SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended: Commission file number:
March 31, 1995 1-8028
CRAY RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
Delaware 39-1161138
(State of Incorporation) (I.R.S Employer Identification No.)
655A Lone Oak Drive
Eagan, MN 55121
(Address of principal executive offices)
Telephone Number: (612) 452-6650
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. YES-X NO
As of April 30, 1995 24,978,528 shares of the Registrant's Common Stock
were outstanding.
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FORM 10-Q
March 31, 1995
I N D E X
Page
------
Part I - Financial Information:
Consolidated Statements of Operations-
Three months ended March 31, 1995 and 1994 1
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 2
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Financial Review 6
Part II - Other Information 11
Signatures 12
Exhibit Index 13
<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
----------------------
1995 1994
---------- ----------
(In thousands, except
<S> per share data)
Revenue: <C> <C>
Sales $ 70,116 $ 198,253
Leased systems 7,378 5,066
Service fees 53,569 45,547
- ---------------------------- --------- ---------
Total revenue 131,063 248,866
- ---------------------------- --------- ---------
Cost of revenue:
Cost of sales 57,466 101,679
Cost of leased systems 3,456 2,619
Cost of services 48,252 36,448
- ---------------------------- --------- ---------
Total cost of revenue 109,174 140,746
- ---------------------------- --------- ---------
Gross profit 21,889 108,120
- ---------------------------- --------- ---------
Operating expenses:
Development and engineering 42,169 36,950
Sales and Marketing 43,175 32,341
General and administrative 6,479 5,967
- ---------------------------- --------- ---------
Total operating expenses 91,823 75,258
- ---------------------------- --------- ---------
Operating income (loss) (69,934) 32,862
Other income (expense), net 718 (1,509)
- ---------------------------- --------- ---------
Earnings (loss) before
income taxes (69,216) 31,353
Income tax benefit (expense) 20,924 (9,400)
- ---------------------------- --------- ---------
Net earnings (loss) ($ 48,292) $ 21,953
- ---------------------------- ========= =========
Earnings (loss) per common
and common equivalent share ($ 1.90) $ 0.84
- ---------------------------- ========= =========
Average number of common and
common equivalent shares
outstanding 25,376 26,002
- ---------------------------- ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
1<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 December 31
1995 1994
<S> ------------ ------------
Assets (In thousands)
- ------------------------------------------- <C> <C>
Current assets:
Cash and equivalents $ 65,821 $ 55,543
Receivables 136,495 229,808
Inventories 250,832 207,496
Other current assets 46,922 41,191
- ------------------------------------------- ---------- ----------
Total current assets 500,070 534,038
Long-term receivables 18,784 20,959
Leased systems and spares, net 97,512 110,207
Property, plant and equipment, net 236,807 265,116
Long-term cash investments 175,000 200,000
Other assets 51,738 51,559
- ------------------------------------------- ---------- ----------
$1,079,911 $1,181,879
========== ==========
Liabilities and Stockholders' Equity
- -------------------------------------------
Current liabilities:
Current installments of long-term debt $ 12,796 $ 7,344
Accounts payable 18,727 37,999
Accrued expenses 83,857 110,373
Income taxes payable 0 7,009
Deferred income and customer advances 75,778 75,214
- ------------------------------------------- ---------- ----------
Total current liabilities 191,158 237,939
- ------------------------------------------- ---------- ----------
Long-term debt, excluding
current installments 97,000 97,000
Other long-term obligations 15,817 18,030
Stockholders' equity:
Common stock 31,511 31,511
Additional paid-in capital 86,061 91,973
Retained earnings 874,268 922,560
Foreign currency translation adjustments 5,542 2,774
Treasury stock, at cost (221,446) (219,908)
- ------------------------------------------- ---------- ----------
Total stockholders' equity 775,936 828,910
- ------------------------------------------- ---------- ----------
$1,079,911 $1,181,879
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31
--------------------
1995 1994
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows provided by (used in) operations $ (1,976) $ (59,254)
- ----------------------------------------------------- --------- ---------
Cash flows provided by (used in) investing:
Transfers from (to) long-term investments 25,000 15,000
Expenditures for leased systems and spares (1,801) (1,116)
Expenditures for property, plant and equipment (12,918) (20,470)
Other, net 2,288 177
- ----------------------------------------------------- --------- ---------
Total cash flows used in investing 12,569 (6,409)
- ----------------------------------------------------- --------- ---------
Cash flows provided by (used in) financing:
Proceeds from borrowings 6,489 458
Proceeds from the sale of common stock to employees 3,803 3,929
Repayments of debt (1,243) (1,747)
Repurchases of common stock (11,282) (7,732)
- ----------------------------------------------------- --------- ---------
Total cash flows provided by (used in) financing (2,233) (5,092)
- ----------------------------------------------------- --------- ---------
Effect of exchange rate changes 1,918 748
- ----------------------------------------------------- --------- ---------
Increase (decrease) in cash and equivalents 10,278 (70,007)
Cash and equivalents at beginning of period 55,543 78,373
- ----------------------------------------------------- --------- ---------
Cash and equivalents at end of period $ 65,821 $ 8,366
- ----------------------------------------------------- ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments considered necessary for a fair
presentation. These adjustments consist only of normal recurring items
with the exception of restructuring and one-time charges addressed in
footnote 3 below. For further information, refer to the financial
statements and footnotes included or incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Operating results for the three months ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995.
(3) During the first quarter of 1995, the Company began making operational
changes intended to better align resources with its strategy, to improve
efficiency and to achieve a more competitive cost structure. Restructure
and related charges totaling $40.7 million were recorded in first quarter
1995 as a result of these operational changes. The breakdown by line item
on the Statement of Operations is as follows: cost of sales-- $15.0
million; cost of service -- $10.0 million; development and engineering --
$7.2 million; sales and marketing -- $8.5 million.
This $40.7 million charge included a $15.6 million asset impairment charge
recorded in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". This charge was recorded as a
result of excess capacity in a manufacturing and development facility and
related equipment due to decreases in demand and changes in the balance
of sourcing parts internally vs. externally. The $15.6 million impairment
loss was computed as the excess of current net book value of the facility
and equipment over its fair value. Fair value was computed as the present
value of estimated expected future cash flows. Cost of sales includes
$10.6 million of this charge; development and engineering expense includes
the other $5 million.
4
<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Selected consolidated financial statement details (in thousands):
March 31 December 31
1995 1994
<S> ------------ ------------
Inventories: <C> <C>
Components and subassemblies $ 116,282 $ 97,717
Systems in process 77,543 74,940
Finished goods 57,007 34,839
---------- ----------
$ 250,832 $ 207,496
========== ==========
Leased systems and spares:
Cost $ 306,501 $ 320,276
Accumulated depreciation and amortization (208,989) (210,069)
---------- ----------
$ 97,512 $ 110,207
========== ==========
Property, plant and equipment:
Cost $ 565,273 $ 585,267
Accumulated depreciation and amortization (328,466) (320,151)
---------- ----------
$ 236,807 $ 265,116
========== ==========
</TABLE>
<TABLE>
Three months ended
March 31
------------------
1995 1994
<S> ------- -------
Other income (expense), net: <C> <C>
Interest income $ 3,475 $ 2,267
Interest expense (2,570) (2,204)
Other, net (187) (1,572)
-------- --------
$ 718 $(1,509)
======== ========
</TABLE>
5
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
OVERVIEW AND OUTLOOK
In fiscal year 1995 the Company expects to move to higher unit volumes and
lower average selling prices. It will focus on retaining and building its
traditional high performance supercomputing base, while also entering new, more
competitive markets where it has not had a significant presence in the past. To
better compete in these markets and under these conditions, Cray is making
operational changes in 1995 to better align its resources with its strategy, to
improve efficiency, and to achieve a more competitive cost structure. At the
same time, 1995 will be a year of product transition, both at the high-end and
the low-end of the product line. Some of these new products will not be
available for volume shipment until the second half of 1995.
