def14a
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 þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 |
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Confidential, for the Use of the Commission only (as permitted by Rule 14a-6(e)(2)) |
Cray Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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No fee required |
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o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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o Fee paid previously with preliminary materials |
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o 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. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Filing Party: |
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Date Filed: |
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NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS
Dear Cray Inc. Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Cray Inc. which will be held at our corporate
headquarter offices located at Merrill Place, 411 First
Avenue South, Seattle, Washington 98104-2860, on June 6,
2006, at 10:00 a.m.
At the Annual Meeting, shareholders will have the opportunity to
vote on the following matters:
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1. |
To elect eight directors, each to serve a one-year term; |
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2. |
To approve an amendment to our Restated Articles of
Incorporation to effect a one-for-four reverse stock split of
all outstanding and authorized shares of our common stock; |
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3. |
To approve an amendment to our Restated Articles of
Incorporation to increase the number of authorized shares of
common stock from 150,000,000 shares to
300,000,000 shares (on a pre-split basis); |
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4. |
To approve our 2006 Long-Term Equity Compensation Plan; and |
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5. |
To conduct any other business that may properly come before the
meeting, and any adjournments of the meeting. |
If you were a shareholder of record on April 17, 2006, the
record date for the Annual Meeting, you are entitled to vote on
these matters.
At the Annual Meeting, we will review our performance during the
past year and comment on our outlook. You will have an
opportunity to ask questions about Cray and our operations.
Regardless of the number of shares you own, your vote is
important. You may vote using any of the following methods:
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by Internet; |
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by telephone; |
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by proxy card; or |
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in person at the Annual Meeting. |
Voting by the Internet or by telephone is fast, convenient and
your vote is immediately confirmed and tabulated. You also help
us reduce postage and proxy tabulation costs. Or you may sign
and return the proxy card in the enclosed envelope. Even if you
plan to attend the Annual Meeting, we urge you to vote at your
earliest convenience so we avoid further solicitation costs. Any
shareholder attending the meeting may vote in person even if he
or she has voted previously.
Details of the business to be conducted at the Annual Meeting
are more fully described in the accompanying Proxy Statement.
We look forward to seeing you. Thank you for your ongoing
support of and interest in Cray.
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Sincerely, |
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Peter J. Ungaro
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Chief Executive Officer and President |
Seattle, Washington
April 28, 2006
PROXY STATEMENT
TABLE OF CONTENTS
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A-1 |
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B-1 |
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IMPORTANT
Whether
or not you expect to attend the Annual Meeting in person, we
urge you to vote at your earliest convenience. You may vote by
Internet or by telephone, or sign, date and return
the enclosed proxy card. Promptly voting by Internet or
by telephone or returning the proxy card will save
us the expense and extra work of additional solicitation. If you
wish to return the proxy card by mail, an addressed envelope for
which no postage is required if mailed in the United States is
enclosed for that purpose. Voting by Internet or by telephone or
sending in your proxy card will not prevent you from voting your
shares at the meeting if you desire to do so, as you may revoke
your earlier vote.
CRAY INC.
411 First Avenue South, Suite 600
Seattle, Washington 98104-2860
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
June 6, 2006
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
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Why did you send me this Proxy Statement? |
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We sent you this Proxy Statement and the enclosed proxy card
because our Board of Directors is soliciting your proxy to vote
your shares of common stock at the 2006 Annual Meeting of
Shareholders. This proxy may also be used at any adjournment of
that meeting. |
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This Proxy Statement summarizes the information regarding the
matters to be voted upon at the Annual Meeting. You do not need
to attend the Annual Meeting to vote your shares. You may vote
by Internet or by telephone or complete, sign and return the
enclosed proxy card. |
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We began sending this Proxy Statement out on or about
April 28, 2006, to all shareholders entitled to vote. If
you owned shares of our common stock at the close of business on
April 17, 2006, the record date for the Annual Meeting, you
are entitled to vote those shares. On the record date, there
were 91,750,299 shares of our common stock outstanding, our
only class of stock having general voting rights. |
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How many votes do I have? |
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You have one vote for each share of our common stock that you
owned on the record date. The proxy card indicates the number of
shares you owned on the record date. |
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How can I vote? |
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You may vote by using the Internet, by telephone, by returning
the enclosed proxy card or by voting in person at the Annual
Meeting. |
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How do I vote by Internet or by telephone? |
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For Shares Registered Directly in Your Name: |
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If your shares are registered directly in your name, you may
vote on the Internet or by telephone through services offered by
our transfer agent, Mellon Investors Services LLC. Internet
voting is available at the following address:
http://proxyvoting.com/cray. You should read this Proxy
Statement and be prepared to vote, and have available your
11-digit control number located on the right side at the bottom
of your proxy card. |
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To vote by telephone, please use a touch-tone phone and call
1-866-540-5760 (toll-free). You will be asked to enter your
11-digit control number located on your proxy card. |
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You may vote by Internet or by telephone 24 hours a day,
7 days a week until 11:59 p.m. Eastern Daylight
Time/8:59 p.m. Pacific Daylight Time on June 5, 2006,
the day before the Annual Meeting. |
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For Shares Registered in the Name of a Brokerage Firm or
Bank: |
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A number of brokerage firms and banks participate in a program
for shares held in street name that offers Internet
and telephone voting options. This program is different from the
program provided by Mellon Investor Services LLC, for shares
registered directly in the name of the shareholder. If your
shares are held in an account at a brokerage firm or bank
participating in this program, you may vote those shares by
using the web site or calling the telephone number referenced on
your voting form and following the instructions provided by your
broker or banker. |
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How do I vote by proxy? |
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If you properly fill in your proxy card and send it to us in
time to vote, your proxy (one of the individuals
named on your proxy card) will vote your shares as you have
directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the
Board as follows: |
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1. |
for electing the eight nominees for director,
each to serve one-year terms; |
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2. |
for approval of an amendment to our Restated
Articles of Incorporation to effect a one-for-four reverse stock
split of all outstanding and authorized shares of our common
stock; |
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3. |
for approval of an amendment to our Restated
Articles of Incorporation increasing the number of authorized
shares of common stock from 150,000,000 to
300,000,000 shares (on a pre-split basis); and |
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4. |
for approval of our 2006 Long-Term Equity
Compensation Plan. |
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If any other matter is presented, your proxy will vote in
accordance with his best judgment. At the time we printed this
Proxy Statement, we knew of no matters that needed to be acted
on at the Annual Meeting other than those discussed in this
Proxy Statement. |
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May I change my vote or revoke my proxy? |
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Yes. If you change your mind after you have voted by Internet or
telephone or sent in your proxy card and wish to revote, you may
do so by following these procedures: |
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1. |
Vote again by Internet or by telephone; |
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2. |
Send in another signed proxy with a later date; |
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3. |
Send a letter revoking your vote or proxy to our Corporate
Secretary at our offices in Seattle, Washington; or |
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4. |
Attend the Annual Meeting and vote in person. |
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We will tabulate the latest valid vote or instruction that we
receive from you. |
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How do I vote if I hold shares in my Cray 401(k) account? |
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Shares of Cray stock held in the Cray 401(k) Savings Plan and
Trust (the 401(k) Plan) are registered in the name
of the Trustee of the 401(k) Plan, Fidelity Management Trust
Company. Nevertheless, under the 401(k) Plan participants may
instruct the Trustee how to vote the shares of Cray common stock
allocated to their accounts. |
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The shares allocated under the 401(k) Plan can be voted by
submitting voting instructions by Internet, by telephone or by
mailing in a special proxy card with respect to the shares held
in the participants account; this card has a blue stripe
at the top. Voting of shares held in the 401(k) Plan must be
completed by the close of business on Thursday, June 1,
2006. These shares cannot be voted at the Annual Meeting and
prior voting instructions cannot be revoked at the Annual
Meeting. Otherwise, participants can vote these shares in the
same manner as described above for shares held directly in the
name of the shareholder. |
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The Trustee will cast votes for shares in the 401(k) Plan
according to each participants instructions. If the
Trustee does not receive instructions from a participant in time
for the Annual Meeting, the Trustee will vote the
participants allocated shares in the same manner and
proportion as the shares with respect to which voting
instructions were received. |
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How do I vote in person? |
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If you plan to attend the Annual Meeting and vote in person, we
will give you a ballot when you arrive. If your shares are held
in the street name of your bank or brokerage firm,
you must obtain a legal proxy from the bank or
brokerage firm that holds your shares. You should contact your
bank or brokerage account executive to learn how to obtain a
legal proxy. |
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What is the quorum requirement for the meeting? |
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The quorum requirement for holding the meeting and transacting
business is a majority of the outstanding shares entitled to be
voted. The shares may be present in person or represented by
proxy at the meeting. Both abstentions and broker non-votes are
counted as present for the purpose of determining the presence
of a quorum. |
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What vote is required to approve each proposal? |
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Proposal 1: To Elect Eight Directors For One-Year
Terms. |
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The eight nominees for Director who receive the most votes will
be elected. Accordingly, if you do not vote for a nominee, or
you indicate withhold authority to vote for a
nominee on your proxy card, your vote will not count either
for or against the nominee. |
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Proposal 2: To Approve an Amendment to Our Restated
Articles of Incorporation to Effect a One-for-Four Reverse Stock
Split of All Outstanding and Authorized Shares of Our Common
Stock. |
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The affirmative vote of a majority of the outstanding shares of
our common stock entitled to vote is required to approve the
amendment to our Restated Articles of Incorporation to effect a
one-for-four reverse stock split of all outstanding and
authorized shares of our common stock. If you do not vote, or if
you abstain from voting on any proposal, it has the same effect
as if you voted against such proposal. |
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Proposal 3: To Approve an Amendment to Our Restated
Articles of Incorporation To Increase the Number of Authorized
Shares of Common Stock from 150,000,000 to
300,000,000 Shares (on a pre-split basis). |
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The affirmative vote of a majority of the outstanding shares of
our common stock entitled to vote is required to approve the
amendment to our Restated Articles of Incorporation to increase
the number of authorized shares of common stock from 150,000,000
to 300,000,000 shares (on a pre-split basis). If you do not
vote, or if you abstain from voting, it has the same effect as
if you voted against this proposal. |
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Proposal 4: To Approve Our 2006 Long-Term Equity
Compensation Plan. |
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To approve our 2006 Long-Term Equity Compensation Plan, the
number of shares voted in favor of the proposal must exceed the
number of shares voted against. If you do not vote, or if you
abstain from voting, it has no effect on this proposal. |
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What is the effect of broker non-votes? |
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If your broker holds your shares in its street name
and does not receive voting instructions from you, your broker
nevertheless may vote your shares on Proposals 1, 2 and 3
but not on Proposal 4. |
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If a broker does not vote for a particular proposal, that is
considered a broker non-vote. Broker non-votes will be counted
for the purpose of determining the presence of a quorum. |
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A broker non-vote on Proposals 2 and 3 would have the same
effect as a vote against these proposals, because passage
requires the affirmative vote by holders of a majority of the
outstanding shares of common stock. |
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A broker non-vote would have no effect on the outcome of
Proposal 1 or Proposal 4 as only a plurality of votes
cast is required to elect a Director and a majority of the votes
cast is required to approve our 2006 Long-Term Equity
Compensation Plan. |
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Who will count the vote? |
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Representatives of Mellon Investor Services LLC, our transfer
agent, will serve as the Inspector of Elections and count the
votes. |
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Is voting confidential? |
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We keep all the proxies, ballots and voting tabulations private
as a matter of practice. We let only our Inspector of Elections
(Mellon Investor Services LLC) examine these documents. We will
not disclose your vote to our management unless it is necessary
to meet legal requirements. We will forward to management,
however, any written comments that you make on the proxy card or
elsewhere. |
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Who pays the costs of soliciting proxies for the Annual Meeting? |
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We will pay all the costs of soliciting these proxies. Although
we are mailing these proxy materials, our officers and employees
may also solicit proxies by telephone, by fax, via the Internet
or other electronic means of communication, or in person. No
additional compensation will be paid to officers or employees
for their assistance in soliciting proxies. We will reimburse
banks, brokers, nominees and other fiduciaries for the expenses
they incur in forwarding the proxy materials to you.
W. F. Doring & Co., Inc. may help solicit
proxies for an approximate cost of $5,000 plus reasonable
expenses. |
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I receive multiple copies of the Proxy Statement and Annual
Report on
Form 10-K, and
other documents from Cray. Can I reduce the number of copies
that I receive? |
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Yes, if you own shares through a brokerage firm, bank or other
nominee. |
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Householding, a process that reduces the number of copies of the
annual meeting materials and other correspondence you receive
through us, has been implemented for shareholders who share the
same last name and address and hold shares in street
name, where the shares are held through the same brokerage
firm, bank or other nominee. This has saved us sending over
7,500 additional copies this year. If you hold your shares in
street name and would like to start, or stop, householding,
please call
1-800-542-1061 and
provide the name of your broker, bank or other nominee and your
account number(s). |
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We will deliver promptly upon written or oral request a separate
copy of the annual meeting materials to a shareholder at a
shared address to which a single copy of such materials had been
delivered. |
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As a registered shareholder, can I view future proxy statements,
annual reports and other documents over the Internet, and not
receive any hard copies through the mail? |
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Yes. If you wish to elect to view future proxy statements,
annual reports and other documents only over the Internet,
please visit the Mellon Investor Service Direct web page,
www.melloninvestor.com/isd/, and follow the instructions
for establishing a personal identification number and obtaining
your documents electronically. Your election to view these
documents over the Internet will remain in effect until you
revoke it. Please be aware that if you choose to access these
materials over the Internet, you may incur costs such as
telephone and Internet access charges for which you will be
responsible. |
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Whom should I call if I have any questions? |
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If you have any questions about the Annual Meeting or voting, or
your ownership of our common stock, please contact Kenneth W.
Johnson, our Corporate Secretary, at (206) 701-2000.
Mr. Johnsons email address is ken@cray.com. |
4
OUR COMMON STOCK OWNERSHIP
The following table shows, as of April 17, 2006, the number
of shares of our common stock beneficially owned by the
following persons: (a) all persons we know to be beneficial
owners of at least 5% of our common stock, (b) our
directors, (c) the executive officers named in the Summary
Compensation Table and (d) all directors and executive
officers as a group. As of April 17, 2006, there were
91,750,299 shares of our common stock outstanding.
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Options or |
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Warrants |
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Common |
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Exercisable |
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Shares |
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Within |
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Total Beneficial | |
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Name and Address*(1) |
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Owned |
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60 Days |
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Ownership | |
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Percentage | |
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5% Shareholders
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Terren S. Peizer(2)
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0 |
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5,157,198 |
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5,157,198 |
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5.32 |
% |
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11111 Santa Monica Blvd., #650
Los Angeles, CA 90025 |
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Wells Fargo & Company(3)
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10,319,173 |
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200,000 |
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10,519,173 |
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11.44 |
% |
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420 Montgomery Street
San Francisco, CA 94104 |
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Independent Directors
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John B. Jones, Jr.
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7,800 |
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48,333 |
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56,133 |
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** |
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Kenneth W. Kennedy, Jr.
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1,292 |
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117,500 |
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118,792 |
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** |
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Stephen C. Kiely
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30,000 |
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129,000 |
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159,000 |
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** |
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Frank L. Lederman
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0 |
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60,000 |
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60,000 |
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** |
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Sally G. Narodick
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5,000 |
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50,000 |
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55,000 |
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** |
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Daniel C. Regis
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10,000 |
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50,001 |
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60,001 |
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** |
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Stephen C. Richards
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25,000 |
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50,000 |
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75,000 |
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** |
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Named Executives
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Peter J. Ungaro(4)
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642,436 |
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1,600,000 |
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2,242,436 |
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2.40 |
% |
James E. Rottsolk(5)
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161,127 |
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860,000 |
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1,021,127 |
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1.10 |
% |
Brian C. Henry(4)
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350,000 |
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500,000 |
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850,000 |
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** |
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Margaret A. Williams(4)
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358,734 |
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300,000 |
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658,734 |
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** |
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Steven L. Scott
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2,179 |
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525,773 |
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527,952 |
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** |
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Kenneth W. Johnson(4)(6)
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193,775 |
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530,200 |
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723,925 |
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** |
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Burton J. Smith
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205,275 |
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0 |
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205,275 |
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** |
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All directors and executive officers as a group
(16 persons)(4)
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2,177,768 |
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5,098,728 |
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7,276,496 |
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7.51 |
% |
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* |
Unless otherwise indicated, all addresses are c/o Cray
Inc., 411 First Avenue South, Suite 600, Seattle, WA
98104-2860. |
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** |
Less than 1% |
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(1) |
This table is based upon information supplied by the named
executive officers, directors and 5% shareholders, including
filings with the Securities and Exchange Commission (the
SEC). Unless otherwise indicated in these notes and
subject to community property laws where applicable, each of the
listed shareholders 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
stock options and warrants held by the person or group in
question, which may be exercised or converted on April 17,
2006, or within 60 days thereafter. |
5
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(2) |
Mr. Peizer has sole voting and dispositive powers regarding
the shares of common stock underlying certain warrants, which
are held of record by Laphroig LLC (warrants for
4,882,438 shares) and Chinaco LLC (warrants for
256,970 shares). |
|
(3) |
The information under the column Common Shares Owned
is based on a Schedule 13G filed with the SEC on
February 15, 2006, regarding ownership as of
December 31, 2005. In that Schedule 13G, Wells
Fargo & Company, as parent company, reported sole
voting power over 10,078,142 shares and sole dispositive
power over 10,319,173 shares, with one subsidiary, Wells
Capital Management Incorporated, reporting sole voting power
over 2,650,002 shares and sole dispositive power over
9,896,478 shares and another subsidiary, Wells Fargo Funds
Management, LLC, reporting sole voting power over
7,428,140 shares and sole dispositive power over
422,695 shares. We have issued a common stock purchase
warrant to Wells Fargo Foothill, Inc., which we believe is
affiliated with the foregoing entities, covering
200,000 shares, which is not reflected on the Schedule 13G. |
|
(4) |
The number of common shares shown for the indicated executive
officers includes restricted shares which vest on June 30,
2007, and are forfeitable in certain circumstances, as follows:
Mr. Ungaro 600,000 shares,
Mr. Henry 350,000 shares,
Ms. Williams 350,000 shares,
Mr. Johnson 100,000 shares, and other
executive officers 150,000 shares. |
|
(5) |
Mr. Rottsolk disclaims beneficial ownership of
5,871 shares for which he has voting and dispositive powers
as custodian for his son under the Washington Uniform Gifts to
Minors Act. |
|
(6) |
Mr. Johnson disclaims beneficial ownership of
2,600 shares for which he has voting and dispositive powers
as a trustee of trusts for the benefit of his children,
100 shares owned by his wife and 500 shares owned by a
child. |
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Section 16(a) Beneficial Ownership Reporting
Compliance |
Section 16(a) of the Securities Exchange Act of 1934 (the
Exchange Act) requires that our directors, executive
officers and greater-than-10% shareholders file reports with the
SEC on their initial beneficial ownership of our common stock
and any subsequent changes. They must also provide us with
copies of the reports.
We are required to tell you in this Proxy Statement if we know
about any failure to report as required. We reviewed copies of
all reports furnished to us and obtained written representations
that no other reports were required. Based on this, we believe
that all of these reporting persons complied with their filing
requirements for 2005.
CORPORATE GOVERNANCE
The goals of our Board of Directors are to build long-term value
for our shareholders and to assure our vitality for our
customers, employees and others that depend on us. Our Board has
adopted and follows corporate governance practices that our
Board and our senior management believe promote these purposes,
are sound and represent best practices. To this end we have
adopted charters for each of our Board committees, guidelines
for our corporate governance and a Code of Business Conduct that
applies to all of our directors, officers and employees. We
periodically review these governance practices against
requirements of the SEC, the listing standards of the Nasdaq
National Market System (Nasdaq), the laws of the
State of Washington and practices suggested by recognized
corporate governance authorities.
The Board of Directors
The Board of Directors oversees our business and affairs and
monitors the performance of management. In accordance with
corporate governance principles, the Board does not involve
itself in day-to-day
operations. The directors keep themselves informed through
discussions with the Chief Executive Officer, other key
executives and our principal external advisers (legal counsel
and outside auditors), by reading the reports and other
materials that we send them regularly and by participating in
Board and committee meetings.
6
Currently our Board has eight members. The Board has determined
that seven directors, identified on the Common Stock Ownership
table above, meet the Nasdaq National Market System standards
for independence. Only independent directors serve on our Audit,
Compensation and Corporate Governance Committees.
The Board met ten times and the Board standing committees held a
total of 35 meetings during 2005. Each director attended at
least 95% of the meetings of the Board and relevant standing
committees on which such director served. The average attendance
for all directors at Board and standing committee meetings was
over 98%.
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The Committees of the Board |
The Board has established an Audit Committee, a Compensation
Committee and a Corporate Governance Committee as standing
committees of the Board. None of the Directors who serve as
members of these committees is, or has ever been, one of our
employees.
Audit Committee. The current members of the Audit
Committee are: Daniel C. Regis (Chair), Sally G. Narodick and
Stephen C. Richards. The Audit Committee and the Board have
determined that each member of the Audit Committee is
independent, as that term is defined in SEC and
Nasdaq National Market rules and regulations, and that
Mr. Regis is an audit committee financial
expert, as that term is defined in SEC regulations. The
Audit Committee had 25 meetings during 2005. The Audit Committee
assists the Board of Directors in fulfilling its responsibility
for oversight of:
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the quality and integrity of our accounting and financial
reporting processes and the audits of our financial statements, |
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the qualifications and independence of the public auditing firm
engaged to issue an audit report on our financial statements, |
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the performance of our systems of internal controls, disclosure
controls and internal audit functions, and |
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our procedures for legal and regulatory compliance, risk
assessment and business conduct standards. |
The Audit Committee is directly and solely responsible for
appointing, determining the compensation payable to, overseeing,
terminating and replacing any independent auditor engaged by us
for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for us.
The Audit Committee charter and the Code of Business Conduct are
available on our web site: www.cray.com under
Investors Corporate Governance
Committee Charters and Governance
Documents, respectively. The report of the Audit
Committee regarding its review of the financial statements and
other matters is set forth below on page 29.
Compensation Committee. The current members of the
Compensation Committee are: Frank L. Lederman (Chair), John B.
Jones, Jr., Kenneth W. Kennedy, Jr., Stephen C. Kiely
and Stephen C. Richards (who joined the Committee in October
2005). The Compensation Committee and the Board have determined
that each member of the Compensation Committee is
independent, as that term is defined in Nasdaq rules
and regulations. The Compensation Committee held seven meetings
in 2005. The Compensation Committee assists the Board of
Directors in fulfilling its responsibilities for the oversight
of:
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our compensation policies, plans and benefit programs, |
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the compensation of the chief executive officer and other
executive officers, and |
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the administration of our equity compensation plans. |
Our compensation policies, plans and programs are designed to
attract and retain the best personnel to allow us to achieve our
goals and maintain our competitive posture. We seek to foster an
environment that rewards superior performance and aligns the
interests of our employees to the long-term interests of our
shareholders through equity incentives. The Compensation
Committee has the authority to determine the compensation of our
executive officers other than the Chief Executive Officer. The
Board (acting in executive
7
session without the presence of the Chief Executive Officer)
determines the compensation of the Chief Executive Officer based
on the recommendation of the Committee.
