SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
TERA COMPUTER COMPANY
(Name of Issuer)
TERA COMPUTER COMPANY
(Name of Person(s) Filing Statement)
Redeemable Common Stock Purchase Warrants
(Title of Class of Securities)
88076P 11 6
(CUSIP Number of Class of Securities)
James E. Rottsolk, President
Tera Computer Company
2815 Eastlake Avenue East
Seattle, WA 98102-3027
TEL. (206) 325-0800 o FAX (206) 325-2433
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
Copy To:
Kenneth W. Johnson
Stoel Rives LLP
One Union Square, 36th Floor
Seattle, WA 98101-3197
TEL. (206) 624-0900 - FAX (206) 386-7500
<PAGE>
May 23, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)
Calculation of Filing Fee
- --------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$11,130,655.00 $2,226.13
- --------------------------------------------------------------------------------
* For purposes of calculating the fee only. This amount assumes the exercise
of Warrants at $5.00 per Warrant. The value of the filing fee, calculated
in accordance with Regulation 240.0-11(a)(2) of the Securities and Exchange
Act of 1934, equals 1/50 of one percent of the value of the securities to
be acquired upon exercise of the Warrants.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: $3,625.00 attributable to shares of Common Stock
issuable upon exercise of the Warrants
Form or Registration No.: Form SB-2 Registration Statement (No. 33-95460-LA)
Filing Party: Tera Computer Company
Date Filed: August 3, 1995
ITEM 1. Security and Issuer.
a. The issuer is Tera Computer Company (the "Company") and the address of
its principal executive offices is 2815 Eastlake Avenue East, Seattle, WA
98102-3027.
b. As of the date hereof there are an aggregate of 2,226,131 Redeemable
Common Stock Purchase Warrants (the "Warrants") outstanding. Each Warrant
initially granted to the holder the right to purchase one share of the Company's
Common Stock, $0.01 par value (the "Common Stock"), at a share purchase price of
$7.20, through March 24, 1998, and one share of Common Stock at a per share
purchase price of $8.40 per share thereafter through September 24, 2000, at
which time the Warrants expire. Because of
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<PAGE>
antidilution provisions and subsequent issuances by the Company of securities at
prices less than $7.20 per share, each Warrant currently grants the holder the
right to purchase approximately 1.2565 shares of the Company's Common Stock at a
per share purchase price of $5.73, through March 24, 1998, and 1.3064 shares of
Common Stock at a per share purchase price of $6.43, thereafter through
September 24, 2000. These purchase prices and exercise ratios are subject to
further adjustment under certain circumstances.
The Company is seeking the exercise of all of the Warrants by offering to
holders to reduce the purchase price for one share of Common Stock to $4.00 per
share and to issue 1.25 shares per Warrant, or $5.00 per Warrant (the "Exercise
Offer"). Thus, a holder of 100 Warrants would be entitled to purchase 125 shares
of Common Stock at $4.00 per share, or $500 in total. If all Warrants were
exercised, the Company would issue approximately 2,782,663 shares of Common
Stock and receive approximately $11,130,000, less expenses estimated at $30,000.
This Exercise Offer will be available only to holders of Warrants who exercise
their Warrants prior to 5:00 p.m., Eastern Daylight Time, on June 24, 1997,
unless such date is extended by the Company in its discretion (such date, or
such date as so extended, being referred to herein as the "Expiration Date").
For an exercise to be effective, the Letter of Transmittal, the Warrant
certificates and the 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.
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 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.
The Company has received the consent of H.J. Meyers & Co., Inc., a
condition contained in the Warrant Agreement, to redeem all of the Warrants for
$.05 per Warrant, and has called the Warrants for redemption on June 25, 1997,
unless such date is extended by the Company. Any Warrants not exercised pursuant
to the Exercise Offer will be redeemed by the Company.
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<PAGE>
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
-------
Total 328,719
=======
c. 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.
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
(through May 22, 1997) 6 3-7/8 1-3/4 1
</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.
-4-
<PAGE>
d. This Issuer Tender Offer Statement on Schedule 13E-4 is being filed by
the Company, as issuer.
ITEM 2. Source and Amount of Funds or Other Consideration.
a. The Company will issue up to an aggregate of 2,782,663 shares of its
Common Stock, if all of the Warrants are exercised in the Exercise Offer.