These factors have resulted in an outlook for fiscal year 1995 that includes a
decrease in revenue from 1994 levels by as much as 10% and a decrease in gross
margin as well. Operating losses in the first half of the year are anticipated
to be offset by profits in the second half. For the full year, the Company
anticipates break-even operating results prior to restructuring and one-time
charges.
<TABLE>
REVENUE
Three Months Ended
March 31
------------------
1995 1994
<S> -------- --------
High-end systems installed: <C> <C>
Parallel vector processing 4 16
Massively parallel processing 2 3
------ ------
6 19
------ ------
Low-end systems installed :
Parallel vector processing 9 26
Symmetric multiprocessing 7 8
------ ------
16 34
------ ------
Total system installations 22 53
====== ======
High-end systems lease-to-purchase conversions 6 3
====== ======
</TABLE>
6
<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
Percent of total revenue Percent Change in dollar amounts
from prior year
- -------------------------- ------------------------------------
1995
as reported 1994 as reported
- ----------- ------ -----------
<C> <C> <S> <C>
Revenue:
53.5% 79.7% Sales (64.6)%
5.6% 2.0% Leased systems 45.6%
40.9% 18.3% Service fees 17.6%
- ------ ------ -------------- ------
100.0% 100.0% Total revenue (47.3)%
====== ====== ============== =======
</TABLE>
Revenues decreased 47.3% in the first quarter of 1995 from the same period in
1994, reflecting a $128.1 million decrease in sales revenue, a very slight
increase in lease revenue, and an $8.0 increase in service revenues. At March
31, 1995, the total installed base consisted of 633 systems, compared to 533 a
year earlier.
The sales revenue decrease for the quarter resulted from a significant decrease
in the number of systems installed during the quarter--particularly new
high-end systems, which traditionally have generated most of the sales revenue
(three new high-end systems were installed during first quarter 1995 compared
to 14 during first quarter of 1994). This decrease in new high-end system
installations was a direct result of product transition at the high-end from
the C-90 series to the T-90 series; the T-90 series will not be shipping in
large quantities until the second half of 1995. This decrease in high-end
system installations was not offset by low-end system sales due to a product
transition at the low end as well--from the Y-EL series to the J-90 series. The
Company expects a decrease in total revenue for 1995--possibly by as much as
10% from 1994 levels. This is due to changes in the makeup of sales revenue
from high-end systems to a higher volume of low-end systems with lower average
selling prices, product transitions as discussed above, and that revenue from
massively parallel processing systems is expected to be less in 1995 than in
1994 as a result of limitations in the number of customer applications able to
fully utilize the system architecture.
Service revenues increased 17.6% for the quarter as a result of increases in
value added services. Most of this $8 million increase was generated by the
Minnesota Supercomputer Center, which was acquired during fourth quarter of
1994. Service revenues generated from the traditional maintenance business
experienced a slight decrease, in spite of an increase in the installed system
base. This reflects a continuation of the trend toward decreases in average
service revenue per installation. This trend is caused by changes in: 1) the
product mix, and 2) the service options offered to customers. Smaller systems
generate lower monthly service fees than our traditional high-end systems. The
new high-end systems are generally more reliable than the older systems they
are replacing; this allows the Company to offer, and more customers to accept,
lower priced service options with less coverage.
The order backlog at March 31, 1995 was $282 million, compared to $271 million
a year earlier, and $237 million at December 31, 1994. The Company believes
backlog information provides only a limited indication of its expected future
revenue. Compared to significantly higher backlog levels of 1993, the current
lower backlog levels reflect the shorter time periods between order and
acceptance which are experienced in the marketplace today.
7
<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
GROSS PROFIT
Percent of related revenue Change in percentages from prior year
- -------------------------- -------------------------------------
1995 1995 as before
as reported before charges 1994 reported charges
- ----------- -------------- ----- ----------- -----------
<C> <C> <C> <S> <C> <C>
Gross profit %:
18.0% 39.4% 48.7% Sales (30.7)% (9.3)%
53.2% 53.2% 48.3% Leased systems 4.9 % 4.9 %
9.9% 28.5% 20.0% Service fees (10.1)% 8.5 %
------ ------ ------ ------------------- ------- -------
16.7% 35.7% 43.4% Total gross profit% (26.7)% (7.7)%
====== ====== ====== =================== ======= =======
</TABLE>
The total gross profit percent declined from 43.3% in the first quarter of 1994
to 16.7%, as reported, in 1995. Nineteen percentage points of this decline is
due to restructuring and one-time charges recorded in first quarter of 1995.
Sales margins included $15 million of these charges and $10 million impacted
the service margin. The total gross profit percent for first quarter 1995
before restructure and one-time charges was 35.7%. The decrease from the same
period in 1994 reflects significantly lower margins earned on sales revenues in
1995, which is largely due to the product transition discussed previously.
In 1995, total gross margins will continue to be lower compared with 1994, due
to several factors. Sales gross margins will remain lower due to a shift in the
product mix to smaller, lower margin systems and also due to a decrease in
sales on the high end, resulting from the product transition. Service revenues,
which have substantially lower gross margins than product revenues, will also
represent a greater percentage of total revenues in 1995, due to declines in
sales revenues.
8
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
<TABLE>
EXPENSES
Percent of total revenue Percent Change in dollar amounts
from prior year
- -------------------------- -----------------------------------
1995 1995
as reported before charges 1994 as reported before charges
- ----------- -------------- ----- ----------- -------------
<C> <C> <C> <S> <C> <C>
Operating Expenses:
32.2% 26.7% 14.8% Development & Engr 14.1% (5.4)%
32.9% 26.4% 13.0% Sales and Marketing 33.5% 7.0%
5.0% 4.9% 2.4% G & A 8.6% 8.5%
------ ------ ------ ------------------- ------- -------
70.1% 58.0% 30.2% Total operating exp 22.0% 1.0%
====== ====== ====== =================== ======= =======
</TABLE>
Total operating expenses for the first quarter increased 22% from 1994 to 1995.
The majority of this increase is due to restructuring and one-time charges
recorded in first quarter of 1995. Development and engineering includes $7.2
million of these charges while sales and marketing includes $8.5 million. Prior
to these charges, total operating expenses were basically flat with 1994. There
were some changes in the level of expenses on a pre-restructure basis, however,
within various expense categories. Before considering restructuring related
charges, development and engineering expenditures decreased by $2 million
primarily due to decreases in T90 development and engineering activity, as that
product moves into full production; sales and marketing expenses increased $2.3
million, mainly from the addition of low-end sales resources, but also from
increased advertising expenditures; and general and administrative expenses
increased slightly from 1994 due to increased consulting expenses associated
with restructuring efforts.
Development and engineering expenditures are expected to continue to remain low
in 1995 compared with 1994 as the Company focuses its development efforts on
fewer projects, eliminates redundant efforts, and reduces costs. Sales and
marketing expenses are expected to continue to remain high in 1995 compared
with 1994, due to continuing investments in marketing, applications, and field
sales resources for the low-end business. General and administrative expenses
for the full year are expected to be at or slightly below 1994 levels.
