SUPPLEMENT, DATED MAY 23, 1997
TO PROSPECTUS, DATED DECEMBER 19, 1996
2,782,663 Shares of Common Stock
2,226,131 Redeemable Common Stock Purchase Warrants
The third paragraph on the front cover page of the Prospectus, dated
December 19, 1996, is hereby amended and replaced in its entirety as follows:
Pursuant to the terms of the governing Warrant Agreement, dated as of
September 25, 1995, between the Company and ChaseMellon Shareholder
Services, LLC, the Company, with the consent of H.J. Meyers & Co., Inc.,
has called for the redemption of all the Company's outstanding Redeemable
Common Stock Purchase Warrants (the "Warrants") on June 25 1997, which is
one business day following the Expiration Date, as defined below. To the
extent that any Warrants are not exercised prior to the redemption date,
the Warrants shall expire and the holders shall have no rights with respect
thereto, except the right to receive a cash payment equal to $.05 for each
Warrant then held.
In order to encourage holders to exercise the Warrants, the Board of
Directors has amended the Warrants to provide that each Warrant shall be
exercisable for 1.25 shares of Common Stock, with an exercise price of
$4.00 per share of Common Stock, or $5.00 per Warrant (the "Exercise
Offer"). Thus a holder of 100 Warrants can purchase 125 shares of Common
Stock at $4.00 per share, or an aggregate purchase price of $500. This
offer is open from the date hereof through 5:00 p.m., Eastern Daylight
Time, on June 24, 1997, unless extended by the Company in its discretion
(the "Expiration Date"). For an exercise to be effective, the Letter of
Transmittal, the Warrant certificates and the appropriate exercise price
must be received by the Company's Warrant Agent by the Expiration Date, at
the addresses set forth in the Letter of Transmittal. The Warrants will be
redeemed one business day following the Expiration Date.
Holders of Warrants electing to exercise their Warrants prior to the
Expiration Date may revoke such election, so long as notice of such
revocation is received on or prior to the Expiration Date. All Warrants
exercised and not revoked on or prior to the Expiration Date will be
accepted by the Company and the shares of Common Stock issuable upon
exercise of such Warrants will be delivered to the respective holders of
Warrants as soon as practicable after the Expiration Date.
<PAGE>
Assuming all of the outstanding 2,226,131 presently outstanding
Warrants are exercised, the Company would issue approximately 2,782,663
shares of Common Stock and receive net proceeds estimated at $11,100,000,
after expenses estimated at $30,000. The proceeds will be allocated to the
Company's working capital for general corporate purposes. See "Purpose of
the Offer" and "Financial Information" below.
To the extent that any statement in this Prospectus Supplement conflicts
with a statement contained in the Prospectus, the statements in this Prospectus
Supplement shall control.
--------------------
These Securities involve a high degree of risk. See "Risk Factors"
beginning on page 4 of the Prospectus for certain factors related to Company and
its Common Stock.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY OR HAS A COMMISSION OR
ANY SUCH AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
SUPPLEMENTAL INFORMATION
The Prospectus is further amended to include the following additional
information:
1. Holdings of Officers, Directors and Significant Shareholders.
The following officers, directors and significant shareholders of the
Company own the indicated Warrants.
Name Warrants
William T. Frantz 154,421
Alan O. Maxwell 99,110
WBW Trust Number One,
William T. Weyerhaeuser, Trustee 30,000
Burton J. Smith, Chairman 8,577
James E. Rottsolk, President 8,577
John W. Titcomb, Jr., Director 20,891
Daniel J. Evans, Director 5,882
David N. Cutler, Director 1,261
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Total 328,719
=======
2. Market for Common Stock and Warrants.
The following information updates information contained on pages 13 and 14
of the Prospectus.
The Company's Common Stock and Warrants are traded on the Nasdaq SmallCap
Market under the symbols TERA and TERAW, respectively. The Company has not paid
cash dividends on its Common Stock or Warrants.
-3-
<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 6 4-1/8 1-5/8 1-1/8
March 31, 1996 6-1/8 3-3/4 1-11/16 1-13/16
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
December 31, 1996 7 3-1/4 2-7/8 15/16
March 31, 1997 6-1/4 3-5/16 1-3/4 3/4
June 30, 1997 6 3-7/8 1-3/4 1
(through May 22, 1997)
</TABLE>
On May 22, 1997, the closing sales price for the Common Stock was $5-1/2 and for
the Warrants was $1-3/8.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
3. Purpose of the Offer.
The purpose of the Exercise Offer is to assist the Company in raising
capital by providing holders with an incentive to exercise their Warrants. To
the extent that Warrants are exercised, the Company will benefit from the
receipt of additional working capital and an increase in the number of shares
available for trading. In addition, exercises and the redemption of Warrants
will simplify the Company's capital structure, enhancing the Company's ability
to finance future operations, and any redemptions will result in less potential
dilution to existing shareholders.