Because this transaction is an offer to the holders to exercise their Warrants,
the Company does not require funds to complete the Exchange Offer. The Company
estimates that its expenses in connection with the Exercise Offer will be
approximately $30,000, which will be paid from the proceeds received by the
Company from the exercise of the Warrants.
b. The Company will not borrow funds for purposes of the Exercise Offer.
ITEM 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
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 manufacturing 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 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 is delayed substantially beyond June 1997, the
Company will need additional capital to continue its present operations and
inventory acquisitions. If all the Warrants were exercised, the
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<PAGE>
Company would receive approximately $11,100,000, net of expenses of
approximately $30,000.
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.
Except as described above, with respect to the Exercise Offer, there are no
plans or proposals which relate to or would result in:
a. The acquisition by any person of additional securities of the Company,
or the disposition of other securities by the Company other than through the
exercise of the Warrants;
b. An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company;
c. A sale or transfer of a material amount of assets of the Company;
d. Any change in the present board of directors or management of the
Company including, but not limited to, any plans or proposals to change the
number or the term of directors, to fill any existing vacancy on the board, or
to change any material term of the employment contract of any executive officer;
e. Any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company, except to the extent that the
exercise of the Warrants will provide proceeds to the Company and result in the
issuance of additional shares of Common Stock, as described under Item 1(b)
above and reflected in the "Pro Forma" columns in the Summary Financial
Information under Item 7 below;
f. Any other material change in the Company's corporate structure or
business, except to the extent that the proceeds from the exercise of the
Warrants will allow the Company to continue to implement its plan of operations,
as described above;
g. Any changes in the Company's Articles of Incorporation or Bylaws or
any other actions which may impede the acquisition of control of the Company by
any person;
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<PAGE>
h. Causing a class of equity security of the Company to be delisted from
a national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
i. A class of equity securities of the Company, other than the Warrants,
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Exchange Act; or
j. The suspension of the Company's obligations to file reports pursuant
to Section 15(d) of the Exchange Act.
ITEM 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, or 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.
ITEM 5. Contracts, Arrangements, Understanding or Relationships with Respect
to the Issuer's Securities.
There is no contract, arrangement, understanding or relationship relating,
directly or indirectly, to the Exercise Offer between the Company or any of its
executive officers or directors and any person with respect to any securities of
the Company.
ITEM 6. Persons Retained, Employed or to Be Compensated.
Not applicable.
ITEM 7. Financial Information.
The following summary financial information is for the fiscal years ended
December 31, 1995 and 1996, and the interim periods in March 31, 1996 and 1997.
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
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<PAGE>
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.
<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
- --------------------
(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 ITEMS 1 and 3 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>
ITEM 8. Additional Information.
Except as would not be material to a decision by a holder of Warrants
whether to exercise the Warrants pursuant to the Exercise Offer, there are no:
a. Present or proposed contracts, arrangements, understandings or
relationships between the Company and its executive officers, directors or
affiliates;
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<PAGE>
b. Applicable regulatory requirements which must be complied with or
approvals which must be obtained in connection with the Exercise Offer other
than such requirements or approvals which have been complied with or obtained;
c. Applications of the margin requirements of Section 7 of the Exchange
Act and the regulations promulgated thereunder;
d. Material pending legal proceedings relating to the Exercise Offer; or
e. Additional information necessary to make the required statements
herein, in light of the circumstances under which they are made, not materially
misleading.
ITEM 9. Material to Be Filed as Exhibits.
a. Notice of Redemption, dated May 23, 1997, from the Company to the
Warrantholders.
b. Letter of Transmittal and related materials.
c. Press Release.
d. Prospectus, dated December 19, 1996.
e. Supplement to Prospectus, dated May 23, 1997.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: May 23, 1997
TERA COMPUTER COMPANY
By /s/ JAMES E. ROTTSOLK
-------------------------------------
JAMES E. ROTTSOLK, President
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
99(a) Notice of Redemption, dated May 23, 1997, from the Company to the
Warrantholders
99(b) Letter of Transmittal and related materials.
