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:
June 30, 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 July 31, 1995 25,448,118 shares of the Registrant's Common Stock
were outstanding.
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FORM 10-Q
June 30, 1995
I N D E X
Page
------
Part I - Financial Information:
Consolidated Statements of Operations-
Three and six months ended June 30, 1995 and 1994 1
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 2
Consolidated Statements of Cash Flows -
Six months ended June 30, 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 Six Months Ended
June 30 June 30
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> (In thousands, except per share data)
Revenue: <C> <C> <C> <C>
Sales and lease $85,218 $167,450 $162,712 $370,768
Service fees 54,516 48,368 108,085 93,915
---------------------------- --------- --------- --------- --------
Total revenue 139,734 215,818 270,797 464,683
---------------------------- --------- --------- --------- --------
Cost of revenue:
Cost of sales and lease 57,730 89,297 103,680 193,645
Cost of services 38,903 38,262 77,193 74,710
---------------------------- --------- --------- --------- --------
Total cost of revenue 96,633 127,559 180,873 268,355
---------------------------- --------- --------- --------- --------
Gross profit 43,101 88,259 89,924 196,328
---------------------------- --------- --------- --------- --------
Operating expenses:
Development and engineering 29,853 37,228 64,807 74,127
Sales, marketing and G & A 40,710 42,023 81,790 80,331
Restructure & one-time charges 101,090 - 141,813 -
---------------------------- --------- --------- --------- --------
Total operating expenses 171,653 79,251 288,410 154,458
---------------------------- --------- --------- --------- --------
Operating income (Loss) (128,552) 9,008 (198,486) 41,870
Other income (expense), net 2,708 2,669 3,426 1,161
---------------------------- --------- --------- --------- --------
Earnings (Loss) before income (125,844) 11,677 (195,060) 43,031
taxes
Income tax benefit (expense) (13,063) (3,475) 7,861 (12,875)
---------------------------- --------- --------- --------- --------
Net earnings (Loss) $(138,907) $ 8,202 $(187,199) $ 30,156
---------------------------- ========= ========= ========= ========
Earnings (Loss) per common and
common equivalent share $ (5.51) $ .32 $ (7.41) $ 1.16
---------------------------- ========= ========= ========= ========
Average number of common and
common equivalent shares
outstanding 25,190 25,786 25,249 25,936
---------------------------- ========= ========= ========= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
1<PAGE>
<TABLE>
CRAY RESEARCH, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 December 31
1995 1994
<S> ---------- ------------
Assets (In thousands)
-------------------------------------------
Current assets: <C> <C>
Cash and equivalents $ 58,733 $ 55,543
Receivables 117,503 229,808
Inventories 235,133 207,496
Other current assets 41,370 41,191
------------------------------------------- --------- ---------
Total current assets 452,739 534,038
Long-term receivables 19,248 20,959
Leased systems and spares, net 76,007 110,207
Property, plant and equipment, net 220,121 265,116
Long-term cash investments 175,000 200,000
Other assets 50,475 51,559
------------------------------------------- --------- ---------
$ 993,590 $1,181,879
========= =========
Liabilities and Stockholders' Equity
-------------------------------------------
Current liabilities:
Current installments of long-term debt $ 9,300 $ 7,344
Accounts payable 49,201 37,999
Accrued expenses 83,812 110,373
Income taxes payable 0 7,009
Deferred income and customer advances 101,550 75,214
------------------------------------------- --------- ---------
Total current liabilities 243,863 237,939
------------------------------------------- --------- ---------
Long-term debt, excluding
current installments 92,703 97,000
Other long-term obligations 14,281 18,030
Stockholders' equity:
Common stock 31,511 31,511
Additional paid-in capital 72,719 91,973
Retained earnings 735,361 922,560
Foreign currency translation adjustments 8,300 2,774
Unearned compensation-restricted stock (5,788) 0
Treasury stock, at cost (199,360) (219,908)
------------------------------------------- --------- ---------
Total stockholders' equity 642,743 828,910
------------------------------------------- --------- ---------
$ 993,590 $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)
