<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
TERA COMPUTER COMPANY
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[TERA LOGO]
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of shareholders of
Tera Computer Company which will be held at the Skansonia Ferryboat, located at
2505 North Northlake Way, Seattle, Washington, on May 6, 1998 at 2:00 p.m.
Directions to the Skansonia Ferryboat accompany the Proxy Statement.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the Annual Meeting it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy in the enclosed postage-paid
envelope. If you decide to attend the Annual Meeting and vote in person, you
will of course retain that opportunity.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to greeting as many of our shareholders as possible at the Annual
Meeting.
Sincerely,
/s/ James E. Rottsolk
James E. Rottsolk
Chief Executive Officer
and President
Seattle, Washington
April 3, 1998
<PAGE> 3
TERA COMPUTER COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1998
To The Shareholders:
The Annual Meeting of the shareholders of Tera Computer Company will be
held at the Skansonia Ferryboat, located at 2505 North Northlake Way, Seattle,
Washington, on May 6, 1998 at 2:00 p.m. for the following purposes:
1. To elect two directors; and
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 9, 1998 are
entitled to notice of, and to vote at, this meeting.
By Order of the Board of Directors,
/s/ Kenneth W. Johnson
Kenneth W. Johnson
Secretary
Seattle, Washington
April 3, 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, WE URGE YOU TO SIGN, DATE, AND
RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE. THIS WILL ENSURE THE
PRESENCE OF A QUORUM AT THE MEETING. PROMPTLY SIGNING, DATING, AND RETURNING THE
PROXY WILL SAVE THE COMPANY THE EXPENSE AND EXTRA WORK OF ADDITIONAL
SOLICITATION. AN ADDRESSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE. SENDING IN YOUR PROXY WILL
NOT PREVENT YOU FROM VOTING YOUR STOCK AT THE MEETING IF YOU DESIRE TO DO SO, AS
YOUR PROXY IS REVOCABLE AT YOUR OPTION.
<PAGE> 4
TERA COMPUTER COMPANY
2815 EASTLAKE AVENUE EAST
SEATTLE, WASHINGTON 98102-3027
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1998
This Proxy Statement, which was first mailed to shareholders on or about
April 3, 1998, is furnished in connection with the solicitation of proxies by
the Board of Directors of Tera Computer Company (the "Company") to be voted at
the Annual Meeting of the shareholders of the Company, which will be held at
2:00 p.m. on May 6, 1998 at the Skansonia Ferryboat, located at 2505 North
Northlake Way, Seattle, Washington, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
Shareholders of record at the close of business on March 9, 1998 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
March 9, 1998, there were 11,459,736 shares of common stock outstanding. The
presence, in person or by proxy, of holders of record of a majority of the
outstanding shares of common stock is required to constitute a quorum for the
transaction of business at the Annual Meeting.
Shares of common stock represented at the Annual Meeting by a properly
executed and returned proxy will be voted in accordance with the instructions
specified therein. If no instructions are noted, the proxy will be voted in
favor of the nominees for election as directors, and in accordance with the
discretion of the named proxies on any other matters properly brought before the
Annual Meeting. Any shareholder executing a proxy has the power to revoke it at
any time prior to the voting thereof on any matter (without, however, affecting
any vote taken prior to such revocation) by delivering written notice to the
Secretary of the Company, by submitting a subsequently dated proxy, or by voting
in person at the Annual Meeting.
ELECTION OF DIRECTORS
The number of Directors is determined by resolution of the Board of
Directors, subject to revision by the shareholders. The Board of Directors has,
by resolution, fixed the number of Directors at six. The terms of the Directors
are classified so that each year approximately one-third of the Directors will
be elected for a three-year term. These three groups of Directors are identified
herein as Class I, Class II and Class III Directors. At the Annual Meeting, two
Class II Directors will be elected to serve for a term of three years expiring
on the date of the Annual Meeting of Shareholders in 2001. The Company's
nominees for Directors are listed below, together with certain information about
each of them.
