Reg. No. 333-74100
Rule 424(b)(3)
PROSPECTUS
CRAY INC.
8,282,484 shares of common stock
These shares of common stock are issuable upon conversion of, or as
payment of interest on, the 5% convertible subordinated debentures, shares
issuable for other payments due under the debentures and related transaction
documents, and shares issuable upon exercise of the stock purchase warrants
owned by the selling shareholders listed on page 3.
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. We
will not receive any proceeds from the sale of the shares, but we will bear the
costs relating to the registration of the shares.
Our common stock is traded on the Nasdaq National Market under the
symbol "CRAY." On January 17, 2002, the closing price for our common stock was
$2.29 per share.
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THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE "FACTORS THAT COULD AFFECT FUTURE RESULTS"
CONTAINED IN OUR QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDING SEPTEMBER
30, 2001, THE "ADDITIONAL FACTORS THAT COULD AFFECT FUTURE RESULTS" IN OUR
CURRENT REPORT ON FORM 8-K FILED ON NOVEMBER 28, 2001, AND SIMILAR DISCLOSURES
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.
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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.
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The date of this prospectus is January 17, 2002.
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TABLE OF CONTENTS
Section Page
------- ----
Our Business................................................. 3
Selling Shareholders ........................................ 3
Plan of Distribution ........................................ 9
Legal Matters ............................................... 10
Experts ..................................................... 11
Limitation of Liability and Indemnification ................. 11
Information Incorporated by Reference ....................... 11
Available Information ....................................... 13
You should rely only on information contained or incorporated by
reference in this prospectus. See "Information Incorporated by Reference" on
page 6. Neither Cray 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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OUR BUSINESS
We design, build, sell and service 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
Shares Offered by the Selling Shareholders. On November 6 and 15, 2001,
in a private placement under the Securities Act, we sold to six accredited
investors (i) 5% convertible subordinated debentures in the aggregate original
principal amount of $9,300,000, convertible into shares of our common stock and
(ii) stock purchase warrants for an aggregate of 367,590 shares of our common
stock at an initial exercise price of $4.4275 per share, subject to adjustment,
exercisable until November 6, 2004. The purchasers were the six selling
shareholders listed in the table below. We received gross proceeds of $9,300,000
in exchange for the issuance of the debentures and the warrants, and after
payment of expenses we expect net proceeds of approximately $8,550,000. The
selling shareholders are offering for resale pursuant to this prospectus shares
of common stock issuable to them upon conversion of, or as payment of interest
on, the debentures, for other payments due under the debentures and related
transaction documents, and upon exercise of the warrants. The material terms of
the debentures and the warrants are described below.
Ownership After
Offering if All Shares
Shares Owned Offered Hereby Are
Prior to Shares Being Sold
Selling Shareholders Offering(1) Offered(2) Shares Percent
-------------------- ------------ ------------ ------ -------
Riverview Group, LLC(3) 4,452,947 4,452,947 0 0
Omicron Partners, LP(4) 1,781,180 1,781,180 0 0
Laterman & Co.(5) 445,295 445,295 0 0
Forevergreen Partners(5) 445,295 445,295 0 0
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Ownership After
Offering if All Shares
Shares Owned Offered Hereby Are
Prior to Shares Being Sold
Selling Shareholders Offering(1) Offered(2) Shares Percent
-------------------- ------------ ------------ ------ -------
Clarion Capital 890,590 890,590 0 0
Corporation(6)
The Morton A. Cohen 267,177 267,177 0 0
Revocable Living Trust(6)
(1) Assumes a total of (i) 7,914,894 shares issuable upon conversion of
the convertible debentures (calculated as 200% of the shares issuable using the
fixed conversion price of $2.35 per share); and (ii) 367,590 shares of common
stock issuable upon exercise of the warrants.
(2) Represents the number of shares issuable upon conversion of the
convertible subordinated debentures, in any payment of interest made on the
debentures in shares of common stock, for any other payments due under the
debentures and related transaction documents, and upon exercise of the warrants
calculated as described in note (1) above. The actual number of shares of common
stock issued upon the conversion of the convertible subordinated debentures and
the payment of interest thereon depends on factors which we cannot predict at
this time, including the times at which the selling shareholders may elect to
convert the debentures and the market prices of our common stock at such times.