Six months ended
June 30
--------------------
1995 1994
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows provided by (used in) operations $ 22,610 $ 31,559
----------------------------------------------------- ------- -------
Cash flows provided by (used in) investing:
Transfers from (to) long-term investments 25,000 15,000
Expenditures for leased systems and spares (10,860) (15,446)
Expenditures for property, plant and equipment (30,981) (42,681)
Other, net 2,044 294
----------------------------------------------------- ------- -------
Total cash flows used in investing (14,797) (42,833)
----------------------------------------------------- ------- -------
Cash flows provided by (used in) financing:
Proceeds from borrowings 10,825 23,321
Proceeds from the sale of common stock to employees 6,731 7,249
Repayments of debt (14,393) (24,833)
Repurchases of common stock (11,282) (14,258)
----------------------------------------------------- ------- -------
Total cash flows provided by (used in) financing (8,119) (8,521)
----------------------------------------------------- ------- -------
Effect of exchange rate changes 3,496 1,730
----------------------------------------------------- ------- -------
Increase (decrease) in cash and equivalents 3,190 (18,065)
Cash and equivalents at beginning of period 55,543 78,373
----------------------------------------------------- ------- -------
Cash and equivalents at end of period $ 58,733 $ 60,308
----------------------------------------------------- ======= =======
<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 six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995.
(3) During the first six months of 1995, the Company made operational changes
intended to better align its resources with its evolving strategy, to
improve its efficiency and achieve a more competitive cost structure.
The Company recorded pre-tax restructure and one-time charges during the
first six months totalling $141,813,000 related to reserves for
excess inventories compared to anticipated future demands ($62 million),
reserves for adjustments to net book value of internal systems ($36
million), charges related to excess capacity in a manufacturing and
development facility ($21 million), costs related to staff reductions ($16
million), and other miscellaneous charges ($7 million).
The following table summarizes the changes in the Company's restructure
reserves for the six months ended June 30, 1995 (in thousands):
<TABLE>
<S> <C>
Restructure reserves at December 31, 1994 $ 0
Reserve additions 141,813
Payments and asset write downs (131,871)
--------
Restructure reserves at June 30, 1995 $ 9,942
========
</TABLE>
4
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Selected consolidated financial statement details (in thousands):
<TABLE>
June 30 December 31
1995 1994
<S> --------- ----------
Inventories: <C> <C>
Components and subassemblies $ 92,938 $ 97,717
Systems in process 92,346 74,940
Finished goods 49,849 34,839
--------- ----------
$ 235,133 $ 207,496
========= ==========
Leased systems and spares:
Cost $ 310,666 $ 320,276
Accumulated depreciation and amortization (234,659) (210,069)
--------- ----------
$ 76,007 $ 110,207
========= ==========
Property, plant and equipment:
Cost $ 568,860 $ 585,267
Accumulated depreciation and amortization (348,739) (320,151)
---------- ----------
$ 220,121 $ 265,116
========= ==========
</TABLE>
<TABLE>
Three months ended Six months ended
June 30 June 30
------------------- -----------------
1995 1994 1995 1994
<S> ------- ------- ------- -------
Other income (expense), net: <C> <C> <C> <C>
Interest income $ 3,312 $ 2,400 $ 6,787 $ 4,667
Interest expense (2,203) (2,321) (4,773) (4,525)
Other, net 1,599 2,590 1,412 1,019
------- ------- ------- -------
$ 2,708 $ 2,669 $ 3,426 $ 1,161
======= ======= ======= =======
</TABLE>
5
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
OVERVIEW AND OUTLOOK
In fiscal year 1995 the Company is moving to higher unit volumes and lower
average selling prices. It will focus on maintaining 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 evolving
strategy, to improve efficiency, and to achieve a more competitive cost
structure. The Company expects that additional restructuring charges will be
recorded in 1995.
At the same time, 1995 will be a year of product transitions, 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
(T-90 series) or 1996 (follow on to the current massively parallel product).