The Compensation Committee adopted a charter that has been
approved by the Board of Directors. The Compensation Committee
charter is available on our web site: www.cray.com under
Investors Corporate Governance
Committee Charters. Each year, the Compensation
Committee reports to you on executive compensation. The
Compensation Committees Report on Executive Compensation
for 2005 is set forth below beginning on page 18.
Corporate Governance Committee. The current members of
the Corporate Governance Committee are: Stephen C. Kiely
(Chair), Frank L. Lederman and Daniel C. Regis. The Corporate
Governance Committee and the Board have determined that each
member of the Corporate Governance Committee is
independent, as that term is defined in Nasdaq
National Market rules and regulations. The Corporate Governance
Committee held three meetings in 2005. The Corporate Governance
Committee has the responsibility to:
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develop and recommend to the Board a set of corporate governance
principles, |
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recommend qualified individuals to the Board for nomination as
directors, |
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lead the Board in its annual review of the Boards
performance, and |
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recommend directors to the Board for appointment to Board
committees. |
The Corporate Governance Committee has adopted a charter and
Corporate Governance Guidelines, both of which have been
approved by the Board of Directors. The Corporate Governance
Committee charter and the Corporate Governance Guidelines are
available on our web site: www.cray.com under
Investors-Corporate Governance Committee
Charters and Governance
Documents, respectively.
From time to time, the Board establishes other committees on an
ad-hoc basis to assist in its oversight responsibilities.
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Lead Director; Chairman of the Board |
In January 2005 the Board appointed Stephen C. Kiely as Lead
Director; in August 2005 Mr. Kiely was appointed as
Chairman of the Board, a non-executive position. As Lead
Director and as Chairman, Mr. Kiely consults with
Mr. Ungaro, as Chief Executive Officer, regarding agenda
items for Board meetings; chairs executive sessions of the
Boards independent directors; communicates concerns of the
independent directors to the Chief Executive Officer; and
performs such other duties as the Board deems appropriate.
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Shareholder Communications, Director Candidate
Recommendations and Nominations and Other Shareholder
Proposals |
Communications. The Corporate Governance Committee has
established a procedure for our shareholders to communicate with
the Board. Communications should be in writing, addressed to:
Corporate Secretary, Cray Inc., 411 First Avenue South,
Suite 600, Seattle,
WA 98104-2860, and
marked to the attention of the Board or any of its individual
committees or the Chairman of the Board. Copies of all
communications so addressed will be promptly forwarded to the
chairman of the committee involved, in the case of the
communications addressed to the Board as a whole, to the
Corporate Governance Committee or, if addressed to the Chairman,
to the Chairman of the Board.
Director Candidates. The criteria for Board membership as
adopted by the Board include a persons integrity,
knowledge, judgment, skills, expertise, collegiality, diversity
of experience and other time commitments (including positions on
other company boards) in the context of the then-current
composition of the Board. The Corporate Governance Committee is
responsible for assessing the appropriate balance of skills
brought to the Board by its members, and ensuring that an
appropriate mix of specialized knowledge (e.g., financial,
industry or technology) is represented on the Board.
Once the Corporate Governance Committee has identified a
potential director nominee, the Committee in consultation with
the Chief Executive Officer evaluates the prospective nominee
against the specific criteria that the Board has established and
as set forth in our Corporate Governance Guidelines. If the
Corporate
8
Governance Committee determines to proceed with further
consideration, then members of the Corporate Governance
Committee, the Chief Executive Officer and other members of the
Board, as appropriate, interview the prospective nominee. After
completing this evaluation and interview, the Corporate
Governance Committee makes a recommendation to the full Board,
which makes the final determination whether to elect the new
director.
The Corporate Governance Committee will consider candidates for
director recommended by shareholders and will evaluate those
candidates using the criteria set forth above. Shareholders
should accompany their recommendations by a sufficiently
detailed description of the candidates background and
qualifications to allow the Corporate Governance Committee to
evaluate the candidate in light of the criteria described above,
a document signed by the candidate indicating his or her
willingness to serve if elected and evidence of the nominating
shareholders ownership of our common stock. Such
recommendation and documents should be submitted in writing to:
Corporate Secretary, Cray Inc., 411 First Avenue South,
Suite 600, Seattle,
WA 98104-2860,
marked to the attention of the Corporate Governance Committee.
In addition, our Bylaws permit shareholders to nominate
directors at a shareholders meeting. In order to nominate
a director at a shareholders meeting, you must notify us
not fewer than 60 nor more than 90 days in advance of the
meeting or, if later, by the 10th business day following
the first public announcement of the meeting. In addition, the
proposal must contain the information required in our Bylaws for
director nominations, including:
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your name and address, |
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the number of shares of our common stock which you own and when
you acquired them, |
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a representation that you intend to appear at the meeting, in
person or by proxy, |
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each nominees name, age, address and principal occupation
or employment, |
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all information concerning the nominee that must be disclosed
about nominees in proxy solicitations under the SEC proxy
rules, and |
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each nominees executed consent to serve as a director if
so elected. |
The Chairman of the Board, in his discretion, may determine that
a proposed nomination was not made in accordance with the
required procedures and, if so, disregard the nomination.
Shareholder Proposals. In order for a shareholder
proposal to be considered for inclusion in our proxy statement
for the 2007 Annual Meeting, we must receive the written
proposal no later than December 31, 2006. Such proposals
also must comply with SEC regulations regarding the inclusion of
shareholder proposals in company-sponsored proxy materials.
In order for a shareholder proposal to be raised from the floor
during the 2006 Annual Meeting, written notice of the proposal
must be received by us not less than 60 nor more than
90 days prior to the meeting or, if later, by the
10th business day following the first public announcement
of the meeting. The proposal must also contain the information
required in our Bylaws for shareholder proposals, including:
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a brief description of the business you wish to bring before the
meeting, the reasons for conducting such business and the
language of the proposal, |
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your name and address, |
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the number of shares of our common stock which you own and when
you acquired them, |
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a representation that you intend to appear at the meeting, in
person or by proxy, and |
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any material interest you have in the business to be brought
before the meeting. |
The Chairman of the Board, if the facts so warrant, may direct
that any business was not properly brought before the meeting in
accordance with our Bylaws.
If you wish to obtain a free copy of our Bylaws, please contact
Kenneth W. Johnson, Corporate Secretary, Cray Inc., 411 First
Avenue South, Suite 600, Seattle, WA 98104-2860. The Bylaws
are available on our web site: www.cray.com under
Investors Corporate Governance
Governance Documents.
9
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How We Compensate Directors |
Cash. Each non-employee Director receives an annual
retainer of $10,000, paid quarterly, and a fee of $2,500 for
each meeting of the Board attended in person or $1,000 ($1,500
beginning April 1, 2006) if attended telephonically. The
Chairman of the Board receives an annual fee of $4,000, paid
quarterly. The Audit Committee chair receives an annual fee of
$6,000, paid quarterly. The chairs of the Compensation Committee
and the Corporate Governance Committee each receive an annual
fee of $2,000, paid quarterly, and each director receives a fee
of $1,000 ($2,000 beginning April 1, 2006) for each
committee meeting attended, whether in person or telephonically.
When the Board creates committees other than the standing
committees identified above, the Board determines whether to
extend the same committee fee structure to the members of such
committees. We reimburse all expenses related to participation
in meetings of the shareholders, Board and committees.
Equity Awards. Each non-employee director, upon his or
her first election to the Board, is granted an option for
20,000 shares, vesting immediately, and with an exercise
price equal to the fair market value of our common stock on the
date of such first election. Prior to 2005, each non-employee
director, on the date of the Annual Meeting, was granted a
non-qualified option for 20,000 shares of our common stock,
vesting monthly over the next twelve months and with an exercise
price equal to the fair market value of our common stock on the
date of the Annual Meeting. If a non-employee director joined
the Board during a term, he or she received a pro-rata portion
of the options for 20,000 shares. In 2005, non-employee
directors received options for 20,000 shares that were
laddered in installments of 5,000 shares each with per
share exercise prices of $2.00, $2.50, $3.00 and $3.50 each when
the per share fair market value of our common stock was $1.47;
these options vested in full on December 31, 2005.
Commencing with the Annual Meeting in 2006, we plan to grant to
each continuing non-employee director elected by the
shareholders restricted shares of common stock with a value
equal to that directors fees earned in the previous fiscal
year, including annual retainer, fees for chairing the Board and
Board committees and for Board and committee attendance. The per
share value of shares granted will be determined by using the
fair market value of our common stock on the date of such
election. One-half of the shares will be restricted against sale
or transfer for a period of one year from date of grant; the
balance will be restricted against sale or transfer for a period
of two years from the date of grant. The non-employee directors
may vote and receive dividends on the restricted shares while
the restrictions remain in place. If a non-employee director
resigns from the Board without the prior approval of the
Corporate Governance Committee while the restrictions are in
place, the non-employee director forfeits the shares so
restricted. Implementation of this policy is subject to
shareholder approval of the 2006 Long-Term Equity Compensation
Plan. If the shareholders do not approve that Plan, then we will
grant stock options to non-employee directors pursuant to our
current practice.
The Board has established stock ownership guidelines pursuant to
which, no later than two years after receiving restricted shares
under the new plan, non-employee directors should hold shares of
common stock with at least a value, based on acquisition cost,
equal to one-years Board retainer and Board attendance
fees.
We do not compensate employee directors for their service on the
Board.
Under the arrangements described above, our directors earned the
following amounts for 2005: Daniel J. Evans (prior to his
retirement from the Board) $5,000; John B.
Jones, Jr. $40,500; Kenneth W.
Kennedy, Jr. $38,500; Stephen C.
Kiely $45,500; Frank L. Lederman
$44,000; Sally G. Narodick $53,000; Daniel C.
Regis $65,500 and Stephen C. Richards
$53,000. Each director, other than Mr. Evans, received
stock options for 20,000 shares, that were laddered in
installments of 5,000 shares each with per share exercise
prices of $2.00, $2.50, $3.00 and $3.50, respectively; these
options vested in full on December 31, 2005.
10
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Director Attendance at Annual Meetings |
We encourage but do not require our directors to attend the
Annual Meeting of Shareholders. Although we usually schedule a
regular Board meeting on the morning before the Annual Meeting,
we were not able to schedule a Board meeting on the date of the
rescheduled 2006 Annual Meeting. All of our directors attended
the 2005 Annual Meeting.
The Executive Officers
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How We Compensate Executive Officers |
The tables and text on this and the following pages describe the
salaries, bonuses and other compensation paid during the last
three years, options granted in 2005, option values as of
year-end 2005 and option repricings, as applicable, for both
individuals who served as our President and Chief Executive
Officer in 2005, our next four most highly compensated executive
officers who were serving as executive officers at the end of
2005 and one individual who would have been one of our four most
highly compensated executive officers but for the fact he was
not serving as an executive officer at the end of 2005.
Summary Compensation Table
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Long-Term | |
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Compensation | |
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Annual Compensation | |
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Restricted | |
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Securities | |
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All Other | |
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Fiscal | |
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Other Annual | |
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Stock | |
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Underlying | |
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Compen- | |
Name and Principal Position |
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Year | |
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Salary | |
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Bonus(1) | |
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Compensation | |
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Awards(2) | |
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Options | |
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sation(3) | |
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Peter J. Ungaro(4)
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2005 |
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$ |
264,262 |
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$ |
413,754 |
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$ |
846,000 |
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700,000 |
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$ |
2,543 |
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Chief Executive Officer and |
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2004 |
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$ |
283,333 |
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400,000 |
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$ |
3,759 |
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President |
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2003 |
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$ |
100,480 |
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$ |
319,680 |
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$ |
180,000 |
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500,000 |
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$ |
315 |
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James E. Rottsolk(5)
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2005 |
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$ |
339,333 |
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200,000 |
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$ |
662,530 |
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Chief Executive Officer and |
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2004 |
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$ |
350,000 |
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200,000 |
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$ |
7,658 |
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President |
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2003 |
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$ |
337,500 |
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$ |
263,813 |
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$ |
131,245 |
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$ |
8,106 |
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Brian C. Henry(6)
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2005 |
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$ |
168,641 |
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$ |
281,250 |
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$ |
493,500 |
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500,000 |
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$ |
2,292 |
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Executive Vice President |
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and Chief Financial Officer |
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Margaret A. Williams(7)
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2005 |
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$ |
182,231 |
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$ |
125,000 |
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$ |
493,500 |
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100,000 |
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$ |
1,465 |
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Senior Vice President |
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Steven L. Scott(8)
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2005 |
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$ |
258,215 |
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$ |
125,000 |
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400,000 |
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$ |
2,662 |
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Senior Vice President and |
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2004 |
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$ |
214,400 |
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75,000 |
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$ |
3,756 |
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Chief Technology Officer |
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2003 |
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$ |
211,667 |
|
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$ |
64,200 |
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$ |
3,625 |
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Kenneth W. Johnson(9)
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2005 |
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$ |
219,076 |
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$ |
25,000 |
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$ |
141,000 |
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316,700 |
|
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$ |
5,907 |
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Senior Vice President and |
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2004 |
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$ |
220,000 |
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$ |
30,000 |
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50,000 |
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$ |
7,713 |
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General Counsel |
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2003 |
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$ |
217,500 |
|
|
$ |
88,440 |
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$ |
43,995 |
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$ |
8,327 |
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Burton J. Smith(10)
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2005 |
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$ |
256,115 |
|
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$ |
750 |
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100,000 |
|
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$ |
5,527 |
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Chief Scientist |
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2004 |
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$ |
250,000 |
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100,000 |
|
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$ |
6,338 |
|
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|
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2003 |
|
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$ |
246,500 |
|
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$ |
100,500 |
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$ |
49,996 |
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$ |
8,169 |
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|
(1) |
Bonuses are shown for the year earned. If the bonuses were not
paid during the year, they were paid in the following calendar
year. |
|
|
(2) |
In 2005 we granted shares of restricted stock to the named
executive officers as follows: Mr. Ungaro
600,000 shares; Mr. Henry
350,000 shares; Ms. Williams
350,000 shares; and Mr. Johnson
100,000 shares. All such shares vest on June 30, 2007,
and are forfeitable if before such date the officer is
discharged with cause or resigns without good reason, as such
terms are defined in the restrictive stock agreements. If we
were to pay dividends on our common stock, the holders of the
restricted shares would be eligible to receive such dividends.
The values shown in the above table are based on the closing
price of $1.41 per share for our common stock on the date
of grant, December 20, 2005, as reported by Nasdaq. The
restricted shares granted in 2005 are the only restricted shares
currently owned by the named executive officers. As of
December 31, 2005, these shares had the following values,
based on the |
11
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|
|
|
|
closing price of our common stock of $1.33 per share on
December 30, 2005, the last trading day of the year, as
reported by Nasdaq: Mr. Ungaro $798,000;
Mr. Henry $465,500;
Ms. Williams $465,000, and
Mr. Johnson $133,000. |
|
|
|
(3) |
All Other Compensation for 2005 includes premiums
for group term life insurance policies
(Mr. Ungaro $486, Mr. Rottsolk
$3,564, Mr. Henry $542,
Ms. Williams $540, Mr. Scott
$477, Mr. Johnson $3,434, and
Mr. Smith $3,416) and our matching
contributions under our 401(k) Plan (Mr. Ungaro
$2,057, Mr. Rottsolk $2,716,
Mr. Henry $1,750, Ms. Williams
$925, Mr. Scott $2,185,
Mr. Johnson $2,473, and
Mr. Smith $2,111). |
|
|
|
(4) |
Mr. Ungaro joined us in August 2003. The amount shown as
Bonus for 2003 includes a one-time hiring bonus of
$250,000. On March 7, 2005, Mr. Ungaro was appointed
President. In connection with his appointment as President, he
received a one-time appointment bonus of $300,000 that in part
was in lieu of a payment under a 2004 special incentive plan
based on product revenue and gross margin. We had accrued
$88,647 for payment of such 2004 bonus. On August 8, 2005,
Mr. Ungaro was named Chief Executive Officer. The amount
shown under Bonus for 2005 includes an override
bonus based on gross margin pursuant to our March 2005 agreement
with Mr. Ungaro. |
|
|
(5) |
Mr. Rottsolk was President until March 7, 2005, and
Chief Executive Officer until August 8, 2005. He remained
an employee until January 1, 2006. The amount shown under
All Other Compensation includes the amount of
$656,250 which is payable to Mr. Rottsolk under our
Executive Severance Policy. This amount is being paid in
bi-weekly payments from January 2006 through December 31,
2007. |
|
|
(6) |
Mr. Henry joined us as Chief Financial Officer in May 2005.
Mr. Henry earned a bonus for 2005 for the accomplishment of
certain goals specified in his offer letter. The amount shown as
Bonus for 2005 also includes a one-time hiring bonus
of $200,000, which vests monthly and will vest in full in May
2006; Mr. Henry agreed to repay the unvested portion of
this bonus if he leaves before May 2006. |
|
|
(7) |
Ms. Williams joined us as a Senior Vice President in April
2005. The amount shown as Bonus for 2005 was a
one-time hiring bonus which she has agreed to repay to us if she
leaves before April 2006. |
|
|
|
(8) |
Mr. Scott was appointed as Senior Vice President in October
2005. He previously served as an employee from 1992 through
mid-July 2005, and rejoined us in September 2005. The amount
shown as Bonus for 2005 was a one-time hiring bonus,
of which $63,000 was paid in September 2005 and $62,000 was paid
in March 2006, which Mr. Scott has agreed to repay to us if
he leaves before September 2007. |
|
|
|
(9) |
From November 2004 to May 2005, Mr. Johnson also served as
our Chief Financial Officer, and the amounts shown under
Bonus for 2004 and 2005 were for his contributions
for accepting this position on an interim basis in addition to
his other responsibilities. Of the options shown as granted to
Mr. Johnson in 2005, 216,700 were outstanding options that
were repriced. See the tables below titled Option Grants
in 2005 and Ten-Year Option Repricings. |
|
|
(10) |
Mr. Smith resigned as an officer and employee effective
December 7, 2005. The amount shown under Bonus
includes payments to Mr. Smith for issued patents under a
policy available to all employees. |
12
Option Grants in 2005
The following table provides information on option grants in
2005 to each of the executive officers named in the Summary
Compensation Table. All options were granted at or above the
fair market value of our common stock on the date of grant.
