PROSPECTUS Prospectus filed pursuant to Rule 424(b)(3),
Registration No. 333-12759 and Registration
No. 33-95460-LA
TERA COMPUTER COMPANY
5,635,013 Shares of Common Stock
1,605,402 Common Stock Purchase Warrants
This Prospectus covers the resale of Redeemable Common Stock Purchase
Warrants (the "Warrants") of Tera Computer Company, a Washington
corporation ("Tera" or the "Company"), held by certain security holders
originally registered as part of the Company's initial public offering in
September 1995 and those Warrants that were issued in a private placement
completed in July 1996 (the "1996 Private Placement"), the issuance by the
Company of shares of the Company's Common Stock upon exercise of all of its
outstanding publicly held Warrants, and the resale of shares of Common
Stock issued upon conversion of shares of the Company's Series A
Convertible Preferred Stock issued in the 1996 Private Placement, including
shares of Common Stock and Warrants issuable upon exercise of a Sales
Agent's Warrant sold to H.J. Meyers & Co., Inc., the Company's Sales Agent
in the 1996 Private Placement.
The Warrants and the Common Stock may be offered or sold by certain
shareholders of the Company (the "Selling Shareholders") from time-to-time
in the over-the-counter market or otherwise at market prices then
prevailing, in negotiated transactions or otherwise. Brokers or dealers
will receive commissions or discounts from Selling Shareholders in amounts
to be negotiated immediately prior to the sale. Such resales are subject to
the prospectus delivery and other requirements of the Securities Act of
1933, as amended. See "Selling Shareholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the resale of the
Common Stock or Warrants, although it will receive the proceeds from any
exercise of the Warrants and of the Sales Agent's Warrant.
The terms of the Warrants are identical to the Warrants which the Company
has issued publicly and are traded on the Nasdaq SmallCap Market. Each
Warrant entitles the registered holder thereof to purchase, at any time,
one share of Common Stock at a per share purchase price of $5.94, or
approximately 1.212 shares of Common Stock per Warrant, through March 24,
1998, and one share of Common Stock at a per share purchase price of $6.74,
or approximately 1.246 shares of Common Stock per Warrant, thereafter
through September 24, 2000. These purchase prices and exercise ratios
reflect an adjustment pursuant to antidilution provisions due to the 1996
Private Placement and are subject to further adjustment under certain
circumstances. The Warrants are subject to redemption by the Company at any
time at $0.05 per Warrant on 30 days' prior written notice to the
Warrantholders (i) if the closing bid price of the Common Stock as reported
on Nasdaq averages in excess of 150% of the current purchase price for one
share of Common Stock underlying the Warrants for a period of 20
consecutive trading days ending within 15 days prior to the notice of
redemption, or (ii) with the prior written consent of H.J. Meyers & Co.,
Inc.
The Common Stock and the Warrants are listed on the Nasdaq SmallCap Market
under the symbols TERA and TERAW. On December 18, 1996, the closing prices
for the Common Stock and the Warrants were $5 7/8 and $1 7/8, respectively.
---------------
These Securities Involve a High Degree of Risk. See "Risk Factors"
beginning on page 4 for Certain Factors Related to This Offering.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in this Prospectus. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not lawfully be made. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as to which information
has been given herein.
---------------
The date of this Prospectus is December 19, 1996.
<PAGE>
THE COMPANY
The Company was formed to design, develop and market high performance
general purpose parallel computer systems. Tera's Multithreaded
Architecture System ("MTA system") is designed to address a wide range of
scientific and engineering applications, such as simulation and
visualization of complex mechanical and biochemical systems, as well as
emerging commercial applications, such as database mining,
information-on-demand and computer-aided design and visualization. The
Company believes that its MTA system architecture represents a significant
breakthrough in high performance computing that will enable the Company to
offer systems with several times the price/performance of currently
available commercial high performance computer systems. The Company
believes that the MTA system overcomes the limitations of currently
available commercial architectures by delivering a general purpose
parallel, easy-to-program, scalable, very high performance computer system.
The MTA system is designed to combine the very high computational
price/performance levels of massively parallel processing with the ease of
use of conventional shared memory programming. Typical MTA system
configurations are expected to sell for between $5 million and $40 million.
On November 11, 1996, the Company announced that a prototype MTA
system was undergoing tests and had run its first programs. The Company
also announced that the University of California at San Diego had ordered
the first MTA system production model for installation and evaluation at
the San Diego Supercomputer Center, with initial deliveries scheduled for
the first half of 1997. See "RECENT EVENTS - Prototype Development" and "-
Initial Order," and "RISK FACTORS - Development Status of the MTA System"
and "- Manufacturing Risks; Reliance On and Capacity Of Third Party Sole
Source Suppliers."
The Company was incorporated in Washington in December 1987. The
Company's principal executive offices are located at 2815 Eastlake Avenue
East, Seattle, Washington 98102-3027, and its telephone number is (206)
325-0800.
--------------------
"Tera" and "MTA" are trademarks of the Company. This Prospectus also
contains and incorporates trademarks of other companies.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995;
(b) The Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996;
(c) The Company's Current Reports on Form 8-K, dated July 1,
1996, July 15, 1996 and December 18, 1996; and
2
<PAGE>
(d) The description of the Company's Common Stock contained in
the Company's 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 the
Company's Registration Statement on Form 8-A (Registration No.
0-26820), including the amendment thereto on Form 8-A/A filed by the
Company.
All reports and other documents subsequently filed by the Company
pursuant to sections 13(a), 13(c), 14, and 15(d) of the Exchange Act prior
to the termination of the offering shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of
such reports and documents.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities
Act") with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Securities, reference is
made to the Registration Statement and the exhibits and schedules thereto.
The Registration Statement, including exhibits thereto, may be inspected
and copied at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at
the prescribed rates from the Public Reference Section of the Commission at
its principal office in Washington, D.C. 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 reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety
by such reference.