Overall, total operating expenses in 1995, before restructuring and other
one-time charges, are expected to be relatively flat compared with 1994.
The effective tax rate for the quarter was 30.23%, compared with 30.0% for the
first quarter of 1994.
RESTRUCTURE AND RELATED CHARGES
As noted in the Overview and Outlook section, the Company is making operational
changes in 1995 to better align its resources with its strategy, to improve its
efficiency and achieve a more competitive cost structure. The majority of the
actions were completed and related charges recorded in first quarter 1995. It
is probable that more charges will be taken later this year as the Company
continues to refine and implement its strategy and continues its re-engineering
efforts.
9
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
Restructure and related charges totaling $40.7 million were recorded in first
quarter 1995 as a result of these operational changes. This amount included
provisions for workforce reductions ($14.3 million), facilities writedowns and
closings ($21.1 million), equipment write-downs and disposals ($3.5 million),
and other ($1.8 million). Of the total charge, approximately $18.2 million will
result in cash expenditures; the other $22.5 million is for non-cash charges.
Future annual cost eliminations resulting from the first quarter restructuring
are estimated to be over $20 million, the majority of which will favorably
impact cash.
The breakdown of restructuring and related charges by line item on the
Statement of Operations is as follows: cost of sales -- $15.0 million; cost of
service -- $10.0 million; development and engineering -- $7.2 million; sales
and marketing -- $8.5 million.
FINANCIAL CONDITION
Operating (short-term) cash and equivalents increased $10.3 million during the
quarter to $65.8 million. Total cash and long-term cash investments declined
$14.7 million during the quarter from $255.5 million at December 31, 1994 to
$240.8 million at March 31, 1995.
Operations used $2.0 million of cash during the first quarter, compared to $59
million used during the first quarter of 1994. The $57 million decrease in
cash usage primarily reflects an increase in accounts receivable collections,
due to higher balances at year end 1994 than 1993.
Investing activities, net of transfers of cash to and from long-term cash
investments, used $12.4 million of cash during the quarter, down $9.0 million
from the first quarter of 1994, due to lower fixed asset expenditures ($12.9
million in 1995 vs $20.5 million in 1994). The Company expects capital
expenditures for 1995 to remain below 1994 levels, due to a reduction in
investments in manufacturing facilities and equipment for new product lines.
There was a transfer from long-term cash investments to short term cash and
equivalents of $25 million in first quarter of 1995 compared to $15 million in
first quarter of 1994.
Financing activities used $2.2 million of cash. This net usage was mainly due
to repurchases of common stock ($11.3 million), offset by proceeds from
international borrowing ($6.5 million) and employee stock plans ($3.8 million).
The Company repurchased approximately 663,000 shares of its common stock during
the first quarter 1995, which consumed the Company's remaining repurchase
authorization.
For the year, the Company expects to be cash flow positive before the impact of
any restructuring activity. The Company believes that its future cash
requirements can be met with existing cash and investments and cash generated
from operations. The Company also has an unused $75 million unsecured line of
credit and adequate borrowing capacity available to meet future
cash requirements, if needed, although no current plans exist to use either
source.
10
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(10) Separation Agreement with John Carlson
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1995.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAY RESEARCH, INC.
Date May 12, 1995 by /s/ LAURENCE L. BETTERLEY
------------------------------------------------------------
Laurence L. Betterley
Chief Financial Officer
(Principal Financial Officer)
Date May 12, 1995 by /s/ STEVEN E. SNYDER
---------------------------------------------------------
Steven E. Snyder
Corporate Controller
(Principal Accounting
Officer)
12
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 6 TO THE QUARTERLY REPORT OF CRAY RESEARCH, INC. AND
SUBSIDIARIES ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
(10) Separation Agreement with John Carlson
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
13
<PAGE>
<TABLE>
Exhibit 11
----------
CRAY RESEARCH, INC. and SUBSIDIARIES
Computation of Earnings per Share
Three Months Ended
March 31
---------------------
1995 1994
<S> ---------- ----------
PRIMARY EARNINGS (LOSS) PER SHARE (In thousands, except per share data)
- ----------------------------------------
(Computation for Consolidated Statements
of Operations) <C> <C>
Net earnings (loss) $(48,292) $21,953
Net earnings (loss) effect of interest on 6 1/8%
Convertible Debentures - (1) - (1)
- ------------------------------------------ -------- -------
Net earnings (loss) applicable to common and
common equivalent shares $(48,292) $21,953
- ------------------------------------------ -------- -------
Weighted average number of common shares
outstanding during the period 25,376 25,991
Common stock equivalents-stock options - 11
Common stock equivalents-
convertible debentures - (1) - (1)
- ------------------------------------------ ------- ------
Total weighted average number of common
and common equivalent shares outstanding 25,376 26,002
- ------------------------------------------ ------- ------
Earnings (Loss) per common and common
equivalent share $(1.90) $ .84
- ------------------------------------------ ======= =======
FULLY DILUTED EARNINGS (LOSS) PER SHARE
- ------------------------------------------
Net earnings (loss) per primary computation
above $(48,292) $21,953
- ------------------------------------------ --------- -------
Weighted average number of common shares
outstanding, as adjusted per primary
computation above 25,376 26,002
Additional dilutive effect of outstanding
stock options - -
- ------------------------------------------ ------- -------
Total weighted average number of common
and common equivalent shares outstanding 25,376 26,002
- ------------------------------------------ ------- ------
Earnings (Loss) per common and common
equivalent share, assuming
full dilution $(1.90) $ .84
- ------------------------------------------ ======= =======
<FN>
(1) The effect of the convertible debentures on earnings per share is
anti-dilutive as of March 31, 1995 and 1994 and is excluded from the
calculation.
</TABLE>
<PAGE>
EXHIBIT 10
SEPARATION AGREEMENT
This Separation Agreement ("Agreement") is made and entered into as of March
31, 1995 by and between John F. Carlson ("Carlson"), a Minnesota resident, and
Cray Research, Inc. ("the Company"), a Delaware corporation.
BACKGROUND
A. Carlson has been employed by the Company for more than 18 years, during
which time he has held various senior executive positions with the Company.
B. In late 1994, a committee of the Board of Directors of the Company and
Carlson agreed that it was in their mutual interests that Carlson retire as
Chief Executive Officer as of December 31, 1994, and that he retire as Chairman
of the Board, a director, and an employee as of May 16, 1995.
C. In spite of his agreement to retire as a director, officer, and employee,
Carlson nevertheless believes that certain matters relating to his separation
from the Company could give rise to legal claims by him against the Company.
D. If Carlson brought and were able to prove the legal claims referred to in
the preceding paragraph, then he would be entitled to receive damages from the
Company.
E. The Company expressly denies that it may be liable to Carlson on any basis
or that it has engaged in any improper or unlawful conduct or wrongdoing
against him.
F. Carlson and the Company desire to resolve any present disputes between them
rather than to engage in protracted and expensive litigation.
G. Carlson and the Company have agreed to a full settlement of all present
issues in dispute between them.
NOW, THEREFORE, in consideration of the mutual promises and provisions
contained in this Agreement and the Release referred to below, the parties
agree as follows:
AGREEMENTS
1. Release of Claims by Carlson. At the same time Carlson executes this
Agreement, he also will execute a Release, in the form attached to this
Agreement as Exhibit A ("the Carlson Release"), in favor of the Company, its
insurers, affiliates, divisions, committees, directors, officers, employees,
agents, successors, and assigns. Carlson will re-execute the Carlson Release
as of May 16, 1995. This Agreement will not be interpreted or construed to
limit the Carlson Release in any manner.