|
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|
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|
Potential Realizable Value | |
|
|
Number of | |
|
% of Total | |
|
|
|
|
|
at Assumed Annual Rates | |
|
|
Securities | |
|
Options | |
|
|
|
|
|
of Stock Price Appreciation | |
|
|
Underlying | |
|
Granted to | |
|
|
|
|
|
for Option Term | |
|
|
Options | |
|
Employees in | |
|
Exercise Price | |
|
Expiration | |
|
| |
Name |
|
Granted(1) | |
|
Fiscal Year(2) | |
|
Per Share | |
|
Date | |
|
5% (6) | |
|
10% (6) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Peter J. Ungaro
|
|
|
175,000 |
(3) |
|
|
2.74% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
69,032 |
|
|
$ |
317,240 |
|
|
|
|
175,000 |
(3) |
|
|
2.74% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
229,740 |
|
|
|
|
175,000 |
(3) |
|
|
2.74% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
142,240 |
|
|
|
|
175,000 |
(3) |
|
|
2.74% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
54,740 |
|
James E. Rottsolk(7)
|
|
|
50,000 |
(3) |
|
|
0.78% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
19,723 |
|
|
$ |
90,640 |
|
|
|
|
50,000 |
(3) |
|
|
0.78% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
65,640 |
|
|
|
|
50,000 |
(3) |
|
|
0.78% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
40,640 |
|
|
|
|
50,000 |
(3) |
|
|
0.78% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
15,640 |
|
Brian C. Henry
|
|
|
500,000 |
|
|
|
7.83% |
|
|
$ |
1.48 |
|
|
|
5/23/15 |
|
|
$ |
465,379 |
|
|
$ |
1,179,368 |
|
Margaret A. Williams
|
|
|
50,000 |
(4) |
|
|
0.78% |
|
|
$ |
2.08 |
|
|
|
4/27/15 |
|
|
$ |
65,405 |
|
|
$ |
165,749 |
|
|
|
|
50,000 |
(4) |
|
|
0.78% |
|
|
$ |
2.50 |
|
|
|
4/27/15 |
|
|
$ |
44,405 |
|
|
$ |
144,749 |
|
|
|
|
50,000 |
(4) |
|
|
0.78% |
|
|
$ |
2.91 |
|
|
|
4/27/15 |
|
|
$ |
23,905 |
|
|
$ |
124,249 |
|
|
|
|
50,000 |
(4) |
|
|
0.78% |
|
|
$ |
3.33 |
|
|
|
4/27/15 |
|
|
$ |
2,905 |
|
|
$ |
103,249 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
9,862 |
|
|
$ |
45,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
32,820 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
20,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
7,820 |
|
Steven L. Scott
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
9,862 |
|
|
$ |
45,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
32,820 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
20,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
7,820 |
|
|
|
|
300,000 |
|
|
|
4.70% |
|
|
$ |
0.95 |
|
|
|
9/26/15 |
|
|
$ |
179,422 |
|
|
$ |
454,694 |
|
Kenneth W. Johnson
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
9,862 |
|
|
$ |
45,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
32,820 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
20,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
7,820 |
|
|
|
|
29,200 |
(5) |
|
|
0.46% |
|
|
$ |
1.49 |
|
|
|
2/03/09 |
|
|
$ |
9,376 |
|
|
$ |
19,409 |
|
|
|
|
70,000 |
(5) |
|
|
1.10% |
|
|
$ |
1.49 |
|
|
|
2/01/10 |
|
|
$ |
28,816 |
|
|
$ |
63,676 |
|
|
|
|
117,500 |
(5) |
|
|
1.84% |
|
|
$ |
1.49 |
|
|
|
8/26/12 |
|
|
$ |
71,273 |
|
|
$ |
166,097 |
|
Burton J. Smith(8)
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.00 |
|
|
|
5/11/15 |
|
|
$ |
9,862 |
|
|
$ |
45,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
2.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
32,820 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.00 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
20,320 |
|
|
|
|
25,000 |
(3) |
|
|
0.39% |
|
|
$ |
3.50 |
|
|
|
5/11/15 |
|
|
|
|
|
|
$ |
7,820 |
|
|
|
(1) |
The options listed above became vested in full on or before
December 31, 2005. All of the executive officers
options will expire ten years from the date of grant or, if
earlier, upon a specified time after employment terminates. |
13
|
|
(2) |
We granted options, including repriced options, for an aggregate
of 6,388,530 shares to employees in 2005. |
|
(3) |
On the date these options were granted, the fair market value of
our common stock was $1.47 per share. |
|
(4) |
On the date these options were granted, the fair market value of
our common stock was $2.08 per share. |
|
(5) |
These options, covering an aggregate of 216,700 shares,
shown as granted to Mr. Johnson with a per share exercise
price of $1.49, were outstanding options that were repriced to
the current fair value of our common stock on December 20,
2005, the date of repricing. The terms of these options, other
than the exercise price, were not changed. |
|
(6) |
The amounts reported in the last two columns represent
hypothetical values that the executive officers could realize
upon exercise of the options immediately before the expiration
of their terms, assuming the specified compounded rates of
appreciation of the price of our common stock over the term of
the options. We have calculated these numbers based on the rules
of the SEC and they do not represent our estimate of future
price growth of our common stock. Our common stock may not
achieve the rates of appreciation assumed in this table, and the
executive officers may not receive the amounts reflected in this
table. This table does not take into account any appreciation in
the price of our common stock from the date of grant to the
current date. Values shown are net of the option exercise price
but do not include deductions for taxes or other expenses
associated with the exercise. |
|
(7) |
Mr. Rottsolk was President until March 7, 2005, and
Chief Executive Officer until August 8, 2005. He remained
an employee until January 1, 2006. Mr. Rottsolks
options, if not exercised, expire on December 31, 2007. |
|
(8) |
Mr. Smith resigned as an officer and employee effective
December 7, 2005, and these options terminated as of that
date. |
Aggregated Option Values as of Year-End 2005
The following table provides information, with respect to each
of the executive officers named in the Summary Compensation
Table, regarding the value of unexercised options held by them
at December 31, 2005, less the applicable option exercise
price but without any deduction for applicable taxes. Actual
gains, if any, will depend on the value of our common stock on
the date of any sale of the underlying common stock. No named
executive officer exercised any stock options in 2005. All
options held by the named executive officers vested in full on
or before December 31, 2005.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Underlying | |
|
Value of Unexercised | |
|
|
Unexercised Options at | |
|
In-the-Money Options at | |
|
|
December 31, 2005 | |
|
December 31, 2005(1) | |
|
|
| |
|
| |
Name |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
Peter J. Ungaro
|
|
|
1,600,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
James E. Rottsolk(2)
|
|
|
1,754,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Brian C. Henry
|
|
|
500,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Margaret A. Williams
|
|
|
300,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Steven L. Scott
|
|
|
525,773 |
|
|
|
0 |
|
|
$ |
113,700 |
|
|
$ |
0 |
|
Kenneth W. Johnson
|
|
|
530,200 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Burton J. Smith(3)
|
|
|
1,076,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
(1) |
In-the-money
stock options are options for which the exercise price is less
than the market price of the underlying stock on a particular
date. On December 30, 2005, the last trading date of the
year, the closing per share price of our common stock on the
Nasdaq National Market System was $1.33. |
|
(2) |
Of Mr. Rottsolks options, a total of 894,000 expired
on January 10, 2006, following his termination of
employment. His remaining options, if not exercised, expire on
December 31, 2007. |
|
(3) |
Mr. Smiths options expired on March 7, 2006. |
14
Ten-Year Option Repricings
In connection with a broad grant of stock options and restricted
stock to employees, including executive officers, on
December 20, 2005, we repriced an aggregate of 1,274,260
outstanding stock options previously granted under plans that
permitted repricings, including the options described below to
individuals who are, or who received these stock options when
they were, executive officers. Other than lowering the exercise
price, we made no other change to any of the option terms. This
is the only time we have repriced outstanding stock options.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
Length of |
|
|
|
|
Underlying |
|
Market Price of |
|
Exercise |
|
|
|
Original Option |
|
|
|
|
Number of |
|
Common Stock |
|
Price at |
|
|
|
Term Remaining |
|
|
|
|
Options |
|
at Time of |
|
Time of |
|
New Exercise |
|
at Date of |
Name |
|
Date |
|
Repriced |
|
Repricing |
|
Repricing |
|
Price |
|
Repricing |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth W. Johnson
|
|
|
12/20/05 |
|
|
|
70,000 |
|
|
$ |
1.49 |
|
|
$ |
7.84 |
|
|
$ |
1.49 |
|
|
|
4.1 years |
|
|
Senior Vice President
|
|
|
12/20/05 |
|
|
|
29,200 |
|
|
$ |
1.49 |
|
|
$ |
6.13 |
|
|
$ |
1.49 |
|
|
|
3.1 years |
|
|
and General Counsel
|
|
|
12/20/05 |
|
|
|
117,500 |
|
|
$ |
1.49 |
|
|
$ |
3.95 |
|
|
$ |
1.49 |
|
|
|
6.7 years |
|
Christopher Jehn
|
|
|
12/20/05 |
|
|
|
32,293 |
|
|
$ |
1.49 |
|
|
$ |
3.95 |
|
|
$ |
1.49 |
|
|
|
6.7 years |
|
|
Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David R. Kiefer
|
|
|
12/20/05 |
|
|
|
75,000 |
|
|
$ |
1.49 |
|
|
$ |
5.00 |
|
|
$ |
1.49 |
|
|
|
5.5 years |
|
|
Senior Vice President
|
|
|
12/20/05 |
|
|
|
100,000 |
|
|
$ |
1.49 |
|
|
$ |
3.95 |
|
|
$ |
1.49 |
|
|
|
6.7 years |
|
The report of our Compensation Committee on the repricing of
stock options is contained in its Report on Executive
Compensation for 2005 set forth below beginning on page 18.
Equity Compensation Plan Information
The following table provides information as of December 31,
2005, with respect to compensation plans under which shares of
our common stock are authorized for issuance, including plans
previously approved by our shareholders and plans not previously
approved by our shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of |
|
|
Number of Shares of |
|
|
|
Common Stock Available |
|
|
Common Stock to be |
|
Weighted-Average Exercise |
|
for Future Issuance Under |
|
|
Issued Upon Exercise of |
|
Price of Outstanding |
|
Equity Compensation |
|
|
Outstanding Options, |
|
Options, Warrants and |
|
Plans (excluding shares |
Plan Category |
|
Warrants and Rights |
|
Rights |
|
reflected in 1st column) |
|
|
|
|
|
|
|
Equity compensation plans approved by shareholders(1)
|
|
|
13,485,363 |
|
|
|
$4.72 |
|
|
|
2,263,468 |
|
Equity compensation plans not approved by shareholders(2)
|
|
|
4,515,217 |
|
|
|
$2.41 |
|
|
|
100,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,000,580 |
|
|
|
$4.14 |
|
|
|
2,363,538 |
|
|
|
(1) |
The shareholders approved our 1988, 1995 Independent Director,
1995, 1999 and 2003 stock option plans, our 2004 long-term
equity compensation plan and our 2001 employee stock purchase
plan; the 1988, the 1995 Independent Director and the 1995 stock
option plans have been terminated and no more options may be
granted under those plans. Pursuant to these stock option plans,
incentive and nonqualified options may be granted to employees,
officers, directors, agents and consultants with exercise prices
at least equal to the fair market value of the underlying common
stock at the time of grant. While the Board may grant options
with varying vesting periods under these plans, most options
granted to employees vest over 4 years, with 25% of the
options vesting after one year and the remaining options vesting
monthly over the next three years, and most option grants to
non-employee directors vest monthly over the twelve months after
grant. On March 21, 2005, the vesting of all employee stock
options with per share exercise prices of $2.36 or higher was
accelerated, and on May 11, 2005, the vesting of all
employee stock options with per share exercise prices of $1.47
or higher was accelerated; the vesting of stock options granted
to non-employee directors and contractors was not accelerated.
Most options granted in 2005 vested in full on or before
December 31, 2005. Under the 2004 long-term equity
compensation plan, |
15
|
|
|
the Board may grant restricted and performance stock grants in
addition to incentive and nonqualified stock options. Under
these option and equity compensation plans approved by
shareholders under which we may grant stock options, an
aggregate of 113,599 shares remained available for grant as
of December 31, 2005; we may grant restricted stock and
stock bonuses only under the 2004 long-term equity compensation
plan; as of December 31, 2005, only 9,023 shares
remained available for grant under the 2004 long-term equity
compensation plan. |
|
|
|
|
|
Under the 2001 employee stock purchase plan, all employees are
eligible to participate and through December 15, 2005, had
the right to purchase shares in three-month offering periods at
the lesser of (a) 85% of the fair market value of the
common stock at the beginning of each offering period or
(b) 100% of the fair market value of the common stock at
the end of each offering period. Effective December 16,
2005, the pricing formula was changed to 95% of the fair market
value of our common stock at the end of each offering period.
The 2001 employee stock purchase plan covers a total of
4,000,000 shares; at December 31, 2005, we had issued
a total of 1,850,131 shares under the 2001 plan and had a
total of 2,149,869 shares available for future issuance.
The first two columns do not include the shares available under
the 2001 employee stock purchase plan for the offering period
that spans December 31, 2005, as neither the number of
shares to be issued in that offering period nor the offering
price were then determinable. |
|
|
(2) |
The shareholders did not approve the 2000 non-executive employee
stock option plan. Under the 2000 non-executive employee stock
option plan approved by the Board of Directors on March 30,
2000, an aggregate of 6,000,000 shares pursuant to
non-qualified options could be issued to employees, agents and
consultants but not to officers or directors. Otherwise, the
2000 non-executive employee stock option plan is similar to the
stock option plans described in footnote (1) above. At
December 31, 2005, under the 2000 non-executive employee
stock plan we had options for 3,658,030 shares outstanding
and 100,070 options available for grant. |
|
|
|
|
|
On April 1, 2004, in connection with the acquisition of
OctigaBay Systems Corporation, subsequently renamed Cray Canada
Inc., we assumed that companys key employee stock option
plan, including existing options. Options could be granted to
Cray Canada employees, directors and consultants. Otherwise the
Cray Canada key employee stock option plan is similar to the
stock option plans described in footnote (1) above. Under
the Cray Canada key employee stock option plan, we had 857,187
options outstanding as of December 31, 2005. On
March 8, 2006, the Cray Canada plan was terminated.
Although on December 31, 2005, we had 519,750 options
available for grant to individuals eligible under that plan, we
issued no options under the Cray Canada plan between that date
and termination of the Cray Canada plan, and those shares are
not included in third column above. |
|
|
|
From time to time we have issued warrants as compensation to
consultants and others for services without shareholder
approval. As of December 31, 2005, we had no such warrants
outstanding. |
|
|
|
Management Agreements and Policies |
Management Continuation Agreements. We have entered into
Management Continuation Agreements with certain of our
employees, including our current executive officers named in the
Summary Compensation Table above. Pursuant to these agreements,
each such officer or employee is eligible to receive, in the
event that his or her employment is terminated within three
years following a change of control, other than for just cause,
death, disability, retirement or resignation other than for good
reason, as such terms are defined in the agreement, an amount
equal to two times his or her annual compensation, continuation
of health benefits and group term life insurance for twenty-four
months thereafter and the acceleration of vesting for all
options held. If these severance payments were to constitute
excess parachute payments for federal income tax
purposes, we have agreed to pay any excise taxes due with
respect to those excess parachute payments, and any
further excise taxes and federal and state income taxes due with
respect to these additional payments, so that the employee
receives the same after-tax compensation the employee would have
received if no excise tax were imposed.
16
Under the Management Continuation Agreements, annual
compensation means one year of base salary, at the highest
base salary rate that was paid to the employee in the
12-month period prior
to the date of his or her termination of employment, plus 100%
of the annual bonus which the employee was eligible to receive
in that 12-month
period. A change of control includes a 50% or
greater change in voting power immediately following a merger or
an acquisition and certain changes in the composition of the
Board of Directors during a thirty-six month period not
initiated by our Board of Directors.
Executive Severance Policy. In October 2002 the Board
adopted an Executive Severance Policy that covers our officers,
including the executive officers named in the Summary
Compensation Table. This policy primarily applies to
terminations of employment without cause or resignations for
good reason (as such terms are defined in the policy); this
policy does not apply if the Management Continuation Agreements
described above are applicable and does not apply to
terminations due to death, disability or retirement. If
applicable, this policy provides for continuation of base
salary, exclusive of bonus, for varying periods except as
discussed below. For the Chief Executive Officer, until
March 7, 2005, the period was twelve months plus one month
for each year of service as an officer up to a maximum of
fifteen months; for senior vice presidents, the period is nine
months plus one month for each year of service as an officer up
to a maximum of twelve months; and for other vice presidents,
the period is six months plus one month for each year of service
as an officer up to a maximum of nine months. On March 7,
2005, the Board amended the Executive Severance Plan with
respect to the salary portion of the severance payment to be
paid to the Chief Executive Officer and the President. The Chief
Executive Officer receives 100% of the total of the annual base
salary and the executive bonus based on the target established
by the Board for each year. The payment to the President is
based on his total annual base salary, the executive bonus based
on the target established by the Board for each year and an
override bonus based on gross margin and the Board-approved plan
for each year, with the President receiving 200% of such
compensation if his employment was terminated before the end of
March 2008 and 100% of such compensation thereafter. On
August 8, 2005, in connection with Mr. Ungaro being
appointed the Chief Executive Officer in addition to being the
President, the Executive Severance Policy was amended to
eliminate the separate severance payment to the Chief Executive
Officer and to provide that the payment previously payable to
the President was for the President and the Chief Executive
Officer. This policy also provides for continued payment of our
portion of medical, dental, vision and life insurance benefits,
extension of a period to exercise stock options if permitted by
the applicable option agreement and executive outplacement
services. To receive these benefits the officer must provide us
with a general release and continue to comply with his or her
confidentiality and other agreements with us. Our obligations
under this policy are unfunded and the Board has the express
right to modify or terminate this policy at any time. The
arrangements with Mr. Rottsolk in connection with his
resignation effective January 1, 2006, were pursuant to the
Executive Severance Policy as then in effect.
Compensation Agreements with Mr. Ungaro. On
March 7, 2005, we entered into a letter agreement with
Mr. Ungaro regarding his appointment as President. Under
that agreement, Mr. Ungaros annual base salary was
increased to $350,000 effective March 1, 2005, he received
a one-time appointment bonus of $300,000 that in part was in
lieu of a payment under a 2004 special incentive plan based on
product revenue and gross margin under which we had accrued
$88,647 for payment of such 2004 bonus, he is eligible for an
award of 75% of base salary under our executive bonus plan, and
he is eligible to receive an override bonus based on our total
gross margin, as the gross margin is reported in our public
financial statements. The bonus is .0035 of the gross margin up
to the gross margin target in the plan approved by the Board for
such year, and .006 of gross margin in excess of such approved
gross margin. The override bonus is to be paid quarterly, after
filing of the applicable Reports on
Forms 10-Q
or 10-K with the
SEC, with any true-up
necessary in the payment for the fourth quarter of each fiscal
year.
Retention Agreements. On December 20, 2005, our
Board of Directors approved retention agreements with each of
three executive officers: Peter J. Ungaro, President and Chief
Executive Officer; Brian C. Henry, Executive Vice President and
Chief Financial Officer; and Margaret A. Williams, Senior Vice
President. The agreements provide that if the officer remains
employed by us on December 31, 2006, and December 31,
2007, he or she will receive a retention bonus. The amount of
the bonus is equal to, for 2006, 100% of the sum of the
officers base pay in 2006 plus target bonus assuming 100%
of target is reached, and, for 2007, 50% of the sum
17
of the officers base pay in 2007 plus target bonus
assuming 100% of target is reached. In the event the officer is
terminated without cause or terminates with good reason, as such
terms are defined in the agreement, Mr. Henry and
Ms. Williams would receive payment under the retention
agreement and, if applicable, a payment under our Executive
Severance Policy, as then in effect; in such event
Mr. Ungaro would receive the higher of the payment under
the retention agreement or the Executive Severance Policy, but
not payments under both. An officer would not receive a payment
under the retention agreement if he or she were terminated for
cause, died, retired, terminated employment for other than for
good reason or because of disability, as such terms are defined
in the retention agreement. If there were a change of control,
the Board then would decide whether the retention agreements
would be applicable in addition to the Management Continuation
Agreements described above.
|
|
|
Compensation Committee Interlocks and Insider
Participation |
The current members of the Compensation Committee are Frank L.
Lederman (chair), John B. Jones, Jr., Kenneth W.
Kennedy, Jr. Stephen C. Kiely and Stephen C. Richards. No
member of the Compensation Committee was an officer or employee
of Cray Inc. or any of our subsidiaries in 2005 or formerly. In
addition, none of our executive officers served on the board of
directors or compensation committee of any entity whose
executive officers included one of our directors.
Report on Executive Compensation for 2005 by the Compensation
Committee
The Compensation Committee of the Board of Directors is
responsible for reviewing and approving the compensation
philosophy of Cray Inc. and its subsidiaries (together, the
Company) and for reviewing on a periodic basis the
competitiveness of the Companys compensation plans and
benefits programs to ensure that these plans and programs serve
to attract and retain highly qualified employees, including
executive officers, to motivate all employees to achieve the
Companys business objectives and to align the interests of
all employees with the long-term interests of the shareholders.
The Compensation Committees membership and duties are
described above under Corporate Governance The
Board of Directors The Committees of the
Board Compensation Committee.
Philosophy
The Companys compensation philosophy is to provide
policies, plans and programs designed to attract and retain the
best personnel at all levels to allow it to achieve its goals
and maintain its competitive posture. The Companys
executive officer compensation policies are founded on these
same principles. Pursuant to this overall approach:
|
|
|
|
|
Compensation is based on the level of job responsibility,
individual performance and Company performance. As employees
assume greater levels of responsibility, an increasing
proportion of their pay is linked to Company performance and
shareholder return. |
|
|
|
To attract and retain a highly skilled work force, the Company
must remain competitive with the pay of other employers that
compete with it for talent. In all markets the Company faces
competition for its employees from many sources, often including
technology companies with far greater resources. This
competitive pressure has increased the need to improve overall
compensation, even in the light of disappointing Company
performance in the last two years. To provide stability, the
Company has provided retention incentives where appropriate. |
|
|
|
The Company seeks to align the interests of its employees to the
long-term interests of the shareholders through equity
incentives, principally with stock options and on a more limited
basis through restricted stock grants. |
18
General Compensation Program
In furtherance of this philosophy, the Companys
compensation program for employees generally has the following
elements:
The Companys approach is to have base salaries at
approximately the 50% median for the job title and
responsibility, with additional compensation coming from cash
bonus and long-term equity incentives. Base salaries are
reviewed annually based on Company and individual performance
for the previous year, taking into account any adjustments in
job responsibility during the year. In this process, both
internal and external relative parity among employees are
considered as is published compensation information,
particularly the Radford Surveys, and competitive information
obtained in connection with new employee hires and, when
possible, from departing employees.
Employees not on a commission plan participate in the
Companys variable pay program. Variable pay cash bonus
goals are expressed as a percentage of base salary and are
established each year, with levels of bonuses increasing based
on job responsibilities. The variable pay bonuses have been
based both on Company performance and on achievement of
individual goals established each year, and generally are paid
after the year has been completed. In 2005, as in previous
years, a prerequisite for payment of any variable pay cash bonus
was annual net operating income, and thus no variable pay
bonuses were paid for 2005 to any employee. The Committee is
reviewing the continuation of this requirement in 2006 for
employees, especially those who do not have direct
responsibility for overall Company financial performance.
Stock Options. Long-term equity incentives generally have
taken the form of ten-year stock options with exercise prices
set at 100% of fair market value of the Companys common
stock on the date of grant, thus providing value to the optionee
only if the value of the Companys common stock
appreciates. Through 2005, our general approach was to grant
stock options to new employees as of their first date of
employment. The Company also has had a broad annual grant of
options to nearly all employees, with the number of options in
individual cases based on the employees performance and
job responsibility, generally measured by salary range. While
previous option grants had four-year vesting periods, with 25%
of the options vesting after one year and the balance vesting
over the next 36 months, stock options granted in 2005
generally vested on or before December 31, 2005. In
addition, in 2005 the Board approved immediate vesting of all
outstanding options held by employees with an exercise price of
$1.47 per share or higher. In taking this action the Board
balanced the retentive value of longer-term vesting programs
against employee morale and the perception of option values,
particularly in light of the decline in market value of the
Companys common stock and new accounting rules requiring
the deemed value of vesting options to be recorded as a
compensation expense on the Companys financial statements.
December Option Grant and Repricing. In 2005, the general
grant of stock options to employees occurred in December. Given
the performance of the Company, and as no variable pay cash
bonuses had been paid for 2004 or would be payable for 2005, and
in recognition that the market price for the Companys
common stock was at levels substantially below the exercise
price for many of the outstanding options held by employees,
which substantially negated the incentive value of those
options, the Compensation Committee concurred with
managements recommendation that a larger equity grant than
in recent years was appropriate to increase morale and to
further align employees interests with shareholders
interests. The Company, however, did not have sufficient options
available for grant under its existing stock option plans to
accomplish these goals fully. The Companys 2003 stock
option plan and 2004 long-term equity compensation plan did not
permit repricing of options granted under those plans, although
earlier option plans permitted option repricing. The Board of
Directors, including the Compensation Committee, while generally
not favoring repricing of outstanding stock options, concluded
that repricing of certain outstanding options where permitted
was the
19
only way of fully achieving the goals of the broad equity grant.
As a result, the Board of Directors, upon the recommendation of
the Compensation Committee, approved a grant of 1,237,060 new
options with ten-year terms, immediate vesting and an exercise
price of $1.49 per share, the fair market value of the
Companys common stock, and it lowered the exercise price
of 1,274,260 outstanding options with exercise prices above
$3.50 per share to $1.49 per share without changing
other terms of these existing options. The Company used option
valuation methodology to equalize as much as possible the value
of a repriced option with a shorter life to a new grant of a
ten-year option. This is the only time that the Company has
repriced outstanding options. For 2006, the Compensation
Committee is reviewing with the Company the general grant of
options to new employees, the parameters of annual grants and
the appropriate vesting period of new options.
Restricted Stock. In the December 2005 grant, the Board
approved the grant of 1,815,000 shares of restricted stock,
vesting on June 30, 2007. This grant was limited to certain
key managers and executive officers, as described more fully
below under Executive Officer Compensation. The
grant of restricted stock was to provide both equity and
retention incentives.
Employee Stock Purchase Plan. The Company also provides
all employees with the opportunity to purchase shares of its
common stock under an Employee Stock Purchase Plan
(ESPP) qualified under Section 423 of the
U.S. Internal Revenue Code. Participants may contribute
from $50 per month up to 15% of their gross pay and
purchase shares in three-month offering periods. Through
December 15, 2005, the ESPP permitted participants to
purchase shares at the lower of 85% of the market value of the
Companys common stock at the beginning of each offering
period or 100% of the market value at the end of each offering
period, thus rewarding participants if the market price
generally increased during the period. Because of the change in
the accounting rules for equity compensation, the Companys
shareholders approved amendments to the ESPP changing the
purchase price formula for purchases in 2006 to 95% of the
market value of the common stock at the end of each offering
period.