These factors have resulted in an outlook for fiscal year 1995 that includes a
decrease in revenue from 1994 in excess of 10% and a decrease in gross margin.
While operating losses were generated in the first half of the year, operating
income is anticipated to be generated in the second half. For the full year,
the Company believes that it will be difficult to achieve break-even operating
results prior to restructuring and one-time charges.
<TABLE>
REVENUE
Percent of total revenue
------------------------------ Change from
Three months Six months prior year
-------------- -------------- -------------------------
1995 1994 1995 1994 <S> Three months Six months
------ ------ ------ ------ ------------ ----------
<C> <C> <C> <C> Revenue: <C> <C>
61.0% 77.6% 60.1% 79.8% Sales and lease (49.1)% (56.1)%
39.0 22.4 39.9 20.2 Service fees 12.7 15.1
------ ------ ------ ------ --------------- ------------ ----------
100.0% 100.0% 100.0% 100.0% Total revenue (35.3)% (41.7)%
====== ====== ====== ====== =============== ============ ==========
</TABLE>
Revenues decreased 35.3% in the second quarter of 1995 from the same period in
1994, reflecting an $82.2 million decrease in sales and lease revenue and a
$6.1 million increase in service revenues. For the six months, revenues
decreased $193.9 million, or 41.7%, in 1995 compared to 1994.
The sales revenue decrease for the quarter and the first six months resulted
from a significant decrease in the number of high-end systems installed during
the periods. High-end systems traditionally have generated most of the sales
revenue. This decrease in new high-end system installations was primarily a
result of a 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 substantial quantities
until the second half of 1995. This decrease in revenue derived from high-end
system installations was partially offset by an increase in low-end system
sales.
6
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
The Company expects a decrease in total revenue for 1995 in excess of 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 and product transitions as discussed above. In addition 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, and due to customer anticipation for
follow on product, not due for delivery until 1996.
Service revenues increased 12.7% for the quarter and 15.1% for the first six
months as a result of increases in value added services. Most of this $6.1
million increase for the quarter and $14.2 million increase for the first six
months 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 the
traditional high-end systems. Also the new high-end systems are generally more
reliable than the older systems they are replacing, allowing the Company to
offer, and more customers to accept, lower priced service options with less
coverage.
The order backlog at June 30, 1995 was $326 million, compared to $197 million
a year earlier, and $282 million at March 31, 1995. Not all of the backlog is
scheduled for delivery in 1995. The Company believes backlog information
provides only a limited indication of its expected future revenue.
<TABLE>
GROSS PROFIT
Percent of related revenue Change in percentages
-------------------------- from prior year
Three months Six months -----------------------
------------ ----------- Three Six
1995 1994 1995 1994 months months
----- ----- ----- ----- <S> -------- --------
<C> <C> <C> <C> Gross Profit %: <C> <C>
32.3% 46.7% 36.3% 47.8% Sales and lease (14.4)% (11.5)%
28.6 20.9 28.6 20.4 Service fees 7.7 8.2
----- ----- ----- ----- ------------------- ------- -------
30.8% 40.9% 33.2% 42.2% Total gross profit% (10.1)% (9.0)%
===== ===== ===== ===== =================== ======= =======
</TABLE>
The total gross profit percent declined from 40.9% in the second quarter of
1994 to 30.8% in 1995. For the six month period, gross profit declined 9.0
percentage points in 1995 compared to 1994. The decrease from the same period
in 1994 reflects significantly lower margins earned on sales revenues in 1995.
7
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
In 1995, total gross margins are and 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 primarily from the product
transition described above. Service revenues, which have lower gross margins
than product revenues, will also represent a greater percentage of total
revenues in 1995, due to declines in sales revenues.