The Company's current working capital needs depend primarily upon its
personnel costs, the cost of components purchased to complete the testing of its
initial MTA system prototype and manufacture start-up costs, and inventory and
receivable financing associated with the production of MTA systems. The Company
has experienced delays in the development of particular components of the MTA
system that have increased this need for working capital, and the Company could
experience significant additional delays in the manufacturing process that could
further increase the Company's need for working capital. Additional working
capital will be required to fund ongoing research, development and engineering
efforts, development of a customer service organization and increases in its
sales
-4-
<PAGE>
and marketing efforts. Additionally, the Company's administrative functions will
increase in order to support its engineering and sales efforts.
As of April 30, 1997, the Company had approximately $1.6 million in cash.
These current cash resources are sufficient to meet the Company's working
capital requirements through June 1997. If shipment and acceptance of the
Company's initial MTA system are delayed substantially beyond June 1997, the
Company will need additional capital in order to continue its present operations
and inventory acquisitions. If all the Warrants were exercised, the Company
would receive net proceeds of approximately $11,100,000, after estimated
expenses of approximately $30,000.
Holders of Warrants electing to exercise their Warrants prior to the
Expiration Date may revoke such election, so long as notice of such revocation
is received on or prior to the Expiration Date. All Warrants exercised and not
revoked on or prior to the Expiration Date will be accepted by the Company and
the shares of Common Stock issuable upon exercise of such Warrants will be
delivered to the respective holders of Warrants as soon as practicable after the
Expiration Date. All Warrants not exercised pursuant to the Exercise Offer will
be redeemed by the Company for $.05 per Warrant on the first business day
following the Expiration Date.
The exercise and redemption of all such Warrants will result in the
Warrants becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). After the Exercise Offer, and redemption, if any, are completed, the
Company intends to terminate the registration of the Warrants.
4. Interest in Securities of the Issuer.
No transaction by the Company, any executive officer or director of the
Company, any person controlling the Company, of any associate or subsidiary of
such person in the Warrants was effected during the past 40 business days,
except that the Company, on March 20, 1997, raised $1,122,495 through the
private placement to accredited investors of 299,332 shares of Common Stock,
68,167 five-year private nonredeemable warrants exercisable at $6.00 per share
and 6,666 Warrants, and on March 24, 1997, raised $3 million through the sale of
3,000 shares of Series B Convertible Preferred Stock to one accredited investor,
such shares being convertible in certain circumstances into shares of Common
Stock.
5. Financial Information.
The following summary financial information is for the fiscal years ended
December 31, 1995 and 1996, and the interim periods ended March 31, 1996 and
1997.
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<PAGE>
More complete financial information may be obtained by reviewing the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996 and its
Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 1997. The
Company will provide without charge a copy of these reports, other than the
exhibits to such reports. Written or oral requests should be directed to the
Company, 2815 Eastlake Avenue East, Seattle, WA 98102-3027, Attention:
President, telephone (206) 325-0800. The documents are also available from the
website of the Securities and Exchange Commission at "http://www.sec.gov." See
"Available Information" on page 3 of the Prospectus.
<TABLE>
<CAPTION>
Cumulative
Year Ended Three Months Ended from inception
December 31, March 31, (December 1987)
---------------------- ---------------------- through March 31,
Statement of Operations Data: 1995 1996 1996 1997 1997
------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue $ $ $ $ $
Net Loss (5,646) (12,077) (3,551) (2,415) (29,461)
Net Loss Per Share ($2.13) ($2.27) (0.90) (0.36) (17.83)
Weighted Average
Shares Outstanding 2,646 5,321 3,925 6,663 1,652
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
------------------------------ -----------------------------------
Actual Pro Forma(2) Actual Pro Forma(2)
------------ ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Long term portion of capital leases 114 114 107 107
Working capital (22) 11,078 1,452 12,552
Total assets 4,617 15,717 6,459 17,559
Shareholders equity 1,128 12,228 2,620 13,720
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(1) All figures are in thousands, except per share data.
(2) Pro forma reflects the exercise of all Warrants pursuant to the Exercise
Offer and the receipt of net proceeds estimated at $11,100,000 therefrom.
See "Purpose of the Offer" above. In such event, the number of shares of
Common Stock outstanding would increase, as of March 31, 1997, from
6,985,488 shares to 9,768,151 shares.
</TABLE>
