UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) : March 22, 1999
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TERA COMPUTER COMPANY
(Exact name of registrant as specified in its charter)
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Washington 0-26820 93-0962605
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
411 First Avenue South, Suite 600
Seattle, WA 98104-2860
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 701-2000
Registrant's facsimile number, including area code: (206) 701-2500
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Item 5. Other Events
In September 1998, we raised an aggregate of $6,000,000, less expenses,
through the negotiated private sale of 600,000 shares of our common stock and
the issuance of warrants to purchase 121,008 shares of common stock to two
institutional investors, Advantage Fund II Ltd. and Koch Industries, Inc. (the
"September Private Placement"). In December, 1998, we raised an aggregate of
$2,000,000, less expenses, through the negotiated private sale of 200,000 shares
of our common stock and the issuance of warrants to purchase 40,336 shares of
common stock to Koch and Genesee Fund Limited - Portfolio B, an affiliate of
Advantage (the "December Private Placement" and, collectively with the September
Private Placement, the "Private Placements"). The terms and conditions of the
Private Placements were substantially similar, and were described in our
Quarterly Report on Form 10-Q for the period ended September 30, 1998 (for the
September Private Placement) and our Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 23, 1998 (for the December
Private Placement).
On March 22, 1999, Advantage, Genesee, Koch, and we amended the terms of
the transaction documents for the Private Placements (the "March Amendment"). We
summarize below the material rights of Advantage, Genesee, and Koch
(collectively, the "investors") under the transaction documents for the Private
Placements, as modified by the March Amendment.
1. Warrants
The warrants issued in the Private Placements initially were exercisable
for five years at $10.04 per share, subject to adjustment for stock splits,
stock dividends, reorganizations and other customary antidilution events.
Pursuant to the March Amendment, we amended the exercise price of the warrants
to $6.00 per share. The exercise price does not adjust for changes in market
price or other performance criteria. The warrants contain provisions that permit
"cashless exercises" pursuant to which, at the time of exercise, the exercising
holders may surrender to us a number of underlying shares of Common Stock having
a market value equal to the aggregate exercise price of the warrants being
exercised, reducing the total number of shares to be issued by us upon exercise.
In consideration for certain covenants made by Advantage and Genesee in the
Market Sales Agreement described under "Trading Restrictions" below, we also
have agreed to reduce the exercise price of the following warrants to $6.00 per
share:
- warrants, dated December 23, 1997, for 87,500 shares of common stock
issued to Advantage, and for 37,500 shares of common stock issued to
Genesee, each with an initial exercise price of $19.04 per share; and
- warrants, dated June 30, 1998, for 50,000 shares of common stock
issued to each of Advantage and Genesee with an initial exercise price
of $15.00 per share.
2. Tera's Obligation to Issue Additional Warrants to the Investors
Pursuant to the subscription agreements for the Private Placements, as
amended by the March Agreement, we are required to issue "adjustment" warrants
to purchase additional shares of common stock at an exercise price of $.01 per
share to the investors if the market price of our common stock is less than
specified target values (initially, $6.50 for one-half of the shares issued in
the Private Placements (the "Pool A Shares"), and $12.00 for the other half of
the shares issued in the Private Placements (the "Pool B Shares")) on certain
"measurement dates." The purpose of this "adjustment" provision is to provide a
definite market value to the investors with respect to the shares of common
stock that they continue to hold through
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September 30, 2001. The provision also was intended to reduce the incentive for
the investors to sell their shares if the market price of the common stock were
to fall below the initial target values of $6.50 and $12.00 per share.
Pursuant to the March Agreement, we agreed that February 22, 1999 would be
the first measurement date with respect to the Pool A Shares, and have issued
adjustment warrants to purchase an aggregate of 536,585 shares of common stock
to the investors (the "February Adjustment Warrants").