<TABLE>
EXPENSES
Percent of total revenue Change from prior year
--------------------------- --------------------------
Three months Six months Three months Six months
------------ ------------ ------------ -----------
1995 1994 1995 1994
----- ----- ----- ----- <S>
<C> <C> <C> <C> Operating Expenses: <C> <C>
21.4% 17.2% 23.9% 16.0% Development & engr (19.8)% (12.6)%
29.1 19.4 30.2 17.2 Sales, mktg., & G & A (3.1) 1.8
72.3 0.0 52.4 0.0 Restruc. & one-time N/A N/A
----- ----- ----- ----- --------------------
122.8% 36.6% 106.5% 33.2% Total operating exp 116.6% 86.7%
===== ===== ===== ===== ==================== ======= =======
</TABLE>
Total operating expenses for the second quarter and the first six months
increased in 1995 compared to 1994, due to restructuring and one-time charges
recorded in 1995. Excluding restructure and one-time charges, operating
expenses have declined compared with the comparable periods in 1994, but
increased as a percentage of revenue because of the decrease in revenue in
1995.
Development and engineering expenditures decreased primarily due to decreases
in T90 series and J90 series development and engineering activity, as these
products move into full production; sales and marketing expenses increased
$2.2 million during the first six months, mainly from the addition of low-end
sales resources and increased advertising expenditures; and general and
administrative expenses decreased from 1994.
Development and engineering and general and administrative expenses are
expected to continue to remain below 1994 levels as the Company continues to
refine its strategy and reduce costs. Sales and marketing expenses are
expected to continue to increase in 1995, due to continuing investments in
marketing, applications, and field sales resources primarily for the low-end
business.
8
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
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 evolving
strategy, to improve its efficiency and achieve a more competitive cost
structure. Significant actions were completed and related charges were
recorded in the first six months of 1995. The Company anticipates that more
charges will be taken later this year as it continues to refine its strategy
and examine its cost structure.
Restructure and related charges totaling $141.8 million were recorded in the
first six months of 1995 as a result of these operational changes. This amount
included provisions for workforce reductions ($15.9 million), inventory
provisions ($62.2 million), facilities writedowns and closings ($21.1
million), equipment write-downs and disposals ($36.2 million), and other ($6.4
million). Of the total charge, approximately $19.8 million will result in cash
expenditures; the remaining $122.0 million is for non-cash charges. Future
annual cost eliminations resulting from the actions encompassed in
restructuring and on one-time charges to date are estimated to be over $30
million, approximately half of which will favorably impact cash.
INCOME TAXES
The Company recorded income tax expense for the second quarter of 10.4% of the
pre-tax loss. This was a result of the reduction of the estimated annual
effective rate of income tax benefit from 30.2% at the end of first quarter of
1995 to 4.0% at the end of the second quarter of 1995. The effective tax rate
for the first six months of 1994 was 29.9%.
The large amount of restructuring and one-time charges in the second quarter
resulted in an estimated gross deferred tax asset at the end of 1995 which is
significantly larger than the estimated year end balance at the end of the
first quarter. Consequently, the Company has increased its valuation
allowance of the gross deferred tax asset, resulting in the reduction of the
effective rate of income tax benefit for the year.
The Company evaluates a variety of factors in determining the amount of the
deferred income tax asset to be recognized. Based on the currently available
information, management has determined that the Company will more likely than
not realize its net deferred tax asset.
FINANCIAL CONDITION
Total cash and long-term cash investments declined $21.8 million during the
first six months of 1995 from $255.5 million at December 31, 1994 to
$233.7 million at June 30, 1995.
Operations provided $22.6 million of cash during the first six months,
compared to $31.6 million provided during the first six months of 1994.
The $9 million decrease in cash provided from operations reflects a reduction
in receipts from customers which was not entirely offset by reductions in
supplier and employee payments and income taxes paid.
9
<PAGE>
CRAY RESEARCH, INC. and SUBSIDIARIES
FINANCIAL REVIEW
(continued)
Investing activities, net of transfers of cash to and from long-term cash
investments, used $39.8 million of cash during the first six months, down
$18.0 million from the first six months of 1994, due to lower fixed asset
expenditures ($31.0 million in 1995 vs $42.7 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 the first six months of 1995
compared to $15 million in the first six months of 1994.