99(c) Press Release
99(d) Prospectus, dated December 19, 1996
99(e) Supplement to Prospectus, dated May 23, 1997
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May 23, 1997
To the Holders of Redeemable Common Stock
Purchase Warrants, CUSIP 88076P 11 6 (the "Warrants"):
NOTICE OF REDEMPTION--ADJUSTMENT IN WARRANT TERMS
Tera Computer Company (the "Company"), with the consent of H.J. Meyers &
Co., Inc., has called for the redemption of all of the outstanding Redeemable
Common Stock Purchase Warrants. The redemption date has been set for June 25,
1997, unless extended by the Company (the "Redemption Date"). If your Warrants
are not exercised before 5:00 p.m., Eastern Daylight Time, on June 24, 1997,
which is one business day before the Redemption Date, they will expire and the
Company will pay you a Redemption Price of $.05 per Warrant.
To make the exercise of the Warrants more attractive, the Company has
adjusted the terms of the Warrants so that the purchase price for each share of
Common Stock is $4.00 and the Company will issue 1.25 shares of Common Stock for
each Warrant exercised, for a total exercise price of $5.00 per Warrant (the
"Exercise Offer"). For example, if you own 100 Warrants, you will receive a
total of 125 shares of Common Stock at $4.00 per share, or $500 in total.
(Before this adjustment, Warrant holders who would have exercised 100 Warrants
would have received 125 shares of Common Stock for a total of $720, less cash
for any fractional shares.)
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.
If you wish to exercise any or all of your Warrants, please complete the
enclosed Letter of Transmittal and send the Warrant Certificate and Letter of
Transmittal to the Warrant Agent with payment of the total exercise price in
cash or by certified check or bank draft made payable to "ChaseMellon
Shareholder Services, L.L.C.," the Warrant Agent, in accordance with the
Instructions on the reverse side of the Letter of Transmittal. This offer will
expire at 5:00 pm, Eastern Daylight Time, on June 24, 1997 (the "Expiration
Date"), unless the Company chooses to further extend it. For Warrant exercises
to be effective, the Letter of Transmittal, the Warranty Certificate and the
exercise price must be received by the Warrant Agent prior to such date and
time. You may also use the Letter of Transmittal to redeem your Warrants, in
whole or in part.
<PAGE>
If you exercise your Warrants, you may revoke your exercise by notifying
the Warrant Agent in writing before the Expiration Date. Because the Securities
and Exchange Commission has determined that the adjustment of the Warrants is
subject to certain rules governing issuer tender offers, the Company is unable
to issue the certificates for Common Stock into which the Warrants are
exercisable until after the Expiration Date.
On the Expiration Date, the Company will irrevocably deposit with the
Warrant Agent a sufficient amount to pay the redemption price of $.05 per
Warrant for all Warrants called for redemption and not previously exercised.
The Company may withdraw its offer to redeem the Warrants and/or the
modified Warrant offer at any time before the Expiration Date.
Warrant exercises will be accepted only from Warrant holders who reside in
states where there is an effective registration or qualification of the shares
of Common Stock issuable upon exercise of the Warrants or there is no exemption
for such issuance. We will attempt to so register or qualify the issuance of
shares wherever required, but if we are unable to do so this offer is void where
prohibited.
The Warrant Agent is ChaseMellon Shareholder Services, L.L.C. Its address
for delivery by U.S. mail is Attn: Reorganization Department, P.O. Box 3300,
South Hackensack, NJ 07606, and its address for delivery by overnight courier is
Attn: Reorganization Department, 85 Challenger Road, Ridgefield Park, NJ 07660.
Its telephone number is 800- 777-3674.
Further details of the Exercise Offer, the redemption of the Warrants, and
the Company's Common Stock are given in the enclosed Prospectus, dated December
19, 1996; the Supplement thereto, dated May 23, 1997; the Letter of Transmittal
and related Instructions; and the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1997. Please read these materials carefully. You
should have previously received the Company's Annual Report on Form 10-KSB, the
Annual Report to Shareholders and the Company's Proxy Statement for our Annual
Meeting held on May 7, 1997. If you would like additional copies of any or all
of these documents or any of the Company's filings with the Securities and
Exchange Commission, please let us know immediately.
We have also enclosed a copy of a Certificate of Purchase Price Adjustment
which explains the most recent adjustment to the Purchase Price of the Warrants.
These adjustments are superseded by the Exercise Offer but we are still
obligated to send the Certificate to you. If for any reason the Exercise Offer
and redemption are withdrawn, then the purchase prices shown on the Certificate
would again be applicable.
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<PAGE>
Of course, you may sell your Warrants in the market. If you do so, you must
deliver the Prospectus, the Supplement and this letter and enclosures, along
with your Warrant certificate(s), to your broker.