(3) The Chief Financial Officer of Riverview, who is currently Robert
Williams, has voting and dispositive power over the shares to be sold by
Riverview.
(4) Omicron Capital, L.P., a Delaware limited partnership ("Omicron
Capital"), serves as subadvisor to Omicron Partners, L.P., a Bahamas limited
partnership ("Omicron"), and Grove Management Limited ("Grove") is the general
partner of Omicron. By reason of such relationships, Omicron Capital may be
deemed to share dispositive power over the shares of common stock owned by
Omicron and Grove may be deemed to share voting and dispositive power over the
shares of common stock owned by Omicron. Omicron Capital and Grove disclaim
beneficial ownership of such shares of common stock. Omicron and Grove are not
"affiliates" of one another, as that term is used for purposes of the Securities
Exchange Act of 1934, as amended, or of any other
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person named in this prospectus as a selling shareholder. No person or "group"
(as that term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended, or Regulation 13D-G promulgated thereunder) controls Omicron and
Grove.
(5) Bernard Laterman, Managing Partner of Laterman & Co. and
Forevergreen Partners, has voting and dispositive power over the shares to be
sold by those entities.
(6) Morton A. Cohen has voting and dispositive power over the shares to
be sold by Clarion Capital Corporation and The Morton A. Cohen Revocable Living
Trust.
None of the selling shareholders has had any material relationship with
us or any of our affiliates within the past three years.
In recognition of the fact that each selling shareholder may wish to be
legally permitted to sell its shares when it deems appropriate, we have agreed
with the selling shareholders to file with the SEC, under the Securities Act of
1933, a registration statement on Form S-3, of which this prospectus forms a
part, with respect to the resale of the shares, and we 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.
Description of the Debentures. The debentures bear interest at the rate
of 5% per year, payable semi-annually commencing May 6, 2002. We can elect to
pay interest in cash or in shares of our common stock. The debentures mature on
November 6, 2004.
The holders of the debentures can choose to convert all or a portion of
the principal amount outstanding into shares of our common stock at any time
before the maturity date of November 6, 2004. The debentures are convertible
into common stock at a fixed conversion price of $2.35 per share from the date
of issuance until maturity. In addition, during each three-month period
beginning on February 6, 2002, each holder may convert on a cumulative basis up
to 25% of the original principal amount of each holder's debenture at a floating
conversion price. The floating conversion price is equal to 94% of the average
of the 7 lowest daily volume weighted average prices during the 20 trading days
immediately prior to the date upon which the debenture is converted.
On the maturity date of November 6, 2004, the holders are obligated to
convert any remaining principal into common stock at a conversion price equal
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to the average of the closing prices during the 15 trading days immediately
prior to the maturity date.
The debentures contain subordination provisions in favor of our senior
secured lender, which limit our rights and obligations to make cash payments of
principal, interest or other payments of funds under the debentures and related
transaction documents.
We are not required to issue to the debenture holders in excess of
8,422,204 shares below the market price of our common stock in accordance with
Nasdaq rules, or such greater number of shares permitted under Nasdaq Rule
4350(i). In such event, the debenture holders may elect to require us to convert
the debentures at the lowest possible conversion price that complies with Nasdaq
rules or to redeem the portion of the debentures which were not able to be
converted by payment of 105% of the outstanding principal, plus accrued
interest, if the redemption were by May 6, 2002, or of 110% of the outstanding
principal, plus accrued interest, if the redemption were after May 6, 2002,
provided that we are not obligated to redeem more than 25% of the original
principal amount of the debentures every three months on a cumulative basis
beginning on February 6, 2002.
A debenture holder may not convert its debenture or receive shares of
our common stock as payment of interest to the extent that, at the time of the
conversion or payment, the sum of (i) the number of shares of our common stock
beneficially owned by the holder plus (ii) the number of shares to be issued
upon conversion and payment would exceed 4.999% of the number of shares of our
common stock then issued and outstanding, including other shares of our common
stock issuable upon conversion of, or payment of interest on, the holder's
debenture. The holder may terminate this restriction upon 61 days' prior notice
to us.
In the event that we sell any shares of our common stock (or certain
securities convertible into or exercisable for shares of our common stock) at a
price less than the fixed conversion price of the debentures, then the fixed
conversion price of the debentures generally shall be reduced based on a
weighted average adjustment (subject to certain exceptions). The debentures also
contain customary antidilution provisions for stock dividends, stock splits or
combinations and reclassifications.