The Company's Common Stock and outstanding Warrants are registered
with the Commission under Section 12(g) of the Exchange Act and, in
accordance therewith, the Company files reports, proxy statements, and
other information with the Commission. Such filings can be inspected and
copied at the Commission's public reference rooms at the above-referenced
addresses, at prescribed rates, or from the Commission's Website at
"http://www.sec.gov."
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, including any
beneficial owner, on the written or oral request of any such person, a copy
of any or all of the incorporated documents, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
therein. Requests shall be directed to Tera Computer Company, 2815 Eastlake
Avenue East, Seattle, WA 98102-3027, Attention: President (telephone number
(206) 325-0800). The information relating to the Company contained in this
Prospectus does not purport to be comprehensive and should be read together
with the information contained in the incorporated documents.
3
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, each
prospective investor should carefully consider the following factors in
evaluating the Company and its business before purchasing the securities
offered hereby. No investor should participate in the Offering unless such
investor can afford a complete loss of his or her investment. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of
certain factors, including but not limited to those set forth in the
following risk factors and elsewhere in this Prospectus.
Development Stage Enterprise; History of Losses. The Company is a
development stage enterprise that had an accumulated loss of approximately
$24.8 million as of September 30, 1996. The Company has experienced net
losses in each year of operations and expects to incur substantial further
losses while it tests and evaluates its MTA system prototype and commences
production, and possibly thereafter. The Company has had no revenue or
earnings and does not expect to recognize revenue from the sale of its
initial MTA system sooner than the first half of 1997, if ever. Whether the
Company will achieve revenue or earnings will depend upon a number of
factors, including its ability to design, develop, manufacture and market
the MTA system and to achieve broad market acceptance thereof. In addition,
profitability will be dependent on, among other things, the level of
revenue in any given period, the terms and conditions of sale or lease for
an MTA system, the system model or models sold, and the Company's expense
levels and manufacturing costs. There can be no assurance that the Company
will be successful in completing the development of, and delivering and
receiving payments for, production MTA systems, or that it will be able to
generate sales or achieve a profitable level of operations in the future.
Development Status of the MTA System. The development of a new very high
performance computer system is a lengthy and technically challenging
process and requires a significant investment of capital and other
resources. Several companies in this market have recently experienced
extreme financial difficulty, including Thinking Machines Corporation, Cray
Computer Corporation, Kendall Square Research Corporation and Supercomputer
Systems, Inc. Since its inception through September 30, 1996, the Company
has expended approximately $36.8 million to design and develop the MTA
system. The hardware development effort has included design of integrated
circuits, packaging and cooling systems and at-speed testing equipment. The
software development effort has included design of compilers, an operating
system and input-output software technology. Until November 1996, when the
Company announced that its initial prototype was undergoing testing and had
run its first programs, the MTA system has been subject only to computer
simulation, and the prototype system has undergone only initial testing and
evaluation. Even if the initial testing and evaluation of the prototype
system is successful, the Company has not attempted to integrate multiple
modules into a commercially configured system and has begun only recently
to commence work on a production model. See "RECENT EVENTS - Prototype
Development."
Assuming that the MTA system prototype can be successfully developed,
modifications to the hardware components, software and the integrated
system still may be required. Development of system software is a difficult
process, and there can be no assurance that the Company will be able to
meet all of the technical challenges required to integrate and complete an
MTA system that satisfies both internal and commercially acceptable
performance specifications. Significant delays in
4
<PAGE>
completing the various hardware components or software, or in integrating
the full system, would materially and adversely affect the Company's
business and results of operations. Even if the Company is successful in
developing its prototype, there can be no assurance that the Company's
products will be commercially successful.
Manufacturing Risks; Reliance On and Capacity Of Third Party Sole Source
Suppliers. The Company intends to subcontract the manufacture of
substantially all of its hardware components, including integrated
circuits, printed circuit boards, flex circuits and power supplies, on a
sole source basis to third party suppliers, and there can be no assurance
that such suppliers will be able to manufacture the components to the
Company's design specifications. Manufacturing difficulties and limited
yields, particularly of gallium arsenide ("GaAs") integrated circuits and
advanced printed circuit boards and flex circuits, could materially and
adversely affect the Company's ability to complete and deliver production
models of the MTA system. The manufacture of integrated circuits, and in
particular the manufacture of GaAs integrated circuits, is a difficult and
complex process. Minute impurities, difficulties in the fabrication
process, defects in the masks used to print circuits on wafers or other
factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be non-functional. The Company's suppliers
may experience problems in achieving acceptable manufacturing yields for
these or other reasons, resulting in substantial delays in the delivery of
necessary hardware components to the Company and unacceptably high prices
for those components, with a resulting loss of profitability or loss of
competitiveness for the Company's products. The Company has experienced
such yield problems already, and these failures forced the Company to
redesign certain components for manufacture by alternative suppliers which
caused delays in the fabrication of the Company's prototype and increased
demands upon the Company's financial resources. There can be no assurance
that the Company's efforts to obtain components in a timely manner that
meet its design specifications will be successful. See "RECENT EVENTS -
Prototype Development" and "- Use of Cash Resources."
Moreover, the production capacity of the Company's integrated circuit
suppliers is very limited and the availability of integrated circuits and
other components will be a limiting factor on the number and size of the
MTA systems that may be sold in 1997, assuming the receipt of purchase
orders. Absent improved yields, increased production capacity or a
reallocation of such suppliers' output to meet Tera's needs, the Company
may be unable to obtain a sufficient quantity of integrated circuits or
other components to meet future production and delivery schedules. In
addition, some of the Company's key suppliers are small companies with
limited financial and other resources, and may be more likely to experience
financial difficulties than larger, well established companies. Any or all
of the Company's suppliers may make strategic changes in their product
lines, which may result in the delay or suspension of manufacture of the
Company's components or systems. In the event of a reduction or
interruption of supply of the Company's components, it could take the
Company a considerable period of time to identify and qualify alternative
suppliers to redesign its products as necessary and recommence manufacture.