<PAGE>
2. Release of Claims by the Company. At the same time the Company executes
this Agreement, the Company also will execute a Release, in the form attached
to this Agreement as Exhibit B ("the Cray Release"), in favor of Carlson and
his successors and assigns. The Company will re-execute the Cray Release as of
May 16, 1995. This Agreement will not be interpreted or construed to limit the
Cray Release in any manner.
3. Resignations. At the same time Carlson executes this Agreement, he will
also sign a document, in the form attached to this Agreement as Exhibit C,
retiring and resigning as Chairman of the Board, a director, and an employee of
the Company effective as of May 16, 1995.
4. Payments. The Company or its agent will make the payments set
forth in subparagraphs 4(a) through 4(f) provided that: (i) Carlson has not
rescinded this Agreement or the Carlson Release within an applicable rescission
period; and (ii) the Company has received written confirmation from Carlson, in
the form attached to this Agreement as Exhibit D, dated not earlier than the
day after the expiration of an applicable rescission period, that Carlson has
not rescinded and will not rescind this Agreement or the Carlson Release.
a. Base Salary. The Company will continue to pay Carlson his bas salary at
a rate of $34,330.40 per month (prorated for any fractional month), less all
applicable withholding, until May 16, 1995.
b. Severance Pay. The Company will make severance payments to Carlson
during the period between May 17, 1995 and December 31, 1996 in the monthly
amounts set forth below:
Time Periods Monthly Amounts
May 17, 1995 to June 30,1995 $34,330.40
(prorated for any
fractional month)
July 1, 1995 to December 31, 1995 $17,165.20
January 1, 1996 to December 31, 1996 $ 8,582.60
Severance payments made to Carlson will be subject to all applicable
withholding, will be issued on a regular payroll date of the Company, and will
be sent by first-class mail to Carlson's last known residence address, unless
he advises the Company in writing that he wants the severance payments sent to
a different address.
c. Paid Time Off. The Company will pay Carlson $39,651.61, less all
applicable withholding, as earned and accrued vacation and as other paid
time off. That amount will be paid to Carlson in a lump sum on or before
June 16, 1995.
<PAGE>
d. Special Executive Benefits. The Company will pay (i) for Carlson's 1995
annual physical, (ii) Carlson's 1994 income tax preparation fees incurred on
or after January 1, 1995 and his 1995 financial planning fees, subject to a
total maximum limitation of $25,000.00, and (iii) Carlson's Minneapolis Club
basic membership dues until December 31, 1995. The Company will make
payments for such services at Carlson's election either directly to the
providers of such services or to Carlson upon his submission of proper
requests for reimbursement therefor.
e. Outplacement. The Company will pay directly to the outplacement firm of
Market Share Inc. $61,800.00 for outplacement services provided to date and
to be provided in the future to Carlson. That payment will be made to
Market Share Inc. on April 10, 1995 or within five business days after the
expiration of the rescission period that begins to run after Carlson
executes this Agreement, whichever is later.
f. Lump Sum Payment. The Company or its agent will pay Carlson $422,000.00
as compensation for alleged damages relating to his separation from the
Company. That amount will be paid to Carlson in a lump sum on June 2, 1995
or within five business days after the expiration of the rescission period
that begins to run after Carlson re-executes the Carlson Release, whichever
is later.
5. Payment of Taxes. The parties expressly acknowledge that the payment to be
made to Carlson under subparagraph 4(f) above is intended solely as
compensation for claimed damages on account of alleged personal injuries
arising from an occurrence within the meaning of Section 104(a)(2) of the
Internal Revenue Code, the administrative regulations promulgated thereunder,
and applicable case law. No part of such payment is allocable to punitive
damages, compensation for other claimed damages, or interest thereon. Neither
party will prepare its books and records, file any tax return, or otherwise
document or take any position with respect to such payment that is
inconsistent with the foregoing allocation. The Company expressly agrees that
it will not prepare IRS Forms W-2 or 1099 (or other successor or comparable
forms) in connection with such payment. The Company makes no representation
or warranty to Carlson or his attorneys regarding the tax treatment or
consequences of any payment made to Carlson under this Agreement by the
Internal Revenue Service or any other tax authority. Carlson will be solely
responsible for the payment of any and all taxes of whatever kind that may be
due or payable from him in connection with any payment made to him under
subparagraph 4(f) above. Carlson agrees to indemnify and hold harmless the
Company from any and all liens, actions, or claims (excluding the Company's
share of FICA and Medicare taxes) on the part of the Internal Revenue Service
or any other tax authority in connection with the payment made to Carlson
under subparagraph 4(f) above. This indemnity and hold harmless agreement
will apply as to the full amount of any such liens, actions, or claims
(excluding the Company's share of FICA and Medicare taxes), and as to the
amount of any expenses incurred in connection therewith on and after the date
on which the Company receives written notice that the Internal Revenue Service
or any other tax authority is challenging any aspect of the payment made to
Carlson under subparagraph 4(f) above.
<PAGE>
The Company agrees to notify Carlson promptly if it receives written notice
that the Internal Revenue Service or other tax authority challenges any aspect
of the payment made to Carlson under subparagraph 4(f) above.
6. Employee Benefits and Expenses. During the continuation of his employment
with the Company, Carlson will be eligible to participate in all employee
benefit programs made available to other senior executive officers of the
Company; provided, however, that Carlson agrees and acknowledges that he has
not been and will not be eligible to participate in the Company's annual
incentive plan, incentive cash profit-sharing plan, or special bonus plan on
and after January 1, 1995. The Company will continue to reimburse Carlson
through May 16, 1995 for his regular and necessary business expenses according
to the Company's regular policies and practices upon his submission of proper
requests for reimbursement therefor. Carlson will submit all such requests to
the Company no later than May 31, 1995 (except as provided in subparagraph 4(d)
above), and the Company will make reimbursement to Carlson for such business
expenses on or before June 30, 1995. Any unpaid travel or other business
expense advances made by the Company to Carlson on or before May 16, 1995 will
be deducted, at the Company's election, either from expense reimbursements made
to Carlson pursuant to this paragraph or from severance payments made to him
pursuant to subparagraph 4(b) above.
7. Stock Options and Performance Shares. Carlson is a participant in the
Company's 1989 Employee Stock Benefit Plan, as amended ("Stock Plan"). By
virtue of the terms of the Stock Plan, Carlson's rights to receive performance
shares have been forfeited. Pursuant to the terms of the Stock Plan, Carlson
will be fully vested in his stock options upon his retirement as of May 16,
1995, and he may exercise them for a period ending on the earlier of the
expiration dates of the respective options or two years after May 16, 1995. A
listing of all stock options previously granted to Carlson appears for
reference purposes as Attachment 1 to this Agreement.
8. Insurance Continuation. After May 16, 1995, Carlson will have the right to
continue medical coverage for himself and his covered dependents for 24 months
under the Company's Retiree Medical Plan under such terms as are made available
to similarly-situated retired employees of the Company, provided that Carlson
continues to pay his share of the premiums therefor. Thereafter, Carlson will
be entitled to continue his group medical insurance under such terms as are
made available to similarly-situated retired employees of the Company, provided
that Carlson pays the entire cost of such insurance as provided by law.