The Companys only retirement plan for all
U.S. employees, including executive officers, is a
qualified 401(k) plan under which employees may contribute a
portion of their salary on a pre-tax basis. Contributions in
2005 were limited to $14,000 annually, with a limit of up to
$18,000 for employees age 50 or over. Employees may invest
in a limited number of mutual funds, and may not use voluntary
contributions to purchase shares of the Companys common
stock. Until 2004, the Company matched employee contributions at
a 25% rate, with half of the match paid in cash on a quarterly
basis during the year and the balance payable after the end of
the year in cash and/or Company common stock. The remaining
match usually has been paid in shares of the Companys
common stock. There are no restrictions, other than those
imposed by the securities laws regarding insider trading, on
employees transferring the value of the Companys common
stock in their accounts to other permitted investments. In 2005,
the Company ceased its matching contribution for the second half
of the year. The Company intends to reinstate a form of matching
contribution when overall Company performance improves.
The Company believes its benefits plans provide an important
element to overall employee compensation. The Company has
several benefit plans available on a non-discriminatory basis to
all employees in the United States, including group medical,
dental and vision plans, life insurance, long-term care, short
and long-term disability, supplemental income protection, a
retiree medical plan, flexible spending accounts for health care
and dependent care, an employee assistance plan and travel
assistance.
The foregoing describes generally the Companys
compensation program for its employees in the United States.
Subject to local laws and practices, the Company attempts to
provide the same or substantially equivalent programs and
benefits for its employees located in other countries.
20
Executive Officer Compensation
The elements of executive officer compensation follow the
general compensation elements described above. Executive
officers participate in the ESPP, 401(k) plan and benefits plans
on the same basis as all U.S. employees. Except as
described below with respect to an executive severance policy,
management continuation agreements and certain retention
agreements, the Company provides no deferred or special
compensation or retirement plans and no perquisites (other than
five reserved parking places at the Companys Seattle,
Washington, headquarters) for executive officers.
For compensation purposes, the Company considers as executive
officers the Chief Executive Officer and those officers who are
responsible for a principal business unit or who perform a
policy-making function and who report to the Chief Executive
Officer. The Company currently has identified, in addition to
the Chief Executive Officer, six officers as executive officers.
The Compensation Committee determines an annual compensation
plan for the executive officers, other than for the Chief
Executive Officer, after soliciting the recommendations of the
Chief Executive Officer, and recommends the compensation of the
Chief Executive Officer to the full Board. The Summary
Compensation Table above sets forth the compensation for
the last three fiscal years for the two individuals who served
as Chief Executive Officer in 2005, for the next four most
highly compensated executive officers who were serving as
executive officers at the end of 2005 and for one individual who
would have been one of the four most highly compensated
executive officers but for the fact he was not serving as an
executive officer at the end of 2005.
In making individual base salary decisions for executive
officers, the Committee considers each officers duties,
the quality of the officers performance, the
officers potential, market compensation practices, the
contribution the officer has made to our overall performance,
the Companys financial status and salary levels in
comparable high technology companies. The 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. As with our employees
generally, base salaries are generally established at median
levels with a higher percentage of total compensation being at
risk through the management cash bonus program and equity
incentives.
In 2005, the Companys senior management team was
significantly restructured, including promoting Peter J. Ungaro
first to President and later to Chief Executive Officer, and
adding Margaret A. Williams, Brian C. Henry, Steven L. Scott and
Jan C. Silverman to key executive officer positions. While each
hire was negotiated separately, principal consideration was
given to providing competitive compensation in order to attract
them to come and to stay with the Company while attempting to
stay within the Companys general compensation structure,
including overall compensation and the role of base salary, cash
bonuses and long-term equity incentives.
Our executive bonus plan is a material element of the annual
compensation program for our executive officers. The Company
also includes other officers in this plan, except for those with
sales functions who are on a sales commission plan. The 2005
executive bonus plan provided for bonuses as a percentage of
salary based on our achieving certain specified goals regarding
net operating income (as adjusted for unplanned significant
costs and adjustments) and, with respect to each participant,
meeting certain individual performance goals. Target bonuses for
executive officers, other than the Chief Executive Officer,
range from 40% to 50% of base salary. Depending on Company
performance, an individual could earn up to 200% of target, with
the Chief Executive Officer, subject to Committee concurrence,
authorized to recommend final bonuses ranging from 0% to 125%
based on individual performance. Although Company performance
and individual goals each counted for 50% of the total possible
bonus in 2005, the Company had to reach a certain level of net
operating income for any bonus to be paid. For 2005, given the
Companys financial results for the year, the Compensation
Committee granted no bonuses to executive officers or other
participants under this plan. The bonus to Mr. Johnson for
2005 was for his contributions in accepting the position of
Chief Financial Officer on
21
an interim basis in the fall of 2004 and service as such during
the first five months in 2005 in addition to his other
responsibilities. In attracting Mr. Henry to become our
Chief Financial Officer, and as specified in his offer letter,
the Company agreed that half his 2005 bonus would be based on
achieving specific key goals without being dependent on the
Company reaching a level of operating income.
As noted earlier, the Company significantly revamped its senior
management team in 2005. In order to attract these new
executives to new positions with the Company, and to keep within
the Companys general salary structure, the Company
provided appointment or hiring bonuses that, except for
Mr. Ungaro, vested over negotiated periods and were
repayable if the executive left the Company before vesting. The
appointment and hiring bonuses granted to the named executive
officers are reflected on the Summary Compensation
Table above.
In determining the amount of equity compensation to be awarded
to executive officers in a fiscal year, the Compensation
Committee considers the current stock ownership of the officer,
relevant industry experience, the impact of the officers
contribution, the number of years each officer has been employed
by us, the possibility of future promotions, the extent and
frequency of prior option grants, the officers unvested
stock option position and the range of outstanding options with
exercise prices below or near the current market price for the
Companys common stock. In prior years, as with options
granted to all employees described above, options were granted
to executive officers at fair market value upon grant and with
four-year vesting periods. In May 2005, stock options were
granted to executive officers upon consideration of these
factors. In providing the May 2005 grants, the Committee also
was concerned about the relatively low level of the
Companys common stock market price. It also was
considering the impact of the new accounting rule requiring the
expensing of vesting stock options on the financial statements
as compensation expense. To accommodate these concerns, and to
provide both retention and financial incentives, the stock
options granted in May 2005 vested on December 31, 2005,
but with exercise prices set above the market price for the
Companys common stock on the date of grant, which was
$1.47 per share, with 25% of each option granted having
exercise prices of $2.00, $2.50, $3.00 and $3.50 per share,
respectively. Separately, all executive officers also had the
vesting of existing options accelerated in 2005 on the same
basis as all employees, as described above under General
Compensation Program Equity Incentives
Stock Options.
In the fall of 2005, the Compensation Committee worked with the
senior management team for a broad grant of stock options to all
employees, which occurred in December 2005. The background of
the December 2005 grant of stock options and repricing of
certain outstanding options is described above under
General Compensation Program Equity
Incentives December Option Grant and
Repricing. The Compensation Committee decided to include
executive officers in this grant in addition to the May 2005
grant for several reasons, including recognition of improvements
in the Companys financial performance in the second half,
particularly reduction of operating expenses; increasing their
equity participation in the Company, further aligning their
interests with the shareholders for long-term growth; and
retaining parity among the executive officers in light of equity
grants to new officers hired during the year where grants were
given in consideration of competitive offers. Of the 1,237,060
options granted in December 2005, none were issued to executive
officers. Of the 1,274,260 options that were repriced, an
aggregate of 423,993 repriced options were held by
individuals who are, or who received the options when they were,
executive officers, as set forth on the Ten-Year Option
Repricing Table above.
As part of the December 2005 grant, the Compensation Committee
also approved the grant of restricted stock to certain executive
officers and key managers, with 1,410,000 of the total of
1,815,000 restricted shares issued to executive officers; both
these figures exclude 150,000 restricted shares previously
granted to Mr. Silverman in connection with his joining the
Company. The restrictions on transfer lapse on June 30,
2007; if prior to that date a recipient is terminated for cause
or terminates without good reason, as those terms are defined in
the restricted stock grant agreement, the officer forfeits those
restricted shares. These grants of restricted stock were to
increase each recipients ownership of the Companys
common stock, thereby aligning their interests with shareholder
interests, and with the vesting schedule to provide a retention
incentive. The
22
restricted stock grants to named executive officers are
reflected on the Summary Compensation Table above
and are described in footnote 2 to that table.
Executive Severance Policy. The Board of Directors has
had an executive severance policy in effect since October 2002
that covers specified officers, including the Companys
executive officers, in order to provide an incentive for
individuals to assume key leadership positions. The policy sets
forth certain payments and benefits to be provided when
applicable, but does not restrict the Companys ability to
terminate the employment of any covered officer. This policy
applies if the officers employment is terminated other
than for cause, death, disability, retirement or resignation
other than for good reason (as such terms are defined in the
policy); this policy does not apply if the management
continuation agreements described below are applicable. The
terms of the executive severance policy are described more fully
under Management Agreements and Policies above.
Changes in the policy in 2005 with respect to Mr. Rottsolk
and Mr. Ungaro, as Chief Executive Officers, are described
under Chief Executive Officers below. Obligations
under this policy are funded out of the Companys general
assets. The Company has the authority to amend or discontinue
the executive severance policy, and the Chief Executive Officer
has the authority to change the officers to whom the policy
applies at any time; prior to termination of employment, no
officer has any vested rights under this policy.
Mr. Rottsolk is receiving payments and benefits pursuant to
this policy, as described in footnote 5 to the
Summary Compensation Table above.
Management Continuation Agreements. We have entered into
management continuation agreements with certain of our officers,
including our current executive officers named in the
Summary Compensation Table above. Pursuant to these
agreements, each such officer is eligible to receive, in the
event that his or her employment is terminated within three
years following a change of control, other than for just cause,
death, disability, retirement or resignation other than for good
reason, as such terms are defined in the agreement, an amount
equal to two times his or her annual cash compensation,
continuation of health benefits and group term life insurance
for twenty-four months thereafter and the acceleration of
vesting for all options held. The purpose of these agreements is
to ensure the continuity of management and to foster objectivity
in the face of potentially distracting circumstances arising
from the possibility of a change of control of the Company. We
are not aware of any such change of control now being
contemplated. The terms of the Management Continuation
Agreements are described more fully under Management
Agreements and Policies above.
Chief Executive Officers
|
|
|
Base Salary and Cash Bonus |
The Committee recommends to the Board the compensation of the
Chief Executive Officer, including base salary, bonus plan and
equity incentives. In March 2005, the Board restructured the
Companys senior management, with Mr. Ungaro becoming
President and responsible for all of the Companys
functions except finance, legal and government relations, and
Mr. Rottsolk continuing as Chairman and Chief Executive
Officer. In connection with this change, Mr. Ungaros
base salary was increased from $300,000 to $350,000, he received
a one-time appointment bonus of $300,000, and his target
percentage in the executive bonus plan was increased from 50% to
75% of base salary. The $300,000 appointment bonus in part was
in lieu of a payment under a 2004 special incentive plan based
on product revenue and gross margin under which the Company had
accrued $88,647 for payment. Mr. Ungaro was also provided a
special override bonus for 2005 based on total gross margin as
reported in our public financial statements in recognition that
the Companys gross margin had been deteriorating in recent
years. In recognition of the uncertainty that such a restructure
creates, the Compensation Committee also recommended, and the
Board approved, amending the executive severance plan for
Mr. Rottsolk and Mr. Ungaro to provide for a payment
based on total cash compensation rather than on base salary
only. For Mr. Rottsolk, the severance plan payment was set
at 100% of the total of base salary and target bonus under the
management bonus plan; for Mr. Ungaro, the severance plan
payment was set at 200% of the total of base salary, target
bonus under the management plan and target bonus under the
override bonus through March 2008 and 100% of the total of such
elements thereafter. At the same time, Mr. Rottsolks
annual base salary was increased from $350,000 to $375,000. The
Compensation Committee and Board believed these increases and
changes were necessary and appropriate in order to attract
Mr. Ungaro to assume these expanded responsibilities and to
reflect that Mr. Ungaro reported to Mr. Rottsolk.
23
In August 2005, Mr. Ungaro assumed the responsibilities of
Chief Executive Officer while continuing to serve as President.
There were no changes to his compensation in connection with
that change.
In May 2005, as recommended by the Committee and approved by the
Board, Mr. Rottsolk received an option grant for
200,000 shares, and Mr. Ungaro received an option
grant for 700,000 shares, each with per share exercise
prices above the then current market price for the
Companys common stock at the time and on the same other
terms for all executive officers, as described above. The size
of the grants reflected the Compensation Committees
judgment as to future contributions to the Company and was to
provide a substantial level of equity incentive in alignment
with shareholders interests. As with all other employees
and executive officers, Mr. Rottsolk and Mr. Ungaro
had the vesting of outstanding options accelerated, also as
described earlier. As part of the December equity grant,
Mr. Ungaro received a grant of 600,000 shares of
restricted stock vesting on June 30, 2007, and on the same
terms as restricted stock grants to other executives and key
managers described above. The size of the grant reflected
recognition of Mr. Ungaros leadership role in
assembling a restructured senior management team and reducing
operating expenses and that Mr. Ungaros stock options
have exercise prices above the current market prices for the
Companys common stock, including the options described
above and options granted in 2003 for 500,000 shares at
$9.00 per share. The grant was also designed to provide a
strong retention incentive.
In addition to the salary and equity compensation described
above, the Board of Directors wanted to provide a significant
retention incentive for Mr. Ungaro and two other new
executive officers with important roles, Mr. Henry as
Executive Vice President and Chief Financial Officer and
Ms. Williams as Senior Vice President responsible for all
research and development activities. In December 2005, the Board
approved and the Company entered into separate retention
agreements with each of these three executive officers providing
financial incentives if the officer remained employed by the
Company at December 31, 2006, and at December 31,
2007. These agreements reflected the awareness that each of
these individuals are well known and highly sought, that they
each have contributed significantly to the Company in their new
roles in the relatively brief period they have been with the
Company and that the loss of any of these individuals at this
time particularly would materially adversely affect the Company.
The terms of the retention agreements are described under
Management Agreement and Policies above.
Section 162(m)
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. This limitation does not
apply, however, to performance-based compensation,
as defined under the Federal tax laws. Stock options and annual
incentive awards generally qualify as
performance-based compensation, and are, therefore,
fully deductible.
The Committee considers the anticipated tax treatment to the
Company and its executive officers when reviewing executive
compensation programs. The deductibility of some types of
compensation payments can depend upon the timing of an
executives vesting or exercise of previously granted
rights. Interpretations of and changes in applicable tax laws
and regulations, as well as other factors beyond the
Committees control, also can affect deductibility of
compensation.
The Committee will continue to assess alternatives for
preserving the deductibility of compensation payments and
benefits. However, the Committee will not necessarily seek to
limit executive compensation to amounts deductible under
Section 162(m), since the Committee wishes to maintain the
flexibility to structure the Companys compensation
programs in ways that best promote the best interests of the
Company and its shareholders.
24
Conclusion
The Committee and the Board believe that the caliber and
motivation of all our employees, and especially our executive
leadership, are essential to the Companys performance. We
believe our management compensation programs contribute to the
Companys ability to differentiate our performance from
others in the marketplace. We will continue to evolve and
administer our compensation program in a manner that we believe
will be in shareholders interests and worthy of
shareholder support.
|
|
|
The Compensation Committee |
|
|
Frank L. Lederman, Chairman |
|
John B. Jones, Jr. |
|
Kenneth W. Kennedy, Jr. |
|
Stephen C. Kiely |
|
Stephen C. Richards |
Legal Proceedings and Indemnification
We and several of our current and former officers and directors
have been named as defendants in a securities class action
lawsuit filed in the U.S. District Court for the Western
District of Washington. Plaintiffs seek to represent a class of
purchasers of our securities from October 23, 2002, through
May 9, 2005. The consolidated complaint alleges federal
securities law violations in connection with the issuance of
various public statements. In addition, shareholder derivative
lawsuits which purport to be brought on our behalf and assert
allegations substantially similar to those asserted in the class
action complaint, as well as allegations of breach of fiduciary
duty, abuse of control, gross mismanagement, waste of corporate
assets and unjust enrichment, have been filed in the
U.S. District Court for the Western District of Washington
and in the Superior Court of the State of Washington for King
County against members of our Board of Directors, including all
nominees for the Directors identified below under
Discussion Of Proposals Recommended By The
Board Proposal 1: To Elect Eight Directors For
One-Year Terms, and certain current and former officers
and former directors. Under the indemnification provisions
contained in our Bylaws, we are required to pay for our current
and former directors, and the Board has determined that we will
pay for our current and former officers, all the expenses,
including attorneys fees, incurred by these current and
former officers and directors, in defending against these
actions. Each of these individuals has provided an undertaking
to repay all amounts advanced if it is ultimately determined
that he or she is not entitled to be so indemnified.
25
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
Change in Independent Registered Public Accounting Firms
On April 11, 2005, Deloitte & Touche LLP
(D&T) informed the Chairman of our Audit
Committee that D&T would not stand for re-election as our
independent registered public accounting firm for the fiscal
year ending December 31, 2005. D&T had been our
independent auditors since 1987. D&T continued to be engaged
to provide its attestation report on managements
assessment of our internal control over financial reporting
required by Item 308(b) of
Regulation S-K for
filing in an amendment to our Annual Report on
Form 10-K for the
year ended December 31, 2004, and to review our interim
financial information to be included in our Quarterly Report on
Form 10-Q for our
first quarter ended March 31, 2005.
D&T completed its services for us with the filing on
May 10, 2005, of our Quarterly Report on
Form 10-Q for our
first quarter ended March 31, 2005.
We have been informed by D&T that its decision not to stand
for re-election was not the result of any disagreements between
us and D&T on matters of accounting principles or practices,
financial statement disclosure or audit scope or procedures.
The audit reports of D&T on our financial statements for
fiscal years ended December 31, 2004, and 2003, contained
no adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or
accounting principles. As set forth under Item 9A of our
Form 10-K/ A filed
with the SEC on May 3, 2005, D&Ts report on
internal control over financial reporting disclaimed an opinion
on managements assessment of the effectiveness of our
internal control over financial reporting because of a scope
limitation and expressed an adverse opinion on the effectiveness
of our internal control over financial reporting because of
material weaknesses and the effects of the scope limitation. We
received an unqualified audit report from D&T on the
consolidated financial statements contained in our Annual Report
on Form 10-K for
the fiscal year ended December 31, 2004.
During the period from January 1, 2003, through
May 10, 2005, when D&T completed its services, there
were no disagreements between us and D&T on any matter of
accounting principles or practices, financial statement
disclosure or audit scope or procedure which, if not resolved to
D&Ts satisfaction, would have caused it to make a
reference to the subject matter of the disagreement in
connection with its reports.
During the period from January 1, 2003, through
May 10, 2005, there were no reportable events as defined in
Item 304(a)(1)(v) of
Regulation S-K,
except as follows:
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In connection with the performance of its audit of our financial
statements for the year ended December 31, 2003, D&T
reported to our Audit Committee that a reportable condition
existed with respect to the lack of policies and procedures
relating to accounting for non-revenue related contracts with
third parties, specifically contracts entered into without the
knowledge of and/or review by our accounting department to
properly assess and account for the related contract; |
|
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With respect to the material weaknesses in internal control over
financial reporting described under Item 9A of our
Form 10-K filed
with the SEC on April 1, 2005; and |
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With respect to the material weaknesses in internal control over
financial reporting described under Item 9A of our
Form 10-K/A filed
with the SEC on May 3, 2005. |
On June 30, 2005, our Audit Committee engaged the firm of
Peterson Sullivan PLLC of Seattle, Washington, to act as our
independent registered public accounting firm.
During the fiscal years ended December 31, 2003, and 2004
and the interim period to June 30, 2005, we did not consult
with Peterson Sullivan PLLC for any services, including either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements; or
(ii) any matter that was either the subject of a
disagreement or a reportable event.
26
Information Regarding our Independent Registered Public
Accounting Firms
Peterson Sullivan PLLC commenced serving as our independent
auditors on June 30, 2005 and audited our 2005 financial
statements. Our Audit Committee has selected Peterson Sullivan
PLLC to serve as our independent auditors for 2006. As stated
above, Deloitte & Touche LLP served as our independent
auditors through May 10, 2005, and audited our 2004
financial statements. Representatives of Peterson Sullivan PLLC
are expected to be present at the Annual Meeting, and will have
the opportunity to make a statement and to respond to
appropriate questions.
The following table lists the fees for services rendered by
Deloitte & Touche LLP for 2004 and through May 10,
2005 (except for performance of statutory audits of certain
foreign subsidiaries past this date):
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Services |
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2005 | |
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2004 | |
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| |
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Audit Fees(1)
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$ |
173,000 |
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$ |
1,419,000 |
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Audit-Related Fees(2)
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29,000 |
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Tax Fees(3)
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45,000 |
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228,000 |
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All Other Fees(4)
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Total
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$ |
218,000 |
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$ |
1,649,000 |
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The following table lists the fees for services rendered by
Peterson Sullivan PLLC from June 30, 2005, through
December 31, 2005:
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Services |
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2005 | |
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Audit Fees(1)
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$ |
789,000 |
|
Audit-Related Fees(2)
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Tax Fees(3)
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All Other Fees(4)
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Total
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$ |
789,000 |
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(1) |
Audit services billed for 2005 and 2004 consisted of: audit of
our annual financial statements, audits of our assessment of our
internal control over financial reporting and the effectiveness
of our internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act, reviews of our
quarterly financial statements, statutory and regulatory audits,
consents, comfort letters and other services related to filings
with the SEC and capital raising offerings. |
|
(2) |
No audit-related services were billed in 2005. Audit-related
services billed in 2004 consisted of employee benefit audits. |
|
(3) |
Tax services billed in 2005 and 2004 consisted of tax compliance
and tax planning and advice: |
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Fees for tax compliance services totaled $30,000 in 2005 and
$70,000 in 2004. Tax compliance services are services rendered,
based upon facts already in existence or completed transactions,
to document, compute and obtain government approval for amounts
to be included in tax filings. Such services consisted of
federal, state and local income tax return assistance, sales and
use, property and other tax return assistance, assistance with
tax return filings in certain foreign jurisdictions and transfer
pricing documentation. |
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Fees for tax planning and advice services totaled $15,000 in
2005 and $158,000 in 2004. Tax planning and advice are services
rendered with respect to proposed transactions or that structure
a transaction to obtain a particular tax result. Such services
consisted of tax advice related to research and development tax
credits and tax advice related to intra-group restructuring. |
|
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(4) |
There were no fees billed for other services in 2005 or 2004 by
either Deloitte & Touche LLP or Peterson Sullivan PLLC. |
27
The Audit Committee has determined that the provision of
non-audit services for us by Deloitte & Touche LLP for
us in 2004 and 2005, were compatible with such firm maintaining
its independence. Peterson Sullivan PLLC to date has not
performed any non-audit services for us.