CLASS II DIRECTORS
TERMS EXPIRE 2001
DAVID N. CUTLER Mr. Cutler, 56, became a member of the Company's Board of
Directors in 1993. Mr. Cutler joined Microsoft Corporation in 1988 as
Engineering Manager of Operating System Development and has been responsible for
Windows NT development. Prior to joining Microsoft, he was Senior Corporate
Consultant at Digital Equipment Corporation. During his tenure at Digital, he
managed DecWest in Bellevue, Washington, which produced the VAXELN operating
system and the first Microvax computer, and he previously managed the
development of VMS and RSX 11 M, principal operating systems for Digital
computers.
DANIEL J. EVANS Mr. Evans, 72, became a member of the Company's Board of
Directors in 1990. Since 1989, Mr. Evans has been Chairman of Daniel J. Evans
Associates, a consulting firm. He served as United States Senator from the State
of Washington from 1983 to 1989; Chairman, the Pacific Northwest Power and
Conservation Planning Council from 1981 to 1983; President of the Evergreen
State College in Olympia, Washington from 1977 to 1983; and for three terms as
Governor of the State of Washington from 1965 to 1977. Mr. Evans is a Director
of Puget Sound Energy, Inc.; Burlington Northern/Santa Fe, Inc.; Washington
Mutual Bank; Flow International Corporation; Western Wireless, Inc., and
Attachmate Corporation. He is
1
<PAGE> 5
also President of the Board of Regents of the University of Washington. Mr.
Evans received his M.S. degree in civil engineering from the University of
Washington.
Vote Required. The nominees elected to the Board of Directors will be those
two receiving the highest number of votes cast by the shareholders entitled to
vote in the election. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH
NOMINEE NAMED ABOVE.
CONTINUING DIRECTORS
The Company's continuing Directors, together with certain information about
each of them, are listed below.
CLASS III DIRECTORS
TERMS EXPIRE 1999
KENNETH W. KENNEDY Mr. Kennedy, 52, joined the Board of Directors in 1989.
Mr. Kennedy is the Ann and John Doerr Professor of Computational Engineering at
Rice University and served as Chairman of the Department of Computer Science of
Rice University from 1984 to 1988 and from 1990 to 1992. In February 1997,
President Clinton designated Professor Kennedy as Co-Chairman of the Advisory
Committee on High-Performance Computing and Communications, Information
Technology, and the Next Generation Internet. He also is currently Director of
the Center for Research on Parallel Computation, a National Science Foundation
Science and Technology Center, at Rice University, the California Institute of
Technology, Los Alamos National Laboratories and Argonne National Laboratories.
Professor Kennedy has served as a visiting scientist at the IBM Thomas J. Watson
Research Center, as a consultant to the Los Alamos and Livermore National
Laboratories, and as a visiting professor at Stanford University. From 1985 to
1987, he was chairman of the Advisory Committee to the National Science
Foundation Division of Computer Research and is currently a member of the
Computing Research Board and the National Academy of Engineering. He received
his M.S. and Ph.D. from New York University.
JAMES E. ROTTSOLK Mr. Rottsolk, 53, is a co-founder of the Company and has
served as its Chief Executive Officer since its inception. Prior to co-founding
Tera in 1987, Mr. Rottsolk served as an executive officer with several high
technology companies. Mr. Rottsolk received his A.M. and J.D. degrees from the
University of Chicago.
CLASS I NOMINEES
TERMS EXPIRE 2000
BURTON J. SMITH Mr. Smith, 57, has been the Chairman of the Board and
Chief Scientist since the Company's inception. He is a recognized authority on
high performance computer architecture and programming languages for parallel
computers, and is the principal architect of the MTA system. Prior to co-
founding Tera, Mr. Smith was a Fellow of the Supercomputing Research Center (now
Center for Computing Sciences), a division of the Institute for Defense
Analyses, from 1985 to 1988. Mr. Smith was a member of the National Science
Foundation Advisory Committee on Computer Research from 1983 to 1987, a member
of the National Science Foundation Blue Ribbon Panel on High Performance
Computing in 1993, and a member of the Universities Space Research Association
Science Council from 1987 to 1991. He was honored in 1990 with the
Eckert-Mauchly Award given jointly by the Institute for Electrical and
Electronic Engineers and the Association for Computing Machinery, and was
elected a Fellow of both organizations in 1994. Mr. Smith received his S.M.,
E.E. and Sc.D. degrees from the Massachusetts Institute of Technology.