The Company's inability to obtain sufficient sole or limited source
components as required, or to develop alternative sources if and as
required in the future, could result in the Company finding itself without
a source of supply for its components; this could materially impair the
Company's ability to deliver its products, which would materially and
adversely affect the Company's business and results of operations.
5
<PAGE>
The Company's current contract with Unisys Corporation provides for
integrated circuit test and packaging services through June 1997. Although
the agreement could be extended, Unisys has informed the Company that it
intends to exit the semiconductor packaging business. After the Unisys
contract expires, the Company either will contract with another vendor for
such packaging services or perform such work internally. The inability of
the Company to subcontract for these services after its agreement with
Unisys expires, or the Company's inability to perform such services
internally, would materially and adversely affect the Company's business
and results of operations. See "RECENT EVENTS - Unisys Contract."
Future Capital Needs. During 1997, the Company's working capital needs will
depend primarily upon its staff operating costs, the cost of components
purchased to complete the testing of its initial MTA system prototype and
manufacturing startup costs, and inventory and receivable financing
associated with production MTA systems. The Company has experienced delays
in the development of particular components of the MTA system that have
increased the need for working capital, and the Company could experience
significant additional delays in the manufacturing process that could
further substantially increase the Company's need for working capital.
Staff operating costs will be required to fund ongoing research,
development and engineering efforts, development of a customer service
organization and increases in its sales and marketing efforts.
Additionally, the Company's administrative functions will increase in order
to support its engineering and sales efforts.
The Company's current cash resources are insufficient to meet these
requirements beyond February 1997. To meet its needs in 1997, the Company
expects to receive revenues from sales of MTA systems, from the possible
exercise of its presently outstanding warrants, which are redeemable by the
Company in certain situations, and from the sale of additional equity or
debt or other financing transactions, which may be dilutive to present
shareholders. Management believes that the Company will be able to secure
the requisite funding, but there can be no assurance that any additional
financing will be available when needed or, if available, will be on
satisfactory terms. If sufficient funding is not available by March 1997,
the Company will have to curtail sharply its present operations. See
"RECENT EVENTS - Use of Cash Resources."
Marketing Risks; Government Funding and Regulation. The Company's first
sales targets will be U.S. and foreign government agencies and research
laboratories, which constitute more than one-half of the market for very
high performance computer systems. The United States government
historically has facilitated the development of, and has constituted a
market for, new and enhanced very high performance computer systems. A
change of policy by the United States government or foreign governments
that results in a reduction of, or delays in, funding of certain high
technology programs employing high performance computing could have a major
impact on the market for very high performance computer systems, and would
materially and adversely affect the Company's business, results of
operations and need for capital. See "RECENT EVENTS - Government Funding."
Most of the Company's potential customers already own or lease very
high performance computer systems. Some of the Company's competitors may
offer trade-in allowances or discounts to potential customers, and the
Company may not be able to match such sales incentives. The Company may be
required to provide discounts in order to make sales or be required to
finance the leasing of its
6
<PAGE>
products, which would result in a deferral of the Company's receipt of cash
for such systems. These developments could materially and adversely affect
the Company's business and results of operations.
The United States government regulates the export of high performance
computing systems such as the anticipated MTA system. There can be no
assurance that the U.S. government will grant any necessary export licenses
for the sale of MTA systems to foreign buyers. The Company's prospects for
growth will depend in part on its ability to obtain export licenses for
foreign sales, the delay or denial of which could materially and adversely
affect the Company's business and results of operations.
In order to expand its market beyond the very high performance
scientific market, and particularly beyond government agencies and research
laboratories, to engineering and other commercial markets, the Company must
be able to attract independent software vendors to port their software
application programs so that they will run on the MTA system. There can be
no assurance that the Company will be able to induce independent software
vendors to port their applications, and the failure to do so could
materially and adversely affect the Company's business and results of
operations.
Management of Growth; Dependence on Key Personnel. If the Company is
successful in developing and marketing the MTA system, the Company believes
it could undergo a period of rapid growth which could place a significant
strain on its management, financial and other resources. The Company's
ability to manage its growth will require it to continue to improve its
operational and financial systems and to motivate and effectively manage
its employees. If the Company grows, it will have to implement new
financial, budgeting, management information and internal control systems.
The success of the Company will depend on the ability of management to
implement effectively these changes and to manage the Company's operations
over the long term. Several senior management personnel have not yet been
identified, including a chief financial officer. The Company's success also
will depend in large part upon its ability to attract and retain highly
skilled technical personnel to provide technological depth and support, to
complete and enhance its first products and to develop new products. In
addition, marketing and sales personnel will be needed. Competition for
highly skilled management, technical, marketing and sales personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining key management, technical, marketing and sales
personnel, and its failure to do so would materially and adversely affect
the Company's business and results of operations.
The Company is dependent on Burton J. Smith, the Company's Chairman of
the Board and Chief Scientist, and James E. Rottsolk, the Company's Chief
Executive Officer, and the loss of services of either could have a material
impact on the ability of the Company to achieve its business objectives.
The Company has key man life insurance policies on the lives of Messrs.
Smith and Rottsolk in the amount of $2 million and $1 million,
respectively. The Company has no employment contracts with either Mr. Smith
or Mr. Rottsolk or with any other employee.
Quarterly Performance May Vary Significantly. In the event that the Company
is able to attain broad market acceptance of the MTA system, one or a few
system sales may account for a substantial percentage of the Company's
quarterly and annual revenue because of the anticipated high average sales
price of the MTA system models and the timing of purchase orders and
product acceptances.
7
<PAGE>
Because a number of the Company's prospective customers receive funding
from the U.S. or foreign governments, the timing of orders from such
customers may be subject to the appropriation and funding schedules of the
relevant government agencies. The timing of orders and shipments also could
be affected by other events outside the control of the Company, such as
changes in levels of customer capital spending, the introduction or
announcement of competitive products, the availability of components,
currency fluctuations and international conflicts or economic crises.
Because of these factors, revenue, expenses, net income or loss and cash
flow are likely to fluctuate significantly from quarter to quarter.
