As filed with the Securities and Exchange Commission on July 23, 1999
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form S-3 Registration Statement
Under the Securities Act of 1933
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TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
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WASHINGTON 93-0962605
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
411 First Avenue South
Suite 600
Seattle, WA 98104
(206) 701-2000 (telephone)
(206) 701-2500 (facsimile)
(Address, including zip code, and telephone and facsimile numbers,
including area code, of principal executive offices)
---------------
Kenneth W. Johnson, Chief Financial Officer
Tera Computer Company
411 First Avenue South
Suite 600
Seattle, WA 98104
(206) 701-2000 (telephone)
(206) 701-2500 (facsimile)
(Name, address, including zip code,
and telephone and facsimile numbers, including area
code, of agent for service)
Copy to:
Christopher J. Voss
Stoel Rives LLP
One Union Square, 36th Floor
Seattle, WA 98101-3197
(206) 624-0900 (telephone)
(206) 386-7500 (facsimile)
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective
<PAGE>
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with a dividend or
interest reinvestment plan, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Per Aggregate Offering Registration
Registered Registered (1) Share(2) Price (2) Fee
- -------------------- ----------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock, 14,992,165 $ 5.09 $ 73,218,674 $ 20,355
$.01 par value
=================================================================================================
(1) Pursuant to Rule 416 under the Securities Act of 1933, there are also being registered such
indeterminate number of additional shares of common stock as may be issuable upon exercise of the
common stock purchase warrants described herein pursuant to the provisions thereof regarding
adjustment for stock dividends, stock splits or similar events.
(2) Of the shares being registered hereby, 8,401,835 are issuable upon exercise of outstanding
common stock purchase warrants at an exercise price of $4.72 per share and 130,137 are issuable
upon the conversion of an outstanding convertible note at $5.00 per share and an outstanding
common stock purchase warrants at an exercise price of $5.00 per share. The proposed maximum
offering price per share and maximum aggregate offering price for the balance of the shares being
registered hereby is calculated in accordance with Rule 457(c) under the Securities Act.
</TABLE>
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
PROSPECTUS, Subject to Completion, dated July 23, 1999
TERA COMPUTER COMPANY
14,992,165 shares of Common Stock
These shares of Common Stock are being offered and sold from time to time
by certain of our current shareholders.
The selling shareholders may sell the shares from time to time at fixed
prices, market prices, prices computed with formulas based on market prices, or
at negotiated prices, and may engage a broker or dealer to sell the shares. For
additional information on the selling shareholders' possible methods of sale,
you should refer to the section of this prospectus entitled "Plan of
Distribution" on page 6. We will not receive any proceeds from the sale of the
shares, but will bear the costs relating to the registration of the shares.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"TERA." On July 21, 1999, the closing price for our Common Stock was $5.00 per
share.
------------------------
The shares offered in this prospectus involve a high degree of risk. You
should carefully consider the "Risk Factors" contained in our Current Report on
Form 8-K filed with the Securities and Exchange Commission on July 21, 1999 and
in our future filings made with the Securities and Exchange Commission, which
are incorporated by reference in this prospectus, in determining whether to
purchase shares of our Common Stock.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the shares, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this Prospectus is _____, 1999.
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
Our Business ........................................ 3
Selling Shareholders ................................ 3
Plan of Distribution ................................ 6
Experts ............................................. 8
Limitation of Liability and Indemnification ......... 8
Information Incorporated by Reference ............... 8
Available Information ............................... 9
You should rely only on information contained or incorporated by reference
in this prospectus. See "Information Incorporated by Reference" on page 7.
Neither Tera nor the selling shareholders have authorized any other person to
provide you with information different from that contained in this prospectus.
The shares of Common Stock are not being offered in any jurisdiction where
the offering is not permitted.
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<PAGE>
OUR BUSINESS
Tera Computer Company designs, builds and sells high-performance computer
systems, sometimes referred to as "supercomputers." Our executive offices are
located at Merrill Place, Suite 600, 411 First Avenue South, Seattle, WA
98104-2860, and our telephone number is (206) 701-2000.