You may also wish to consult your own broker, or investment or other
professional advisor, before deciding whether to exercise, redeem or sell your
Warrants. If you have questions regarding these matters, please call us at (206)
325-0800.
Very truly yours,
TERA COMPUTER COMPANY
James E. Rottsolk, President
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LETTER OF TRANSMITTAL
To accompany Common Stock Purchase Warrant Certificates of
TERA COMPUTER COMPANY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
WARRANTS SURRENDERED FOR EXERCISE OR REDEMPTION
(Please fill in. Attach separate schedule if needed)
- -----------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address of Registered Holder(s) Certificate Total Number of Number of
No.(s) Number of Warrants Warrants
Warrants Exercised Redeemed
<S> <C> <C> <C> <C>
- -------------------------------------------------------------- ---------------- ----------------- ----------------- ------------
- -------------------------------------------------------------- ---------------- ----------------- ----------------- ------------
- -------------------------------------------------------------- ---------------- ----------------- ----------------- ------------
- -------------------------------------------------------------- ---------------- ----------------- ----------------- ------------
</TABLE>
For each Warrant that you exercise, you must include payment of the exercise
price of $5.00 per Warrant, and you will receive 1.25 shares of the Company's
Common Stock. Payment must be by certified check or bank draft payable to
"ChaseMellon Shareholder Services, L.L.C." See Instruction 2. For each Warrant
redeemed, you will receive payment of $.05. Mail or deliver this completed
Letter of Transmittal or a copy, together with your Warrant certificate(s) and,
if you are exercising any Warrants, payment of the exercise price of $5.00 per
Warrant to be exercised, to:
ChaseMellon Shareholder Services, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY:
Post Office Box 3300 120 Broadway, 13th Floor 85 Challenger Road Mail Drop-Reorg
South Hackensack, NJ 07606 New York, NY, 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Dept. Attn: Reorganization Dept. Attn: Reorganization Dept.
</TABLE>
TELEPHONE ASSISTANCE: 1-800-777-3674
For an exercise of Warrants to be effective, this Letter of Transmittal, the
Warrant Certificate and payment must be received by ChaseMellon Shareholder
Services at 5:00 p.m. Eastern Daylight Time on June 24, 1997, unless such date
is extended by the Company. See Instruction 2. Method of delivery of the
documents is at your option and risk. See Instruction 12. If your Certificate(s)
has been lost, stolen, misplaced or mutilated, contact the Warrant Agent at
1-800-777-3674. See Instruction 9.
The undersigned represents that I (we) have full authority to surrender without
restriction the certificate(s) described above for exercise and/or redemption.
Please issue the certificates for Common Stock and/or check for the redemption
price in the name of the registered holder shown above to the above address
unless instructions are given in the boxes below.
|--------------------------------------|---------------------------------------|
|SPECIAL ISSUANCE/PAYMENT INSTRUCTIONS | SPECIAL DELIVERY INSTRUCTIONS |
|--------------------------------------|---------------------------------------|
|Complete ONLY if the new certificate | Complete ONLY if the new certificate |
|and/or check is to be issued in a name| and/or is to be mailed to an address |
|that differs from the name on the | other than the above. Mail to: |
|Warrant certificate(s). Issue to: | |
| | |
|Name: | Name: |
| -------------------------------- | ---------------------------------|
| | |
|Address: | Address: |
| ----------------------------- | ------------------------------|
| | |
|--------------------------------------| ------------------------------|
|(Please also complete Substitute Form | |
| W-9 on the reverse AND see instruc- | |
| tions regarding signature guarantee. | |
|(See Instructions 7, 8 ,9 and 10) | |
|--------------------------------------|---------------------------------------|
The undersigned represents that the exercise of the Warrant was either solicited
or unsolicited by a member of the National Association of Securities Dealers,
Inc. ("NASD"). If not solicited by an NASD member, please write "unsolicited"
below. If solicited, please write the name of the soliciting NASD member below.