Rapid Technological Change and New Products. The market for the Company's
products is characterized by rapidly changing technology, accelerated
product obsolescence and rapidly changing industry standards. The Company's
success will depend upon its ability to complete development of the MTA
system and to introduce new products and features in a timely manner to
meet evolving customer requirements. There can be no assurance that the
Company will be successful in these efforts. The Company's business and
results of operations will be materially and adversely affected if the
Company incurs delays in developing its products or if such products do not
gain broad market acceptance. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
products or technologies noncompetitive or obsolete.
Competition. The Company's competitors can be divided into two general
categories: established companies that are well-known in the high
performance computer market and new entrants capitalizing on developments
in parallel processing and increased computer performance through
networking.
The high performance computer market is highly competitive and has
been dominated by Cray Research. Other participants in the market include
IBM Corporation ("IBM"), Intel Corporation ("Intel"), and foreign companies
such as Fujitsu, Ltd., Hitachi, Ltd., and NEC Corporation. Each of these
competitors has broader product lines and substantially greater research,
engineering, manufacturing, marketing and financial resources than the
Company.
A number of companies, including IBM, Intel, Silicon Graphics, Inc.,
Fujitsu Ltd. and Convex Computer Corporation, have developed or plan to
develop massively parallel systems for the high performance computer
market. Although to date this kind of system architecture has been limited
in applicability and difficult to program, a breakthrough in architecture
or software technology could change this situation. There can be no
assurance that such a breakthrough will not occur, and such an advance
would materially and adversely affect the Company's business and results of
operations.
There can be no assurance that the performance of the MTA system will
be competitive with the computer systems offered by the Company's
competitors or that the Company will be able to compete successfully over
time against new entrants or innovative competitors at the lower end of the
market. Furthermore, periodic announcements by the Company's competitors of
new high performance computer systems and price adjustments may materially
and adversely affect the Company's business and results of operations. The
market has experienced a recent consolidation as Convex Computer
Corporation was absorbed by Hewlett-Packard in 1995, Cray Research was
acquired by Silicon Graphics, Inc. in 1996, and Intel has stated that it
would no longer directly market high performance computer systems.
8
<PAGE>
Proprietary Rights. The Company relies on a combination of copyright and
trade secret protection, non-disclosure agreements and licensing
arrangements to establish, protect and enforce its proprietary rights.
Despite the Company's efforts to safeguard and maintain its proprietary
rights, there can be no assurance that the Company will be successful in
doing so or that the Company's competitors will not independently develop
or patent technologies that are substantially equivalent or superior to the
Company's technologies.
Although the Company is not a party to any present litigation
regarding proprietary rights, there can be no assurance that third parties
will not assert intellectual property claims against the Company in the
future. Such claims, if proved, could materially and adversely affect the
Company's business and results of operations. In addition, although any
such claims may ultimately prove to be without merit, the necessary
management attention to and legal costs associated with litigation or other
resolution of such claims could materially and adversely affect the
Company's business and results of operations.
The laws of certain foreign countries do not protect intellectual
property rights to the same extent or in the same manner as do the laws of
the United States. Although the Company continues to implement protective
measures and intends to defend its proprietary rights vigorously, there can
be no assurance that these efforts will be successful.
Shares Eligible for Future Sale. Sale of substantial amounts of the
Company's Common Stock or Warrants in the public market or the prospect of
such sales could materially and adversely affect the market price of the
Common Stock and Warrants. As of December 18, 1996, after giving effect to
the conversion of the Series A Preferred Stock into shares of Common Stock,
the Company had outstanding 6,489,070 shares. In addition, the Company has
outstanding Warrants to purchase 2,895,869 shares of Common Stock and
privately placed warrants to purchase 110,809 shares of Common Stock. In
addition, as of such date, the Company had granted options under its option
plans to purchase an aggregate of 1,829,120 shares of Common Stock and had
granted H.J. Meyers & Co., Inc., an investment banking firm, the right to
purchase 170,000 shares of Common Stock and 85,000 Warrants exercisable for
103,030 shares of Common Stock (the "Representative's Warrant") and the
right to purchase 236,000 shares of Common Stock, and 118,000 Warrants
exercisable for 143,030 shares of Common Stock (the "Sales Agent's
Warrant"). Substantially all of the stock options to purchase Common Stock
and 1,996,823 shares of the outstanding Common Stock are subject to lockup
agreements under which the holders of such shares and options have agreed
that, until March 1997, they will not sell, assign, hypothecate or pledge
any of such shares of Common Stock of the Company owned by them, directly
or indirectly, except with the prior written consent of H.J. Meyers & Co.,
Inc. Each employee of the Company is permitted, however, to sell up to
2,000 shares of Common Stock free of such lockup restrictions. H.J. Meyers
& Co., Inc., in its discretion, could shorten or waive entirely the lockup
period either for individual shareholders or all shareholders. All of the
shares purchased under the stock option plans are available for sale in the
public market, subject in some cases to volume and other limitations,
including the lockup agreements referred to above.
Sales in the public market of substantial amounts of Common Stock
(including sales in connection with an exercise of certain registration
rights by one or more holders of approximately 1,705,000 shares of Common
Stock) or the perception that such sales could occur could depress
prevailing
9
<PAGE>
market prices for the Common Stock and Warrants. The existence of the
Warrants, the Representative's Warrant, the Sales Agent's Warrant and any
other options or warrants may prove to be a hindrance to future equity
financing by the Company. Further, the holders of such warrants and options
may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company.
Possible Volatility of Stock Price. The trading price of the Company's
Common Stock and Warrants could be subject to significant fluctuations in
response to variations in quarterly operating results, changes in analysts'
estimates, announcements of technological innovations by the Company or its
competitors, general conditions in the very high performance computer
industry and other factors. In addition, the stock market is subject to
price and volume fluctuations that affect the market prices for companies
in general, and small capitalization, high technology companies in
particular, and are often unrelated to their operating performance.