SELLING SHAREHOLDERS
The following table sets forth certain information as of July 15, 1999
regarding the selling shareholders ownership of our common stock and as adjusted
to reflect the selling shareholders ownership of out common stock if all shares
covered by this prospectus are sold. The shares covered by this prospectus
include:
o shares of common stock issued to certain of the selling shareholders
in a private placement in June 1999;
o shares of common stock issuable upon exercise of warrants issued to
certain of the selling shareholders as part of the private placement
in June 1999 for no additional consideration. All warrants are
exercisable only for cash at $4.72 per share and expire in three
years;
o shares of common stock issuable upon exercise of warrants issued to
certain of the selling shareholders as payment for services and fees
in connection with the June 1999 private placement;
o shares of common stock issuable upon exercise of warrants issued to
certain of the selling shareholders in exchange for their agreement to
eliminate their rights to receive additional shares of common stock
pursuant to certain "reset" rights granted by us; and
o shares of common stock issuable upon exercise of a warrant and
conversion of a promissory note issued to Compunetics, Inc., a selling
shareholder and supplier to the Company, as payment for parts and
services.
The selling shareholders' percentage of ownership after this offering is
based on 23,790,915 shares of common stock that were outstanding as of July 15,
1999 plus the 14,992,165 shares of common stock to be sold in this offering, and
assumes no exercise of any outstanding options or warrants after such date.
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<PAGE>
<TABLE>
<CAPTION>
Ownership After Offering
Shares if All Shares Offered
Owned Prior to Shares Being Hereby Are Sold
Selling Shareholder Offering Offered Shares Percent
- ------------------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Advantage Fund II Ltd. 723,729 1,149,675 300,000 *
Paul Asnes 0 3,000 - -
Banca del Gottardo 1,059,322 3,401,404 - -
Robert W. Bellano and 21,186 42,372 - -
Suzanne Bellano
Harvey Bibicoff 25,000 50,000 - -
James A. Capwill 211,864 423,728 - -
Castle Creek Technology 1,059,322 2,118,644 - -
Partners, LLC
Compunetics, Inc. - 130,137 - -
James J. Darr 21,186 42,373 - -
Elliott Associates, L.P. 105,932 211,864 - -
Jack Erlanger 32,000 73,000 - -
Meryl Erlanger 3,000 6,000 - -
S. Marcus Finkle 60,000 120,000 - -
Friedlander International 1,059,322 2,118,644 - -
Limited
Friedlander Limited 105,932 211,864 - -
Partnership
Richard J. Garibaldi 31,780 63,560 - -
Genesee Fund Limited - 523,729 1,005,580 100,000 *
Portfolio B
Harpel Family Partnership 46,610 93,220 - -
Harpel International Ltd. 46,610 93,220 - -
Harpel Partners, L.P. 237,289 474,578 - -
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<PAGE>
Ownership After Offering
Shares if All Shares Offered
Owned Prior to Shares Being Hereby Are Sold
Selling Shareholder Offering Offered Shares Percent
- ------------------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Harpel Select Growth, 105,932 211,864 - -
L.P.
Harpel Ventures Partners 42,373 84,746 - -
Iver Heath 10,000 20,000 - -
Koch Industries, Inc. 400,000 271,289 400,000 1.03%
Laura M. Limber 36,017 72,034 - -
Merrill Place LLC 34,771 69,542 - -
Montrose Investments 635,593 1,271,186 - -
Ltd.
Karen G. Olah 20,000 40,000 - -
Timothy R. Pask 52,966 105,932 - -
Dov Perlysky 15,890 31,780 - -
Elizabeth Reisen Executrix 12,009 24,018 - -
Elizabeth Reisen 8,226 16,452 - -
Investment Ltd.
Reisen Family Investment 30,612 61,224 - -
Partnership
Ruki D. Renov 52,966 105,932 - -
Gary W. Schiele 21,186 42,372 - -
Esther Stahler 15,890 31,780 - -
Strong River Investments, 211,864 423,728 - -
Inc.
Gary Voigt 31,780 63,560 - -
Westgate International, 105,932 211,864 - -
L.P.
* Less than 1% ownership.
</TABLE>
Except for Banca del Gottardo's option to purchase additional shares of
Common Stock, which was eliminated in connection with the June 1999 private
placement, neither the selling shareholders nor any officer or director of Banca
del Gottardo has held any positions or office or had any other material
relationship with us or any of our affiliates within the past three years.
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<PAGE>
In recognition of the fact that the selling shareholders may wish to be
legally permitted to sell their shares when they deem appropriate, we have
agreed with the selling shareholders to file with the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933 (the "Securities Act"), a
registration statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the shares, and have agreed to prepare and file such
amendments and supplements to the registration statement as may be necessary to
keep the registration statement effective until the shares are no longer
required to be registered for sale by the selling shareholders.