JOHN W. TITCOMB, JR. Mr. Titcomb, 47, joined the Board of Directors in
1991. During the last five years he has been a private investor and serves as a
director of several privately held companies involved in various technology,
manufacturing and real estate businesses. Mr. Titcomb received his A.B. and J.D.
degrees from Harvard University.
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<PAGE> 6
NOMINATIONS
The Company's Bylaws provide that any shareholder entitled to vote in the
election of directors may nominate a person for election as a director. Any such
shareholder must give written notice of such shareholder's intent to make the
nomination to the Secretary of the Company not fewer than 60 nor more than 90
days in advance of the meeting or, if later, by the tenth business day following
the first public announcement of the date of the meeting. The notice must set
forth: (i) the name and address of the shareholder who intends to make the
nomination and of the person or person to be nominated; (ii) a representation
that the shareholder is a holder of record of stock of Tera Computer Company
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting and nominate the person or persons specified in the notice; (iii)
the number of shares beneficially owned by the shareholder and the dates on
which such shares were acquired; (iv) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
(naming such person) pursuant to which the nomination is to be made by the
shareholder; (v) such other information as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the United States
Securities and Exchange Commission (the "SEC") had the nominee been nominated by
the Board; and (vi) the consent of each nominee to serve as a director of the
Company if so elected. The Chairman of the Annual Meeting may, in his
discretion, determine and declare to the meeting that a proposed nomination was
not made in accordance with the foregoing procedures, and the proposed
nomination shall be disregarded.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Company's Board of Directors has an Audit Committee and Compensation
Committee. There is no standing Nominating Committee. Messrs. Evans and Titcomb
serve on the Audit Committee, which meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing, and financial reporting matters. Messrs. Cutler, Evans and Kennedy
serve on the Compensation Committee, which reviews the compensation of the Chief
Executive Officer and other officers of the Company, and grants stock options to
officers of the Company .
The Audit Committee met once during 1997. The Compensation Committee met
once during 1997. The Board of Directors met four times during 1997 and each of
the directors attended at least 75% of the meetings of the Board and the
Committees on which they serve.
No Directors receive cash compensation for serving on the Board except for
reimbursement of reasonable expenses incurred in attending meetings. Upon
election, Mr. Cutler and Mr. Evans will each receive a ten-year option to
purchase 4,500 shares of common stock, which will vest over three years,
pursuant to the Company's 1995 Independent Directors Stock Option Plan. The
exercise prices of the foregoing options will be the market price of the Common
Stock on the date of the grant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth information as of March 9, 1998 concerning
the shares of the Company's common stock beneficially owned by all shareholders
known by the Company to be beneficial owners of more than five percent of its
outstanding shares of common stock, by each Director and nominee, the executive
officers named in the Summary Compensation Table and Directors and executive
officers of the Company as a group.
3
<PAGE> 7
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS (**) SHARES (1) PERCENTAGE
- - --------------------- ---------- ----------
<S> <C> <C>
William T. Frantz (2)....................................... 1,688,838 14.6%
P. O. Box 3965
Bellevue, WA 98009-3965
James E. Rottsolk (3)....................................... 370,167 3.2%
Burton J. Smith (4)......................................... 369,465 3.1%
Kenneth W. Johnson (5)...................................... 16,311 *
Brian D. Koblenz (6)........................................ 71,267 *
Gerald E. Loe (7)........................................... 98,328 *
Katherine L. Rowe (8)....................................... 26,504 *
David N. Cutler (9)......................................... 15,456 *
Daniel J. Evans (10)........................................ 23,325 *
Kenneth W. Kennedy (11)..................................... 20,183 *
John W. Titcomb, Jr. (12)................................... 203,499 1.8%
All Directors and executive officers........................ 1,214,505 10.2%
as a group (10 persons) (13)
</TABLE>
- - ---------------
* Less than 1%
** Unless otherwise indicated, all addresses are c/o Tera Computer Company,
2815 Eastlake Avenue East, Seattle, WA 98102-3027.
(1) This table is based upon information supplied by executive officers,
directors and principal shareholders. Unless otherwise indicated in these
notes, and subject to community property laws where applicable, each of the
shareholders named in this table has sole voting and investment power with
respect to the shares shown as beneficially owned by such shareholder. The
number of shares and percentage of beneficial ownership includes shares of
common stock issuable pursuant to warrants or options held by the person or
group in question which may be exercised on March 9, 1998 or within 60 days
thereafter.