Redemption of Warrants. The Warrants are subject to redemption at $0.05 per
Warrant on 30 days' prior written notice to the Warrantholders (i) if the
closing bid price of the Common Stock as reported on Nasdaq averages in
excess of 150% of the then current purchase price for one share of Common
Stock underlying the Warrants, currently $5.94, over a period of 20
consecutive trading days ending within 15 days of the notice of redemption,
or (ii) with the prior written consent of H.J. Meyers & Co., Inc. In the
event the Company elects to redeem the Warrants, such Warrants would be
exercisable until the close of business on the date fixed for redemption in
such notice. If any Warrant called for redemption is not exercised by such
date, it will cease to be exercisable and the holder will be entitled only
to the redemption price. If the Company chooses to exercise such right to
redeem at a time which requires the consent of H.J. Meyers & Co., Inc.,
H.J. Meyers & Co., Inc. may use its sole discretion in determining whether
to grant or withhold such consent. H.J. Meyers & Co., Inc. is under no
obligation to grant or withhold such consent under any circumstances,
regardless of the potential effect of such decision on the Company, its
shareholders or the Warrantholders. There can be no assurance that if the
Company chooses to exercise its right to redeem the Warrants at a time that
is not advantageous to the holders of the Warrants, H.J. Meyers & Co., Inc.
will withhold its consent to such redemption, or that if the Company
chooses to exercise its right to redeem the Warrants at a time that is
advantageous to the Company and the shareholders, H.J. Meyers & Co., Inc.
will grant such consent.
Possible Illiquidity of Trading Market; Reduction in Public Float. The
Common Stock and the Warrants are quoted on the Nasdaq SmallCap Market (the
"Market"). The Market may be significantly less liquid than the Nasdaq
National Market. The number of shares of Common Stock and Warrants
available for resale in the trading market is limited because of trading
restrictions on shares of Common Stock and Warrants owned by affiliates and
the lockup agreements. Moreover, if the Company should continue to
experience losses from operations, it may be unable to maintain the
standards for continued quotation on the Market, and the Common Stock and
the Warrants could be subject to removal therefrom. If such removal were to
occur, trading, if any, in the Common Stock and the Warrants henceforth
would be conducted in the over-the-counter market on an electronic bulletin
board established for securities that do not meet the listing requirements
for the Market, or in what are commonly referred to as the "pink sheets."
As a result, an investor would find it more difficult to dispose of, or to
obtain accurate quotations for the price of, the Company's securities. In
addition, such removal would subject the Company's securities to so-called
"penny stock" rules that
10
<PAGE>
impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities.
Consequently, removal from the Market could affect the ability or
willingness of broker-dealers to sell and/or make a market in the Company's
securities and the ability of purchasers of the Company's securities to
sell their securities in the secondary market. In addition, if the market
price of the Company's Common Stock falls to below $5.00 per share, the
Company may become subject to certain penny stock rules even if still
quoted on the Market. While such penny stock rules should not affect the
quotation of the Company's Common Stock on the Market, such rules may
further limit the market liquidity of the Common Stock and Warrants and the
ability of investors to sell securities in the secondary market.
No Anticipated Dividends. The Company has not previously paid any dividends
on its Common Stock and for the foreseeable future intends to continue its
policy of retaining any earnings to finance the development and expansion
of its business.
Effect of Antitakeover Provisions. Certain provisions of the Company's
Restated Articles of Incorporation and Restated Bylaws and the laws of the
State of Washington could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of
Common Stock. The Company is authorized to issue Preferred Stock, without
shareholder approval, with rights senior to those of the Common Stock and
to impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions.
Limitations on Liability and Indemnification Matters. As permitted by the
Washington Business Corporation Act, the Company has included in its
Restated Articles of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain
exceptions. In addition, the Bylaws of the Company provide that the Company
is required to indemnify its directors under certain circumstances,
including those in which indemnification would otherwise be discretionary,
and the Company is required to advance expenses to its officers and
directors as incurred in connection with proceedings against them for which
they may be indemnified.
11
<PAGE>
RECENT EVENTS
The following summarizes significant events with respect to the
Company in 1996.
1. Prototype Development. In November 1996, the Company announced that
its prototype MTA system, consisting of one computational processor, one
I/O processor and a gigabyte of memory, was undergoing testing and had run
its first programs. The Company has encountered significant delays in the
completion of this prototype, largely due to the difficulties and in some
cases failures by third party suppliers to provide working hardware
components. In particular, the Company suffered significant yield problems
and delays with its suppliers of gallium arsenide integrated circuits,
integrated circuit packages, printed circuit boards and flex circuits.
These difficulties caused the Company to redesign certain components,
including alternative integrated circuits for its prototype and its
production systems, leading to a further redesign of all components of the
MTA systems network, to cancel certain contracts with suppliers of
manufacturing components based upon the original designs and to find
alternative suppliers for certain components. A significant part of 1996,
particularly the first eight months, was spent resolving these problems. In
addition to creating delays in the fabrication of the prototype, these
problems caused increased demands upon the Company's financial resources.
See "Use of Cash Resources" below, and "RISK FACTORS - Development Status
of the MTA System" and "- Manufacturing Risks; Reliance On and Capacity Of
Third Party Sole Source Suppliers."
2. Initial Order. In November 1996 the Company announced that the
University of California at San Diego had ordered the first MTA system
production model for installation and evaluation at the San Diego
Supercomputer Center ("SDSC"), utilizing a grant from the National Science
Foundation. The agreement calls for the phased-in delivery of a MTA system
of up to eight resource modules, for a total consideration to the Company
of $4 million. Initial deliveries under this Agreement are scheduled for
the first half of 1997. See "RISK FACTORS - Marketing Risks; Government
Funding and Regulation."