Unless otherwise indicated, it will be assumed that the exercise was unsolicited
by an NASD member:
----------------------------------------
(Name of NASD Member)
|--------------------------------------|---------------------------------------|
| YOU MUST SIGN IN THE BOX BELOW. | Also sign and give your tax ID number |
| | in the Substitute Form W-9. |
|--------------------------------------|---------------------------------------|
| SIGNATURE(S) REQUIRED | SIGNATURE(S) GUARANTEE (IF NEEDED) |
| Signature(s) of Registered Holder(s) | See Instruction 3. |
| or Agent | |
|--------------------------------------|---------------------------------------|
|Must be signed by the registered | Unless the Warrant(s) are exercised or|
|holder(s) EXACTLY as name(s) appear(s)| tendered for redemption by the reg- |
|on Warrant certificate(s). If | istered holder(s) of the Warrant(s), |
|signature is by a trustee, executor, | or for the account of a member of a |
|administrator, guardian, attorney-in- | "Signature Guarantee Program" |
|fact, officer for a corporation acting| ("STAMP"), Stock Exchange Medallion |
|in a fiduciary or representative | Program ("SEMP") or New York Stock |
|capacity, or other person, please give| Exchange Medallion Signature Program |
|title. See Instructions 7, 8 and 9. | ("MSP") (an "Eligible Institution"), |
| | the above signature(s) must be |
| | guaranteed by an Eligible Institution.|
| | See Instructions 6 and 7. |
| | |
| | |
|------------------------------------- |---------------------------------------|
|Registered Holder |Authorized Signature |
| | |
|------------------------------------- |---------------------------------------|
|Registered Holder |Name of Firm |
| | |
|------------------------------------- |---------------------------------------|
|Title, if any |Address of Firm - Please Print |
| | |
|Date: Phone No.: | |
| ------------- --------- | |
|--------------------------------------|---------------------------------------|
<PAGE>
PLEASE READ THESE INSTRUCTIONS BEFORE COMPLETING THE LETTER OF TRANSMITTAL
1. General. If you wish to exercise some or all of your Warrants, you must
complete and sign the Letter of Transmittal and return the Warrant
certificate(s) and the Letter of Transmittal with full payment of the
exercise price of $5.00 per Warrant to the Warrant Agent at the appropriate
address on the Letter of Transmittal. If you properly exercise your
Warrants, for each Warrant you surrender, the Warrant Agent will issue to
you certificates representing 1.25 shares of Common Stock.
2. Completion and Delivery of Letter of Transmittal. Please fill out all
blanks on the enclosed Letter of Transmittal, indicating the number of
Warrants you wish to exercise and the number you wish to have redeemed, and
calculate the amount of the payment for your exercise by multiplying the
number of Warrants exercised by $5.00. Date, sign, obtain a signature
guarantee (if necessary, see Instruction 6), and give the other information
requested on the Letter of Transmittal. If Warrants are registered in the
name of more than one holder, all holders must sign. Send the Warrant
certificate and the Letter of Transmittal to the Warrant Agent with payment
of the total exercise price in cash or by certified check or bank draft
made payable to the Warrant Agent. The Warrant Agent must receive all
Warrants to be exercised, including completed Letter of Transmittals and
payment of the exercise price, before the Warrants expire at 5:00 p.m.
Eastern Daylight Time on June 24, 1997 (the "Expiration Date"), unless the
Company extends the Expiration Date in its discretion.
3. Exercises On or Before June 24, 1997; Revocation of Exercise. The Company
is unable to issue certificates for shares of Common Stock into which the
Warrants are exercisable until after the Expiration Date. If you exercise
your Warrants before the Expiration Date, you may revoke your exercise by
giving written notice to the Warrant Agent before the Expiration Date. You
may send written notice of revocation in any manner that you choose, but it
will not be effective until the Warrant Agent actually receives it. If you
choose to mail a notice of revocation, we suggest that you send it by
registered mail with return receipt requested.
4. Fractional Warrants and Shares. You may not exercise fractional Warrants,
and Warrants may be exercised only to purchase full shares of Common Stock.
If your exercise would result in the issuance of a fractional share of
Common Stock, the Company will pay to you, in lieu of the issuance of any
fractional share otherwise issuable, an amount of cash equal to such
fraction multiplied by the current market value of the Common Stock of the
Company, determined by the average of the high bid and low asked prices as
furnished by Nasdaq on the last business day before the date you exercise
your Warrants.
5. Redemption of Warrants. If you do not exercise your Warrants before the
Expiration Date, the Company will redeem them one business day after the
Expiration Date, or June 25, 1997 (unless extended by the Company) at a
redemption price of $.05 per Warrant. On the Expiration Date, the Company
will irrevocably deposit with the Warrant Agent sufficient funds to pay the
redemption price for all Warrants called for redemption and not previously
exercised. If your Warrants are redeemed, the Warrant Agent will send you
the redemption price when you send the Warrant Agent your Warrant
certificates. You may send them with the enclosed Letter of Transmittal. If
you do not send your Warrant certificates within six months after the
Expiration Date, you must thereafter send them to the Company, and the
Company will pay you the redemption price.