PLAN OF DISTRIBUTION
Tera is registering the shares covered by this prospectus for the selling
shareholders. As used in this prospectus, "selling shareholders" includes the
pledgees, donees, transferees or others who may later hold the selling
shareholders' interest. Tera will pay the costs and fees of registering the
shares, but the selling shareholders will pay any brokerage commissions,
discounts or other expenses relating to the sale of the shares. The Company and
the selling shareholders each have agreed to indemnify the other against certain
liabilities, including liabilities arising under the Securities Act, that relate
to statements or omissions in the registration statement of which this
prospectus forms a part.
The selling shareholders may sell the shares in the over-the-counter market
or otherwise, at market prices prevailing at the time of sale, at prices related
to prevailing market prices, or at negotiated prices. In addition, the selling
shareholders may sell some or all of their shares through:
o a block trade in which a broker-dealer may resell a portion of the
block, as principal, in order to facilitate the transaction;
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a broker
solicits purchases.
When selling the shares, the selling shareholders may enter into hedging
transactions. For example, the selling shareholders may:
o enter into transactions involving short sales of the shares by
broker-dealers;
o sell shares short themselves and redeliver such shares to close out
their short positions;
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<PAGE>
o enter into option or other types of transactions that require the
selling shareholder to deliver shares to a broker-dealer, who will
then resell or transfer the shares under this prospectus; or
o loan or pledge the shares to a broker-dealer, who may sell the loaned
shares or, in the event of default, sell the pledged shares.
The selling shareholders may negotiate and pay broker-dealers commissions,
discounts or concessions for their services. Broker-dealers engaged by the
selling shareholders may allow other broker-dealers to participate in resales.
However, the selling shareholders and any broker-dealers involved in the sale or
resale of the shares may qualify as "underwriters" within the meaning of the
Section 2(a)(11) of the Securities Act. In addition, the broker-dealers'
commissions, discounts or concessions may qualify as underwriters' compensation
under the Securities Act. If the selling shareholders qualify as "underwriters,"
they will be subject to the prospectus delivery requirements of Section 5(b)(2)
of the Securities Act.
In addition to selling their shares under this prospectus, the selling
shareholders may:
o agree to indemnify any broker-dealer or agent against certain
liabilities related to the selling of the shares, including
liabilities arising under the Securities Act;
o transfer their shares in other ways not involving market makers or
established trading markets, including directly by gift, distribution,
or other transfer; or
o sell their shares under Rule 144 of the Securities Act rather than
under this prospectus, if the transaction meets the requirements of
Rule 144.
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<PAGE>
EXPERTS
The balance sheets of Tera Computer Company as of December 31, 1997 and
1998 and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
incorporated by reference into this prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports with respect
thereto, which includes an explanatory paragraph concerning our ability to
continue as a going-concern. These financial statements have been incorporated
in reliance on the reports of such firm given upon their authority as experts in
accounting and auditing.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Restated Articles of Incorporation provide that, to the fullest extent
permitted by the Washington Business Corporation Act, our directors will not be
liable for monetary damages to Tera or its shareholders, excluding, however,
liability for acts or omissions involving intentional misconduct or knowing
violations of law, illegal distributions or transactions from which the director
receives benefits to which the director is not legally entitled. Our Restated
Bylaws provide that Tera will indemnify its directors and, by action of the
Board of Directors, may indemnify its officers, employees and other agents 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Tera pursuant
to the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" our publicly-filed reports
into this prospectus, which means that information included in those reports is
considered part of this prospectus. Information that we file with the SEC
subsequent to the date of this prospectus will automatically update and
supersede the information contained in this prospectus. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the selling shareholders have sold all the shares.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998;
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<PAGE>
2. Our Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999;
3. Our Current Report on Form 8-K for the event of May 21, 1999, as filed
with the SEC on July 21, 1999.
4. Our Current Report on Form 8-K for the event of June 25, 1999, as
filed with the SEC on June 29, 1999;
5. Our Current Report on Form 8-K for the event of June 21, 1999, as
filed with the SEC on June 30, 1999;
6. Our Current Report on Form 8-K for the event of March 22, 1999, as
filed with the SEC on March 25, 1999;
7. Our Current Report on Form 8-K for the event of March 10, 1999, as
filed with the SEC on March 25, 1999; and
8. The description of our common stock set forth in our 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 our Registration
Statement on Form 8-A (Registration No. 0-26820), including the
amendment thereto on Form 8-A/A.
