on Schedule A or as otherwise agreed pursuant to
Sections 3.2 and 3.3 below.
3.2 Expiration; Renewals. As each Service Contract expires as set forth
on Schedule A or is otherwise terminated pursuant to its terms, the Company and
the Contractor shall cooperate and work with each other in good faith to renew
of such Service Contract in the name of the Company. The Company and the
Contractor will cooperate and work with each other in good faith with respect to
renewals of Service Contracts that currently cover Company equipment and
Contractor equipment.
3.3 Long-Term Service Contracts. The Company and the Contractor will
cooperate and work with each other in good faith with respect to assignments
and/or new contracts with customers with Service Contracts that expire (as set
forth on Schedule A) in more than a year from the date hereof, as appropriate in
each particular situation. Such matters shall be handled on a case-by-case
basis. With respect to such Service Contracts that expire after one year from
the date of this Agreement and are not assigned to the Company in such one-year
period, then the Company shall continue to provide the appropriate services
thereunder in the manner set forth in Section 1.3 until each such Service
Contract expires, is otherwise terminated pursuant to its terms or is assigned
to the Company. To the extent that the Contractor has been prepaid for such
services for a period after one year from the date of this Agreement, then the
Company shall be permitted to offset the amount of such prepayment from its
final payment under the Promissory Note issued pursuant to the Asset Purchase
Agreement. To the extent that the Contractor has not been prepaid for such
services after one year from the date of this Agreement, the Contractor shall
continue to reimburse the Company pursuant to the procedures described in
Section 2 for its services until each such Service Contract expires, is
otherwise terminated pursuant to its terms or is assigned to the Company.
SECTION 4
LIABILITIES
4.1 Consequential and Other Damages. The Company shall not be liable
for, and the Contractor expressly waives any right to recover, whether in
contract, in tort (including without limitation negligence and strict
liability), or otherwise, any punitive, exemplary, special, indirect, incidental
or consequential damages whatsoever, which in any way arise out
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of, relate to, or are a consequence of, the Company's performance or
nonperformance hereunder or under any particular Service Contract, or the
provision of or failure to provide any service hereunder or thereunder,
including, but not limited to, loss of profits, and business interruptions;
provided, that, notwithstanding the foregoing, the Company shall be liable for,
and shall reimburse the Contractor for any penalties or other claims by
customers under the Service Contracts arising from any performance or
non-performing by the Company hereunder.
4.2 Limitation of Liability. In any event, the liability of the Company
with respect to this Agreement or anything done in connection herewith,
including, but not limited to, the performance or breach hereof, or from the
sale, delivery, provision or use of any service or product provided under or
covered by this Agreement, whether in contract, tort (including without
limitation negligence or strict liability) or otherwise, shall not exceed the
aggregate of all fees then paid by the Contractor to the Company hereunder.
4.3 Obligation to Reperform. In the event of any material breach of this
Agreement by the Company with respect to any error or defect in the provision of
any service under any Service Contract, the Contractor shall promptly notify the
Company of said breach, and the Company shall, at the Contractor's reasonable
request, promptly make all reasonable efforts to correct such error or defect.
SECTION 5
TERMINATION
With respect to any service under any individual Service Contract, this
Agreement shall terminate on (i) the date of termination for such Service
Contract as provided in Schedule A hereto or (ii) the date such Service Contract
has been renewed in the name of the Company or otherwise terminated pursuant to
Sections 3.2 or 3.3 hereof. This Agreement shall terminate on the date on which
the provision of all services under all Service Contracts has been terminated
pursuant to the preceding sentence.
SECTION 6
MISCELLANEOUS
6.1 Notices. All notices or other communications made in connection with
this Services Agreement shall be in writing, except as otherwise expressly
permitted herein. Any notice or other communication in connection herewith shall
be duly given: (a) on the day of delivery, if personally delivered to the person
identified below; (b) three (3) days after mailing if mailed by certified or
registered mail, postage prepaid, return receipt requested; (c) one business day
after delivery to any overnight express courier service; and (d) on the
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business day of receipt if sent by facsimile or other customary means of
telecommunication, provided receipt thereof is orally confirmed and a copy
thereof is sent in the manner provided by clause (a) or (b) hereof, addressed as
follows:
(a) If to the Contractor:
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mountain View, California 94043-1389
Attention: Legal Services
Fax No.: (650) 932-0652
(b) If to the Company:
Tera Computer Company
411 First Avenue South, Suite 600
Seattle, Washington 98104-2860
Fax No.: (206) 701-2218
Tel. No.: (206) 701-2000
Attention: Kenneth W. Johnson
Chief Financial Officer
Such addresses may be changed, from time to time, by means of a written notice
given in the manner provided in this Section. Copies delivered to outside or
in-house counsel shall not constitute notice.