3. Use of Cash Resources. Since its incorporation through September
30, 1996, the Company's principal sources of liquidity have been proceeds
from the sale of equity of approximately $26 million and the Advanced
Research Projects Agency ("ARPA") research funding of approximately $18.5
million. The Company has received all $15.5 million allowed under its
research contract with ARPA for the initial system development and
currently is billing ARPA under a research contract awarded in September
1995. Billings under this contract are expected to be approximately
$200,000 in 1996. At September 30, 1996, the Company had $2 million in cash
and no bank line of credit. The Company's current cash resources are
insufficient to meet its working capital requirements beyond February 1997,
and although management believes it will be able to secure requisite
funding, there can be no assurance that any additional financing will be
available when needed or, if available, will be on satisfactory terms. See
"RISK FACTORS - Future Capital Needs."
12
<PAGE>
4. Unisys Contract. In December 1995, the Company entered into an
agreement with Unisys Corporation pursuant to which Unisys Advanced
Development and Manufacturing Services Division, located in San Diego,
would manufacture and deliver the Company's MTA systems through 1997 on a
turnkey basis. The arrangement provided to the Company the ability to
produce MTA systems without substantial capital investment and provided it
with Unisys' expertise and expansion capabilities. In mid-1996 Unisys
informed the Company that it had, as a corporate strategic matter, decided
to terminate its manufacturing capabilities. After extended discussions,
the Company and Unisys entered into a substitute agreement pursuant to
which Unisys will provide integrated test and packaging services until June
1997. While the new agreement relieved the Company from paying significant
fees to Unisys for turnkey services, the Company will be required to
finance its own inventory purchases for production of MTA systems. See
"RISK FACTORS - Manufacturing Risks; Reliance on and Capacity of Third
Party, Sole Source Suppliers" and "- Future Capital Needs."
5. Government Funding. Since its founding the Company has received
research funding from ARPA of approximately $18.5 million, including all
$15.5 million under a 1995 research contract for initial system development
of the MTA system. Under a separate evaluation contract entered into in
January 1995, ARPA had options to purchase up to $20 million of MTA systems
for early evaluation. In the spring of 1996, ARPA informed the Company that
it would not exercise these options. The SDSC previously had submitted a
proposal to ARPA to purchase the first production MTA system under the
evaluation contract; the Company and SDSC have obtained alternative
evaluation funding from the National Science Foundation, as described under
"Initial Order" above, and are continuing to seek additional governmental
funding for the purchase of additional resource modules. In September 1995
the Company entered into a new research contract with ARPA for the
development of certain components of the next generation MTA system. Under
this agreement, ARPA will provide up to $1.75 million to fund the study of
reducing the cost of bandwith by utilizing advanced network and new
compiler technology. The agreement has an initial term of three years,
during which time the Company will perform specified research and
development activities in accordance with the work program set forth in the
agreement and provide periodic progress reports to ARPA. The Company
anticipates billings of approximately $200,000 in 1996 under this contract.
See "RISK FACTORS - Marketing Risks; Government Funding and Regulation."
6. Market for Common Equity. The Company's Common Stock and Warrants
are traded on the Nasdaq SmallCap Market under the symbols TERA and TERAW,
respectively. On December 18, 1996, there were 306 holders of record of the
Common Stock and 272 holders of record of the Warrants. The Company has not
paid cash dividends on its Common Stock or Warrants.
13
<PAGE>
The quarterly high and low sales prices since September 26, 1995, when
the Company's Common Stock and Warrants began trading publicly, are as
follows:
<TABLE>
<CAPTION>
Quarter ended Common Stock Warrants
- ---------------------------- ------------------------------- ------------------------------
High Low High Low
------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
September 30, 1995 6 1/2 5 1/4 1 1/2 3/4
December 31, 1995 5 7/8 3 7/8 1 5/8 1 1/8
March 31, 1996 5 31/32 3 3/4 1 11/16 5/8
June 30, 1996 7 1/8 4 1/8 3 3/8 1 1/4
September 30, 1996 5 7/8 3 5/8 2 1/4 1 1/8
</TABLE>
On December 18, 1996, the closing sale price for the Common Stock was $5 7/8
and for the Warrants was $1 7/8.
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
as of September 30, 1996 and (ii) on a pro forma basis to reflect the
conversion of the Preferred Stock into Common Stock upon this Registration
Statement being declared effective by the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
September 30, 1996(1)
---------------------
Actual Pro Forma
------ ---------
(in thousands)
<S> <C> <C>
Long-term portion of capital leases .............................. $ 269 $ 269
Shareholders' equity:
Convertible Preferred stock:
5,000,000 shares authorized; 2,360,000 shares
issued and outstanding; none pro forma shares............ 6,887 --
Common Stock, $.01 par value:
25,000,000 shares authorized; 3,936,843 shares
issued and outstanding, actual, 6,296,843 shares pro
forma (2)................................................ 19,105 25,992
Accumulated deficit ......................................... (24,830) (24,830)
-------- -------
Total shareholders' equity .............................. 1,162 1,162
--------- -------
Total capitalization ............................... $ 1,431 $ 1,431
======== =======
<FN>
- ----------------------
(1) Does not include (i) 1,825,620 shares issuable upon exercise of
outstanding stock options, (ii) 3,076,845 shares of Common Stock
issuable upon exercise of outstanding Warrants, including the Warrants
covered hereby, (iii) 170,000 shares of Common Stock or the Warrants
to purchase an additional 103,030 shares of Common Stock issuable upon
exercise of the Representative's Warrant, or (iv) 236,000 shares of
Common Stock and Warrants to purchase an additional 143,030 shares of
Common Stock issuable upon exercise of the Sales Agent's Warrant.
(2) If all of the Company's outstanding registered Warrants were
exercised, the Company would issue approximately 3,076,845 shares of
Common Stock and receive, after offering expenses estimated at
$50,000, approximately $18,226,500. These numbers do not reflect
additional proceeds, estimated at $3,485,970, the Company would
receive if the Representative's Warrant and the Sale Agent's Warrant
(including the underlying Warrants) were exercised in full.
</FN>
</TABLE>
15
<PAGE>
SELLING SHAREHOLDERS
In connection with the Company's initial public offering, the Company
registered for resale a total of 458,398 previously issued Warrants and the
Common Stock issuable upon exercise of those Warrants from time to time by
the holders thereof.