Carlson will be entitled to continue his group life insurance after May 16,
1995 under such terms as are made available to similarly-situated retired
employees of the Company, provided that Carlson pays the entire cost of such
insurance as provided by law.
<PAGE>
9. Retirement Savings Plus Plan. Carlson is a participant in the Company's
Retirement Savings Plus Plan. Contributions (both deferred and matching) will
be made to that plan on Carlson's behalf for 1995, based on the amount of base
salary paid by the Company to Carlson in 1995, assuming that the Company's
Board of Directors authorizes contributions to that plan on behalf of eligible
employees and former employees of the Company for 1995. Carlson will be
entitled to begin drawing his retirement benefits at the times and under the
terms and conditions set forth in that plan.
10. No-Competition, Non-Solicitation, and Non-Disclosure Agreements.
a. Agreement Not to Compete. Carlson will not, on or before May 16, 1996,
without the prior written consent of the Company, become an owner directly
or indirectly of more than one percent of the stock of, take employment
with, become a director, officer, or partner of, or become a consultant or
advisor to any of the following business organizations:
Advanced Computer Research Institute (ACRI), an affiliate of Jacques Stern
Holding Company
Convex Computer Corporation
Cray Computer Corporation
Fujitsu Limited
Hewlett-Packard Company
Intel Corporation
International Business Machines Corporation
Meiko Scientific Corp.
NEC Corporation
Siemens AG and all subsidiaries
Silicon Graphics, Inc.
Tera Computer Co.
b. Agreement Not to Solicit Employees. Carlson will not, on or before
December 31, 1996, without the prior written consent of the Company, solicit
any person who is then employed by or otherwise engaged to perform services
for the Company to terminate his or her relationship with the Company, or
interfere with the Company's relationship with any such person. Carlson will
not, on or before December 31, 1996, without the prior written consent of
the Company, provide substantive or qualitative information regarding any
person who is then employed by or otherwise engaged to perform services for
the Company to any entity engaged in any businesses in which the Company
currently engages or with which the Company currently competes directly.
<PAGE>
c. Non-Disclosure of Confidential Commercial Information. Carlson will
not, without the prior written consent of the Company, disclose to any
person, other than an officer of the Company, any trade secrets of the
Company or any of the Company's confidential strategic plans or confidential
product development, marketing, or sales plans; provided, however, that
notwithstanding the provisions of this subparagraph, Carlson will not be
prohibited from disclosing any information that, at the time of Carlson's
disclosure, if any, is available in the public domain; and provided further
that notwithstanding the provisions of this subparagraph, Carlson may
disclose any information, including material confidential commercial
information, if such disclosure is required by law.
d. Scope of Restrictions. The parties intend that, if any court of
competent jurisdiction holds that any restriction in subparagraphs 10(a)
through 10(c) exceeds the limit of restrictions that are enforceable under
applicable law, then the restriction will nevertheless apply to the maximum
extent that is enforceable under applicable law.
11. Carlson's Continued Work and Availability. Until May 16, 1995,
Carlson will continue to accept and will complete in a timely fashion work
suitable to his position reasonably assigned to him by the Executive Committee
of the Company's Board of Directors or any member thereof. In addition, until
May 16, 1996, Carlson will make himself available, when he is not traveling for
personal or other business reasons, to confer with the Company's senior
executive officers during regular business hours for reasonable amounts of time
regarding the Company's significant business matters. The Company will
reimburse Carlson for any expenses that he actually incurs when conferring with
the Company's senior executive officers after May 16, 1995, but will not make
any other payments to Carlson for so conferring.
12. Company Cooperation. The Company will ensure that all proper steps are
followed to comply with Carlson's written instructions with respect to his
stock options, retirement benefits, and medical and life insurance benefits,
and will provide him with information that he reasonably requires in accordance
with the applicable employee benefit plans sponsored by the Company in which he
is a participant.
13. Indemnification. Notwithstanding Carlson's separation from the Company,
with respect to events that occurred during his tenure as an employee, officer,
or director of the Company, Carlson will be entitled, as a former employee,
officer, or director of the Company, to the same rights as are afforded to
senior executive officers of the Company now or in the future, to
indemnification and advancement of expenses provided in the charter documents
of the Company and under applicable law, and to coverage and a legal defense
under any applicable general liability and/or directors' and officers'
liability insurance policies maintained by the Company.
<PAGE>
14. Carlson Representation. Carlson represents that, during the entire
period that he was an employee, officer, or director of the Company, he acted
in good faith, had no reasonable cause to believe that his conduct was
unlawful, and reasonably believed that his conduct was in the best interests of
the Company. The parties intend that the terms used in this paragraph will
have the same meaning as the same terms used in Section 145 of the Delaware
General Corporation Law.
15. Mutual Confidentiality.
a. General Standard. It is the intent of the parties that both (i) the
substance of Carlson's potential claims against the Company and (ii) the
terms of his separation from the Company, including the provisions of this
Agreement and the Carlson Release (collectively "Confidential Information"),
will be forever treated as confidential.
Accordingly, Carlson and the Company will not disclose Confidential Information
to anyone at any time, except as provided in subparagraph 15(b).
b. Exceptions.
i. It will not be a violation of this Agreement for the parties to
disclose Confidential Information to the Company's stockholders or in
public filings in the form of proxy statements or other reports required
by securities laws or to governmental agencies as required by law,
including, but not limited to, the Securities and Exchange Commission
and any federal or state tax authority.
ii. It will not be a violation of this Agreement for Carlson to disclose
Confidential Information to his immediate family, his attorneys, or his
accountants or tax advisors.
iii. It will not be a violation of this Agreement for Carlson to
disclose to employers and/or prospective employers that he is constrained
from certain activities as a result of the terms of subparagraphs 10(a),
10(b), and 10(c) above. Nor will it be a violation of this Agreement for
Carlson to inform Company employees who ask him about employment
opportunities outside the Company that the terms of paragraph 10(b) of
this Agreement preclude him from engaging in certain activities that
could interfere with their employment with the Company.
iv. It will not be a violation of this Agreement for either party to
disclose Confidential Information to the Company's auditors, its
attorneys, or its directors, officers, employees, and agents who have a
legitimate reason to obtain the Confidential Information in the course of
performing their duties or responsibilities for the Company.
<PAGE>
16. Non-Disparagement. Carlson will not disparage, defame, or besmirch the
reputation, character, image, products, or services of the Company, or the
reputation or character of its directors, officers, employees, or agents. The
Company will not disparage, defame, or besmirch the reputation, character, or
image of Carlson.
17. Claims Involving the Company. Carlson will not recommend or suggest to
any potential claimants or plaintiffs or their attorneys or agents that they
initiate claims or lawsuits against the Company, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents,
nor will Carlson voluntarily aid, assist, or cooperate with any claimants or
plaintiffs or their attorneys or agents in any claims or lawsuits now pending
or commenced in the future against the Company, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents;
provided, however, that this paragraph will not be interpreted or construed to
prevent Carlson from giving testimony in response to questions asked pursuant
to a legally enforceable subpoena, deposition notice, or other legal process,
during any legal proceedings involving the Company, any of its affiliates or
divisions, or any of its or their directors, officers, employees, or agents.
18. Records, Documents, and Property. On or before May 16, 1995, Carlson will
return to the Company all records, correspondence, documents, financial data,
plans, computer disks, computer tapes, and other tangible property in his
possession belonging to the Company.