Financing activities used $8.1 million of cash. This net usage was mainly due
to repurchases of common stock ($11.3 million), offset by proceeds from
international borrowing ($10.8 million) and employee stock plans ($6.7
million). The Company repurchased approximately 663,000 shares of its common
stock during the first quarter of 1995, which consumed the Company's then
remaining repurchase authorization. The Company is authorized to repurchase
an additional 1,000,000 shares as a result of action by the Company's Board of
Directors during the second quarter of 1995.
For the year, the Company expects to be cash flow negative, primarily due to
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) Employment Agreement with J. Phillip Samper.
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule
(b)No reports on Form 8-K were filed during the quarter ended June 30,
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 August 14, 1995 by /s/ LAURENCE L.BETTERLEY
---------------- -------------------------------
Laurence L. Betterley
Chief Financial Officer
(Principal Financial Officer)
Date August 14, 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 JUNE 30,
1995
(10) Employment Agreement with J. Phillip Samper.
(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 Six Months Ended
June 30 June 30
--------------------- ---------------------
1995 1994 1995 1994
<S> ---------- ---------- ---------- ----------
PRIMARY EARNINGS(LOSS) PER SHARE (In thousands, except per share data)
--------------------------------
(Computation for Consolidated
Statements of Operations)
<C> <C> <C> <C>
Net earnings (loss) $(138,907) $8,202 $(187,199) $30,156
Net earnings effect of interest
on 6 1/8% Convertible Debentures - (1) - (1) - (1) -(1)
-------------------------------- ------- ------- ------- -------
Net earnings (loss) applicable
to common and common
equivalent shares $(138,907) $8,202 $(187,199) $30,156
-------------------------------- ------- ------- ------- -------
Wtd ave no of common shares
outstanding during the period 25,190 25,784 25,249 25,931
Common stock equiv-stock options - 2 - 5
Common stock equivalents-
convertible debentures - (1) - (1) - (1) -(1)
-------------------------------- ------- ------- ------- -------
Total wtd ave no of common
and com equiv shrs outstanding 25,190 25,786 25,249 25,936
-------------------------------- ------- ------- ------- -------
Earnings (Loss) per common and
common equivalent share $ (5.51) $ 0.32 $ (7.41) $ 1.16
-------------------------------- ======= ======= ======= =======
FULLY DILUTED ERNGS(LOSS)/SHARE
--------------------------------
Net earnings (loss) per primary
computation above $(138,907) $ 8,202 $(187,199) $30,156
-------------------------------- ------- ------- ------- -------
Wtd ave no of common shares o/s,
as adjusted per primary
computation above 25,190 25,786 25,249 25,936
Additional dilutive effect of
outstanding stock options - - - -
-------------------------------- ------- ------- ------- -------
Total wtd ave no of common
and common equiv shrs o/s 25,190 25,786 25,249 25,936
-------------------------------- ------- ------- ------- -------
Earnings (Loss) per common and
common equivalent share,
assuming full dilution $ (5.51) $ 0.32 $ (7.41) $ 1.16
-------------------------------- ======= ======= ======= =======
<FN>
(1)The effect of the convertible debentures on earnings per share is anti-
dilutive as of June 30, 1995 and 1994 and is excluded from the calculation.
</TABLE>
<PAGE>
Exhibit 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("this Agreement") is made this 17th day
of May, 1995, by and between CRAY RESEARCH, INC., a Delaware corporation
("the Company"), and J. PHILLIP SAMPER, a resident of Maryland ("the
Executive").
WHEREAS, the Executive is experienced in managing significant
business enterprises; and
WHEREAS, the Company wishes to secure the Executive's services as
Chairman and Chief Executive Officer of the Company under the terms hereof; and
WHEREAS, the Executive wishes to provide such services to the
Company;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and undertakings stated herein, the Executive and the Company hereby
agree as follows:
1. Period of Employment
Subject to all terms and conditions hereof, the Company shall employ
the Executive as, and the Executive shall serve the Company as, Chairman and
Chief Executive Officer of the Company, during the period commencing on the date
hereof and ending on December 31, 1999 ("the Employment Period"), unless the
Executive's employment hereunder terminates earlier in accordance with Section 5
hereof.