(2) Includes 84,175 shares issuable upon exercise of warrants.
(3) Includes 104,296 shares issuable upon exercise of vested options. Mr.
Rottsolk disclaims beneficial ownership of 1,698 shares as to which he has
voting and dispositive powers as custodian for six nieces and nephews under
the Washington Uniform Gifts to Minors Act.
(4) Includes 103,728 shares issuable upon exercise of vested options.
(5) Mr. Johnson disclaims beneficial ownership of 2,600 shares as to which he
was voting and dispositive powers as trustee of trusts for his children.
(6) Includes 51,400 shares issuable upon exercise of vested options. Mr.
Koblenz disclaims beneficial ownership of 851 shares as to which he has
voting and dispositive powers as trustee of a trust for the benefit of four
nieces and nephews and as to 425 shares as to which his wife has voting and
dispositive powers as trustee of a trust for the benefit of two nieces.
(7) Includes 74,911 shares issuable upon exercise of vested options.
(8) Includes 26,229 shares issuable upon exercise of vested options.
(9) Includes 10,096 shares issuable upon exercise of vested options.
(10) Includes 3,000 shares issuable upon exercise of vested options.
(11) Includes 20,183 shares issuable upon exercise of vested options.
(12) Includes 6,313 shares issuable upon exercise of warrants and 17,911 shares
issuable upon exercise of vested options. Mr. Titcomb disclaims beneficial
ownership of 26,147 shares as to which he was voting and dispositive powers
as trustee of a trust for his children under the Washington Uniform Gifts
to Minors Act.
(13) Includes 6,313 shares issuable upon exercise of warrants and 411,754 shares
issuable upon exercise of vested options. Of these shares, beneficial
ownership is disclaimed to 31,721 shares.
4
<PAGE> 8
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
The following table discloses the compensation received for the last three
fiscal years by the Company's Chief Executive Officer and all executive officers
whose compensation for 1997 exceeded $100,000 ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS OTHER(2)
--------------------------- ---- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Burton J. Smith......................... 1997 $177,500 $22,077 -- $4,733
Chairman of the Board and Chief 1996 $150,000 -- 250,000 $3,085
Scientist 1995 $150,000 $15,000 -- $2,862
James E. Rottsolk....................... 1997 $177,500 $22,077 -- $3,078
President, Chief Executive Officer 1996 $150,000 -- 250,000 $2,970
1995 $150,000 $15,000 -- $2,862
Gerald E. Loe........................... 1997 $124,667 $15,331 -- $1,044
Vice President -- Hardware 1996 $110,000 -- 40,000 $ 720
1995 $110,000 $10,000 -- $ 662
Brian D. Koblenz........................ 1997 $123,333 $15,331 -- $2,192
Vice President -- Software 1996 $105,000 -- 40,000 $3,095
1995 $ 83,000 $10,000 -- $2,025
Katherine L Rowe........................ 1997 $118,750 $14,718 -- $2,385
Vice President -- Manufacturing 1996 $ 89,166 -- 40,000 $2,874
1995 $ 70,000 $10,000 10,993 $ 328
</TABLE>
- - ---------------
(1) Bonuses are shown when accrued. The 1995 bonuses were paid in 1997, and the
1997 bonuses were paid in 1998. No executive bonuses were declared for 1996.
(2) Includes premiums for group term life insurance policies payable to Named
Executive Officers and the Company's contributions to a 401(k) savings plan.
STOCK OPTIONS
Stock Option Grants in Last Fiscal Year. No stock options were granted to
the Company's Named Executive Officers during the year ended December 31, 1997.
