Thanks for putting together such a clear and detailed question, @Moon!
Good sleuthing 
! This is, indeed, an out of memory error. Here's an experiment you can try. Sometimes when parallelizing processes, each thread contributes a significant amount of memory usage.
If you're running out of memory, try decreasing the number of threads to 4. If it still gives you OOM errors, you can try dropping the number of threads even farther. Overall, this will likely mean a longer run time, but that's probably OK if it runs!
If this doesn't work for you, you could experiment with the --p-parttree option. This algo estimates rather than fully calculating the tree, and is designed for use with large data sets. I have no idea whether this is actually going to help with memory usage, but it may be worth trying.
Alternately, you could try looking at another alignment tool. I've had a good experience with fragment-insertion, but only you know whether that approach is right for your study.
Good luck!
Chris 