The Audit Committee approved the following non-audit services
performed by by Deloitte & Touche LLP in 2004 and 2005:
|
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Consultations and consents related to SEC filings and
registrations statements, |
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Audits of employee benefit plans, |
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Statutory audits required by our foreign subsidiaries and
consultation on accounting matters, |
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Tax planning and tax compliance for the U.S. and foreign income
and other taxes, and |
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Assistance related to implementation of Section 404 of the
Sarbanes-Oxley Act of 2002. |
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Audit Committee Pre-Approval Policy |
All audit, tax and other services to be performed for us by
Peterson Sullivan PLLC from June 30, 2005, and, prior to
May 10, 2005, by Deloitte & Touche LLP, must be
pre-approved by the Audit Committee. The Audit Committee reviews
the description of the services and an estimate of the
anticipated costs of performing those services. Services not
previously approved cannot commence until such approval has been
granted. Pre-approval usually is granted at regularly scheduled
meetings. If unanticipated items arise between meetings of the
Audit Committee, the Audit Committee has delegated approval
authority to the Chairman of the Audit Committee, in which case
the Chairman communicates such pre-approvals to the full
Committee at its next meeting. During 2005, all services
performed by Peterson Sullivan PLLC and Deloitte &
Touche LLP were pre-approved by the Audit Committee in
accordance with this policy.
28
Report on the 2005 Financial Statements and Independent
Registered Public Accounting Firms by the Audit Committee
The Audit Committee of the Board of Directors has furnished the
following report:
The management of Cray Inc. (the Company) has the
responsibility for the financial statements and for their
integrity and objectivity. To help fulfill this responsibility,
management maintains a system of internal controls designed to
provide reasonable assurance that assets are safeguarded against
loss or unauthorized use and that transactions are executed in
accordance with managements authorizations and are
reflected accurately in our records. The Audit Committee
oversees the fulfillment by management of its responsibilities
over financial controls and the preparation of the financial
statements. The Audit Committee has reviewed the Companys
audited financial statements for the fiscal year ended
December 31, 2005, and discussed such statements with
management and the Companys independent registered public
accounting firm, Peterson Sullivan PLLC, including discussions
concerning the quality of accounting principles, reasonableness
of significant judgments and disclosures in the financial
statements.
The Audit Committee also has discussed with the Companys
independent auditors such matters relating to the performance of
the audit as are required to be discussed by Statement of
Auditing Standards No. 61 (Communications with Audit and
Finance Committees, as amended). Additionally, the Audit
Committee has discussed with the independent auditors their
independence with respect to the Company and considered whether
their potential provision of non-audit services is compatible
with maintaining that independence. In this consideration, the
Audit Committee reviewed the fees billed by the independent
auditors as disclosed above. The Company has received the
written disclosures and the letter from the independent auditors
required by the Independence Standards Board Standard No. 1.
In reliance on the reviews and discussions referred to above,
the Audit Committee has recommended to the Board of Directors
that the audited financial statements be included in the Annual
Report on
Form 10-K for the
year ended December 31, 2005, for filing with the
Securities and Exchange Commission.
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The Audit Committee |
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Daniel C. Regis, Chairman |
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Sally G. Narodick |
|
Stephen C. Richards |
29
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return to
shareholders for our common stock with the comparable return of
the Nasdaq Stock Market (U.S. companies) Index and the
Nasdaq Computer Manufacturer Stocks Index.
The graph assumes that a shareholder invested $100 in our common
stock on December 29, 2000, and that all dividends were
reinvested. We have never paid cash dividends on our common
stock. All return information is historical and is not
necessarily indicative of future performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG OUR COMMON
STOCK,
THE NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX AND THE
NASDAQ
COMPUTER MANUFACTURER STOCKS INDEX THROUGH DECEMBER 31,
2005
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12/29/00 |
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12/31/01 |
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12/31/02 |
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12/31/03 |
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12/31/04 |
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12/30/05 |
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Cray Inc.
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100.0 |
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124.7 |
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511.3 |
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662.0 |
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310.7 |
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88.7 |
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Nasdaq Stock Market (U.S.)
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100.0 |
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79.3 |
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54.8 |
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82.0 |
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89.2 |
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91.1 |
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Nasdaq Computer Manufacturer Stocks
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100.0 |
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68.9 |
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45.7 |
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63.5 |
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83.0 |
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85.0 |
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30
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: To Elect Eight
Directors For One-Year Terms
Our Bylaws fix the number of members of our Board at eight.
Eight directors presently serve on our Board of Directors for
terms ending at the 2006 Annual Meeting. The Board has nominated
Ms. Narodick and Messrs. Jones, Kennedy, Kiely,
Lederman, Regis, Richards and Ungaro for reelection to the
Board, each to hold office until the Annual Meeting in 2007.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee becomes unable to serve, your proxy may
vote for another nominee proposed by the Board, or the Board may
reduce the number of directors to be elected. If any director
resigns, dies or is otherwise unable to serve out his or her
term, or the Board increases the number of directors, the Board
may fill the vacancy.
Each nominee is a defendant in certain derivative lawsuits
recently filed in federal and state courts located in Seattle,
Washington, purportedly on our behalf. See Corporate
Governance Litigation and Indemnification
above.
Board Recommendation: The Board of Directors recommends
that you vote for the election of all
nominees for director.
Information about each nominee for director is set forth below.
John B. Jones, Jr.
Mr. Jones, 61, joined our Board in December 2004. He was a
leading high technology equity research analyst for nearly
twenty years. Until his retirement in the fall of 2004,
Mr. Jones was a Senior Managing Director at Schwab
SoundView Capital Markets. He joined SoundView in 2002 as a
Senior Equity Research Analyst. From 1992 to 2002,
Mr. Jones was a Managing Director and Senior Analyst at
Salomon Brothers, Salomon Smith Barney and Citibank, where he
covered the Server and Enterprise Hardware, Printer and
Test & Measurement industries. From 1985 to 1992, he
was a partner and senior analyst at Montgomery Securities. Prior
to his career as an equity research analyst, Mr. Jones held
various positions in the computer industry at Stratus Computer,
Wang Laboratories and IBM. He is a director of Stratus
Technologies Inc., a provider of fault tolerant computer
servers, technologies and services. He received his B.S. degree
from the University of Oregon.
Kenneth W. Kennedy, Jr.
Professor Kennedy, 60, joined our Board in 1989. He is the John
and Ann Doerr University Professor of Computational Engineering
at Rice University and also is Director of the Center for High
Performance Software Research at Rice University, a position he
has held since 1989. He directed the National Science Foundation
Center for Research on Parallel Computation from 1989 to January
2000. From 1997 to 1999, Professor Kennedy served as Co-Chair of
the Presidents Information Technology Advisory Committee
and remained a member of that committee until 2001. He is a
Fellow of the Institute of Electrical and Electronics Engineers,
the Association for Computing Machinery, and the American
Association for the Advancement of Science and has been a member
of the National Academy of Engineering since 1990. In 1999, he
was named recipient of the ACM SIGPLAN Programming Languages
Achievement Award, the third time this award was given. He
received his M.S. and Ph.D. degrees from New York University.
Stephen C. Kiely
Mr. Kiely, 60, joined our Board in 1999, was appointed Lead
Director in January 2005 and Chairman of the Board in August
2005. He is Chairman of Stratus Technologies Inc., a provider of
fault tolerant computer servers, technologies and services,
headquartered in Maynard, Massachusetts. Mr. Kiely has
served in his present position at Stratus Technologies since
1999 when Stratus was purchased from Ascend Communications and
he served as Chief Executive Officer of Stratus Technologies
from 1999 through June 2003. Mr. Kiely joined Stratus in
1994 and held various executive positions with Stratus, becoming
President of the Stratus Enterprise Computer division in 1998.
Prior to joining Stratus, Mr. Kiely held a number of
executive
31
positions with several information technology companies,
including EON Corporation, Bull Information Systems, Prisma,
Inc., Prime Computer and IBM. Mr. Kiely is a past member of
the Advisory Council for the School of Engineering at Rice
University, has served as a board member of the Massachusetts
Technology Park Corporation and was a member of an advisory
board to the President of the State University of New York at
New Paltz. Mr. Kiely received his B.A. in Mathematics at
Fairfield University and his M.S. in Management at the Stanford
University Graduate School of Business.
Frank L. Lederman
Dr. Lederman, 56, joined our Board in May 2004. He served
as a Vice President and Chief Technical Officer of Alcoa, Inc.,
from 1995 to his retirement in 2002. From 1988 to 1995,
Dr. Lederman was with Toronto-based Noranda Inc., where he
served as Senior Vice President, Technology. His
responsibilities included directing the Noranda Technology
Center in Montreal. Before joining Noranda, he was with General
Electric Company from 1976 to 1988 serving in a number of
positions in management and as a physicist, including as manager
of electronics research programs and resources in the Corporate
Research and Development Center in Schenectady, N.Y.
Dr. Lederman received an M.S. and Ph.D. in Physics at the
University of Illinois and a B.S. and M.S. at Carnegie-Mellon
University, and was a Post-Doctoral Fellow in Electrical
Engineering at the University of Pennsylvania.
Sally G. Narodick
Ms. Narodick, 60, joined our Board in October 2004. She is
a retired educational technology and
e-learning consultant.
From 2000 to 2004 she was President of Narodick Consulting, an
e-learning consulting
firm. From 1998 to 2000, she served as Chief Executive Officer
of Apex Online Learning, an Internet educational software
company. Previously, Ms. Narodick served as an education
technology consultant, both independently and for the Consumer
Division of IBM from 1996 to 1998. From 1989 to 1996,
Ms. Narodick served as Chairman and Chief Executive Officer
of Edmark Corporation, an educational software company sold to
IBM in 1996. From 1973 to 1987, she served in a variety of
financial management capacities at Seafirst Corporation and
Seafirst Bank, and was a securities analyst at Paine Webber from
1970 to 1973. She also serves as a Board member of Penford
Corporation, Puget Energy, Inc., Solutia Inc. and SumTotal
Systems. A graduate of Boston University, Ms. Narodick
earned an M.A. in Teaching from Columbia University and an
M.B.A. from New York University.
Daniel C. Regis
Mr. Regis, 66, joined our Board in 2003. He currently is
Managing Director of Digital Partners, a venture capital fund
specializing in Northwest emerging technology companies, which
he co-founded in 2000. From 1996 to 1999, he was President of
Kirlan Venture Capital, Inc., where he managed similarly focused
technology funds. Prior to that, Mr. Regis spent thirty-two
years with Price Waterhouse LLP, including serving as managing
partner of the Seattle office and previously of the Northwest
and Portland, Oregon offices. He is a director of Columbia
Banking System, Inc., and Art Technology Group, Inc. He received
his B.S. from Seattle University.
Stephen C. Richards
Mr. Richards, 52, joined our Board in October 2004 and is
currently a private investor. Previously he served as Chief
Operating Officer and Chief Financial Officer of McAfee, Inc.,
the leading provider of intrusion prevention and risk management
solutions, a position he held for four years until his
retirement in December 2004. He served as Chief Online Trading
Officer of E*TRADE Group, Inc., a position he held from March
1999 to June 2000. From 1998 to February 1999, he served as
Senior Vice President, Corporate Development and New Ventures at
E*TRADE, following two years as E*TRADEs Senior Vice
President of Finance, Chief Financial Officer and Treasurer.
Prior to joining E*TRADE in April 1996, he was Managing Director
and Chief Financial Officer of Correspondent Clearing at Bear
Stearns & Companies, Inc., Vice President/ Deputy
Controller of Becker Paribas and First Vice President/
Controller of Jefferies and Company, Inc. Mr. Richards is a
member of the Board of Directors of Tradestation Group Inc.,
Guidance Software, Inc., HealthBenefit Corporation and Zantaz,
Inc., and is a member of the Board of Governors of the Pacific
Stock Exchange and a trustee for the UC Davis Foundation.
Mr. Richards is a Certified Public Accountant. He
32
received a B.A. from the University of California at Davis and
an M.B.A. in Finance from the University of California at Los
Angeles.
Peter J. Ungaro
Mr. Ungaro, 37, has served on our Board and as our Chief
Executive Officer since August 2005 and as President since March
2005; he previously served as Senior Vice President responsible
for sales, marketing and services since September 2004 and
before then served as Vice President responsible for sales and
marketing from when he joined us in August 2003. Prior to
joining us, he served as Vice President, Worldwide Deep
Computing Sales for IBM from April 2003. Prior to that
assignment, he was IBMs vice president, worldwide high
performance computing sales, a position he held since February
1999. He also held a variety of other sales leadership positions
since joining IBM in 1991. Mr. Ungaro received a B.A. in
business administration from Washington State University.
Proposal 2: To Approve an Amendment to Our
Restated Articles of Incorporation to Effect a One-for-Four
Reverse Stock Split of all Outstanding and Authorized Shares of
Our Common Stock
Introduction
We propose to amend our Restated Articles of Incorporation to
effect a one-for-four reverse stock split of all outstanding and
authorized shares of our common stock. The Board of Directors
reserves the right, notwithstanding shareholder approval, and
without further action by the shareholders, to abandon or to
delay the reverse stock split, if at any time prior to the
filing of the amendment it determines, in its sole discretion,
that the reverse stock split would not be in the best interests
of our shareholders.
The text that will be included in the Articles of Amendment to
effect the one-for-four reverse stock split is as follows:
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As of the beginning of the first business day (the
Effective Date) after the filing of these Articles
of Amendment every four issued and outstanding and authorized
shares of the Corporations Common Stock automatically
shall be combined and reconstituted into one share of Common
Stock, par value $0.01 per share, of the Corporation,
thereby giving effect to a one-for-four reverse stock split
without further action of any kind (the Reverse Stock
Split). Each holder of a certificate or certificates that
immediately prior to the Effective Date represented outstanding
shares of Common Stock shall be entitled to receive, upon
surrender of such certificates to the Corporation for
cancellation, a certificate or certificates representing the
number of whole shares (rounded down to the nearest whole
shares) of Common Stock held by such holder on the Effective
Date after giving effect to the Reverse Stock Split. No
fractional shares of Common Stock shall be issued in the Reverse
Stock Split; instead, shareholders who would otherwise be
entitled to fractional shares will receive a cash payment in
lieu of such fraction based upon the reported closing price of
the Corporations Common Stock on the trading date
immediately before the Effective Date. No other exchange,
reclassification or cancellation of issued shares shall be
effected by this Amendment. |
Upon this amendment becoming effective, and if Proposal 3
regarding an increase in the number of authorized shares of
common stock is not approved by the shareholders, the number of
authorized shares of common stock would decrease from the
current 150,000,000 shares to 37,500,000 shares of
common stock. If both this amendment and Proposal 3 become
effective, the number of authorized shares of common stock would
be 75,000,000 shares of common stock. If this amendment
does not become effective and if Proposal 3 does, then we
would have 300,000,000 shares of authorized common stock.
See the discussion under Proposal 3: To Approve an
Amendment to our Restated Articles of Incorporation to Increase
the Number of Authorized Shares from 150,000,000 to
300,000,000 shares, on a pre-split basis below.
Examples. As of the effective date of the reverse stock
split, all shareholders will own a proportionally reduced number
of shares of common stock, excluding any fractional shares
cancelled in exchange for cash. For example, if a shareholder
owned 1,000 shares of common stock immediately prior to the
effective date, then the shareholder would own 250 shares
of common stock as of the effective date, which reflects the
same proportional ownership interest in our shares of common
stock because all shareholders would have the same
33
reduction. As a further example, if a person held a stock option
or warrant for 1,000 shares with an exercise price of
$2.50 per share immediately prior to the effective date,
the person would hold an option or warrant for 250 shares
with an exercise price of $10.00 per share as of the
effective date; in each case, however, the holder of the option
or warrant must spend $2,500 to exercise the option or warrant
in full. See Principal Effects of a Reverse Stock
Split Common Stock below. As discussed below
under Reasons For a Reverse Stock Split, we expect
the per share market price for our common stock to increase in
approximate proportion to the reverse split, although there can
be assurance that it would do so.
Reasons For A Reverse Stock Split
As of April 17, 2006, our total market value was
approximately $139.46 million and we had
91,750,299 shares of common stock issued and outstanding.
On such date, the closing price for our common stock on Nasdaq
was $1.52 per share. We believe that a reverse stock split
may be desirable because the increased market price of our
common stock expected as a result of implementing a reverse
stock split will encourage investor interest and trading in our
common stock and improve the marketability and liquidity of our
common stock. Because of the trading volatility often associated
with low-priced stocks, many brokerage houses and institutional
investors have internal policies and practices that either
prohibit them from investing in low-priced stocks or tend to
discourage individual brokers from recommending low-priced
stocks to their customers. Some of those policies and practices
may function to make the processing of trades in low-priced
stocks economically unattractive to brokers. Additionally,
because brokers commissions on low-priced stocks generally
represent a higher percentage of the stock price than
commissions on higher-priced stocks, the current average price
per share of our common stock can result in individual
shareholders paying transaction costs representing a higher
percentage of their total share value than would be the case if
the share price were substantially higher. We recognize that the
liquidity of our common stock may be adversely affected by a
reverse stock split given the reduced number of shares that
would be outstanding after the reverse stock split. However,
from January 1, 2005, through March 1, 2006, our daily
trading volume, as reported by Nasdaq, has averaged over
1,200,000 shares, and we believe that there will be
sufficient post-split shares to provide adequate liquidity for
our shareholders. The Board of Directors believes that the
anticipated higher market price may reduce, to some extent, the
negative effects on the liquidity and marketability of the
common stock inherent in some of the policies and practices of
institutional investors and brokerage houses described above.
Our common stock has been listed on Nasdaq since
January 20, 1998. Nasdaqs rules require that we
comply with certain maintenance standards to continue to be
listed on Nasdaq, including a minimum closing bid price of
$1.00 per share. Because our current stock price is above
$1.00 per share, we do not believe that we currently are at
substantial risk of non-compliance with this maintenance
requirement. Our common stock, however, closed below
$1.00 per share for 19 consecutive days in September and
October 2005, and it is possible that the market price for our
common stock could decline again to such levels. An increased
stock price resulting from a reverse stock split would reduce
the potential risk that our common stock could fall below the
Nasdaq minimum closing bid requirement.
We cannot predict, however, whether a reverse stock split would
achieve the desired results. The price per share of our common
stock is also a function of our financial performance and other
factors, some of which may be unrelated to the number of shares
outstanding. Accordingly, there can be no assurance that the
closing bid price of our common stock after a reverse stock
split would increase in an amount proportionate to the decrease
in the number of issued and outstanding shares, or would
increase at all, or that any increase can be sustained for a
prolonged period of time.
Principal Effects of a Reverse Stock Split
Our common stock is currently registered under
Section 12(g) of the Exchange Act, and we are subject to
the periodic reporting and other requirements of the Exchange
Act. The proposed reverse stock split will not affect the
registration of the common stock under the Exchange Act. If any
proposed reverse stock split is implemented, our common stock
will continue to be reported on the Nasdaq National Market under
the
34
symbol CRAY, although Nasdaq would add the letter
D to the end of our trading symbol for a period of
at least 20 trading days to indicate that the reverse stock
split has occurred.
After the effective date of a reverse stock split, each
shareholder will own a proportionally reduced number of shares
of our common stock, as set forth in the examples above. The
reverse stock split will affect all of our shareholders
uniformly and will not affect any shareholders percentage
ownership interests in us, except to the extent that a reverse
stock split results in any of our shareholders owning a
fractional share as described below. Proportionate voting rights
and other rights and preferences of the holders of our common
stock will not be affected by a reverse stock split other than
as a result of the payment of cash in lieu of fractional shares.
For example, shareholders are not currently entitled to
cumulative voting rights and will not be entitled to such rights
following the reverse stock split. Further, the number of
shareholders of record will not be affected by a reverse stock
split except to the extent that any shareholder holds only a
fractional share interest and receives cash for such interest
after a reverse stock split, as discussed below.
A reverse stock split will result in some
shareholders those currently owning less than
400 shares owning odd-lots of less
than 100 shares of our common stock. Brokerage commissions
and other costs of transactions in odd-lots are generally
somewhat higher than the costs of transactions on
round-lots of even multiples of 100 shares.
The proposed reverse stock split would change the number of
authorized shares of common stock, as designated by our Restated
Articles of Incorporation, from 150,000,000 shares to
37,500,000 shares. However, if Proposal 3 also is
approved, then after giving effect to the reverse stock split
the number of authorized shares of common stock would be
75,000,000 shares.
The proposed reverse stock split is not a first step in a
going-private transaction.
For illustrative purposes, the following table, which is based
on 91,750,299 shares of common stock outstanding and
48,227,849 shares of common stock reserved for issuance as
of April 17, 2006, approximates the effect on our common
stock of the proposed one-for-four reverse stock split, assuming
Proposal 4 to approve the 2006 Long-Term Equity
Compensation Plan is approved by the shareholders, and whether
Proposal 3 to increase the authorized number of shares of
common stock is or is not approved by the shareholders.
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Prior to Reverse Stock Split | |
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After Reverse Stock Split | |
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If Proposal 4 | |
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If Proposals 3 and | |
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If Proposal 3 is | |
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If Proposal 3 | |
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Current | |
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is approved | |
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4 are approved | |
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not approved(1) | |
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is approved(1) | |
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Authorized Common Stock
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150,000,000 |
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150,000,000 |
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300,000,000 |
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37,500,000 |
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75,000,000 |
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Issued and Outstanding
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91,750,299 |
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91,750,299 |
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91,750,299 |
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22,937,574 |
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22,937,574 |
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Issued, Outstanding and Reserved for Issuance
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139,978,148 |
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149,978,148 |
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149,978,148 |
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37,494,537 |
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37,494,537 |
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Percentage Reduction
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75% |
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75% |
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(1) |
Assumes approval of Proposal 4; does not reflect the
cancellation of fractional shares and payment in cash in lieu
thereof. |
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Options, Warrants, Convertible Notes And Other
Securities |
In addition, all outstanding options, warrants, convertible
notes and other securities entitling their holders to purchase
shares of our common stock would be adjusted as a result of any
reverse stock split, as required by the terms of these
securities. In particular, the exchange ratio for each
instrument would be reduced, and the exercise price per share,
if applicable, would be increased, in accordance with the terms
of each instrument and based on the one-for-four ratio of the
reverse stock split, as set forth in the above example. Also,
the number of shares reserved for issuance under the existing
employee stock option plans, warrant and convertible notes would
be reduced proportionally based on the one-for-four ratio of the
reverse stock split.
35
No fractional shares of common stock will be issued as a result
of the proposed reverse stock split. Instead, shareholders who
otherwise would be entitled to receive fractional shares because
they hold a number of shares not evenly divisible by the
one-for-four ratio, upon surrender to the exchange agent of such
certificates representing such fractional shares, will be
entitled to receive cash in an amount equal to the product
obtained by multiplying (i) the closing sales price of our
common stock on the trading date immediately preceding the
effective date of the reverse stock split as reported on Nasdaq
by (ii) the number of shares of our common stock held by
such shareholder that would otherwise have been exchanged for
such fractional share interest.
Implementation And Exchange Of Stock Certificates
If our shareholders approve the proposal and our Board of
Directors decides to effectuate a reverse stock split, we will
file an amendment to our Restated Articles of Incorporation with
the Secretary of State of Washington. The reverse stock split
will become effective at the time specified in the
amendment the next business day after the filing of
the amendment which we refer to as the effective
date.