19. Time to Consider Agreement. Carlson understands that he may take at least
21 calendar days to decide whether to sign this Agreement and the Carlson
Release, which 21-day period will commence on the date on which Carlson first
receives copies of this Agreement and the Carlson Release for review. Carlson
represents that if he signs this Agreement and the Carlson Release before the
expiration of the 21-day period, it is because he has decided that he does not
need any additional time to decide whether to sign this Agreement and the
Carlson Release.
20. Right to Rescind or Revoke. Carlson understands that he has the right to
rescind or revoke this Agreement and the Carlson Release for any reason within
15 calendar days after he signs them (which 15-day period expressly includes
any other shorter time periods provided by law). Carlson understands that this
Agreement and the Carlson Release will not become effective or enforceable
unless and until he has not rescinded this Agreement and the Carlson Release
and any applicable rescission period has expired. Carlson understands that if
he wishes to rescind, the rescission must be in writing and hand-delivered or
mailed to the Company. If hand-delivered, the rescission must be (a) addressed
to Mr. David E. Frasch, Corporate Secretary, Cray Research, Inc., 770
Industrial Boulevard, Chippewa Falls, WI 54729; and (b) delivered to Mr.
Frasch within the 15-day period. If mailed, the rescission must be:
(a) postmarked within the 15-day period; (b) addressed to Mr. David E. Frasch,
Corporate Secretary, Cray Research, Inc., 770 Industrial Boulevard, Chippewa
Falls, WI 54729; and (c) sent by certified mail, return receipt requested.
<PAGE>
21. Full Compensation. Carlson and his attorneys, Mackall, Crounse & Moore,
P.L.C., understand that the payments made and other consideration provided by
the Company under this Agreement will fully compensate Carlson for and
extinguish any and all of the claims Carlson is releasing in the Carlson
Release, including, but not limited to, his claims for attorneys' fees and
costs and any and all claims for any type of equitable or legal relief.
22. No Admission of Wrongdoing. Carlson understands that this Agreement does
not constitute an admission that the Company has violated any local ordinance,
state or federal statute, or principle of common law, or that the Company has
engaged in any improper or unlawful conduct or wrongdoing against Carlson.
Carlson will not characterize this Agreement or the payment of any money or
other consideration in accordance with this Agreement as an admission that the
Company has engaged in any improper or unlawful conduct or wrongdoing against
him.
23. Authority. Carlson represents and warrants that he has the authority to
enter into this Agreement and the Carlson Release, and that no causes of
action, claims, or demands released pursuant to this Agreement and the Carlson
Release have been assigned to any person or entity not a party to this
Agreement and the Carlson Release.
24. Representation. Carlson acknowledges that he has been represented by his
own attorneys in this matter, that he has had a full opportunity to consider
this Agreement and the Carlson Release, that he has had a full opportunity to
ask any questions that he may have concerning this Agreement, the Carlson
Release, or the settlement of his claims against the Company, and that he has
not relied upon any statements or representations made by the Company or its
attorneys, written or oral, other than the statements and representations that
are explicitly set forth in this Agreement, the Carlson Release, the Cray
Release, the Stock Plan, and any other employee benefit plans sponsored by the
Company in which Carlson is a participant.
25. Successors and Assigns. This Agreement will be binding upon and inure to
the benefit of the parties and their respective heirs, representatives,
successors, and assigns, including, but not limited to, a purchaser of
substantially all the business or assets of the Company, but will not be
assignable by either party without the prior written consent of the other
party.
26. Invalidity. In the event that any provision of this Agreement,
the Carlson Release, or the Cray Release is determined by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect, such a
determination will not affect the validity, legality, or enforceability of the
remaining provisions of this Agreement, the Carlson Release, or the Cray
Release, and the remaining provisions of this Agreement, the Carlson Release,
and the Cray Release will continue to be valid and enforceable, and any court
of competent jurisdiction may so modify the objectionable provision as to make
it valid and enforceable.
<PAGE>
27. Entire Agreement. Before signing this Agreement, the Carlson Release, and
the Cray Release, the parties and their representatives engaged in discussions
and formal negotiations and generated certain documents, in which the parties
and their representatives considered the matters that are the subject of this
Agreement, the Carlson Release, and the Cray Release. In such discussions,
negotiations, and documents, the parties and their representatives may have
expressed their judgments and beliefs concerning the intentions, capabilities,
and practices of the parties, and may have forecast future events. The parties
recognize, however, that all business transactions, including the transactions
upon which the parties' judgments, beliefs, and forecasts are based, contain an
element of risk, and that it is normal business practice to limit the legal
obligations of contracting parties only to those promises and representations
that are essential to the transaction so as to provide certainty as to their
respective future rights and remedies. Accordingly, this Agreement, the
Carlson Release, the Cray Release, the Stock Plan, and any other employee
benefit plans sponsored by the Company in which Carlson is a participant are
intended to define the full extent of the legally enforceable undertakings of
the parties, and no promises or representations, written or oral, that are not
set forth explicitly in this Agreement, the Carlson Release, the Cray Release,
the Stock Plan, or any other employee benefit plans sponsored by the Company in
which Carlson is a participant are intended by either party to be legally
binding, and all other agreements and understandings between the parties are
hereby superseded.
28. Headings. The descriptive headings of the paragraphs and subparagraphs of
this Agreement are inserted for convenience only, and do not constitute a part
of this Agreement.
29. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
30. Governing Law. This Agreement, the Carlson Release, and the Cray Release
will be interpreted and construed in accordance with, and any dispute or
controversy arising form any breach or asserted breach of this Agreement, the
Carlson Release, or the Cray Release will be governed by, the laws of
Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date stated above.
/S/ John F. Carlson
_________________________________
JOHN F. CARLSON
CRAY RESEARCH, INC.
/s/ John L. Sullivan
_________________________________
JOHN L. SULLIVAN
Its General Counsel
<PAGE>
EXHIBIT A
STRICTLY CONFIDENTIAL
CARLSON RELEASE
Definitions. All words used in this Release have their plain meanings in
ordinary English. Specific terms used in this Release have the following
meanings:
A. "I", "me", and "my" mean both me and anyone who has or obtains any legal
rights or claims through me.
B. "Employer" means Cray Research, Inc. ("the Corporation"), any company
providing insurance to the Corporation in the present or past, any present or
past stock option or other employee benefit plans sponsored by the Corporation,
any present or past affiliates, divisions, committees, directors, officers,
employees, or agents of the Corporation, any predecessors, successors, or
assigns of the Corporation, and any person who acted on behalf of or on
instructions from the Corporation.
C. "My Claims" mean all of my existing rights to any relief of any kind from
the Employer, whether or not I now know about those rights, including, but not
limited to:
1. all claims that arise out of or that relate to my employment or the
termination of my employment with the Employer;
2. all claims that arise out of or that relate to the statements or actions of
the Employer;
3. all claims for any alleged unlawful discrimination or any other alleged
unlawful practices that arise out of or that relate to the statements or
actions of the Employer, including, but not limited to, claims under the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Americans
with Disabilities Act, the Civil Rights Act of 1991, the Minnesota Human Rights
Act, the Minnesota Workers' Compensation Act, and any federal or state wage and
hour laws; and claims that the Employer engaged in conduct prohibited on any
other basis under any federal, state, or local statute, ordinance, or
regulation;
4. all claims for alleged unpaid compensation, expenses, stock options, and
employee benefits; wrongful discharge; harassment; retaliation or reprisal;
constructive discharge; assault or battery; defamation; intentional or
negligent infliction of emotional distress; invasion of privacy; fraud or
misrepresentation; interference with contractual or business relationships;
violation of public policy; my conduct, if any, as a "whistleblower";
negligence; false imprisonment; breach of contract; breach of fiduciary duty;
breach of the covenant of good faith and fair dealing; promissory or equitable
estoppel; and any other wrongful employment practices; and
<PAGE>
5. all claims for compensatory damages, liquidated damages, punitive damages,
attorneys' fees, costs, and disbursements;
but excluding all claims that I may have under the Agreement, any stock option
or other employee benefit plans sponsored by the Corporation in which I am a
participant, or my rights to indemnification and advancement of expenses as
provided in the charter documents of the Corporation and under applicable law,
and to coverage and a legal defense under any applicable general liability
and/or directors' and officers' liability insurance policies maintained by the
Corporation.