6. Share Certificate Issued in the Same Name. If the certificate for shares of
Common Stock issuable on the exercise of your Warrants and/or check for
redemption price is to be issued in the same name that is on your Warrant
certificate, you should complete the Letter of Transmittal and sign it
exactly as the name is on the Warrant certificate. You do not need a
signature guarantee if you are the registered owner of the Warrants and you
have not completed the section called "Special Issuance Instructions." If
you own Warrants jointly with other holders, all such owners must sign the
Letter of Transmittal exactly as their names are written on the face of the
certificate. If Warrants are registered in different names on several
certificates, you must complete, sign and submit a Letter of Transmittal
for each different registration. Letters of Transmittal signed by trustees,
executors, administrators, guardians, officers of corporations, or others
acting in a fiduciary capacity who are not identified as such in the
registration must be accompanied by proper evidence of the signer's
authority to act.
7. Share Certificate or Redemption Payment Issued in Different Name. If you
complete the "Special Issuance/Payment Instructions," your signature on the
Letter of Transmittal must be guaranteed by a firm that is a bank, broker,
dealer, credit union, savings association or other member in good standing
of the Securities Transfer Agents' Medallion Program (each an "Eligible
Institution"). If you are signing with respect to Warrants registered in
someone else's name, or if shares of Common Stock are to be issued on
exercise to a person other than the registered owner, the Warrants must be
endorsed or accompanied by duly executed stock powers, in either case
signed exactly as the names of the registered owner appears on the
certificate or stock power, with the signature on the certificate or stock
power guaranteed by an Eligible Institution.
8. Special Issuance and Delivery Instructions. Give the name and address in
which the certificate for Common Stock and/or check for the redemption
price is to be sent if different from the name and/or address of the person
signing the Letter of Transmittal. You must give the social security number
or employer identification number of the record owner of the Common Stock
or payee. If Special Issuance Instructions have been completed, the
shareholder named in them will be considered the record owner for this
purpose.
9. Lost or Mutilated Warrants. If your Warrants are mutilated, lost, stolen,
or destroyed, notify the Warrant Agent immediately at 1-800-777-3674. You
will be sent a form of affidavit to certify that the Warrants have been
mutilated, lost, stolen, or destroyed, and have not been transferred.
10. Substitute Form W-9. Under the federal income tax laws, if you are
non-exempt, you must give the Warrant Agent your correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 enclosed. If you
do not give the information on the form, you may be subject to 31% federal
income tax withholding on the payment of any cash (either for the
redemption price or in lieu of fractional shares on exercise of Warrants).
You must check the box in Part III if a TIN has not been issued and you
have applied for a number. Please review the enclosed Guidelines for
Certification of Taxpayer's Identification Number on Substitute Form W-9
for additional details on what Taxpayer Identification Number to give the
Warrant Agent.
11. Withdrawal of Offer. This offer is made at the Company's option. The
Company may withdraw it at any time before the Expiration Date. If the
Company withdraws the offer, the Warrants will again be exercisable at the
price and for the number of shares of Common Stock for which they were
exercisable before the offer, and the Warrant Agent will return any
exercise prices paid before the offer was withdrawn. Before this
adjustment, each Warrant granted you the right to purchase approximately
1.2565 shares of Common Stock, at a price of $5.73 per share, through March
24, 1998, and approximately 1.3064 shares of Common Stock, at a price of
$6.43 per share, thereafter through September 24, 2000, subject to
adjustments in certain circumstances.
12. Method of Delivery. You must send your Warrant certificate(s) and the
Letter of Transmittal to the Warrant Agent. Do not send them to the
Company. The method of delivery to the Warrant Agent at one of the
addresses on the front of the Letter of Transmittal is at your option and
risk. Delivery will be effective only when the Warrant Agent receives it.
If the certificate(s) are sent by mail, we suggest that you use registered
mail with return receipt requested and properly insured.