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference, other than exhibits to
such documents. You should direct any requests for documents to Investor
Relations, Tera Computer Company, 411 First Avenue South, Suite 600, Seattle,
Washington 98104, Telephone (206) 701-2000.
The information relating to Tera contained in this prospectus is not
comprehensive and should be read together with the information contained in the
incorporated documents.
AVAILABLE INFORMATION
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the SEC. Certain information in the Registration Statement has been
omitted from this prospectus in accordance with SEC rules.
We file annual, quarterly and special reports and other information with
the SEC. You may read and copy the Registration Statement and any other document
that we file at the SEC's public reference rooms located at Room 1024, Judiciary
Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the
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<PAGE>
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov or through our web site at http://www.tera.com.
Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete. You should refer to
the copy of such contract or other document filed as an exhibit to the
Registration Statement.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
All expenses in connection with the issuance and distribution of the
securities being registered will be paid by the Company. The following is an
itemized statement of these expenses (all amounts are estimated except for the
SEC and Nasdaq listing fees):
SEC Registration fee.................................... $ 20,355
Nasdaq listing fee...................................... $ 17,500
Legal fees.............................................. $ 6,000
Accountant's Fees....................................... $ 2,000
Printing Fees........................................... $ -0-
Miscellaneous........................................... $ 145
--------
Total................................................... $ 46,000
Item 15. Indemnification of Officers and Directors.
------------------------------------------
Article XII of the Company's Restated Articles of Incorporation and Section
11 of the Company's Restated Bylaws require indemnification of directors,
officers, employees and agents of the Company to the fullest extent permitted by
the Washington Business Corporation Act (the "Act"). Sections 23B.08.500 through
23B.08.600 of the Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act.
Section 23B.08.320 of the Act authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, self-dealing or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Article XI of the Company's Restated Articles of Incorporation
contains provisions implementing, to the fullest extent permitted by Washington
law, such limitations on a director's liability to the Company and its
shareholders.
II-1
<PAGE>
Item 16. Exhibits.
---------
3.1 Restated Articles of Incorporation of the Company (1)
3.2 Restated Bylaws of the Company (1)
4.1 Form of Purchase Agreement, dated as of June 18, 1999, between the
Company and the investors in the June 1999 Private Placement (the
"Investors") (2)
4.2 Form of Warrant, dated June 21, 1999, issued to the Investors (2)
4.3 Form of Registration Rights Agreement, dated as of June 21, 1999,
between the Company and the Investors (2)
4.4 Amendment Agreement, dated as of June 17, 1999, between the Company
and the Banca del Gottardo (2)
4.5 Amendment Agreement, dated as of June 18, 1999, among the Company and
Advantage Fund II Ltd., Genesee Fund Limited - Portfolio B, and Koch
Industries, Inc. (2)
4.6 Registration Rights Agreement, dated as of June 21, 1999, among the
Company and Advantage Fund II Ltd., Genesee Fund Limited - Portfolio
B, and Koch Industries, Inc. (2)
5 Opinion on Legality
23 Consent of Deloitte & Touche LLP
24 Power of Attorney (included on signature page hereof)
- --------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K for
the event of May 21, 1999, filed with the Commission on July 21, 1999.
(2) Incorporated by reference to the Company's Current Report on Form 8-K for
the Event of June 21, 1999, filed with the Commission on June 30, 1999.
II-2
<PAGE>
Item 17. Undertakings.
-------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) that,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the
II-3
<PAGE>
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant 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. In the event
that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question,
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seattle, State of Washington, on July 23, 1999.
TERA COMPUTER COMPANY
By: JAMES E. ROTTSOLK
-------------------------------------
James E. Rottsolk
Chief Executive Officer
<PAGE>
KNOW ALL BY THESE PRESENTS that each person whose signature appears below hereby
authorizes and appoints Burton J. Smith and James E. Rottsolk, and each of them,
with full power of substitution and full power to act without the other, as his
true and lawful attorney-in-fact and agent to act in his name, place and stead
and to execute in the name and on behalf of each file, any and all amendments to
this Registration Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 22nd day of July, 1999:
Signature and Title
TERREN S. PEIZER
- ------------------------------------
Terren S. Peizer, Chairman
of the Board of Directors
BURTON J. SMITH
- ------------------------------------
Burton J. Smith, Director
JAMES E. ROTTSOLK KENNETH W. KENNEDY
- ------------------------------------ ------------------------------------
James E. Rottsolk Kenneth W. Kennedy, Director
Chief Executive Officer and Director
KENNETH W. JOHNSON JOHN W. TITCOMB, JR.