Option Exercises in 1997 and Aggregated Option Values at Year-End. The
following table provides information concerning option exercises in 1997 by the
Named Executive Officers and the value of unexercised options held by the Named
Executive Officers at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
OPTIONS EXERCISED IN 1997 UNDERLYING VALUE OF UNEXERCISED
-------------------------- UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
ACQUIRED VALUE ---------------------------- ----------------------------
ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Burton J. Smith...... -- -- 87,062 175,001 $906,028 $1,706,260
James E. Rottsolk.... -- -- 87,630 175,001 $911,663 $1,706,260
Gerald E. Loe........ 21,288(3) $278,532(3) 72,244 28,001 $934,499 $ 273,010
Brian D. Koblenz..... 9,933(3) $110,718(3) 46,368 30,958 $503,135 $ 302,493
Katherine L. Rowe.... -- -- 22,291 32,960 $384,492 $ 323,561
</TABLE>
5
<PAGE> 9
- - ---------------
(1) Based upon the closing market price on the dates of exercise minus the
applicable option exercise prices.
(2) Based upon the closing market price of $15.25 per share on December 31, 1997
minus the exercise price. The actual value of unexercised options varies
with the market price of the common stock.
(3) Of the shares acquired by Mr. Loe and Mr. Koblenz, one-half were received
pursuant to options granted by the Company and one-quarter were received
pursuant to options granted by each of Mr. Smith and Mr. Rottsolk.
In connection with Mr. Loe's exercises of options in 1997, the Company
loaned him a total of $119,495 pursuant to promissory notes payable in December,
1998, and bearing interest at the rate of 5.68% per annum; these notes are
secured by a pledge of the shares acquired upon such exercises.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
setting and administering the policies governing annual compensation of the
executive officers, including the annual management bonus plan and the Company's
stock option plans. The Committee is composed exclusively of directors who are
neither employees or former employees of the Company nor eligible to participate
in any of the Company's executive compensation programs.
The Committee's compensation philosophy is to provide salary, bonus and
equity incentives to the Company's officers and other employees through programs
designed to attract and retain the best personnel to allow the Company to
achieve its goals and maintain its competitive posture. The Company seeks to
foster an environment that rewards superior performance and aligns the interests
of employees to those of the stockholders through equity incentives.
At the beginning of every year, the Committee reviews with the Chief
Executive Officer and approves, with modifications it deems appropriate, an
annual compensation plan for the Company's executive officers. In making
individual base salary decisions, the Compensation Committee considers each
officer's duties, the quality of the individual's performance, the individual's
potential, market compensation practices, the contribution the officer has made
to the Company's overall performance, and the financial status of the Company.
The Compensation Committee also compares the salary of each officer with other
officers' salaries, taking into account the number of years employed by the
Company, the possibility of future promotions and the extent and frequency of
prior salary adjustments.
The Company's bonus plan is a material element to the annual compensation
program for the Company's executive officers and other key employees. The 1997
plan awarded bonuses as a percentage of salary based upon the Company achieving
certain specified goals regarding revenues and bookings, and stock market
performance of the Company's common stock. In 1998, the bonus plan will be
similarly structured, but with a discretionary element depending upon how each
officer meets certain individual performance goals. Officers and key employees
are eligible to receive bonuses annually, subject to successful achievement
against these targets and individual goals.
In determining the amount of equity compensation to be awarded to executive
officers in any fiscal year, the Committee considers the current stock ownership
of the officer, relevant industry experience, the impact of the officer's
contribution, the number of years each officer has been employed by the Company,
the possibility of future promotions, and the extent and frequency of prior
option grants. Options have been granted subject to four and five year vesting
periods to encourage the officers and key employees to remain in the employ of
the Company. The Committee did not grant any stock options to the Named
Executive Officers in 1997.
The Committee reviews and sets the base salary of Mr. Rottsolk, the
President and Chief Executive Officer, and Mr. Smith, the Chairman and Chief
Scientist, using the same process as with other executive officers as well as an
assessment of their past performances, and its expectations as to their future
performances in leading the Company and its business. Messrs. Rottsolk and Smith
participate in the bonus and stock option plans on the same basis as with the
other executive officers. As co-founders and the principal executives of the
Company, it is anticipated that their compensation will remain equal in amount.