In the event that a debenture is converted and we issue the shares of
common stock later than the time permitted in the debenture, we may be required
to make late fee payments to the holder that increase based upon how late we
issue the shares and without a limit on the late fee that must be paid. The
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debentures provide that, if we deny, or if any of our shareholders obtain a
judgment denying, the rights of the holders to convert the debentures, then the
holders have the right to require us to pay 120% of the outstanding principal
amount of the debentures plus accrued and unpaid interest.
If an event of default occurs under the debentures, the holders have the
right to require us to pay a mandatory redemption amount, subject to the
subordination provisions of the debentures in favor of our senior secured
lender. The mandatory redemption amount is the greater of (i) 120% of the
outstanding principal on the debentures, plus accrued interest or (ii) the
outstanding principal amount, plus accrued interest, divided by the applicable
conversion price, and multiplied by the closing price of our common stock on the
applicable date provided in the debentures.
The events of default include: (i) failure to pay scheduled principal or
interest payments, (ii) breach of any material representation or warranty in the
debentures or the related transaction agreements, (iii) failure to timely issue
shares upon conversion of the debentures, to timely transfer such issued shares
or to timely remove restrictive legends if lawful and required by the debentures
and the related agreements, which failure continues uncured for ten trading
days, (vi) failure to perform our obligations in the debentures or related
agreements for a period of 20 business days after notice, (vii) commencement of
bankruptcy or insolvency proceedings or appointment of a receiver or similar
assumption of control of a material portion of our properties and assets, (viii)
any judgment or claim becoming a lien or encumbrance on any material portion of
our assets, (ix) delisting or suspension of trading of our common stock for more
than 5 consecutive trading days or 8 total trading days, (x) the failure of the
registration statement of which this prospectus is a part being declared
effective by the SEC by May 6, 2002, (xi) a lapse in the effectiveness of the
registration statement for more than 20 trading days during any 12-month period
(subject to exceptions for material transactions), or (xii) a change of control
transaction. A change of control transaction includes the acquisition of more
than 40% of our voting stock in a transaction not approved by our board of
directors, the replacement of more than one-half of the current members of the
board of directors without the approval of such directors, the consolidation or
merger of us where the shareholders prior to such transaction do not own at
least 51% of our voting stock after the transaction or the common stock is no
longer listed on Nasdaq National Market System or a national exchange, the sale
of all or substantially all of our assets, or the execution by us of an
agreement providing for one of the foregoing events. These change of control
provisions may have the effect of discouraging third parties from making a bid
to acquire control of us in a transaction not approved by our board of
directors.
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Description of the Warrants. The warrants are exercisable for a total of
367,590 shares of our common stock at an exercise price of $4.4275 payable in
cash. The warrants are exercisable until November 6, 2004. The number of shares
issuable upon exercise and the exercise price are subject to adjustment in the
event of a stock dividend, a stock split or combination or a reclassification of
our common stock, but otherwise do not have exercise price adjustments.
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PLAN OF DISTRIBUTION
We are registering the shares covered by this prospectus for the selling
shareholders. The selling shareholders and their pledgees, donees, transferees
or other successors in interest 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
shares may be sold by one or more of the following methods:
- a block trade in which a broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion
of the block, as principal, in order to facilitate the
transaction;
- purchases by a broker or dealer, as principal, in a market maker
capacity or otherwise and resale by the broker or dealer for its
account pursuant to their prospectus;
- ordinary brokerage transactions and transactions in which a
broker solicits purchases;
- privately negotiated transactions;
- any combination of these methods of sale; or
- any other legal method.
We 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. We have agreed with the selling
shareholders to indemnify each 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.
Regulation M under the Securities Exchange Act of 1934 provides that
during the period that any person is engaged in the distribution, as so defined
in Regulation M, of our common stock, such person generally may not purchase
shares of our common stock. The selling shareholders are subject to applicable
provisions of the Securities Act and the Securities Exchange Act of 1934 and the
rules and regulations thereunder, including, without limitation, Regulation M,
which provisions may limit the timing of purchases and sales of shares of our
common stock by the selling shareholders. The foregoing may affect the
marketability of our common stock.