- ------------------------------------ ------------------------------------
Kenneth W. Johnson John W. Titcomb, Jr., Director
Chief Financial Officer
PHILISSA SARGIN DAVID N. CUTLER
- ------------------------------------ ------------------------------------
Philissa Sargin David N. Cutler, Director
Chief Accounting Officer
July 23, 1999
Board of Directors of
Tera Computer Company
Dear Sirs:
I have supervised the corporate proceedings relative to the issuance of:
1. 6,417,820 shares of common stock, $.01 par value (the "Common Stock"), of
Tera Computer Company, a Washington corporation (the "Company"), and
warrants to purchase 6,417,820 shares of Common Stock, and of the
authorization of shares of Common Stock issuable upon exercise of such
warrants, pursuant to the Purchase Agreement, dated as of June 18, 1999, by
and among the Company and the investors listed on the Purchase Agreement
(the "June Placement");
2. a note which may, along with accrued interest, be converted into 115,308
shares of Common Stock and a warrant to purchase 14,829 shares of Common
Stock, and of the authorization of shares of Common Stock issuable upon
exercise of such note and warrant, to Compunetics, Inc. as payment for
parts and services;
3. 42,373 shares of Common Stock issued to Banca del Gottardo and warrants to
purchase 212,000 shares of Common Stock, and of the authorization of shares
of Common Stock issuable upon exercise of such warrants, to Banca del
Gottardo, Paul Asnes and Jack Erlanger as placement fees and in connection
with the June Placement (the "Placement Fee"); and
4. Warrants to purchase 1,772,015 shares of Common Stock, and of the
authorization of shares of Common Stock issuable upon exercise of such
warrants, to Advantage Fund II Limited, Banca del Gottardo, Genesee Fund
Ltd.-Portfolio B, and Koch Industries, Inc. for the elimination of such
shareholders' rights to receive additional shares of Common Stock pursuant
to certain "reset" rights granted by the Company.
The shares of Common Stock issued to the investors in the June Placement
pursuant to the above-referenced Purchase Agreement and in connection with the
June Placement and the shares of Common Stock issued to Banca del Gottardo as
part of the Placement Fee, as the case may be, are referred to herein as the
"Shares." The warrant issued to the investors pursuant to above-referenced
Purchase Agreement and in connection with the June Placement, warrants issued to
Banca del Gottardo, Paul Asnes and Jack Erlanger as part of the Placement Fee
for the June Placement and warrants issued to Compunetics, Inc. as payment for
parts and services are collectively referred to herein as the "Warrants." The
convertible note issued to Compunetics, Inc. as payment for parts and services
is referred to herein as the "Note."
I also am familiar with the corporate proceedings relative to the
incorporation of the Company and to its present corporate status. Based upon the
foregoing and having regard for such legal considerations, as I have deemed
relevant, I am of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington, with full corporate power to issue
the Shares, the Warrants and the Note, and to issue the Common Stock reserved
for issuance upon exercise of the Warrants and conversion of the Note.
2. The Shares have been duly authorized by appropriate corporate action and
are validly issued, fully paid, and nonassessable.
3. The shares of Common Stock issuable upon exercise of the Warrants have
been duly authorized and reserved for such purpose by appropriate corporate
action. The shares of Common Stock issuable upon exercise of the Warrants will
be validly issued, fully paid, and nonassessable upon such exercise.
4. The shares of Common Stock issuable upon conversion of the Note have
been duly authorized and reserved for such purpose by appropriate corporate
action. The shares of Common Stock issuable upon conversion of the Note will be
validly issued, fully paid, and nonassessable upon such exercise.
Very truly yours,
KENNETH W. JOHNSON
Kenneth W. Johnson, Esq.
Vice President - Finance
And General Counsel
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of Tera Computer Company of our report dated March 22, 1999,
which includes an explanatory paragraph concerning the Company's ability to
continue as a going-concern, appearing in the Annual Report on Form 10-K of
Tera Computer Company for the year ended December 31, 1998, and to the
reference to Deloitte & Touche LLP under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Seattle, Washington
July 22, 1999