13. Request for Assistance or Additional Copies. Questions and requests for
assistance or additional copies of these Instructions, the Notice dated May
23, 1997, the Prospectus, dated December 19, 1997, the Supplement dated May
23, 1997, and the Company's reports to the Securities and Exchange
Commission may be sent to the Warrant Agent at the addresses set forth on
the Letter of Transmittal or to the Company at: 2815 Eastlake Avenue E.,
Seattle, WA 98102-3027, Telephone: (206) 325-0800, Facsimile: (206)
325-2433.
<PAGE>
PAYER: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C>
|-------------------------------|-------------------------------|---------------------------------|
| SUBSTITUTE Form W-9 | Part I - PLEASE PROVIDE YOUR | Social Security No. or Employer |
| | TIN IN THE SPACE AT THE RIGHT | Identification No. |
| Department of the Treasury | AND CERTIFY BY SIGNING AND | |
| Internal Revenue Service | DATING BELOW | _______________________________ |
| |-------------------------------|---------------|-----------------|
| Payer's Request for Taxpayer | Part II - For Payees exempt from backup | Part III |
| Identification Number (TIN) | withholding, see the enclosed Guidelines For | Awaiting TIN: |
| | Certification of Taxpayers Identification | " |
| | Number on Substitute Form W-9 and complete | |
| as instructed therein. | |
|-------------------------------------------- ----------------------------------------------------|
| Certification - Under penalties of perjury, I certify that: (1) The Number shown on this form |
| is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to |
| me), and (2) I am not subject to backup withholding either because I have not been notified |
| by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of |
| a failure to report all interest or dividends, or the IRS has notified me that I am no longer |
| subject to backup withholding. Certification Instructions - You must cross out item (2) above |
| if you have been notified by the IRS that you are subject to backup withholding because of |
| underreporting interest or dividends on your tax return. However, if after being notified by |
| the IRS that you were subject to backup withholding, you received another notification from |
| the IRS that you were no longer subject to backup withholding, do not cross out item (2). |
| Also see instructions in the enclosed Guidelines. |
|--------------------|----------------------------------------------------------------------------|
| PLEASE SIGN HERE | Signature _______________________________________________________________ |
| | Date _________________ |
|-------------------------------------------------------------------------------------------------|
</TABLE>
GUIDELINES AND SPECIFIC INSTRUCTIONS
Name. If you are an individual, you must generally enter the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, enter your first name, the last name shown on your social
security card and your new last name.
If the account is in joint names, list first and then circle the name of
the person or entity whose number you enter in Part I of the form.
Sole Proprietor. You must enter your individual name as shown on your
social security card. You may enter your business, trade, or "doing business as"
name on the business name line.
Other Entities. Enter the business name as shown on required Federal Tax
documents. This name should match the name shown on the charter or other legal
document creating the entity. You may enter any business, trade, or "doing
business as" name on the business name line.
Part I - Taxpayer Identification Number (TIN)
You must enter your TIN in the appropriate box. If you are a resident alien
and you do not have and are not eligible to get an SSN, your TIN is your IRS
individual taxpayer identification number (TIN). Enter it in the social security
number box. If you do not have an ITIN, see How to Get a TIN below.
If you are a sole proprietor and you have an EIN, you may enter either your
SSN or EIN. However, using your EIN may result in unnecessary notices to the
requester.
Note: See the chart on this page for further clarification of name and TIN
combinations.
-1-
<PAGE>
How to Get a TIN. If you do not have a TIN, apply for one immediately. To apply
for an SSN, get Form SS-5 from your local Social Security Administration office.
Get Form W-7 to apply for an ITIN or Form SS-4 to apply for an EIN. You can get
Forms W-7 and SS-4 from the IRS by calling 1-800-TAX- FORM (1-800-829-3676).
If you do not have a TIN, write "Applied For" in the space for the TIN,
sign and date the form, and give it to the requester. For interest and dividend
payments, and certain payments made with respect to readily tradable
instruments, you will generally have 60 days to get a TIN and give it to the
requester. Other payments are subject to backup withholding.
Note: Writing "Applied For" means that you have already applied for a TIN
OR that you intend to apply for one soon.
Part II - For Payees Exempt From Backup Withholding
Individuals (including sole proprietors) are not exempt from backup
withholding. Corporations are exempt from backup withholding for certain
payments, such as interest and dividends. For more information on exempt payees,
see the separate instructions for the Requestor or Form W-9.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form.
If you are a nonresident alien or a foreign entity not subject to backup
withholding, give the requester a completed Form W-8, Certificate of Foreign
Status.