As part of the 1996 Private Placement, the Company undertook to
register the resale of the shares of Common Stock underlying the shares of
Series A Convertible Preferred Stock and the Warrants, and the resale of
the Warrants, including the Series A Convertible Preferred Stock and
Warrants issuable upon exercise of the Sales Agent's Warrant. Pursuant to
its terms, the Series A Convertible Preferred Stock has been automatically
converted into shares of Common Stock on a one-for-one basis upon the
effectiveness of the Registration Statement of which this Prospectus is
part.
These shares of Common Stock and Warrants may be sold at any time or
from time to time if a current prospectus relating to such Common Stock and
Warrants is in effect and the securities have qualified for sale. The
Company will not receive any proceeds from the market sales of the shares
of Common Stock or Warrants, although it will receive proceeds from the
exercise of such Warrants. Sales of these shares of Common Stock and
Warrants, or even the potential of such sales, could have an adverse effect
on the market prices for the Common Stock and the Warrants. See "RISK
FACTORS - Shares Eligible for Future Sales."
Except as indicated below, no Selling Shareholder is a director or
executive officer of the Company or has a material relationship with the
Company. The Selling Shareholders and the number of shares of Common Stock
and Warrants held by, excluding any shares of Common Stock or Warrants
which they may have purchased in the Company's initial public offering or
in the market, each are listed below.
Selling Shareholder Common Stock Warrants(1)
- ------------------- ------------ -----------
American High Growth Equities
Retirement Trust 147,058 73,529
Bobby V. Abraham 15,000 13,413
Robert M. Arnold -- 2,523
AUER & Co. 99,558 49,779
James Bachesta -- 105
John T. Backus -- 1,892
Gerald V. Beemiller 7,352 3,676
Douglas P. Beighle -- 3,703
George L. Black, Jr. Trust 7,352 3,676
Preston Briggs -- 666
Alec W. and Cornelia A. Brindle -- 1,182
Alan Bunin, M.D. -- 1,773
16
<PAGE>
Cadence Design Systems Computer
Company -- 49,671
C.B. Equities Retirement Trust 60,000* 30,000*
William Chan and Evelyn Chan 14,704 7,352
John Chenault 14,704 7,352
Maytawee Coleman -- 74
Robert M. Colkitt & Mary Jean
Colkitt 82,350 41,175
Comiteau Family Partnership 30,588 15,294
Vincent F. Coviello, Jr. -- 9,697
Barry J. Cutler -- 1,655
David N. Cutler(3) -- 1,261
S. Joshua Davidson -- 1,182
Max R. Dechantsreiter -- 333
Richard W. Denman -- 7,407
Leon de Turenne -- 2,412
Diamond Import Group, Inc. 14,704 7,352
Daniel J. Evans(3) 11,764 5,882
Philip Evans 3,822 1,911
Leon Feldan 7,352 3,676
Feuers Family Trust -- 591
George Fink 7,352 3,676
First Portland Corporation -- 1,064
First Washington Profit Sharing Plan 15,000 7,500
William T. Frantz(4) 294,116 147,058
Earl Freeman 58,822 29,411
- --------
* This Shareholder has stated that it intends to sell all of these
securities in open market transactions at prevailing prices with usual and
customary commissions, from time to time through March 23, 1997, as the
market permits.
17
<PAGE>
Dale D. and Randi Freidig -- 1,182
Phillip F. Frink, Jr. 10,000 8,703
David A. Gavrich 7,352 3,676
Globe Corporation -- 2,365
Charles A. Graven 7,352 3,676
Terrence Gray 1,000 --
Girdhari S. and Chanda Gupta -- 615
Omkarnath R. Gupta 15,378 14,356
Omkarnath R. Gupta - IRA 43,726 21,863
Richard Hammons 23,694 11,847
Robert Rettig Henry -- 119
Minda Hevly -- 83
Ann M. Holmberg, D.D.S., Profit
Sharing Plan -- 1,261
John B. Jacobs -- 1,419
Simon Kahan -- 1,212
Laurence Kaplan -- 255
Douglas S. Kelbaugh and
Kathleen K. Nolan -- 633
John F. and Valerie T. Kieser -- 591
Gary Kline -- 222
Maxine L. Koblenz 3,000 1,925
Andy Kopser -- 895
Robert Kutnick 14,704 7,352
Dean C. Laurance -- 6,195
Joan Lawry -- 703
Charles M. Levin and Yvonne
Michelle Levin 14,704 7,352
Mike Levkovitz 7,352 3,676
Gainer Robert Lewis -- 7,447
18
<PAGE>
Lyndhurst Properties Ltd. Profit -- 1,182
Sharing Plan
Philip Markiewicz 7,352 3,676
Kenneth Mastrilli 14,704 7,352
Alan O. and Carrol W. Maxwell(4) 84,012 51,641
Alan O. Maxwell Keogh Plan &
Trust(4) 69,998 34,999
Carrol W. Maxwell(4) 7,260 3,630
John McAuliffe 16,176 8,088
John A. McMillan -- 2,365
McMurtry Family Trust 88,234 44,117
Meinl Bank 41,176 20,588
Merit Partners 7,352 3,676
H.J. Meyers & Co., Inc.(5) 236,000 118,000
John R. Miller -- 1,261
Steve S. Miller and Pamela S.
Cowan -- 1,182
James E. Navarre & Sarah Navarre 7,352 3,676
Dorothy L. Nelson 8,000 4,000
Phuoc Nguyen -- 65
Mark L. Niehaus -- 333
Harry J. O'Donnell, Jr. -- 3,406
Brian Ofria & Laura Ofria Family
Trust 14,704 7,352
Miles Ohlrich -- 759
Wayne Ohlrich -- 549
David Olsen -- 88
Paribas Bank 35,294 17,647
Quentin K. and Virginia W. Peterson 14,000 --
19
<PAGE>
Quentin K. and Virginia W. Peterson
IRA -- 7,000
Bruce Pirie -- 6,000
Jeffrey T. Pohlman and Linda J.