As of the effective date of the reverse stock split, each
certificate representing shares of our common stock before the
reverse stock split would be deemed, for all corporate purposes,
to evidence ownership of the reduced number of shares of our
common stock resulting from the reverse stock split, except that
holders of unexchanged shares would not be entitled to receive
any dividends or other distributions payable by us after the
effective date until they surrender their old stock certificates
for exchange. All shares underlying options, warrants,
convertible notes and other securities would also be
automatically adjusted on the effective date.
Our transfer agent, Mellon Investor Services LLC, would act as
the exchange agent for purposes of implementing the exchange of
stock certificates. As soon as practicable after the effective
date, shareholders and holders of securities convertible into or
exercisable for our common stock would be notified of the
effectiveness of the reverse stock split. Shareholders of record
would receive a letter of transmittal requesting them to
surrender their old stock certificates for new stock
certificates, which will bear a different CUSIP number,
reflecting the adjusted number of shares as a result of the
reverse stock split. Persons who hold their shares in brokerage
accounts or street name would not be required to
take any further action to effect the exchange of their shares.
No new certificates would be issued to a shareholder until such
shareholder has surrendered any outstanding certificates
together with the properly completed and executed letter of
transmittal to the exchange agent. Until surrender, each
certificate representing shares before the reverse stock split
would continue to be valid and would represent the adjusted
number of shares based on the ratio of the reverse stock split.
Shareholders should not destroy any stock certificate and should
not submit any certificates until they receive a letter of
transmittal.
Certain Federal Income Tax Consequences
The following is a summary of material United States federal
income tax consequences of a reverse stock split. It does not
address any state, local or foreign income or other tax
consequences. It applies to you only if you held pre-reverse
stock split common stock shares and post-reverse stock split
common stock shares as capital assets for tax purposes. This
section does not apply to you if you are a member of a class of
holders subject to special rules, such as (i) a dealer in
securities or currencies, (ii) a trader in securities that
elects to use a
mark-to-market method
of accounting for your securities holdings, (iii) a bank,
(iv) a life insurance company, (v) a tax-exempt
organization, (vi) a person that owns common stock shares
that are a hedge or that are hedged against interest rate risks,
(vii) a person that owns common stock shares as part of a
straddle or conversion transaction for tax purposes,
(viii) a foreign person, or (ix) a person whose
functional currency for tax purposes is not the
U.S. dollar. This section is based on the Internal Revenue
Code of 1986, as amended, its legislative history, existing and
proposed regulations under the Internal Revenue Code, published
rulings and court decisions, all as currently in effect, all of
which are subject to change, possibly on a retroactive basis.
36
PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES
OF A REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER
THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING
JURISDICTION.
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Tax Consequences To Common Shareholders |
This discussion applies only to United States holders. A United
States holder, as used herein, is a shareholder that is:
(i) a citizen or resident of the United States, (ii) a
domestic corporation, (iii) an estate whose income is
subject to United States federal income tax regardless of its
source, or (iv) a trust if a United States court can
exercise primary supervision over the trusts
administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
Other than with respect to any cash payments received in lieu of
fractional shares discussed below, no gain or loss should be
recognized by a shareholder upon such shareholders
exchange of pre-reverse stock split shares for post-reverse
stock split shares pursuant to a reverse stock split. The
aggregate tax basis of the post-reverse stock split shares
received in the reverse stock split (including any fraction of a
new share deemed to have been received) will be the same as the
shareholders aggregate tax basis in the pre-reverse stock
split shares exchanged therefor. In general, shareholders who
receive cash in exchange for their fractional share interests in
the post-reverse stock split shares as a result of a reverse
stock split will be deemed for federal income tax purposes to
have first received the fractional share interests and then to
have had those fractional share interests redeemed for cash. The
shareholders holding period for the post-reverse stock
split shares will include the period during which the
shareholder held the pre-reverse stock split shares surrendered
in the reverse stock split.
The receipt of cash instead of a fractional share of our common
stock by a United States holder of our common stock will
generally result in a taxable gain or loss equal to the
difference between the amount of cash received and the
holders adjusted federal income tax basis in the
fractional share. Gain or loss generally will be a capital gain
or loss. Capital gain of a non-corporate United States holder,
upon disposition of property held for more than one year
generally is taxed at a maximum rate of 15%. Deductibility of
capital loss is subject to limitations.
A non-corporate shareholder that receives cash in lieu of a
fractional share may be subject to backup withholding at 28%
unless the shareholder provides its taxpayer identification
number (TIN) and certifies that the TIN is correct,
or certifies that it is awaiting a TIN, unless an exemption
applies. Backup withholding is not an additional tax. The amount
of backup withholding can be credited against the United States
federal income tax liability of the person subject to backup
withholding, including for purposes of obtaining a refund,
provided that the required information is provided to the
Internal Revenue Service.
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Tax Consequences to the Company |
We should not recognize any gain or loss as a result of the
proposed reverse stock split.
Accounting Consequences
The par value per share of our common stock would remain
unchanged at $0.01 per share after any reverse stock split.
As a result, on the effective date of a reverse stock split, the
stated capital on the Companys balance sheet attributable
to the common stock will be reduced proportionally, based on the
ratio of the reverse stock split, from its present amount, and
the additional paid-in capital account will be credited with the
amount by which the stated capital is reduced. The net income or
loss per share of common stock and net book value will be
increased because there will be fewer shares of the common stock
outstanding. We do not anticipate that any other accounting
consequences would arise as a result of a reverse stock split.
Dissenters Rights
Chapter 23B.13 of the Washington Business Corporation Act
provides for dissenters rights for any amendment to the
articles of incorporation that reduces the total number of
shares owned by the shareholder
37
to a fraction of a share, if the fractional share created by the
amendment is to be acquired by us for cash. In our case, these
provisions only apply to holders of three or fewer shares of our
common stock.
Any such shareholder who otherwise would have been entitled to
receive only a fractional share in the reverse stock split may
be entitled to a judicial appraisal of the fair value of his or
her fractional share. Merely voting against the reverse stock
split is not sufficient to preserve a shareholders
dissenters rights. In order to be entitled to appraisal
rights under Chapter 23B.13, a shareholder must:
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be within the class of shareholders who may be entitled to
appraisal rights (i.e., those shareholders who would have been
entitled to receive only a fractional share as they own three or
fewer shares of our common stock); |
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deliver to us, before the vote on the reverse stock split is
taken, notice of the shareholders intention to demand
appraisal of his or her fractional share if the reverse stock
split is effected; and |
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not vote in favor of the reverse stock split (a shareholder does
not have to vote against the reverse stock split to preserve
dissenters rights). |
A shareholders failure to vote in favor of the proposed
reverse stock split will not be sufficient to satisfy the notice
requirements of the statute; the shareholder must also deliver
the required notice before the vote occurs.
The foregoing summary of Chapter 23B.13 of the Washington
Business Corporation Act does not purport to be complete and is
qualified in its entirety by reference to the full text of
Chapter 23B.13, which is set forth as Appendix A
attached to this proxy statement. Shareholders who wish to
exercise their statutory right of appraisal are urged to consult
legal counsel for assistance in exercising their rights. Any
shareholder entitled to appraisal rights who fails to comply
completely and on a timely basis with all requirements of
Chapter 23B.13 for perfecting appraisal rights will lose
those rights.
Board Recommendation: The Board of Directors
recommends a vote for approval of Proposal 2 to
amend our Restated Articles of Incorporation to effect a
one-for-four reverse stock split of all outstanding and
authorized shares of our common stock.
Proposal 3: To Approve an
Amendment to Our Restated Articles of Incorporation to Increase
the Number of Authorized Shares of Common Stock from 150,000,000
to 300,000,000 Shares (on a pre-split basis)
We propose to amend Article II(A) of our Restated Articles
of Incorporation to increase the number of authorized shares of
common stock from 150,000,000 to 300,000,000 shares, on a
pre-split basis. As amended, Article II(A) of our Restated
Articles of Incorporation would read as set forth below:
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A. Authorized Capital. The Corporation is authorized to
issue a total of three hundred five million (305,000,000)
shares, consisting of three hundred million (300,000,000) shares
of $.01 par value to be designated Common Stock
and five million (5,000,000) shares of $.01 par value to be
designated Preferred Stock. Subject to any rights
expressly granted to Preferred Stock issued pursuant to
Paragraph B of this Article, the Common Stock shall have
all the rights ordinarily associated with common shares,
including but not limited to general voting rights, general
rights to dividends, and liquidation rights. The Preferred Stock
shall have the rights and preferences described in
Paragraph B of this article or in a resolution of the Board
of Directors adopted pursuant to Paragraph B. |
If both Proposal 2 regarding the one-for-four reverse stock
split and Proposal 3 become effective, then as amended,
Article II(A) of our Restated Articles of Incorporation
would read as set forth below:
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A. Authorized Capital. The Corporation is authorized to
issue a total of eighty million (80,000,000) shares, consisting
of seventy-five million (75,000,000) shares of $.01 par
value to be designated Common Stock and five million
(5,000,000) shares of $.01 par value to be designated
Preferred Stock. Subject to any rights expressly
granted to Preferred Stock issued pursuant to |
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Paragraph B of this Article, the Common Stock shall have
all the rights ordinarily associated with common shares,
including but not limited to general voting rights, general
rights to dividends, and liquidation rights. The Preferred Stock
shall have the rights and preferences described in
Paragraph B of this article or in a resolution of the Board
of Directors adopted pursuant to Paragraph B. |
As of April 17, 2006, we had no shares of preferred stock
issued and outstanding of an authorized 5,000,000 shares of
preferred stock and approximately 91.75 million shares of
common stock issued and outstanding and had reserved
approximately 48.23 million shares of common stock for
issuance under existing convertibles notes, warrants, stock
options and other employee benefit plans. Assuming shareholder
approval of the 2006 Long-Term Equity Compensation Plan, we will
have an aggregate of approximately 149.98 million shares of
common stock issued and reserved for issuance at the time of the
Annual Meeting.
Our authorized preferred stock of 5,000,000 shares would
not be changed by this proposed amendment. Our preferred stock
is undesignated. The Board of Directors, without shareholder
approval, may issue the preferred stock with voting and
conversion rights that could materially and adversely affect the
voting power of the holders of common stock, and could also
decrease the amount of earnings and assets available for
distribution to the holders of common stock.
The rights of additional authorized shares of common stock would
be identical to shares now authorized.
The authorization of common stock will not, in itself, have any
effect on your rights as a shareholder. If the Board were to
issue additional shares of common stock for other than a stock
split or dividend, however, it could have a dilutive effect on
our earnings per share and on your voting power in the Company,
perhaps significantly.
We believe that the proposed increase in the number of
authorized shares of common stock is in the best interests of
our shareholders. It is important for the Board to have the
flexibility to act promptly to meet future business needs as
they arise. Sufficient shares should be readily available to
maintain our financing and capital raising flexibility, fund
acquisitions and mergers, enable employee benefit plans such as
the 2006 Long-Term Equity Compensation Plan, provide for
matching contributions under our 401(k) Plan, enable stock
splits and dividends and for other proper business purposes.
Having a limited number of shares available severely limits our
flexibility and hinders our ability to raise capital, move
quickly with respect to acquisition opportunities and attract
employees.
By having additional shares readily available for issuance, we
will be able to act expeditiously without spending the time and
incurring the expense of soliciting proxies and holding special
meetings of shareholders. We have no present plans, agreements,
commitments or understandings for the issuance or use of these
proposed additional shares of common stock, although such shares
could be used as future matching contributions under our 401(k)
Plan for our U.S. employees and restricted stock grants to
our non-employee directors.
The Board may issue additional shares of common stock without
action on your part only if the action is permissible under
Washington corporate law and the rules of Nasdaq, on which our
common stock is listed. For example, approval by the
shareholders would be required by Nasdaq rules if the issuance
of shares of common stock, or securities convertible into common
stock, such as the preferred stock, would result in a change of
control of the Company. Nasdaq also requires shareholder
approval before the issuance of shares in private transactions
equal to 20% or more of the common stock or voting power
outstanding before the issuance for less than the greater of the
book value or market value of the common stock and before the
issuance of shares in an acquisition equal to 20% or more of the
common stock or voting power outstanding before the acquisition.
Exceptions to these rules may be made upon application to Nasdaq.
The future issuance of additional shares of common stock also
could be used to block an unsolicited acquisition through the
issuance of large blocks of stock to persons or entities
considered by our officers and directors to be opposed to such
acquisition, which might be deemed to have an anti-takeover
effect (i.e., might impede the completion of a merger, tender
offer or other takeover attempt). Our management and Board could
use the additional shares to resist or frustrate a third-party
transaction providing an above-market premium that is favored by
a majority of our independent shareholders. In fact, the mere
existence of such a
39
block of authorized but unissued shares, and the Boards
ability to issue such shares without shareholder approval, might
deter a bidder from seeking to acquire our shares on an
unfriendly basis. We have other provisions in our restated
articles of incorporation, restated bylaws and credit agreements
that could make it more difficult for a third party to acquire
us. For example, our articles of incorporation and bylaws
provide limitations on removing a director, the ability of the
Board to issue preferred stock with such voting, dividend,
liquidation and other terms as the Board determines, no
cumulative voting for directors, special voting requirements for
certain mergers and other business combinations and special
procedures for calling special meetings of the shareholders,
proposing matters for shareholder approval and nominating
directors.
While the authorization of additional shares of common stock
alone or together with the preceding provisions may have an
anti-takeover effect, the Board does not intend or view the
proposed increase in authorized common stock as an anti-takeover
measure, nor are we aware of any proposed transactions of this
type. We have no present plans or proposals to adopt any other
provisions or enter into any other arrangements that may have
material anti-takeover consequences.
Board Recommendation: The Board of Directors
recommends that you vote for approval
of Proposal 3 to amend our Restated Articles of
Incorporation to increase the number of authorized shares of
common stock to 300,000,000, on a pre-split basis.
Proposal 4: To Approve Our
2006 Long-Term Equity Compensation Plan
On March 8, 2006, the Board of Directors approved the
adoption of the 2006 Long-Term Equity Compensation Plan (the
2006 Plan), subject to shareholder approval. The
2006 Plan authorizes the issuance of up to
10,000,000 shares (2,500,000 shares if the
one-for-four reverse stock split is implemented) of common stock
pursuant to stock options, as stock bonus awards and grants of
restricted stock.
The complete text of the 2006 Plan is set forth as
Appendix B to this proxy statement. The following summary
description is qualified in its entirety to reference to the
full text of the 2006 Plan.
We believe that the approval of the 2006 Plan is in the best
interest of our shareholders. Stock options remain a key factor
in attracting, rewarding and retaining employees, including
officers. Stock options serve to align the interest of optionees
with the long-term interests of our shareholders. Our options
are granted at fair market value on the day of grant and
generally vest over four years, with no vesting for the first
year. Thus an optionee realizes an economic gain in connection
with his or her stock options only if there is a long-term
appreciation in the market price for our common stock. Having
insufficient options available for grant would adversely affect
our ability to attract and retain employees, officers,
directors, agents and consultants.
In some circumstances the use of stock bonus grants and/or
restricted stock grants, either alone or in combination with
stock options, may provide an appropriate compensation structure
and employee benefit. Given the desire to have flexibility in
granting incentive awards in the future, the 2006 Plan permits
the granting of stock bonuses and restricted stock grants as
well as stock options.
We currently have four stock option plans with options available
for grant to our employees generally. Under these four plans, an
aggregate of options covering 213,669 shares of common
stock remained available for grant as of December 31, 2005,
of which no more than 113,599 options may be granted to
executive officers and directors. We may grant restricted stock
and stock bonuses only under the 2004 Long-Term Equity Plan,
under which we had only 9,023 shares available for grant as
of December 31, 2005. We recently terminated a stock option
plan we assumed in connection with the 2004 acquisition of
OctigaBay Systems Corporation, now known as Cray Canada Inc.
Terms of the 2006 Plan
Purposes of the 2006 Plan. The purposes of the 2006 Plan
are to provide a means for us to attract, reward and retain the
services and advice of our employees, officers, directors,
agents and consultants, and to provide them with added
incentives by encouraging ownership of our common stock.
40
Maximum Number of Shares. The 2006 Plan provides that up
to 10,000,000 shares of common stock (2,500,000 shares
if the one-for-four reverse stock split is approved and
implemented) may be issued pursuant to the Plan pursuant to
stock options, stock bonuses and restricted stock awards. These
numbers would be adjusted for changes in our capital structure,
such as a stock split or reverse stock split. If any option or
award expires or is surrendered, cancelled or terminated for any
reason without having been exercised or awarded in full, the
unpurchased or unearned shares subject to such option or award
shall again be available for grant under the 2006 Plan.
Types of Options. The options granted may be either
incentive stock options (ISOs) or nonqualified stock
options, although ISOs may be granted only to employees. The
Board determines the term of each option and when options are
exercisable. The Boards general practice has been to have
options become exercisable over a four-year period, with 25%
becoming exercisable one year after grant and then ratably
monthly over the next 36 months, although most options
granted in 2005 vested on December 31, 2005, or immediately
upon grant. Options granted to non-employee directors generally
vest over a twelve-month period, ratably per month; options
granted in 2005 to non-employee directors vested on
December 31, 2005. Options expire no later than ten years
from the date of grant, although the Board may grant options
that expire earlier.
Stock Awards. The Board may determine the number of
shares to be awarded, the period of time for the award, and the
terms, conditions (including performance conditions) and
restrictions applicable to each award.
Eligible Participants. Eligible participants are current
or future employees (including employees who are directors),
officers, independent directors, agents and consultants. The
Board has the authority to select the persons to whom awards are
given. Our practice is to grant additional options to nearly all
employees as part of their annual reviews, and to grant options
to key new employees upon hiring. We had approximately 770
employees as of March 1, 2006.
If the shareholders approve the 2006 Plan, we plan to grant
restricted stock to our continuing non-employee directors
pursuant to the compensation plan described above under
Corporate Governance The Board of
Directors How We Compensate Directors
Equity Awards. The number of shares granted to each
non-employee director will be determined by dividing the amounts
shown corresponding to each non-employee director by the fair
market value of our common stock on the date of the 2006 Annual
Meeting. If the shareholders do not approve the 2006 Plan, we
would grant stock options to each non-employee director pursuant
to our current policy. The value of the shares of restricted
stock to be granted to each continuing non-employee director is:
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Name |
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Amount | |
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John B. Jones, Jr.
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$ |
40,500 |
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Kenneth W. Kennedy, Jr.
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38,500 |
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Stephen C. Kiely
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45,500 |
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Frank L. Lederman
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44,000 |
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Sally G. Narodick
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|
53,000 |
|
Daniel C. Regis
|
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|
65,500 |
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Stephen C. Richards
|
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|
53,000 |
|
We have no commitments to grant any restricted stock or grant
options under the 2006 Plan to any executive officer or other
employees.
Exercise Prices. The Board determines the exercise price
of options. The exercise price for both incentive stock options
(ISOs) and nonqualified options may not be less than
100% of the fair market value on the date of grant. For any
grant of ISOs to employees who own more than 10% of our voting
stock, the exercise price must be not less than 110% of the fair
market value on the date of grant and the term of the ISO cannot
exceed five years.
41
Maximum Size of Grants. No one individual may receive
options and awards aggregating more than 1,600,000 shares
(400,000 shares if the one-for-four reverse stock split is
approved and implemented) in any one year.
Transferability. Recent changes to the Internal Revenue
Code and SEC rules now permit nonqualified options to be
transferable. While generally such options remain
nontransferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations
order, the Board, in its discretion and subject to such terms
and conditions as it shall specify, may permit the transfer of a
nonqualified option to an optionees family members or to
one or more trusts or partnerships established for the benefit
of such family members. ISOs remain nontransferable other than
by will or the laws of descent and distribution. The Board also
may impose restrictions on the transferability of shares of
stock received pursuant to other types of awards.
Termination of Service. Unless otherwise determined by
the Board or specified in a particular option agreement, if an
optionees employment or service with us terminates, other
than for cause, death or disability, the optionee may exercise
the portion of his or her option exercisable at the time of
termination for a period of three months after termination, or,
if earlier, until the option expires. If the optionee is
terminated for cause or resigns in lieu of
dismissal (as such terms are defined in the Plan), the
option is deemed to have terminated at the time of the first act
which led to such termination. If an optionee dies while
employed by or providing services to us, or an optionees
employment or other relationship with us terminates due to
permanent and total disability, the optionee or his or her
successor has 12 months from such event to exercise the
option (including any unvested portion), or, if earlier, until
the option expires. The Board has the authority to extend those
three-month and
12-month periods, but
not beyond the expiration date of any option, and to increase
the portion of an option that is exercisable.
Foreign Qualified Grants. The Board may adopt such
supplements to the 2006 Plan as may be necessary to comply with
the applicable laws of foreign jurisdictions and to afford
participants favorable treatment under such laws, provided that
no award shall be granted under any such supplement with terms
that are more beneficial to the participants than the terms
permitted under the 2006 Plan.
Change in Control Provisions. In order to maintain the
rights of participants in the event of a merger, consolidation
or plan of exchange, other than in which the holders of our
voting securities hold at least 50% of the voting securities of
the surviving corporation or its parent corporation, or a sale
of all or substantially all of our assets, or our liquidation or
dissolution, then, unless the existing options and restrictions
on awards are continued or assumed by the successor entity, with
appropriate adjustments, then the 2006 Plan and existing options
and restrictions on awards shall terminate upon the effective
date of the transaction. In such event, each optionee would have
the opportunity to exercise his or her options in full,
including any portion not then vested, and the restrictions and
conditions to outstanding stock awards would lapse, all prior to
the effective date of the transaction.
Term of the Plan and Amendments. Unless sooner terminated
by the Board, the 2006 Plan will terminate ten years from the
date of its adoption by the Board. The Board has the power to
suspend or terminate the 2006 Plan at any time. The Board is
authorized to amend the 2006 Plan, except that shareholder
approval is required for any amendment that would:
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increase the number of shares available for issuance under the
2006 Plan, |
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permit the granting of stock options or awards to a new class of
persons not presently covered by the 2006 Plan, or |
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require shareholder approval under applicable law or regulation. |
The Board, in its discretion, may include further provisions and
limitations in any option agreement as it deems equitable and in
our best interests. The Board, subject to the terms of the 2006
Plan and applicable law, may also amend outstanding options and
awards, except that no amendment may be made which impairs or
diminishes the rights of an option or award holder without such
holders consent. The Board, without prior shareholder
approval, may not reduce the exercise price of outstanding
options issued under the 2006 Plan or cancel or amend such
options for the purpose of repricing, replacing or regranting
such options with a lower exercise price.
42
U.S. Tax Consequences of the 2006 Plan
Stock Options. Under U.S. federal tax laws, the
grant of a stock option will not result in taxable income at the
time of the grant for us or the optionee. The optionee will have
no taxable income upon exercising an ISO (except that the
alternative minimum tax may apply), and we will receive no
deduction when an ISO is exercised. Upon exercising a
nonqualified stock option, the optionee will recognize ordinary
income in the amount by which the fair market value of the
common stock at the time of exercise exceeds the exercise price;
we will be entitled to a deduction for the same amount. Such
income is subject to withholding tax as wages.