The next measurement date will be on May 22, 1999. The initial target value
with respect to the Pool A Shares and shares issuable upon exercise of the
February Adjustment Warrants is $6.50, and the initial target value with respect
to the Pool B Shares is $12.00. Assuming that the investors continue to hold all
of the 800,000 shares issued to them in the Private Placements and all of the
February Adjustment Warrants, the number of warrants to purchase additional
shares that would be issued to the investors on that date is illustrated below:
Market Price of Number of
Common Stock Warrants Issuable
$12.00 - 0 -
$10.00 80,000
$8.00 200,000
$6.00 478,048
$4.00 1,385,365
Subsequent measurement dates are every three months thereafter through
September 30, 2001. The target value for subsequent measurement dates will be:
(i) With respect to (a) the Pool A Shares, (b) the shares issuable upon
exercise of the February Adjustment Warrants, and (c) the shares
issuable upon exercise of any additional adjustment warrants issued on
the Pool A Shares and the February Adjustment Warrants, the lower of
$6.50 or the lowest adjustment price for any measurement date
subsequent to February 22, 1999; and
(ii) With respect to (a) the other 400,000 shares of common stock issued in
the Private Placements (the "Pool B Shares") and (b) the shares
issuable upon exercise of any adjustment warrants previously issued on
the Pool B Shares, the lower of $12.00 or the lowest adjustment price
for any measurement date subsequent to February 22, 1999.
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The adjustment provisions described above will operate similarly for
measurement dates after May 22, 1999, although if the market price is less
than the applicable target value on such measurement dates, then the number
of shares to be issued will be increased by 1.25%, which reflects a
negotiated issuance premium. Assuming that the market price of the common
stock on May 22, 1999 was $8.00 per share and the investors continue to
hold all of the Pool A Shares and Pool B Shares, the February Adjustment
Warrants, and the adjustment warrants to purchase an additional 200,000
shares assumed to be issued on May 22, 1999, we would issue warrants to
acquire additional shares on August 22, 1999 (the third measurement date)
as follows:
Market Price of Number of
Common Stock Warrants Issuable
$12.00 - 0 -
$10.00 - 0 -
$8.00 - 0 -
$6.00 300,731
$4.00 1,219,390
The adjustment mechanism described above would apply only to the shares
that such investor continues to hold on the applicable measurement date. To the
extent that an investor sells any of its shares, the investor would lose the
right to receive additional adjustment warrants with respect to such shares. The
market price used to determine whether we are obligated to issue additional
warrants to the investors on any measurement date is subject to reduction under
certain conditions, principally involving failure by us to keep a registration
statement available for use by the investors for resales of their shares.
Notwithstanding our obligation to issue adjustment warrants to the
investors as described above, the terms of the adjustment warrants prohibit
investors from exercising such warrants if the issuance of common stock upon
such exercise would cause the exercising investor to beneficially own more than
4.9% of our outstanding common stock. Any investor who becomes subject to this
limitation may continue exercising warrants after selling a sufficient number of
shares to permit the exercise and issuance of "replacement" shares up to the
4.9% beneficial ownership limit.
3. Tera's Obligation to Repurchase the Investors' Common Stock
We may be required to repurchase the shares of common stock issued to the
investors in the Private Placements, the shares of common stock issued upon
exercise of the warrants issued to the investors in the Private Placements, and
the shares issued upon exercise of the "adjustment warrants" issued to the
investors in accordance with the adjustment provisions described above. This
repurchase obligation would be triggered by any of the following "Repurchase
Events," provided that such event was within our sole control:
A. There is no reported closing bid price for our common stock for a period
of five consecutive trading days on the Nasdaq National Market System, the
Nasdaq SmallCap Market or any national securities exchange.
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B. Our common stock ceases to listed for trading on the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
Stock Exchange.
C. Any holder of common stock is unable for 30 or more days (whether or not
consecutive) to sell such holder's shares of common stock pursuant to the
above-referenced registration statement for any reason on each of the 30 days,
other than during certain excluded periods.