Pohlman 14,704 7,352
Pruzan Brothers Partnership -- 1,182
Charles Puglisi 7,352 3,676
Mark and Jo Dee Ran 862 --
James R. Ratliff 14,704 7,352
Renshaw Investments, L.P. -- 2,365
John H. Resing Retirement Plan 14,706 7,353
Sue Rippe 2,000 --
Richard L. Rome -- 10,416
John C. Rosling -- 662
Robert H. Rosner IRA 7,352 3,676
Steven Rosner Money Purchase Plan 14,704 7,352
James E. Rottsolk(2)(4) -- 8,577
Alan J. Rubin 29,410 14,705
Richard M. Russell 14,704 7,352
Salem Church Partners -- 2,838
Harry A. Salzman & Deborah R.
Salzman 14,704 7,352
Hasmukh D. and Harsha H. Shah -- 630
Sigler & Co. 400,000 200,000
Burton J. Smith(2)(4) -- 8,577
Michael J. Smith 7,352 3,676
Steven F. Sommers 14,704 7,352
Peter Spitalieri -- 18,518
Stoel Rives LLP -- 2,669
Susan B. Stoller -- 591
20
<PAGE>
The Donald & Lucy Stoner Trust 14,704 21,543
C. Jairus Stratton, III -- 1,182
Snehal Sutaria and Dipti Sutaria 14,704 7,352
Swiss Bank Corporation 88,234 44,117
Ronald C. Thomas & Nancy L.
Thomas Family Trust 7,352 3,676
Wendy Thrash -- 492
Darwin Ting 29,410 14,705
Frederick W. Titcomb -- 2,838
John W. Titcomb, Jr.(3)(4) -- 17,108
Tolchin Family Trust 14,704 7,352
Catherine Tompkins as Custodian for
Laurie L. Tompkins 1,000 --
Lorin Tompkins as Custodian for
Levi L. Tompkins 1,000 --
Cameron L. Truesdell -- 1,773
Jane and Larry Tucker 29,410 14,705
Glen and Nancy Utgaard -- 1,537
Ross Vincent -- 114
Dennis Vollrath -- 33
Vollrath Revocable Trust -- 300
WB Technology Partners -- 10,786
WBW Trust Number One(4) 60,000 71,148
John H. Waechter 13,560 6,780
Steve Weinberg 7,352 3,676
Dr. Lawrence S. Wiseman IRA 29,410 14,705
Donald G. Witmer 7,352 3,676
Arnold Wong 7,352 3,676
Kerri L. and Gary F. Wood -- 44
Menno van Wyk 7,020 4,621
21
<PAGE>
Hal Wyman -- 4,730
Lina Suet Ming Yam 14,704 7,352
--------- ---------
TOTALS 2,596,000 1,605,402
========= =========
- -----------------------
(1) Each Warrant presently is exercisable for one share of Common Stock at
a per share purchase price of $5.94, or into approximately 1.212
shares of Common Stock per Warrant, through March 24, 1998, and one
share of Common Stock at a per share purchase price of $6.74, or into
approximately 1.246 shares of Common Stock per Warrant, thereafter
through September 24, 2000.
(2) An officer and director of the Company.
(3) A director of the Company.
(4) A "beneficial owner" of more than 5% of the Company's Common Stock
within the meaning of Item 403 of Regulation S-B.
(5) These shares of Common Stock and Warrants are issuable upon exercise
of the Sales Agent's Warrant, which may be exercised at $6.80 per
unit, each unit consisting of two shares of Common Stock and one
Warrant.
22
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock and Warrants may be sold from time to time
by the Selling Shareholders or by pledgees, donees, transferees or other
successors in interest. Such sales may be made in open market transactions
on stock exchanges (including the Nasdaq SmallCap Market) or otherwise at
prices and at terms then prevailing or at prices related to the then
current market price, or in negotiated transactions. These securities may
be sold by one or more of the following methods: (a) block trades in which
the broker or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as
principal, in a market maker capacity or otherwise, and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c)
ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
the Selling Shareholders in amounts to be negotiated immediately prior to
the sale.
If any of the following events occurs, this Prospectus will be amended
to include additional disclosure before offers and sales of these shares of
Common Stock or Warrants are made: (a) to the extent such securities are
sold at a fixed price or by option at a price other than the prevailing
market price, such price would be set forth in the Prospectus; (b) if the
securities are sold in block transactions and the purchaser wishes to
resell, such arrangements would be described in the Prospectus; and (c) if
the compensation paid to broker-dealers is other than usual and customary
discounts, concessions or commissions, disclosure of the terms of the
transaction would be included in the Prospectus. The Prospectus also would
disclose if there are other changes to the stated plan of distribution,
including arrangements that either individually or as group that would
constitute an orchestrated distribution of the securities.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of these shares of Common Stock or
Warrants may not simultaneously engage in market making activities with
respect to any securities of the Company for a period of at least two (and
possibly nine) business days prior to the commencement of such
distribution. Accordingly, in the event that any broker-dealer, including
H.J. Meyers & Co., Inc., is engaged in a distribution of these shares of
Common Stock or Warrants, it will not be able to make a market in the
Company's securities during the applicable restrictive period. However, no
broker-dealer which is a market maker has agreed to and none are obligated
to act as broker-dealer in the sale of these shares of Common Stock or
Warrants and the Selling Shareholders will likely be required, to sell such
securities through a broker-dealer which is not a market maker. In
addition, each Selling Shareholder desiring to sell these shares of Common
Stock or Warrants will be subject to the applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of
the purchases and sales of shares of the Company's securities by such
Selling Shareholders.
The Selling Shareholders, such brokers or dealers, and any other
participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In
addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this Prospectus.
23
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1994 and
1995 and for each of the two years in the period ended December 31, 1995,
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. 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. See "Risk Factors - Limitations on
Liability and Indemnification Matters."
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. S
24
