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EXHIBIT 4.1
WAIVER AGREEMENT
THIS WAIVER AGREEMENT, dated as of December 23, 1997, is by and between
TERA COMPUTER COMPANY, a Washington corporation (the "Company"), and ADVANTAGE
FUND II LTD., a British Virgin Islands corporation (the "Buyer").
WHEREAS, the Company and the Buyer entered into a Subscription
Agreement, dated as of December 23, 1997 (the "Subscription Agreement"),
pursuant to which the Company issued to the Buyer certain shares of the
Company's Series A Convertible Preferred Stock, $.01 par value ("Preferred
Stock"), and warrants to purchase shares of the Company's common stock, $.01 par
value ("Common Stock"), and in connection therewith the Company and the Buyer
entered into a Registration Rights Agreement, dated as of December 23, 1997 (the
"Registration Rights Agreement"); and
WHEREAS, the Company and the Buyer have been informed that certain
provisions of the Statement of Rights and Preferences of the Preferred Stock
(the "Statement") may be construed, under generally accepted accounting
principles and rules and regulations of the Securities and Exchange Commission,
as requiring that the Company classify the shares of Preferred Stock issued to
the Buyer as "redeemable" shares of Preferred Stock on the Company's financial
statements; and
WHEREAS, neither the Company nor the Buyer intended that the shares of
Preferred Stock issued to the Buyers be so classified; and
WHEREAS, the parties desire to correctly state their intent and
understanding;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. (a) Notwithstanding Sections 4 and 8 and any other provision of the
Statement, if (A) an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (5) of Section 8(a) of
the Statement, or (B) the Company is required to redeem shares of Preferred
Stock by reason of the occurrence of an event described in Section 4(a) of the
Statement, and such occurrence is by reason of events which are not solely
within the control of the Company, then the Company, in its sole discretion, may
elect not to redeem any or all of the shares of Preferred Stock and, if the
Company so elects, then the Buyer hereby waives any and all rights to require
the Company to so redeem such shares of Preferred Stock under such provisions.
In order to make such election, the Company shall so notify the
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Buyer which has given either an Optional Redemption Notice or has given a notice
to the Company directing the Company to redeem shares of Preferred Stock
pursuant to Section 4(a)(2) (an "Inconvertibility Redemption Notice"), as the
case may be, and shall deliver to the Buyer an Auditor's Determination (as
defined below) within ten (10) Business Day's after the Company's receipt of an
Optional Redemption Notice or an Inconvertibility Redemption Notice.
(b) If the Company so elects and notifies the Buyer, then, for each
thirty (30) days that such Optional Redemption Event or Share Limitation Event
(as defined below), as the case may be, continues to exist, commencing as of the
first Business Day of the event which gave rise to such Optional Redemption
Event or such Share Limitation Event, the Conversion Percentage shall be
permanently reduced by six percentage points and the Ceiling Price shall be
permanently reduced by six percent of the amount the Ceiling Price otherwise
would have been without any reduction pursuant to this clause (such Conversion
Percentage and Ceiling Price reduction shall be pro rated for any period of, or
in case the Optional Redemption Event or Share Limitation Event ceases to exist
in, less than thirty (30) days), provided that the Conversion Percentage and
Ceiling Price shall not be so reduced if the Company duly and timely issues a
Shareholder Approval Notice and obtains Shareholder Approval pursuant to Section
4 of the Statement.
(c) With respect to a Share Limitation Event, on or after the date the
Company gives a Shareholder Approval Notice, the Company promptly shall call a
special meeting of its shareholders, to be held not later than 60 days after
such Notice is given, to seek the Shareholder Approval for the issuance of all
shares of Common Stock issuable in accordance with the Statement and this
Agreement without regard to Rule 4460(i) of Nasdaq or any similar or successor
provision (the "Rule") and shall use its best efforts to obtain the Shareholder
Approval. The Company shall prepare and file with the SEC within 20 days after
such notice is given preliminary proxy materials which set forth a proposal to
seek such Shareholder Approval. The Company shall provide the Buyer an
opportunity to consult with the Company regarding the content of such proxy
materials insofar as it relates to the Shareholder Approval by providing copies
of such preliminary proxy materials and any revised preliminary proxy materials
to the Buyer a reasonable period of time prior to their filing with the SEC. The
Company shall furnish to the Buyer a copy of its definitive proxy materials for
such special meeting and any amendments or supplements thereto promptly after
the same are mailed to shareholders or filed with the SEC. Upon the earlier of
(i) the failure to obtain the Shareholder Approval at the special meeting or
(ii) the failure to hold the special meeting within such 60-day period, the
Company shall so notify the Buyer and such of the following as shall be
specified by notice to the Company from the Buyer shall occur: (1) the
Conversion Percentage and the Ceiling Price shall be reduced pursuant to
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Subsection (b) above and (2) the Company shall promptly file applications and
take all other actions necessary to (i) list the Common Stock for trading and
quotation on the OTC Bulletin Board or such other securities market or exchange
which will not restrict the number of shares of Common Stock issuable under this
Agreement and (ii) upon filing such applications, request the immediate removal
of the Common Stock from listing on the securities market on which it is then
listed which restricts the issuance of shares of Common Stock under this
Agreement without the Shareholder Approval. Upon obtaining such Shareholder
Approval or listing, as the case may be, the Company shall issue promptly all
shares of Common Stock due through the date of such issuance.