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The selling shareholders may negotiate and pay brokers or dealers
commissions, discounts or concessions for their services. In effecting sales,
brokers or dealers engaged by the selling shareholders may allow other brokers
or dealers to participate. However, the selling shareholders and any brokers or
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 brokers' or dealers' commissions, discounts or concessions may
qualify as underwriters' compensation under the Securities Act. If any of the
selling shareholders qualifies as an "underwriter," it will be subject to the
prospectus delivery requirements of section 5(b)(2) of the Securities Act.
In addition to selling its shares under this prospectus, the selling
shareholders may:
- agree to indemnify any broker or dealer or agent against certain
liabilities related to the selling of the shares, including
liabilities arising under the Securities Act;
- transfer its shares in other ways not involving market makers or
established trading markets, including directly by gift,
distribution, or other transfer; or
- sell their shares under Rule 144 of the Securities Act rather
than under this prospectus, if the transaction meets the
requirements of Rule 144.
Upon notification by the selling shareholders that any material
arrangement has been entered into with a broker or dealer for the sale of the
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing the material terms of the transaction.
LEGAL MATTERS
For purposes of this offering, Kenneth W. Johnson, our General Counsel,
is giving an opinion on the validity of the common shares. As of the date of
this prospectus, Mr. Johnson held 40,914 shares of our common stock, options to
purchase 270,000 shares of our common stock and warrants to purchase 21,637
shares of our common stock.
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EXPERTS
The financial statements incorporated in this prospectus by reference
from our Annual Report on Form 10-K/A for the year ended December 31, 2000, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference. The statements of assets
acquired and liabilities assumed of the Cray Research business unit of Silicon
Graphics, Inc. as of March 31, 2000, and the related statements of revenue and
direct operating expenses for the years ended June 30, 1998 and 1999, and the
nine month period ended March 31, 2000, incorporated in this prospectus by
reference from Form 8-K/A of Cray Inc. filed on June 16, 2000, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report (which
report expresses an unqualified opinion and includes an explanatory paragraph
referring to note 1 which describes the expense allocations by Silicon Graphics,
Inc), which is incorporated herein by reference. These financial statements have
been so incorporated herein by reference in reliance upon 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 us or our 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 we will indemnify our directors and, by action of
the Board of Directors, may indemnify our 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 our directors, officers and controlling persons 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 Securities and Exchange Commission 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.
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Information that we file with the Securities and Exchange Commission after the
date of this prospectus will automatically update and supersede the information
contained in this prospectus. We incorporate by reference the following
documents filed with the Securities and Exchange Commission and any future
filings made with the Securities and Exchange Commission under sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. Our annual report on Form 10-K/A for the year ended December 31,
2000, as filed on September 17, 2001;
2. Our quarterly reports on Form 10-Q for the quarters ended March
31, 2001, June 30, 2001, and September 30, 2001;
3. Our definitive proxy statement, as filed with the Securities and
Exchange Commission on April 9, 2001;
4. Our current report on Form 8-K for the event of December 14,
2001, as filed on December 18, 2001;
5. Our current report on Form 8-K for the event of November 6, 2001,
as filed on November 28, 2001;
6. Our current report on Form 8-K for the event of October 1, 2001,
as filed on October 10, 2001;
7. Our current report on Form 8-K for the event of May 10, 2001, as
filed on May 14, 2001;
8. Our current report on Form 8-K for the event of April 3, 2001, as
filed on April 13, 2001;
9. Our current report on Form 8-K for the event of February 7, 2001,
as filed on February 15, 2001;
10. Our current report on Form 8-K/A for the event of December 15,
2000, as filed on July 27, 2001;
11. Our current report on Form 8-K for the event of April 3, 2000, as
filed on April 5, 2000 and amended on June 16, 2000; and
12. The description of our common stock as described in our
registration statement on Form SB-2, registration no.
33-95460-LA, including any amendment or report filed for the
purpose of
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updating the description, as incorporated by reference in our
registration statement on Form 8-A, registration no. 0-26820,
including the amendment on Form 8-A/A.
We will furnish without charge to you, on written or oral request, a
copy, excluding exhibits, of any or all of the documents incorporated by
reference. You should direct any requests for documents to Investor Relations,
Cray Inc., 411 First Avenue South, Suite 600, Seattle, Washington 98104,
telephone (206) 701-2000.
The information relating to us contained in this prospectus is not
comprehensive and should be read 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; 233 Broadway, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the 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.
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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