D. We fail or default in the timely performance of any material obligation
to the investors under the terms of the subscription agreement and other
agreements between the investors and ourselves, provided that the default is not
cured prior to the delivery of an investor's demand for repurchase.
E. We have a merger or consolidation pursuant to which either (a) the
shareholders prior to the transaction do not collectively own at least 51% of
the outstanding voting securities of the surviving corporation immediately after
the merger, a "change of control," or (b) the common stock of the surviving
corporation is not listed for trading on the Nasdaq National Market, the Nasdaq
SmallCap Market, the New York Stock Exchange or the American Stock Exchange.
If a Repurchase Event were to occur and an investor delivered a written
request that we repurchase such investor's shares, then, except as described
below, we would be required to purchase the shares of common stock specified in
the written request at the greater of (a) the average closing price of the
common stock for the five trading days immediately prior to the repurchase or
(b) the most recent "adjustment price."
If, however, the Repurchase Event was caused by circumstances that were not
solely within our control, then our management could elect, in its sole
discretion, not to repurchase the shares of common stock, and the investor would
be bound by that election. In order to make such election, we would be required
to provide support from a nationally recognized accounting firm confirming that
the Repurchase Event was caused by events not within our sole control, as such
term is then defined under generally accepted accounting principles and SEC
Regulation S-X.
Thus, for example, if our common stock were delisted from the Nasdaq
National Market (and assuming that it was not listed on the Nasdaq SmallCap
Market or a national securities exchange) because we failed to have a proper
audit committee, hold a required shareholders' meeting, or failed to satisfy
other Nasdaq corporate governance rules, and assuming that we failed to cure
such non-conformity, then we would have an obligation to repurchase a holder's
common stock because such Repurchase Event would be considered within our sole
control. If, however, the common stock were delisted due to market price
declines, such an event would not be within our sole control, and we could elect
not to repurchase any shares tendered to us for repurchase. If we elected not to
repurchase a holder's shares, we would be required to issue additional shares of
common stock, at a rate equal to six percent of the common stock then held by
the investor delivering the request for repurchase, for each 30 days that the
Repurchase Event continued.
We believe that it is very unlikely that we will be required to repurchase
the shares of Common Stock issued to the investors.
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4. Trading Restrictions
The subscription agreements pursuant to which we issued the common stock
and warrants in the Private Placements impose certain trading restrictions on
the investors. Provided that we are in material compliance with our obligations
to the investors under the transaction documents, the investors will not engage
in short sales or other hedging transactions relating to the common stock during
the 18 trading days prior to any measurement date unless and only while the then
highest current bid price of the common stock is greater than 125% of the then
applicable lowest adjustment price for any prior measurement date. In addition,
any short sales or other hedging transactions may only be effected at or above
the last reported sale price of the common stock in accordance with Rule 10a-1
under the Securities Exchange Act, and in any case such transactions will not
create any daily low sales prices for the common stock. These limitations do not
apply to short sale or other hedging transactions involving the number of shares
of common stock issuable upon conversion of such number of shares of the
Company's Series B Convertible Preferred Stock as to which Advantage or Genesee
has submitted a "conversion notice" to the Company.
On March 22, 1999, Advantage and Genesee agreed to limit their sales of the
Company's common stock on the public market to no more than 5,000 shares per
day, in the aggregate, through May 31, 1999. This limitation will not apply if
and as long as the bid price for the common stock exceeds $13.00 per share.
5. Registration Statement
We expect to file an amendment to the Registration Statement on Form S-3,
No. 333-67885, with the Securities and Exchange Commission by March 26, 1999,
covering the resale of the shares of common stock issued to the investors in the
Private Placements, the shares of common stock issuable upon exercise of the
warrants issued to the investors in the Private Placements, and the shares of
common stock issuable upon exercise of the February Adjustment Warrants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TERA COMPUTER COMPANY
By: KENNETH W. JOHNSON
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Kenneth W. Johnson
Chief Financial Officer
March 25, 1999
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