Currently withholding and employment taxes do not apply to the
exercise of an ISO or the disposition of shares acquired upon
the exercise of an ISO. The Treasury Department and the Internal
Revenue Service are considering whether to apply such taxes to
such exercises and dispositions. Future changes in or
clarifications of the tax laws may cause us to conclude that
such taxes are required.
The tax treatment of an optionee for a disposition of shares
acquired through the exercise of an option is dependent upon the
length of time the shares have been held and on whether such
shares were acquired by exercising an ISO or a nonqualified
stock option. Generally upon the sale of shares obtained by
exercising a nonqualified option, the optionee will treat the
gain realized on the sale over the market value of our common
stock on the exercise as a capital gain. If an employee
exercises an ISO and holds the shares for two years from the
date of grant and one year after exercise, then the optionee
will recognize long-term capital gain or loss equal to the
difference between the sale price and the option exercise price.
Shares obtained by an exercise of an ISO that are sold without
satisfying these holding periods will be treated as shares
received from the exercise of a nonqualified option.
Generally, there will be no tax consequence to us in connection
with the disposition of shares acquired under an option except
that we may be entitled to a deduction in the case of a
disposition of shares acquired upon exercise of an ISO before
the applicable ISO holding periods have been satisfied.
We generally will be entitled to a tax deduction equal to the
amount includable as income by the employee at the same time or
times as the employee recognizes income with respect to the
shares. Such income is subject to withholding tax as
wages.
Stock Bonuses and Other Grants of Stock. An employee who
receives a stock bonus or a grant of stock in connection with
the performance of services generally will realize taxable
income at the time of receipt. An employee will not recognize
income at the time of receipt, however, if the shares are
subject to a substantial risk of forfeiture for purposes of
Section 83 of the Internal Revenue Code, unless the
employee elects under Section 83(b) of the Internal Revenue
Code within 30 days after the original transfer to
recognize income at the time of the original transfer.
Restrictions on transferability, by themselves, do not
constitute a substantial risk of forfeiture for Section 83
purposes. If the shares are subject to a substantial risk of
forfeiture at the time of receipt and the employee has not made
a Section 83(b) election within 30 days after the
original transfer, the employee will recognize taxable income in
the year the substantial risk of forfeiture lapses. We generally
will be entitled to a tax deduction equal to the amount
includable as income by the employee at the same time or times
as the employee recognizes income with respect to the shares.
Such income is subject to withholding tax as wages,
and the 2006 Plan provides that awardees may pay such
withholding tax by cash or return of shares as is necessary.
Section 162(m) of the Internal Revenue Code limits to
$1 million per person the amount we may deduct for
compensation paid to certain officers and certain of our most
highly compensated employees. Compensation received through the
exercise of stock options is not subject to this $1 million
limit if the option and plan meet certain requirements,
including options granted with an exercise price at not less
than fair market value. Our policy is to grant options meeting
the requirements of Section 162(m) and applicable
regulations.
Stock Price Information. The last sales price of our
common stock as reported on the Nasdaq National Market System on
April 17, 2006, was $1.52 per share.
Board Recommendation: The Board of Directors
recommends that you vote for approval
of Proposal 4 to approve the 2006 Long-Term Equity
Compensation Plan.
43
OTHER BUSINESS
The Board knows of no other matters to be brought before the
Annual Meeting of Shareholders. If, however, other matters are
properly presented at the meeting, the individuals designated on
the proxy card will vote your shares according to their judgment
on those matters.
Our Annual Report on
Form 10-K for the
fiscal year ended December 31, 2005, including financial
statements and schedules, forms a part of our 2005 Annual Report
that was mailed to shareholders with this Proxy Statement. The
Annual Report is available on our web site: www.cray.com
under Investors Financials
SEC Filings. Additional copies of the 2005 Annual
Report on
Form 10-K may be
obtained without charge by writing to Kenneth W. Johnson,
Corporate Secretary, Cray Inc., 411 First Avenue South,
Suite 600, Seattle, WA 98104-2860.
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By order of the Board of Directors, |
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Kenneth W. Johnson
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Corporate Secretary |
Seattle, Washington
April 28, 2006
44
Appendix A
RCW CHAPTER 23B.13
OF THE WASHINGTON BUSINESS CORPORATION ACT
DISSENTERS RIGHTS
RCW 23B.13.010. Definitions
As used in this chapter:
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(1) Corporation means the issuer of the shares
held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange
of that issuer. |
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(2) Dissenter means a shareholder who is
entitled to dissent from corporate action under
RCW 23B.13.020 and who exercises that right when and in the
manner required by RCW 23B.13.200 through 23B.13.280. |
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(3) Fair value, with respect to a
dissenters shares, means the value of the shares
immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable. |
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(4) Interest means interest from the effective
date of the corporate action until the date of payment, at the
average rate currently paid by the corporation on its principal
bank loans or, if none, at a rate that is fair and equitable
under all the circumstances. |
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(5) Record shareholder means the person in
whose name shares are registered in the records of a corporation
or the beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a corporation. |
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(6) Beneficial shareholder means the person who
is a beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder. |
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(7) Shareholder means the record shareholder or
the beneficial shareholder. |
RCW 23B.13.020. Right to Dissent
(1) A shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholders shares in
the event of, any of the following corporate actions:
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(a) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is
required for the merger by RCW 23B.11.030, 23B.11.080, or
the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a
subsidiary that is merged with its parent under
RCW 23B.11.040; |
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(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan; |
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(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than
in the usual and regular course of business, if the shareholder
is entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or
a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale; |
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(d) An amendment of the articles of incorporation, whether
or not the shareholder was entitled to vote on the amendment, if
the amendment effects a redemption or cancellation of all of the
shareholders shares in exchange for cash or other
consideration other than shares of the corporation; or |
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(e) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares. |
A-1
(2) A shareholder entitled to dissent and obtain payment
for the shareholders shares under this chapter may not
challenge the corporate action creating the shareholders
entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900
through 25.10.955, the articles of incorporation, or the bylaws,
or is fraudulent with respect to the shareholder or the
corporation.
(3) The right of a dissenting shareholder to obtain payment
of the fair value of the shareholders shares shall
terminate upon the occurrence of any one of the following events:
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(a) The proposed corporate action is abandoned or rescinded; |
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(b) A court having jurisdiction permanently enjoins or sets
aside the corporate action; or |
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(c) The shareholders demand for payment is withdrawn
with the written consent of the corporation. |
RCW 23B.13.030. Dissent by Nominees and Beneficial
Owners
(1) A record shareholder may assert dissenters rights
as to fewer than all the shares registered in the
shareholders name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and
delivers to the corporation a notice of the name and address of
each person on whose behalf the shareholder asserts
dissenters rights. The rights of a partial dissenter under
this subsection are determined as if the shares as to which the
dissenter dissents and the dissenters other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters
rights as to shares held on the beneficial shareholders
behalf only if:
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(a) The beneficial shareholder submits to the corporation
the record shareholders consent to the dissent not later
than the time the beneficial shareholder asserts
dissenters rights, which consent shall be set forth either
(i) in a record or (ii) if the corporation has
designated an address, location, or system to which the consent
may be electronically transmitted and the consent is
electronically transmitted to the designated address, location,
or system, in an electronically transmitted record; and |
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(b) The beneficial shareholder does so with respect to all
shares of which such shareholder is the beneficial shareholder
or over which such shareholder has power to direct the vote. |
RCW 23B.13.200. Notice of Dissenters Rights
(1) If proposed corporate action creating dissenters
rights under RCW 23B.13.020 is submitted to a vote at a
shareholders meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters
rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters rights
under RCW 23B.13.020 is taken without a vote of shareholders,
the corporation, within ten days after the effective date of
such corporate action, shall deliver a notice to all
shareholders entitled to assert dissenters rights that the
action was taken and send them the notice described in
RCW 23B.13.220.
RCW 23B.13.210. Notice of Intent to Demand Payment
(1) If proposed corporate action creating dissenters
rights under RCW 23B.13.020 is submitted to a vote at a
shareholders meeting, a shareholder who wishes to assert
dissenters rights must (a) deliver to the corporation
before the vote is taken notice of the shareholders intent
to demand payment for the shareholders shares if the
proposed action is effected, and (b) not vote such shares
in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section is not entitled to
payment for the shareholders shares under this chapter.
A-2
RCW 23B.13.220. Dissenters Rights
Notice
(1) If proposed corporate action creating dissenters
rights under RCW 23B.13.020 is authorized at a
shareholders meeting, the corporation shall deliver a
notice to all shareholders who satisfied the requirements of RCW
23B.13.210.
(2) The notice must be sent within ten days after the
effective date of the corporate action, and must:
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(a) State where the payment demand must be sent and where
and when certificates for certificated shares must be deposited; |
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(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received; |
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(c) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action and requires that
the person asserting dissenters rights certify whether or
not the person acquired beneficial ownership of the shares
before that date; |
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(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more
than sixty days after the date the notice in
subsection (1) of this section is delivered; and |
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(e) Be accompanied by a copy of this chapter. |
RCW 23B.13.230. Duty to Demand Payment
(1) A shareholder sent a notice described in
RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before
the date required to be set forth in the notice pursuant to
RCW 23B.13.220(2)(c), and deposit the shareholders
certificates, all in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the
shareholders share certificates under
subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is
effected.
(3) A shareholder who does not demand payment or deposit
the shareholders share certificates where required, each
by the date set in the notice, is not entitled to payment for
the shareholders shares under this chapter.
RCW 23B.13.240. Share Restrictions
(1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is effected or
the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters rights are
asserted as to uncertificated shares retains all other rights of
a shareholder until the effective date of the proposed corporate
action.
RCW 23B.13.250. Payment
(1) Except as provided in RCW 23B.13.270, within
thirty days of the later of the effective date of the proposed
corporate action, or the date the payment demand is received,
the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be
the fair value of the shareholders shares, plus accrued
interest.
A-3
(2) The payment must be accompanied by:
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(a) The corporations balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date
of payment, an income statement for that year, a statement of
changes in shareholders equity for that year, and the
latest available interim financial statements, if any; |
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(b) An explanation of how the corporation estimated the
fair value of the shares; |
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(c) An explanation of how the interest was calculated; |
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(d) A statement of the dissenters right to demand
payment under RCW 23B.13.280; and |
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(e) A copy of this chapter. |
RCW 23B.13.260. Failure to Take Action
(1) If the corporation does not effect the proposed action
within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the
deposited certificates and release any transfer restrictions
imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing
transfer restrictions, the corporation wishes to undertake the
proposed action, it must send a new dissenters notice
under RCW 23B.13.220 and repeat the payment demand
procedure.
RCW 23B.13.270. After-acquired Shares
(1) A corporation may elect to withhold payment required by
RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in
the dissenters notice as the date of the first
announcement to news media or to shareholders of the terms of
the proposed corporate action.
(2) To the extent the corporation elects to withhold
payment under subsection (1) of this section, after
taking the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full
satisfaction of the dissenters demand. The corporation
shall send with its offer an explanation of how it estimated the
fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenters right to
demand payment under RCW 23B.13.280.
RCW 23B.13.280. Procedure if Shareholder Dissatisfied
with Payment or Offer
(1) A dissenter may deliver a notice to the corporation
informing the corporation of the dissenters own estimate
of the fair value of the dissenters shares and amount of
interest due, and demand payment of the dissenters
estimate, less any payment under RCW 23B.13.250, or reject
the corporations offer under RCW 23B.13.270 and
demand payment of the dissenters estimate of the fair
value of the dissenters shares and interest due, if:
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(a) The dissenter believes that the amount paid under
RCW 23B.13.250 or offered under RCW 23B.13.270 is less
than the fair value of the dissenters shares or that the
interest due is incorrectly calculated; |
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(b) The corporation fails to make payment under
RCW 23B.13.250 within sixty days after the date set for
demanding payment; or |
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(c) The corporation does not effect the proposed action and
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
sixty days after the date set for demanding payment. |
(2) A dissenter waives the right to demand payment under
this section unless the dissenter notifies the corporation of
the dissenters demand under subsection (1) of
this section within thirty days after the corporation made or
offered payment for the dissenters shares.
A-4
RCW 23B.13.300. Court Action
(1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and
petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the
superior court of the county where a corporations
principal office, or, if none in this state, its registered
office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or
not residents of this state, whose demands remain unsettled,
parties to the proceeding as in an action against their shares
and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding
any shareholder who claims to be a dissenter but who has not, in
the opinion of the corporation, complied with the provisions of
this chapter. If the court determines that such shareholder has
not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding
is commenced under subsection (2) of this section is
plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties
in other civil proceedings.
(6) Each dissenter made a party to the proceeding is
entitled to judgment (a) for the amount, if any, by which
the court finds the fair value of the dissenters shares,
plus interest, exceeds the amount paid by the corporation, or
(b) for the fair value, plus accrued interest, of the
dissenters after-acquired shares for which the corporation
elected to withhold payment under RCW 23B.13.270.
RCW 23B.13.310. Court Costs and Counsel Fees
(1) The court in a proceeding commenced under
RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in
demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the
court finds equitable:
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(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of
RCW 23B.13.200 through 23B.13.280; or |
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(b) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by chapter 23B.13 RCW. |
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should
not be assessed against the corporation, the court may award to
these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
A-5
Appendix B
CRAY INC.
2006 LONG-TERM EQUITY COMPENSATION PLAN
TABLE OF CONTENTS
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B-i
CRAY INC.
2006 LONG-TERM EQUITY COMPENSATION PLAN
1. Purpose. The purpose of
the 2006 Long-Term Equity Compensation Plan (the
Plan) is to enable Cray Inc. (the
Company) to attract, reward and retain the services
or advice of the current or future employees, officers,
directors, agents and consultants of the Company and its
subsidiaries, and to provide added incentives to them by
encouraging stock ownership in the Company. For purposes of this
Plan, a person is considered to be employed by or in the service
of the Company if the person is employed by or in the service of
any entity (the Employer) that is either the Company
or a subsidiary of the Company.
2. Stock Subject to This
Plan. Subject to adjustment as provided below and in
Section 8 hereof, the stock subject to this Plan shall
consist of shares of the Companys common stock (the
Common Stock), and the total number of shares of
Common Stock to be issued under this Plan shall not exceed
10,000,000 shares [2,500,000 shares if the 2006
proposed one-for-four reverse stock split is implemented], all
as such Common Stock was constituted on the effective date of
this Plan. If an option or award granted under this Plan
expires, terminates or is canceled, the unissued shares subject
to that option or award shall again be available under this
Plan. If shares awarded as a bonus pursuant to Section 6 or
issued pursuant to Section 7 under this Plan are forfeited
to or repurchased by the Company, the number of shares forfeited
or repurchased shall again be available under this Plan.
3. Administration. This Plan
shall be administered by the Board of Directors of the Company
(the Board). The Board may suspend, amend or
terminate this Plan as provided in Section 10.
3.1 Powers. The Plan shall
be administered by the Board, which shall determine and
designate the individuals to whom options and awards shall be
made, the amount of the options and awards and the other terms
and conditions of the options and awards. Subject to the
provisions of the Plan, the Board may adopt and amend rules and
regulations relating to administration of the Plan, advance the
lapse of any waiting period, accelerate any exercise date, waive
or modify any restriction applicable to shares (except those
restrictions imposed by law) and make all other determinations
in the judgment of the Board necessary or desirable for the
administration of the Plan. The interpretation and construction
of the provisions of the Plan and any option or award issued
under this Plan, and related agreements by the Board shall be
final and conclusive. The Board may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in
any related agreement in the manner and to the extent it deems
expedient to carry the Plan into effect, or to be consistent
with any rule or regulation promulgated in connection herewith.
All actions taken by the Board shall be conclusive and binding
on all interested parties. The Board may delegate administrative
functions to individuals who are officers or employees of the
Company.
3.2 Limited Liability. No
member of the Board or officer of the Company shall be liable
for any action or inaction of the Board, any Board committee,
the Company or any another person or, except in circumstances
involving bad faith, of himself or herself. Subject only to
compliance with the explicit provisions hereof, the Board may
act in its absolute discretion in all matters related to this
Plan.
3.3 Securities Exchange Act of
1934. At any time that the Company has a class of securities
registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the Exchange Act),
this Plan shall be administered by the Board in accordance with
Rule 16b-3 adopted
under the Exchange Act, as such rule may be amended from time to
time.
3.4 Committee. The Board by
resolution may delegate to a committee of the Board (the
Committee) any or all authority for administration
of the Plan. If a Committee is appointed, all references to the
Board in the Plan shall mean and relate to such Committee,
except that only the Board may amend, modify, suspend or
terminate the Plan as provided in Section 10.
4. Awards. The Board may
grant options or awards to any current or future employee,
officer, director, agent or consultant of the Company or any of
its subsidiaries. The Board may take the following actions from
time to time, separately or in combination, under this Plan:
(a) grant Incentive Stock Options, as defined in
Section 422 of the Internal Revenue Code of 1986, as
amended (the Code), to any employee of the
B-1
Company or its subsidiaries, as provided in Section 5.1 of
this Plan; (b) grant options other than Incentive Stock
Options (Non-Qualified Stock Options), as provided
in Section 5.2 of this Plan; (c) award stock bonuses
as provided in Section 6; and (d) issue shares subject
to restrictions as provided in Section 7. The Board shall
select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom
an award is made. Shares issued upon exercise of options or
awards granted under this Plan may be subject to such
restrictions on transfer, repurchase rights or other
restrictions as may be determined by the Board. No person may be
granted options and awards to acquire more than a total of
1,600,000 shares of Common Stock [400,000 shares if
the 2006 proposed one-for-four reverse stock split is
implemented] in any calendar year.
5. Option Grants.
5.1 Incentive Stock Options.
Incentive Stock Options shall be subject to the following terms
and conditions:
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(a) Incentive Stock Options may be granted under this Plan
only to employees of the Company or its subsidiaries within the
meaning of Section 422(a)(2) of the Code, including
employees who are directors. |
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(b) No employee may be granted Incentive Stock Options
under this Plan to the extent that the aggregate fair market
value, on the date of grant, of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time
by that employee during any calendar year, under this Plan and
under any other incentive stock option plan (within the meaning
of Section 422 of the Code) of the Company or any
subsidiary, exceeds $100,000. To the extent that any option
designated as an Incentive Stock Option exceeds the $100,000
limit, such option shall be treated as a Non-Qualified Stock
Option. In making this determination, options shall be taken
into account in the order in which they were granted, and the
fair market value of the shares of Common Stock shall be
determined as of the time that the option with respect to such
shares was granted. |
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(c) An Incentive Stock Option may be granted under this
Plan to an employee possessing more than 10% of the total
combined voting power of all classes of stock of the Company (as
determined pursuant to the attribution rules contained in
Section 424(d) of the Code) only if the exercise price is
at least 110% of the fair market value of the Common Stock
subject to the option on the date the option is granted, as
described in Section 5.1(f) of this Plan, and only if the
option by its terms is not exercisable after the expiration of
five years from the date it is granted. |
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(d) Except as provided in Section 5.5 of this Plan, no
Incentive Stock Option granted under this Plan may be exercised
unless at the time of such exercise the optionee is employed by
the Company or any subsidiary of the Company and the optionee
has been so employed continuously since the date such option was
granted. |
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(e) Subject to Sections 5.1(c) and 5.1(d) of this
Plan, Incentive Stock Options granted under this Plan shall
continue in effect for the period fixed by the Board, except
that no Incentive Stock Option shall be exercisable after the
expiration of 10 years from the date it is granted. |
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(f) The exercise price shall not be less than 100% of the
fair market value of the shares of Common Stock covered by the
Incentive Stock Option at the date the option is granted. The
fair market value of shares shall be the closing price per share
of the Common Stock on the trading date immediately prior to the
date of grant as reported on a securities quotation system or
stock exchange or other principal market for the Common Stock.
If such shares are not so reported or listed, the Board shall
from time to time determine the fair market value of the shares
of Common Stock in its discretion. |
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(g) The provisions of clauses (b) and (c) of this
Section shall not apply if either the applicable sections of the
Code or the regulations thereunder are amended so as to change
or eliminate such limitations or to permit appropriate
modifications of those requirements by the Board. |
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(h) If within two years after an Incentive Stock Option is
granted or within 12 months after an Incentive Stock Option
is exercised, the optionee sells or otherwise disposes of Common
Stock acquired |
B-2
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on exercise of the Option, the optionee shall within
30 days of the sale or disposition notify the Company in
writing of (i) the date of the sale or disposition,
(ii) the amount realized on the sale or disposition and
(iii) the nature of the disposition (e.g., sale, gift,
etc.). |
5.2 Non-Qualified Stock
Options. Non-Qualified Stock Options shall be subject to the
following terms and conditions:
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(a) The exercise price shall not be less than 100% of the
fair market value of the shares of Common Stock covered by the
Non-Qualified Stock Option on the date the option is granted.
The fair market value of shares of Common Stock covered by a
Non-Qualified Stock Option shall be determined by the Board, as
described in Section 5.1(f). |
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(b) Non-Qualified Stock Options granted under this Plan
shall continue in effect for the period fixed by the Board,
except that no Non-Qualified Stock Option shall be exercisable
after the expiration of 10 years from the date it is
granted. |
5.3 Vesting. To ensure that
the Company will achieve the purposes of and receive the
benefits contemplated in this Plan, the Board, at its
discretion, may establish a vesting schedule, change such
vesting schedule or provide for no vesting schedule for options
granted under the Plan. In establishing a vesting schedule, the
Board may set a Base Date, meaning a reference date
for the specific option grant and optionee. If no Base Date is
established by the Board for a specific option grant, then the
date of grant of the option by the Board shall constitute the
Base Date.
5.4 Nontransferability. Each
option granted under this Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of
descent and distribution or, with respect to Non-Qualified Stock
Options, pursuant to a qualified domestic relations order. The
foregoing notwithstanding, the Board on conditions it determines
may permit the transferability of a Non-Qualified Stock Option
by an optionee solely to members of the optionees family
or to one or more trusts or partnerships for the benefit of such
family members. Any purported transfer or assignment in
violation of this provision shall be void.
5.5 Termination of Options.
5.5.1 Generally. Unless
otherwise determined by the Board or specified in the
optionees Option Agreement, if the optionees
employment or service with the Company and its subsidiaries
terminates for any reason other than for cause, resignation,
retirement, disability or death, and unless by its terms the
option sooner terminates or expires, then the optionee may
exercise, for a three-month period, that portion of the
optionees option which was exercisable at the time of such
termination of employment or service (provided the conditions of
Section 5.6.4 and any other conditions specified in the
Option Agreement shall have been met by the date of exercise of
such option). For purposes of this Section 5.5, references
to employment or service with the Company, and similar
references, shall include the Company or any of its subsidiaries.