6.2 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Except as specifically agreed herein, no Party may assign
either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party; provided, however, that
without the consent of the other Party, (i) a Party may assign any or all of its
rights and obligations hereunder to any of its subsidiaries, in which event the
assigning Party shall remain fully liable for the performance of all its
obligations hereunder; and (ii) subject to the limitations of Section 16.3 of
the Asset Purchase Agreement, a successor in interest by merger, by operation of
law, or by assignment, purchase or other acquisition of all or substantially all
the business of a Party may acquire the respective rights and obligations of
such Party under this Agreement. Any prohibited assignment shall be null and
void.
6.3 No Third-Party Beneficiaries. Nothing in this Contract Services
Agreement shall confer any rights upon any person or entity other than the
Parties, and each such Party's respective successors and permitted assigns.
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6.4 Amendment, Waivers, Etc. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by an executive officer of the Party against
whom enforcement of the amendment, modification, discharge or waiver is sought.
Any such waiver shall constitute a waiver only with respect to the specific
matter described in such writing and shall in no way impair the rights of the
Party granting such waiver in any other respect or at any other time.
6.5 Confidential Information. Each of the Parties acknowledges that any
information of the other Party received in the course of performance under this
Contract Services Agreement shall be confidential information and shall be
subject to the restrictions on disclosure set forth in the Asset Purchase
Agreement between the Company and Contractor.
6.6 Governing Law. THIS SERVICES AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.
6.7 Dispute Resolution.
(a) Negotiation. The Parties shall attempt in good faith to
resolve any dispute arising out of or relating to this Agreement promptly by
negotiation between executives who have authority to settle the controversy and
who are at a higher level of management than the persons with direct
responsibility for administration of this contract. Any Party may give the other
Party written notice of any dispute not resolved in the normal course of
business. Within fifteen (15) days after delivery of the disputing Party's
notice, the executives of both Parties shall meet at a mutually acceptable time
and place, and thereafter as often as they reasonably deem necessary, to attempt
to resolve the dispute. All reasonable requests for information made by one
Party to the other will be honored. If the matter has not been resolved by these
persons within fifteen (15) days of the first meeting, the dispute shall be
referred to more senior executives of both Parties who have authority to settle
the dispute and who shall likewise meet to attempt to resolve the dispute.
(b) Mediation. If the Parties are unable to resolve the matter
within thirty (30) days of the delivery of the disputing Party's notice, or if
the Parties fail to meet within twenty (20) days, the Parties shall endeavor to
settle the dispute by mediation. The Parties shall select a neutral mediator
that is acceptable to both Parties. The Parties shall have forty-five (45) days
from the date a neutral mediator is selected to gather information and perform
discovery relating to the dispute (the "Discovery Period"). The costs of
mediation shall be split evenly by the Parties.
(c) Litigation. If the Parties are unable to resolve the dispute
after a reasonable period of mediation, either Party may seek resolution through
the judicial process, consistent with the terms of this Agreement.
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(d) Confidentiality. All discussions and negotiations pursuant to
this Section shall be treated as comprise and settlement discussions for
purposes of the applicable rules of evidence. Notwithstanding the foregoing,
materials gathered during the Discovery Period shall not be excluded from any
subsequent litigation in the event that mediation is not successful.
6.8 Schedules; Exhibits. All Schedules and exhibits to this Agreement
shall be construed with and as integral parts of this Agreement to the same
extent as if they were set forth verbatim herein.
6.9 Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the Parties with respect to the subject matter hereof.
6.10 Counterparts. This Agreement maybe executed in counterparts, each
of which shall be deemed an original and all of which shall together constitute
one and the same instrument.
6.11 Headings. The headings contained in this Agreement are for purposes
of convenience only and shall not affect the meaning or interpretation of this
Contract Services Agreement.
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IN WITNESS WHEREOF, the Parties have execute and delivered this Contract
Services Agreement as of the date first written above.
SILICON GRAPHICS, INC.
By:
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Its:
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TERA COMPUTER COMPANY
By:
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Its:
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[Services Contract Agreement]
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