D. "Agreement" means the Separation Agreement between the Corporation and me
that I am executing on the same date that I first execute this Release,
together with all the documents attached to the Agreement.
Agreement to Release My Claims. I will receive certain sums of money and other
consideration from the Employer or its agent as set forth in the Agreement if I
sign and do not rescind this Release or the Agreement as provided below. In
exchange for that money and other consideration, I agree to give up all My
Claims. I will not bring any lawsuits or make any other demands against the
Employer based on My Claims. The money and other consideration that I will
receive in exchange for this Release and the Agreement are a full and fair
payment for the release of My Claims. The Employer does not owe me anything
for the release of My Claims in addition to the money and other consideration
that I am receiving in exchange for this Release and the Agreement.
My Right to Decide Whether to Sign this Release and the Agreement. I
understand that I may take at least 21 calendar days to decide whether to sign
this Release and the Agreement, and that this 21-day period will begin when I
first receive copies of this Release and the Agreement. If I sign this Release
and the Agreement before the expiration of the 21-day period, it is because I
have decided that I do not need any additional time to decide whether to sign
this Release and the Agreement.
My Right to Rescind this Release and the Agreement. I understand that I have
the right to rescind (that is, cancel or revoke) this Release and the Agreement
for any reason within 15 calendar days after I sign them. I understand that
this 15-day period includes any other shorter time periods provided by law. I
understand that this Release and the Agreement will not become effective or
enforceable unless and until the rescission period has expired and I have not
rescinded this Release and the Agreement. I understand that if I wish to
rescind, the rescission must be in writing and hand-delivered or mailed to the
Employer. If hand-delivered, the rescission must be: (a) addressed to Mr.
David E. Frasch, Corporate Secretary, Cray Research, Inc., 770 Industrial
Boulevard, Chippewa Falls, WI 54729; and (b) delivered to Mr. Frasch within
the 15-day period. If mailed, the rescission must be: (a) postmarked within
the 15-day period; (b) addressed to Mr. David E. Frasch, Corporate Secretary,
Cray Research, Inc., 770 Industrial Boulevard, Chippewa Falls, WI 54729; and
(c) sent by certified mail, return receipt requested.
<PAGE>
Confidentiality. I understand that the terms of this Release and the Agreement
are confidential, and that I may not disclose those terms to any person except
under the circumstances described in the Agreement.
Additional Agreements and Understandings. Even though the Employer will pay me
for the release of My Claims, the Employer does not admit that it is
responsible or legally obligated to me for My Claims. In fact, I understand
that the Employer denies that it is responsible or legally obligated for My
Claims or that it has engaged in any improper or unlawful conduct or wrongdoing
against me.
I have read this Release and the Agreement carefully and I understand all their
terms. I have been advised to consult with my own attorneys prior to executing
this Release and the Agreement. I have discussed this Release and the
Agreement with my own attorneys, who have fully explained them to me. In
agreeing to sign this Release and the Agreement, I have not relied on any
statements or explanations made by the Employer or its attorneys, other than
statements made in this Release, the Agreement, the Release executed by the
Corporation, and any stock option and other employee benefit plans sponsored by
the Corporation in which I am a participant.
I understand and agree that this Release, the Agreement, the Release executed
by the Corporation, and any stock option and other employee benefit plans
sponsored by the Corporation in which I am a participant contain all the
agreements between the Employer and me relating to this settlement. We have no
other written or oral agreements relating to this settlement.
I am age 18 or older, and I am not under any legal disabilities that prevent me
from being legally bound by the agreements that I am making in this Release and
the Agreement.
I have not filed for personal bankruptcy or been involved in any personal
bankruptcy proceedings between the accrual of My Claims and the date of my
signature below. I am legally able and entitled to receive the money and other
consideration that I will receive from the Employer as set forth in the
Agreement in settlement of My Claims.
Dated: March 29, 1995. /S/ John F. Carlson
_____________________________
JOHN F. CARLSON
Witnesses:
_________________________
_________________________
I am executing this Release again on the last day of my employment with the
Corporation, and I intend that all of the terms contained in this Release will
fully apply to My Claims as they exist today.
Dated: May 16, 1995. _____________________________
JOHN F. CARLSON
Witnesses:
_________________________
_________________________
<PAGE>
EXHIBIT B
CRAY RELEASE
Definitions. All words used in this Release have their plain meanings in
ordinary English. Specific terms used in this Release have the following
meanings:
A. "Cray" means Cray Research, Inc. ("the Corporation"), any company providing
insurance to the Corporation in the present or past, any present or past stock
option or other employee benefit plans sponsored by the Corporation, any
present or past affiliates, divisions, or committees of the Corporation, any
predecessors, successors, or assigns of the Corporation, and any person who
acted on behalf of or on instructions from the Corporation.
B. "Carlson" means John F. Carlson and anyone who has or obtains any legal
rights or claims through him.
C. "Cray's Claims" means all of Cray's existing rights to any relief of any
kind from Carlson, including, but not limited to:
1. all claims Cray has now, whether or not Cray now knows about those
claims;
2. all claims Cray could have made in response to any claims that Carlson
has or could have asserted against Cray; and
3. all claims for compensatory damages, liquidated damages, punitive
damages, attorneys' fees, costs, and disbursements;
but excluding all claims Cray may have under the Agreement.
D. "Agreement" means the Separation Agreement between Carlson and the
Corporation that the Corporation is executing on the same date that the
Corporation first executes this Release, together with all the documents
attached to the Agreement.
Agreement to Release Cray's Claims. Cray will receive certain consideration
from Carlson as set forth in the Agreement and the Release executed by him. In
exchange for that consideration, Cray agrees to give up all Cray's Claims. Cray
will not bring any lawsuits or make any other demands against Carlson based on
Cray's Claims. The consideration that Cray will receive in exchange for this
Release and the Agreement is a full and fair payment for the release of Cray's
Claims. Carlson does not owe Cray anything for the release of Cray's Claims in
addition to the consideration that Cray is receiving in exchange for this
Release and the Agreement.
<PAGE>
Additional Agreements and Understandings. Even though Carlson will provide
consideration to Cray for the release of Cray's Claims, Carlson does not admit
that he is responsible or legally obligated to Cray for Cray's Claims. In
fact, Cray understands that Carlson denies that he is responsible or legally
obligated for Cray's Claims or that he has engaged in any improper or unlawful
conduct or wrongdoing against Cray.
The Corporation, through its undersigned officer, has read this Release and the
Agreement carefully and understands all their terms. The Corporation has
consulted with its own attorneys prior to executing this Release and the
Agreement, who have fully explained them to the Corporation.