5.5.2 For Cause; Resignation.
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(a) If an optionee is terminated for cause or resigns in
lieu of dismissal, any option granted hereunder shall be deemed
to have terminated as of the time of the first act which led or
would have led to the termination for cause or resignation in
lieu of dismissal, and such optionee shall thereupon have no
right to purchase any shares of Common Stock pursuant to the
exercise of such option, and any such exercise shall be null and
void. Termination for cause shall include
(i) the violation by the optionee of any reasonable rule or
policy of the Board or the optionees superiors or the
chief executive officer or the President of the Company that
results in damage to the Company or which, after notice to do
so, the optionee fails to correct within a reasonable time;
(ii) any willful misconduct or gross negligence by the
optionee in the responsibilities assigned to him or her;
(iii) any willful failure to perform his or her job as
required to meet the objectives of the Company; (iv) any
wrongful conduct of an optionee which has an adverse impact on
the Company or which constitutes a misappropriation of the
assets of the Company; (v) unauthorized disclosure of
confidential information; or (vi) the optionees
performing services for any other company or person which
competes with the Company while he or she is employed by or
provides |
B-3
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services to the Company, without the prior written approval of
the Chairman or President of the Company. Resignation in
lieu of dismissal shall mean a resignation by an optionee
of employment with or service to the Company if (i) the
Company has given prior notice to such optionee of its intent to
dismiss the optionee for circumstances that constitute cause, or
(ii) within two months of the optionees resignation,
the Chairman or President of the Company or the Board
determines, which determination shall be final and binding, that
such resignation was related to an act which would have led to a
termination for cause. |
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(b) If an optionee resigns from the Company, the right of
the optionee to exercise his or her option shall be suspended
for a period of two months from the date of resignation, unless
the Chairman or the President of the Company or the Board
determines otherwise in writing. Thereafter, unless there is a
determination that the optionee resigned in lieu of dismissal,
the option may be exercised at any time prior to the earlier of
(i) the expiration date of the option, or (ii) the
expiration of three months after the date of resignation, for
that portion of the optionees option which was exercisable
at the time of such resignation (provided the conditions of
Section 5.6.4 and any other conditions specified in the
Option Agreement shall have been met at the date of exercise of
such option). |
5.5.3 Retirement. Unless
otherwise determined by the Board, if an optionees
employment or service with the Company is terminated with the
Companys approval for reasons of age, the Option may be
exercised at any time prior to the earlier of (a) the
expiration date of the option or (b) the expiration of
three months after the date of such termination of employment or
service, for that portion of the optionees option which
was exercisable at the time of such termination of employment or
service (provided the conditions of Section 5.6.4 and any
other conditions specified in the Option Agreement shall have
been met at the date of exercise of such option).
5.5.4 Disability. Unless
otherwise determined by the Board, if an optionees
employment or relationship with the Company terminates because
of a permanent and total disability (as defined in
Section 22(e)(3) of the Code), the Option may be exercised
at any time prior to the earlier of (a) expiration date of
the Option or (b) the expiration of 12 months after
the date of such termination for up to the full number of shares
of Common Stock covered thereby, including any portion not yet
vested (provided the conditions of Section 5.6.4 and any
other conditions specified in the Option Agreement shall have
been met by the date of exercise of such Option).
5.5.5 Death. Unless
otherwise determined by the Board, in the event of the death of
an optionee while employed by or providing service to the
Company, the Option may be exercised at any time prior to the
earlier of (a) the expiration date of the Option or
(b) the expiration of 12 months after the date of
death by the person or persons to whom such optionees
rights under the option shall pass by the optionees will
or by the applicable laws of descent and distribution for up to
the full number of shares of Common Stock covered thereby,
including any portion not yet vested (provided the conditions of
Section 5.6.4 and any other conditions specified in the
Option Agreement shall have been met by the date of exercise of
such Option).
5.5.6 Extension of Exercise
Period. The Board, at the time of grant or at any time
thereafter, may extend the three-month and
12-month exercise
periods to any length of time not longer than the original
expiration date of the option, and may increase the portion of
an option that is exercisable, subject to such terms and
conditions as the Board may determine; provided, that any
extension of the exercise period or other modification of an
Incentive Stock Option shall be subject to the written agreement
and acknowledgment by the optionee that the extension or
modification disqualifies the option as an Incentive Stock
Option.
5.5.7 Failure to Exercise
Option. To the extent that the option of any deceased
optionee or of any optionee whose employment or service
terminates is not exercised within the applicable period, all
rights to purchase shares of Common Stock pursuant to such
options shall cease and terminate.
5.5.8 Leaves. For purposes
of this Section 5.5, employment shall be deemed to continue
while the optionee is on military leave, sick leave or other
bona fide leave of absence (as determined by the Board) in
accordance with the policies of the Company.
B-4
5.6 Exercise.
5.6.1 Procedure. Subject to
the provisions of Section 5.3 above, each Option may be
exercised in whole or in part; provided, however, that no fewer
than 100 shares (or the remaining shares then purchasable
under the Option, if less than 100 shares) may be purchased
upon any exercise of any Option granted hereunder and that only
whole shares will be issued pursuant to the exercise of any
Option (the number of 100 shares shall not be changed by
any transaction or action described in Section 8 unless the
Board determines that such a change is appropriate). Options
shall be exercised by delivery to the Secretary of the Company
or his or her designated agent of written notice of the number
of shares with respect to which the Option is exercised,
together with payment in full of the exercise price.
5.6.2 Payment. Payment of
the option exercise price shall be made in full at the time the
written notice of exercise of the option is delivered to the
Secretary of the Company or his or her designated agent and
shall be in cash or check or pursuant to irrevocable
instructions to a stock broker to deliver the amount of sales
proceeds necessary to pay the appropriate exercise price and
withholding tax obligations, all in accordance with applicable
governmental regulations, for the shares of Common Stock being
purchased. The Board may determine at the time the option is
granted for Incentive Stock Options, or at any time before
exercise for Non-Qualified Stock Options, that additional forms
of payment will be permitted. Unless otherwise determined by the
Board, any Common Stock provided in payment of the purchase
price must have been previously acquired and held by the
optionee for at least six months.
5.6.3 Withholding. Prior to
the issuance of shares of Common Stock upon the exercise of an
option, the optionee shall pay to the Company the amount of any
applicable federal, state, local and other tax withholding
obligations. In addition, the optionee shall pay to the Company
promptly any required federal, state and local withholding
obligations arising out of a disqualifying disposition of shares
acquired upon exercise of an Incentive Stock Option. The Company
may withhold any distribution in whole or in part until the
Company is so paid. The Company shall have the right to withhold
such amount from any other amounts due or to become due from the
Company, as the case may be, to the optionee, including salary
(subject to applicable law) or to retain and withhold a number
of shares having a market value not less than the amount of such
taxes required to be withheld by the Company to reimburse it for
any such taxes and cancel (in whole or in part) any such shares
so withheld.
5.6.4 Conditions Precedent to
Exercise. The Board may establish conditions precedent to
the exercise of any option, which shall be described in the
relevant Option Agreement.
5.7 Foreign Qualified
Grants. Options under this Plan may be granted to officers
and employees of the Company or any of its subsidiaries and
other persons described in Section 4 who reside in foreign
jurisdictions as the Board may determine from time to time. The
Board may adopt such supplements to the Plan as are necessary to
comply with the applicable laws of such foreign jurisdictions
and to afford optionees favorable treatment under such laws;
provided, however, that no award shall be granted under any such
supplement on terms which are more beneficial to such optionees
than the terms permitted by this Plan.
5.8 Corporate Mergers,
Acquisitions, Etc. The Board may also grant options under
this Plan having terms, conditions and provisions that vary from
those specified in this Plan provided that such options are
granted in substitution for, or in connection with the
assumption of, existing options granted, awarded or issued by
another corporation and assumed or otherwise agreed to be
provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation,
acquisition of property or stock, reorganization or liquidation
to which the Company is a party.
5.9 Holding Period. Unless
otherwise determined by the Board, if a person subject to
Section 16 of the Exchange Act exercises an option within
six months of the date of grant of the option, the shares of
Common Stock acquired upon exercise of the option may not be
sold until six months after the date of grant of the option.
5.10 Option Agreements.
Options granted under this Plan shall be evidenced by written
stock option agreements (Option Agreements) which
shall contain such terms, conditions, limitations and
restrictions as
B-5
the Board shall deem advisable and which are consistent with
this Plan. All Option Agreements shall include or incorporate by
reference the applicable terms and conditions contained in this
Plan.
6. Stock Bonuses. The Board
may award shares under this Plan as stock bonuses. Shares
awarded as a bonus shall be subject to the terms, conditions
(including performance standards) and restrictions determined by
the Board. The restrictions may include restrictions concerning
transferability and forfeiture of the shares awarded, together
with any other restrictions determined by the Board. The Board
may require the recipient to sign an agreement as a condition of
the award, but may not require the recipient to pay any monetary
consideration other than amounts necessary to satisfy all
federal, state, local and other tax withholding requirements.
The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board. The
certificates representing the shares awarded shall bear any
legends required by the Board. The Company may require any
recipient of a stock bonus to pay to the Company in cash or by
check upon demand amounts necessary to satisfy any applicable
federal, state, local and other tax withholding requirements. If
the recipient fails to pay the amount demanded, the Company or
the Employer may withhold that amount from other amounts payable
to the recipient, including salary, subject to applicable law.
With the consent of the Board, a recipient may satisfy this
obligation, in whole or in part, by instructing the Company to
withhold from any shares to be issued or by delivering to the
Company other shares of Common Stock; provided, however, that
the number of shares so withheld or delivered shall not exceed
the minimum amount necessary to satisfy the required withholding
obligation. Upon the issuance of a stock bonus, the number of
shares reserved for issuance under the Plan shall be reduced by
the number of shares issued, less the number of shares withheld
or delivered to satisfy withholding obligations.
7. Restricted Stock. The
Board may issue shares under this Plan for any consideration
(including services and promissory notes) determined by the
Board. Shares issued under this Plan shall be subject to the
terms, conditions (including performance standards) and
restrictions determined by the Board. The restrictions may
include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with
any other restrictions determined by the Board. All Common Stock
issued pursuant to this Section 7 shall be subject to an
agreement, which shall be executed by the Company and the
prospective recipient of the shares before the delivery of
certificates representing the shares to the recipient. The
purchase agreement may contain any terms, conditions,
restrictions, representations and warranties required by the
Board. The certificates representing the shares shall bear any
legends required by the Board. The Company may require any
recipient of restricted stock to pay to the Company in cash or
by check upon demand amounts necessary to satisfy any applicable
federal, state, local and other tax withholding requirements. If
the recipient fails to pay the amount demanded, the Company or
the Employer may withhold that amount from other amounts payable
to the recipient, including salary, subject to applicable law.
With the consent of the Board, a recipient may satisfy this
obligation, in whole or in part, by instructing the Company to
withhold from any shares to be issued or by delivering to the
Company other shares of Common Stock; provided, however, that
the number of shares so withheld or delivered shall not exceed
the minimum amount necessary to satisfy the required withholding
obligation. Upon the issuance of restricted stock, the number of
shares reserved for issuance under the Plan shall be reduced by
the number of shares issued, less the number of shares withheld
or delivered to satisfy withholding obligations.
8. Adjustments Upon Changes in
Capitalization.
8.1 Stock Splits, Capital Stock
Adjustments. The aggregate number and class of shares for
which options and awards may be granted under this Plan, the
number and class of shares covered by each outstanding option
and award and the exercise or purchase price per share thereof
(but not the total price), and each such option and award, shall
all be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company
resulting from a stock split, stock dividend or consolidation of
shares or any like capital stock adjustment.
8.2 Effect of Merger, Sale of
Assets, Liquidation or Dissolution.
8.2.1 Termination Unless
Assumption or Substitution. Upon the effective date of a
merger, consolidation or plan of exchange (other than a merger,
consolidation or plan of exchange involving the Company in which
the holders of voting securities of the Company immediately
prior to such transaction own at least 50%
B-6
of the voting power of the outstanding securities of the
surviving corporation or a parent of the surviving corporation
after such transaction), or a sale of all or substantially all
the assets of the Company, or a liquidation or dissolution of
the Company, the Plan and any option theretofore granted
hereunder shall terminate, and all restrictions and conditions
(other than payment) of awards granted pursuant to
Section 6 or Section 7 shall terminate, unless
provisions be made in writing in connection with such
transaction for the continuance of the Plan and for the
assumption of options and awards theretofore granted, or the
substitution for such options or awards, with new options and
awards covering the shares of a successor corporation, or a
parent, affiliate or subsidiary thereof, with appropriate
adjustments as to number and kind of shares and prices thereof,
in which event the Plan and the options and awards granted under
it, or the new options or awards substituted therefor, shall
continue in the manner and under the terms so provided.
8.2.2 Exercise and Vesting.
If provision is not made pursuant to the preceding
Section 8.2.1 in connection with such a transaction for the
continuance of the Plan and for the assumption of options and
awards, or the substitution for such options and awards of new
options and awards covering the shares of a successor employer
corporation or a parent, affiliate or subsidiary thereof, then
each optionee under the Plan shall be entitled, prior to the
effective date of any such transaction, to exercise the option
for the full number of shares covered thereby, including any
portion not yet vested (provided that the conditions of
Section 5.6.4 and any other conditions specified in the
Option Agreement shall have been met at the date of exercise of
such option) and all restrictions and conditions (other than
payment) of awards shall lapse.
8.3 Fractional Shares. In
the event of any adjustment in the number of shares covered by
any option or award, any fractional shares resulting from such
adjustment shall be disregarded and each such option and award
shall cover only the number of full shares resulting from such
adjustment.
8.4 Determination of Board to Be
Final. All adjustments under this Section 8 shall be
made by the Board, and its determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding
and conclusive. Unless an optionee agrees otherwise, any change
or adjustment to an Incentive Stock Option shall be made, if
possible, in such a manner so as not to constitute a
modification, as defined in Section 424(h) of
the Code, and so as not to cause the optionees Incentive
Stock Option to fail to continue to qualify as an Incentive
Stock Option.
9. Securities Regulations.
9.1 Compliance with Law.
Shares of Common Stock shall not be issued with respect to an
option or award granted under this Plan unless the exercise of
such option and the issuance and delivery of such shares
pursuant to such option or award complies with all relevant
provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated
thereunder, applicable laws of foreign countries and other
jurisdictions and the requirements of any quotation service or
stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the
Company with respect to such compliance, including the
availability of an exemption from registration for the issuance
and sale of any shares hereunder. The inability of the Company
to obtain, from any regulatory body having jurisdiction, the
authority deemed by the Companys counsel to be necessary
for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the
Company of any liability with respect of the nonissuance or sale
of such shares as to which such requisite authority shall not
have been obtained.
9.2 Investment Purpose. As a
condition to the exercise of an option or receipt of stock
pursuant to an award, the Company may require the optionee or
awardee to represent and warrant at the time of any such
exercise or receipt that the shares of Common Stock are being
acquired only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel
for the Company, such a representation is required by any
relevant provision of the aforementioned laws. The Company may
place a stop-transfer order against any shares of Common Stock
on the official stock books and records of the Company, and a
legend may be stamped on stock certificates to the effect that
the shares of Common Stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred
in by counsel for the Company) stating that such transfer is not
in violation of any applicable law or regulation. The
B-7
Board may also require such other action or agreement by the
optionees as may from time to time be necessary to comply with
the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR
STOCK THEREUNDER OR ANY AWARDS UNDER THIS PLAN.
10. Amendment and
Termination.
10.1 Plan. The Board may at
any time suspend, amend or terminate this Plan, provided that,
except as set forth in Section 8, the approval of the
Companys shareholders is necessary within 12 months
before or after the adoption by the Board of any amendment that
will:
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(a) increase the number of shares of Common Stock that are
to be reserved for the issuance under this Plan; |
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(b) permit the granting of stock options or awards to a
class of persons other than those presently permitted to receive
stock options or awards under this Plan; or |
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(c) require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act, or the
regulations of any securities market or exchange on which the
Common Stock is then listed for trading or quotation. |
10.2 Options. Subject to the
requirements of Section 422 of the Code with respect to
Incentive Stock Options and to the terms and conditions and
within the limitations of this Plan, the Board may modify or
amend outstanding options and awards granted under this Plan,
provided that, without the prior approval of the Companys
shareholders, no such modification or amendment, except for
adjustments made pursuant to Section 8.1 or as described in
Section 8.2.1, shall reduce the exercise price of
outstanding options issued under this Plan, or cancel or amend
outstanding options issued under this Plan for the purpose of
repricing, replacing or regranting such options with an exercise
price that is less than the original exercise price (as adjusted
pursuant to Section 8.1 or as described in
Section 8.2.1) of such options. The modification or
amendment of an outstanding option shall not, without the
consent of the optionee or awardee, impair or diminish any of
his or her rights or any of the obligations of the Company under
such option or award. Except as otherwise provided in this Plan,
no outstanding option or award shall be terminated without the
consent of the optionee or awardee. Unless the optionee agrees
otherwise, any changes or adjustments made to outstanding
Incentive Stock Options granted under this Plan shall be made in
such a manner so as not to constitute a
modification, as defined in Section 424(h) of
the Code, and so as not to cause any Incentive Stock Option
issued hereunder to fail to continue to qualify as an Incentive
Stock Option as defined in Section 422(b) of the Code.
10.3 Automatic Termination.
Unless sooner terminated by the Board, this Plan shall terminate
ten years from the date on which this Plan is adopted by the
Board. No option or award may be granted after such termination
or during any suspension of this Plan. The amendment or
termination of this Plan shall not, without the consent of the
optionee or awardee, alter or impair any rights or obligations
under any option and award theretofore granted under this Plan.
11. Miscellaneous.
11.1 Time of Granting
Options. The date of grant of an option shall, for all
purposes, be the date on which the Company completes the
required corporate action relating to the grant of an option;
the execution of an Option Agreement and the conditions to the
exercise of an option shall not defer the date of grant.
11.2 No Status as
Shareholder. The recipient of any award under the Plan shall
have no rights as a shareholder with respect to any shares of
Common Stock until the date the recipient becomes the holder of
record of those shares. Except as otherwise expressly provided
in the Plan, no adjustment shall be made for dividends or other
rights for which the record date occurs before the date the
recipient becomes the holder of record.
11.3 Status as an Employee.
Nothing in the Plan or any award pursuant to the Plan shall
(i) confer upon any employee any right to be continued in
the employment of an Employer or interfere in any way with
B-8
the Employers right to terminate the employees
employment at will at any time, for any reason, with or without
cause, or to decrease the employees compensation or
benefits, or (ii) confer upon any person engaged by an
Employer any right to be retained or employed by the Employer or
to the continuation, extension, renewal or modification of any
compensation, contract or arrangement with or by the Employer.
11.4 Reservation of Shares.
The Company, during the term of this Plan, at all times will
reserve and keep available such number of shares of Common Stock
as shall be sufficient to satisfy the requirements of this Plan.
12. Effectiveness of This
Plan. This Plan shall become effective upon adoption by the
Board so long as it is duly approved by the Companys
shareholders any time within 12 months after the adoption
of this Plan. No option granted under this Plan to any officer
or director of the Company shall become exercisable, however,
until the Plan is approved by the shareholders, and any options
and awards granted prior to such approval shall be conditioned
upon and are subject to such approval.
Adopted by the Board of Directors as of March 8, 2006, and
approved by the Shareholders on
June , 2006.
B-9
PROXY
CRAY INC.
Annual Meeting of
Shareholders June 6, 2006, 10:00 a.m.
411 First Avenue South,
Seattle, Washington 98104-2860
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Stephen C. Kiely, Peter J. Ungaro and Kenneth W. Johnson, 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 Cray Inc.
(the Company) on June 6, 2006, 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 proposals to elect eight directors, each to
serve a one-year term, to approve an amendment to our Restated Articles of Incorporation to
effect a one-for-four reverse stock split, to approve an amendment to our Restated Articles of
Incorporation to increase the authorized number of shares of common stock and to approve our 2006
Long-Term Equity Compensation Plan. The proxies are authorized to vote in their discretion as to
other matters that may come before this meeting. A majority of the proxies or substitutes at the
meeting may exercise all the powers granted hereby.
If you vote by Internet or telephone, please do not return this proxy.
(Continued and to be marked, dated and signed on the reverse side.)
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Address Change/Comments (Mark the corresponding box on the reverse side) |
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5 FOLD AND DETACH HERE 5
You can now access your CRAY INC. account online.
Access your CRAY INC. shareholder/stockholder account online via Investor
ServiceDirect ® (ISD).
Mellon Investor Services LLC, Transfer Agent for CRAY INC., now makes it easy and
convenient to get current information on your shareholder account.
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View account status
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View payment history for dividends |
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View certificate history
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Make address changes |
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View book-entry information
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Obtain a duplicate 1099 tax form |
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Establish/change your PIN |
Visit us on the web at http://www.melloninvestor.com
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor ServiceDirect® is a registered trademark of Mellon Investor Services LLC
The Board of Directors recommends that you vote for election of named Directors and in favor of
Proposals 2, 3 and 4.
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Mark Here
for Address
Change or
Comments
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PLEASE SEE REVERSE SIDE |
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WITHHOLD |
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FOR |
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AUTHORITY |
1. |
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Election of eight directors, |
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all nominees |
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to vote for |
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each to serve a one-year term. |
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listed (except |
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nominees |
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Nominees: |
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as withheld) |
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01 John B. Jones, Jr.
02 Kenneth W. Kennedy, Jr.
03 Stephen C. Kiely
04 Frank L. Lederman
05 Sally G. Narodick
06 Daniel C. Regis
07 Stephen C. Richards
08 Peter J. Ungaro |
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Withheld for the nominees you list below: (Write that
nominees name in the space provided below.) |
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FOR
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AGAINST
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ABSTAIN |
2.
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Approval of
an amendment
to effect a
one-for-four
reverse stock
split.
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3.
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Approval of
an amendment
to increase
the authorized
common stock
to 300,000,000
shares (on a
pre-split
basis).
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WILL
ATTEND |
If you plan to attend the
Annual Meeting, please mark the
WILL ATTEND box. |
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FOR
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AGAINST
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ABSTAIN |
4.
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Approval of
our 2006
Long-Term
Equity
Compensation
Plan.
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The proxies are authorized to vote in
their discretion as to other matters that may
come before this meeting. A majority of the
proxies or substitutes at the meeting may
exercise all the powers granted hereby.
Choose MLinkSM for fast, easy and
secure 24/7 online access to your future
proxy materials, investment plan statements,
tax documents and more. Simply log on to
Investor ServiceDirect® at
www.melloninvestor.com/isd where step-by-step
instructions will prompt you through
enrollment.
Please sign exactly as your name appears on
this Voting Form. If
shares are registered in more than one name,
the signatures of all such persons are
required. A corporation should sign in its
full corporate name as a duly authorized
officer, stating such officers title.
Trustees, guardians, executors and
administrators should sign in their official
capacity giving their full title as such. A
partnership should sign in the partnership
name by an authorized person, stating such
persons title and relationship to the
partnership.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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Signature
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Signature if held jointly
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Date:
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, 2006 |
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such.
5 FOLD AND DETACH HERE 5
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet/telephone voting is available through 11:59 PM EST
the day prior to annual meeting day.
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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Internet
http://www.proxyvoting.com/cray
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Telephone
1-866-540-5760
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Mail
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Use the Internet to vote your
proxy. Have your proxy card in
hand when you access the web
site.
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OR
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Use any touch-tone
telephone to vote your proxy.
Have your proxy card in
hand when you call.
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OR
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Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope. |
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If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internet at: http://investors.cray.com