Part III - Certification
For a joint account, only the person whose TIN is shown in Part I should
sign (when required). You must sign the certification or backup withholding will
apply. If you are subject to backup withholding and you are merely providing
your correct TIN to the requester, you must cross out item 2 in the
certification before signing the form.
Privacy Act Notice
Section 6109 of the Internal Revenue Code requires you to give your correct
TIN to persons who must file information returns with the IRS to report
interest, dividends, and certain other income paid to you. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. The IRS may also provide this information to the Department of Justice
for civil and criminal litigation and to cities, states, and the District of
Columbia to carry out their tax laws.
You must provide your TIN whether or not you are required to file a tax
return. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not give a TIN to a payer. Certain
penalties may also apply.
What Name and Number to Give the Requester
For this type of account: Give name and SSN of:
1. Individual The individual
-2-
<PAGE>
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account./1
3. Custodian account of a minor The minor/2
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee/1
trust (grantor is also
trustee)
b. So-called trust account that The actual owner/1
is not a legal or valid trust
under state law
5. Sole proprietorship The owner/3
For this type of account: Give name and EIN of:
6. Sole proprietorship The owner/2
7. A valid trust, estate or Legal entity/4
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
/1 List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
/2 Circle the minor's name and furnish the minor's SSN.
/3 You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN (if you have
one).
/4 List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated in the account title).
Note: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
-3-
Exhibit 99(c)
PRESS RELEASE
FOR IMMEDIATE RELEASE
Contacts:
James E. Rottsolk
Tera Computer Company
(206) 325-0800
[email protected]
Deborah Stapleton
Stapleton Communications Inc.
(415) 988-9207
[email protected]
TERA COMPUTER ANNOUNCES
WARRANT REDEMPTION AND NEW EXERCISE TERMS
Seattle, Washington - May 23, 1997 - Tera Computer Company (Nasdaq: TERA;
TERAW), a Seattle-headquartered supercomputer company, announced today that it
is redeeming all of its outstanding Redeemable Common Stock Purchase Warrants
and that it is offering new exercise terms for holders who elect to exercise
their Warrants prior to redemption. Under new terms being offered by Tera in its
Exercise Offer, each holder of Warrants will have the right to purchase 1.25
shares of Common Stock for $4.00 per share of Common Stock, or $5.00 per
Warrant. Each Warrant, presently exercisable for $7.20, currently enables the
holder to purchase approximately 1.25 shares of Common Stock, or the equivalent
of $5.73 per share of Common Stock. The Exercise Offer will expire on June 24,
1997, at 5:00 p.m., Eastern Daylight Time, unless extended by the Company.
Withdrawal rights for holders to exercise their Warrants will also expire at the
same time.
The Warrants are subject to redemption by Tera on at least 30 days notice
if it receives the written consent of H.J. Meyers & Co., Inc., the Company's
principal underwriter in its initial public offering. This consent has been
received and the Company will redeem, on June 25, 1997, which is one business
day following expiration of the Exercise Offer, any Warrants not exercised in
the Exercise Offer for $.05 per Warrant.
<PAGE>
Tera Computer Company designs, builds and sells high performance general
purpose parallel computer systems. Tera believes its Multithreaded Architecture
system represents the next wave in supercomputer technology because of its
unique ability to provide high performance, broad applicability and ease of
programming in a single system. The MTA architecture is scalable, which means
that it provides increases in application performance proportional to the number
of processors with no change in the programming model. No other high-performance
computer has been shown to be both scalable and general-purpose.
For more information about Tera and its MTA systems, contact the Company at
2815 Eastlake Avenue East, Seattle, Washington 98102. Phone: (206) 325-0800.
Fax: (206) 323- 1318. E-mail: [email protected], or http://www.tera.com.
-2-
PROSPECTUS
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 $57/8 and $17/8, 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 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
</TABLE>
On December 18, 1996, the closing sale price for the Common Stock was $57/8 and
for the Warrants was $17/8.
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.
<TABLE>
<CAPTION>
Selling Shareholder Common Stock Warrants(1)
- ------------------- ------------ -----------
<S> <C> <C>
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
- ------------------------
* 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>
Earl Freeman 58,822 29,411
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
18
<PAGE>
Gainer Robert Lewis -- 7,447
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.
</TABLE>
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.
24
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.
-2-
<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
-------
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.
-5-
<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
- --------------------
(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>