For purposes of this Agreement, the term "Share Limitation Event" means a time
at which the Company is unable to redeem all shares of Preferred Stock otherwise
required to be redeemed pursuant to Section 4(a) of the Statement by reason of
events which are not solely within the control of the Company.
(d) For purposes of this Agreement, (A) an Optional Redemption Event
described in clause (1), (2) or (5) of the definition of the term "Optional
Redemption Event" or (B) a requirement of the Company to redeem shares pursuant
to Section 4(a) of the Statement shall be deemed to have occurred by reason of
events which are not solely within the control of the Company if a requirement
of the Company to redeem, or a right of any holder of shares of Preferred Stock
to require redemption of, shares of Preferred Stock by reason thereof, would
result in the Company being required to classify the Preferred Stock as
redeemable preferred stock on a balance sheet of the Company prepared in
accordance with generally accepted accounting principles and Regulation S-X of
the SEC.
(e) For purposes of this Agreement, the term "Auditor's Determination"
shall mean a written determination signed by the Auditors concurring with the
Company's conclusion that (A) the Optional Redemption Event described in the
applicable clause (1), (2) or (5) of the definition of Optional Redemption Event
in Section 8(a) of the Statement or (B) a requirement of the Company to redeem
shares pursuant to Section 4(a) of the Statement, was due to the occurrence of
events which were not solely within the control of the Company, as such phrase
is defined in Subsection (d) immediately above. The Auditor's Determination
shall (i) set forth in reasonable detail all relevant facts considered by the
Auditors in connection therewith, (ii) set forth all applicable accounting
principles and assumptions used, and (iii) set forth in reasonable detail or
attach copies of all legal, expert and other advice or information used by the
Auditors in reaching their conclusion. To the extent any facts are assumed for
purposes of the Auditor's Determination, the validity of such conclusion or
determination shall depend upon such assumed facts being true and complete in
all material respects.
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For purposes of this Agreement, the term "Auditors" shall mean the nationally
recognized independent accounting firm then serving as the Company's auditors or
such other "big five" nationally recognized accounting firm (including
successors thereto) as the Company may designate. The fees and expenses of the
Auditors shall be paid by the Company.
2. This Agreement is binding upon the Buyer, any holder which acquires the
Preferred Stock from the Buyer, and any and all successors and assigns of the
Buyer. The Buyer hereby agrees to deliver this document to all transferees of
the Preferred Stock and to surrender the certificates evidencing the Preferred
Stock to the Company, at the Company's request, so that an appropriate legend
evidencing this Agreement may be added to such certificates.
3. The recitals made above are an integral part of this Agreement and are hereby
incorporated herein and made a part hereof as though set forth in full in this
Section.
4. This Agreement is effective as of December 23, 1997.
5. All defined terms not defined herein are used as defined in the Subscription
Agreement and the Statement.
6. The Company shall pay the Buyer's reasonable expenses, including attorney's
fees and costs, incurred in connection with the preparation of this Agreement.
7. This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof. Any change or modification of this
Agreement shall not be valid unless the same shall be in writing and executed by
all of the parties hereto. As between the Company, the Buyer and parties bound
hereby, if there are any provisions herein which are inconsistent with the
provisions of the Statement, the provisions hereof shall control and bind the
Company, the Buyer and such other parties. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Washington.
8. This Agreement may be executed in counterparts and by the parties hereto on
separate counterparts, all of which together shall constitute one and the same
instrument. A telephone line facsimile copy of this Agreement bearing a
signature on behalf of a party hereto shall be legal and binding on such party.
9. Except to the extent expressly provided hereby, the terms and provisions of
the Statement are hereby confirmed. The parties further confirm that the terms
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terms and provisions of the Subscription Agreement and the Registration Rights
Agreement remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
and the Company by their respective officers thereunto duly authorized as of the
date first set forth above.
TERA COMPUTER COMPANY ADVANTAGE FUND II LTD.
By /s/ JAMES E. ROTTSOLK By /s/ WALTER REICH
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James E. Rottsolk Name: Walter Reich
President Title: Secretary
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