6
<PAGE> 10
Section 162(m) of the Internal Revenue Code limits to $1 million per person
the amount that the Company may deduct for compensation paid to any of its most
highly compensated officers in any year. The levels of salary and bonus paid by
the Company do not exceed this limit. Under IRS regulations, the $1 million
limit on deductibility does not apply to compensation received through the
exercise of non-qualified stock options that meet certain requirements. It is
the Company's current policy generally to grant options that meet those
requirements.
The Compensation Committee
David N. Cutler
Daniel J. Evans
Kenneth W. Kennedy
7
<PAGE> 11
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to shareholders of
the Company's common stock with the cumulative total return of the Nasdaq Stock
Market (U.S. Companies) Index and the Nasdaq Computer Manufacturer Stocks Index
for the period beginning on September 26, 1995, the date on which quotations for
the Company's common stock first appeared on the Nasdaq SmallCap Market, and
ended on December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG TERA COMPUTER COMPANY COMMON STOCK,
THE NASDAQ MARKET (U.S.) INDEX AND THE NASDAQ
COMPUTER MANUFACTURER STOCKS INDEX THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
MEASUREMENT PERIOD TERA COMPUTER NASDAQ MARKET NASDAQ COMPUTER
(FISCAL YEAR COVERED) COMPANY (U.S.) MARKET STOCKS
<S> <C> <C> <C>
9/26/95 100 100 100
12/29/95 73.47 101.77 102.99
12/31/96 63.27 125.18 138.29
12/31/97 248.98 153.61 167.32
</TABLE>
- - ---------------
(1) All indices shown in the graph have been reset to a base of 100 as of
September 26, 1995, and assume an investment of $100 on that date and the
reinvestment of dividends paid since that date. The Company has not paid
cash dividends on its Common Stock. All return information is historical and
is not necessarily indicative of future performance.
INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Deloitte & Touche LLP,
certified public accountants, to serve as the Company's auditors for 1998.
Deloitte & Touche LLP has served as the Company's auditors since 1987.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, and will have an opportunity to make a statement and be
available to respond to appropriate questions.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by officers, directors, and
regular supervisory and executive employees of the
8
<PAGE> 12
Company, none of whom will receive any additional compensation for their
services. Also, W. F. Doring & Co. may solicit proxies at an approximate cost
not to exceed $3,000 plus reasonable expenses. Such solicitations may be made
personally, or by mail, facsimile, telephone, telegraph, or messenger. The
Company will pay persons holding shares of common stock in their names or in the
names of nominees, but not owning such shares beneficially, such as brokerage
houses, banks, and other fiduciaries, for the expense of forwarding solicitation
materials to their principals. All of the costs of solicitation of proxies will
be paid by the Company.
VOTING TABULATION
Vote Required: Under the Washington Business Corporation Act, the election
of the Company's Directors requires a plurality of the votes represented in
person or by proxy at the meeting. Votes cast by proxy or in person at the
meeting will be tabulated by ChaseMellon Shareholder Services, L.L.C.
Effect of an Abstention and Broker Non-Votes: A shareholder who abstains
from voting on any or all proposals will be included in the number of
shareholders present at the meeting for the purpose of determining the presence
of a quorum. Abstentions will not be counted either in favor of or against the
election of the nominees or other proposals. Under the rules of the National
Association of Securities Dealers, brokers who hold shares for the accounts of
their clients may vote such shares either as directed by their clients or in
their own discretion if permitted by the stock exchange or other organization of
which they are members. Members of the New York Stock Exchange are permitted to
vote their clients' proxies in their own discretion as to the election of
directors if the clients have not furnished voting instructions within ten days
of the meeting. When a broker votes a client's shares on some but not all of the
proposals at a meeting, the missing votes are referred to as "broker non-votes."
Those shares will be included in determining the presence of a quorum at the
Annual Meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
To the Company's knowledge, based solely upon review of the copies of
reports furnished to the Company and written representations that no other
reports were required, the officers, directors, and greater than ten-percent
shareholders have otherwise complied during 1997 with all requirements under
Section 16(a) of the Securities Exchange Act of 1934 that certain reports be
filed, except that Mr. Cutler and Mr. Koblenz were each late filing one report
covering one transaction, and Mr. Frantz and Mr. Titcomb were each late filing
one report covering two transactions.
SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Any proposals of Shareholders intended to be presented for inclusion in the
Company's Proxy Statement and Form of Proxy for the next Annual Meeting
scheduled to be held in 1999 must be received in writing by the Corporate
Secretary at the Company's executive offices, not later than December 5, 1998,
and must comply with the applicable rules of the Securities and Exchange
Commission with respect to such inclusion.
For a proposal to be properly brought before a meeting of the shareholders
other than in the Proxy Statement, the shareholder making such proposal must
have given notice thereof in writing to the Secretary of the Company not less
than 60 nor more than 90 days in advance of the meeting or, if later, the tenth
business day following the first public announcement of the date of the meeting.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (1) a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and the language of the proposal; (2) the name and
address, as they appear on the Company's books, of the shareholder proposing
such business, (3) the number of shares owned by the shareholder and the dates
upon which such shares were acquired, (4) a representation that the shareholder
intends to appear in person or in proxy at the meeting, and (5) any material
interest of the shareholder in such business. In addition, the shareholder
making such proposal shall promptly provide any other information reasonably
requested by the Company. The Board of Directors or the Chairman of such meeting
may direct that any business not properly brought before the meeting shall not
be considered.
9
<PAGE> 13
OTHER MATTERS
The Board of Directors does not intend to bring any other business before
the meeting, and so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the notice of the meeting. However, as
to any other business which may properly come before the meeting, it is intended
that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies.
By Order of the Board of Directors,
/s/ Kenneth W. Johnson
Kenneth W. Johnson
Secretary
Seattle, Washington
April 3, 1998
A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR 1997 CONTAINING
INFORMATION ON OPERATIONS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
MAY BE OBTAINED BY WRITING TO:
TERA COMPUTER COMPANY
ATTENTION: INVESTOR RELATIONS
2815 EASTLAKE AVENUE EAST
SEATTLE, WA 98102-3027
10
<PAGE> 14
Tera's annual Shareholders' Meeting will be held on May 6, 1998, at
2:00 pm, on the Skansonia Ferryboat at 2505 North Northlake Way,
Seattle, WA 98103. The phone number is (206) 547-7201.
[MAP]
Directions:
o From I-5, take Exit 169.
o Head east on NE 45th for .6 miles, and turn right on 15th Avenue NE.
o Head south for .5 miles and turn right on NE Pacific.
o Head west for .5 miles to the stop sign at 6th Avenue NE (under the I-5
bridge).
o Turn left and follow North Northlake Way west.
o The Skansonia is located at 2505 North Northlake Way, three blocks west of
Ivar's Salmon House.
<PAGE> 15
PROXY
TERA COMPUTER COMPANY
ANNUAL MEETING MAY 6, 1998, 2:00 P.M.
2505 NORTH NORTHLAKE WAY EAST, SEATTLE, WASHINGTON
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Burton J. Smith and James E. Rottsolk, and each
of them, proxies with power of substitution to vote on behalf of the
undersigned all shares that the undersigned may be entitled to vote at the
annual meeting of shareholders of Tera Computer Company (the "Company") on May
6, 1998 and any adjournments thereof, with all powers that the undersigned
would possess if personally present, with respect to the following:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER
MATTERS THAT MAY COME BEFORE THIS MEETING.
(THIS PROXY CARD CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
FOLD AND DETACH HERE
<PAGE> 16
1. ELECTION OF DIRECTORS:
(Instructions: To withhold authority to
vote for any individual, strike a line
through the nominee's name below.)
David N. Cutler
Daniel J. Evans
DIRECTORS RECOMMEND A VOTE FOR ELECTION OF THE NAMED DIRECTORS.
2. Transaction of any business that properly comes before the meeting or any
adjournments thereof. A majority of the proxies or substitutes at the meeting
may exercise all the powers granted hereby.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signatures(s)__________________________________ Date: ___________________, 1998
Please date and sign exactly as name is imprinted hereon, including designation
as executor, trustee, administrator, guardian or attorney, if applicable. When
shares are held by joint tenants, both should sign. A corporation must sign its
name by the president or other authorized officer. If a partnership, please
sign in partnership name by an authorized person.