In agreeing to sign this Release and the Agreement, the Corporation has not
relied on any statements or explanations made by Carlson or his attorneys,
other than statements made in the Agreement and the Release executed by
Carlson.
Cray understands and agrees that this Release, the Agreement, the
Release executed by Carlson, and any stock option or other employee benefit
plans sponsored by the Corporation in which Carlson is a participant contain
all the agreements between Cray and Carlson relating to this settlement. Cray
and Carlson have no other written or oral agreements relating to this
settlement.
The undersigned officer of the Corporation has the authority to legally bind
Cray by the agreements that Cray is making in this Release and the Agreement,
and represents that Cray is not under any legal disabilities that prevent it
from being legally bound by the agreements that Cray is making in this Release
and the Agreement.
Dated: March 31, 1995. CRAY RESEARCH, INC.
By /s/ John L. Sullivan
_________________________
JOHN L. SULLIVAN
Its General Counsel
The Corporation is executing this Release again on the last day of Carlson's
employment with the Corporation, and the Corporation intends that all of the
terms contained in this Release will fully apply to Cray's Claims as they exist
today.
Dated: May 16, 1995. CRAY RESEARCH, INC.
By___________________________
JOHN L. SULLIVAN
Its General Counsel
<PAGE>
EXHIBIT C
RETIREMENTS
In consideration of and pursuant to the terms of the Separation Agreement
between Cray Research, Inc. and me, I hereby retire and resign as Chairman of
the Board, a director, and an employee of Cray Research, Inc. effective as of
May 16, 1995.
Dated: March 31, 1995 /S/ John F. Carlson
____________________________
JOHN F. CARLSON
<PAGE>
EXHIBIT D
______________, 1995
Mr. David E. Frasch
Corporate Secretary
Cray Research, Inc.
770 Industrial Boulevard
Chippewa Falls, WI 54729
Re: John F. Carlson/Cray Research, Inc.
Dear Mr. Frasch:
This is to confirm that I have not rescinded and will not take action to \
rescind the Separation Agreement and Release that I executed in favor of Cray
Research, Inc. and others on March 31, 1995.
Very truly yours,
_________________________
JOHN F. CARLSON
<PAGE>
Attachment 1
<TABLE>
EMPLOYEE STOCK OPTION HISTORY REPORT
Employee: 000175 Carlson, John F.
<C> <C> <C> <C> <C> <C> <C> <C>
Grant Provision Option Grant Price No.of New/ Expire Date
Date Plan Year Type Status shares Renewal
(1)
24-Jan-94 1992 NQ A 26.5 25,000 R 24-Jan-04
29-Jan-93 1992 NQ A 27.5 45,456 R 29-Jan-03
29-Jan-93 1992 ISO A 27.5 14,544 R 29-Jan-03
17-Sep-91 1989 NQ A 40.625 15,000 R 17-Sep-98
6-Dec-90 1989 NQ A 31.5 2,709 R 6-Dec-97
15-Nov-89 1989 NQ A 30.875 16,498 R 15-Nov-96
15-Nov-89 1989 ISO A 30.875 12,955 R 15-Nov-96
27-Jan-89 1989 NQ C 60.625 14,382 N CANCELLED
27-Jan-89 1989 ISO C 60.625 618 N CANCELLED
19-Jul-88 1985 NQ E 30.875 2,042 R EXPIRED
18-Nov-87 1985 NQ E 30.875 1,562 R EXPIRED
17-Nov-87 1985 NQ E 30.875 2,895 R EXPIRED
15-Jul-87 1985 ISO C 102.5 1,778 N CANCELLED
23-Jul-86 1985 NQ C 89.625 1,562 N CANCELLED
22-Jul-86 1985 ISO C 89.5 1,117 N CANCELLED
24-Jan-85 1985 NQ E 32.313 386 R EXPIRED
23-Jan-85 1985 ISO E 31.5 3,174 R EXPIRED
18-JAN-84 1982 ISO E 28.313 2,544 R EXPIRED
4-Jan-83 1982 ISO E 18.313 5,460 R EXPIRED
20-Jan-82 1982 ISO E 17.375 8,600 R EXPIRED
29-Sep-80 1979 NQ E 13.54 20,308 R EXPIRED
29-Sep-80 1979 ISO E 13.54 3,692 R EXPIRED
14-Mar-79 1979 NQ E 4.25 9,236 N EXPIRED
14-Mar-79 1979 ISO E 4.25 11,764 N EXPIRED
<FN>
Total Active Shares (2): 132,162
(2)
NOTE: Total active shares does not track vesting and/or exercise of options.
Information on actual number of shares available for exercise may be obtained
through the Payroll Department.
(1) A = Active; C = Cancelled; E = Expired
</TABLE>
<PAGE>
AMENDMENT TO
SEPARATION AGREEMENT
This Amendment to Separation Agreement is made and entered into as of March 31,
1995 by and between John F. Carlson ("Carlson"), a Minnesota resident, and Cray
Research, Inc. ("the Company"), a Delaware corporation.
In consideration of the Separation Agreement ("Agreement") previously entered
into by and between them, the parties agree to amend paragraph 8 thereof by
striking paragraph 8 in its entirety and substituting a new paragraph 8 to read
as follows:
8. Insurance Continuation. Carlson's current medical coverage will remain
in effect until May 31, 1995. After May 31, 1995, Carlson will have the right
to continue medical coverage for himself and his covered dependents for 24
months under the Company's Retiree Medical Plan under such terms as are made
available to similarly-situated retired employees of the Company, provided that
Carlson continues to pay his share of the premiums therefor. Thereafter,
Carlson will be entitled to continue his group medical insurance under such
terms as are made available to similarly-situated retired employees of the
Company, provided that Carlson pays the entire cost of such insurance. After
May 31, 1995, Carlson will have the right, under such terms as are made
available to similarly-situated retired employees of the Company, to continue
(i) his basic life insurance coverage for 24 months at no cost to him, and (ii)
his optional life and dependent life insurance coverages for 24 months provided
that he continue to pay the premiums therefor. Thereafter, Carlson will be
entitled to continue his group life insurance coverages under such terms as are
made available to similarly-situated retired employees of the Company, provided
that Carlson pays the entire cost of such insurance.
In all other respects, the provisions of the Agreement remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
stated above.
/s/ John F. Carlson
________________________________
JOHN F. CARLSON
CRAY RESEARCH, INC.
/s/ John L. Sullivan
_________________________________
JOHN L. SULLIVAN
Its General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 65,821
<SECURITIES> 175,000
<RECEIVABLES> 116,883
<ALLOWANCES> 0
<INVENTORY> 250,832
<CURRENT-ASSETS> 500,070
<PP&E> 565,273
<DEPRECIATION> 328,466
<TOTAL-ASSETS> 1,079,911
<CURRENT-LIABILITIES> 191,158
<BONDS> 97,000
<COMMON> 31,511
0
0
<OTHER-SE> 744,425
<TOTAL-LIABILITY-AND-EQUITY> 1,079,911
<SALES> 70,116
<TOTAL-REVENUES> 131,063
<CGS> 57,466
<TOTAL-COSTS> 109,174
<OTHER-EXPENSES> 42,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,570
<INCOME-PRETAX> (69,216)
<INCOME-TAX> (20,924)
<INCOME-CONTINUING> (48,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,292)
<EPS-PRIMARY> (1.90)
<EPS-DILUTED> (1.90)
</TABLE>