2. Duties and Powers of the Executive
Subject to all terms and conditions hereof, the Company shall employ
the Executive as Chairman and Chief Executive Officer of the Company. The Board
of Directors of the Company has, effective as of the Executive's first day of
actual employment with the Company, appointed the Executive as, and the
<PAGE>
Executive shall serve as, Chairman and Chief Executive Officer of the Company.
As Chairman and Chief Executive Officer of the Company, the Executive shall have
all duties customarily associated with the offices of chairman and chief
executive officer of a significant business enterprise, shall have primary
management responsibility for the Company, shall chair the governing board of
the Company, and shall perform such other duties consistent with the offices of
Chairman and Chief Executive Officer as may be specified by the Board of
Directors of the Company, to whom the Executive shall report. During the
Employment Period, the Executive shall devote full time to the Executive's
duties hereunder, except that the Executive may continue to serve on the boards
of directors of business corporations and charitable organizations on which he
currently serves for reasonable amounts of time and make reasonable personal
investments, and shall not accept other employment or engage in other material
business or charitable activities, except as approved in writing in advance by
the Chair of the Executive Committee of the Board of Directors of the Company.
3. Compensation
(a) While the Executive is employed by the Company hereunder, the
Company shall pay to the Executive a base salary ("Base Salary") to be
established by the Board of Directors of the Company from time to time but no
less than $600,000 per year, and which has been established by the Board of
Directors, effective as of the Executive's first day of actual employment with
the Company, at a rate of $600,000.00 per year. The Company shall pay the
Executive's Base Salary to him in accordance with the Company's standard payroll
practices as in effect from time to time.
<PAGE>
(b) While the Executive is employed by the Company hereunder, the
Executive shall participate in the Company's Performance Incentive Plan ("the
Incentive Plan"). For each plan year during which the Executive participates in
the Incentive Plan, the Company shall pay to the Executive an amount that is
based on a minimum performance target of 80 percent of the Executive's eligible
wages and a maximum performance target of 120 percent of his eligible wages,
which amount, subject to the Guaranteed Incentive Award (as defined below),
shall be prorated for plan year 1995 to reflect the actual amount of eligible
wages paid to the Executive by the Company during 1995. For the first 12 months
while the Executive is employed by the Company hereunder, the Company shall pay
to the Executive under the Incentive Plan an amount equal to the greater of the
amount to which he otherwise would be entitled under the Incentive Plan or an
amount ("the Guaranteed Incentive Award") no less than he would have received if
his minimum performance target of 80 percent of eligible wages had been
achieved, which eligible wages shall be prorated for plan year 1995 as provided
above and shall be prorated for plan year 1996 based on an amount equal to
$600,000.00 minus the Executive's eligible wages under the Incentive Plan for
1995, regardless of the Company's actual annual business performance, and
regardless of whether the Executive's employment hereunder has terminated in
accordance with Section 5 hereof before the end of either plan year 1995 or plan
year 1996, as the case may be, provided that the total of the Guaranteed
Incentive Award paid to the Executive by the Company for the first 12 months of
his employment hereunder for plan years 1995 and 1996 does not exceed
$480,000.00. Except as modified by the provisions of this Section 3(b),
payments of Incentive Plan awards to the Executive by the Company shall be
<PAGE>
governed by the terms of the Company's Incentive Plan as it is in effect from
time to time.
(c) Pursuant to the Company's 1989 Employee Stock Benefit Plan, as
amended ("the Stock Plan"), the Compensation Committee of the Company has,
effective as of the Executive's first day of actual employment with the Company,
granted to the Executive: (i) an option, granted pursuant to a stock option
agreement in the form of Exhibit A hereto, to purchase 300,000 shares of common
stock of the Company at a price per share equal to the closing price for a share
of common stock of the Company on the New York Stock Exchange on the last
trading day immediately preceding the public announcement of the Executive's
agreement to be employed by the Company; and (ii) 200,000 shares of restricted
common stock of the Company, granted pursuant to a restricted stock agreement in
the form of Exhibit B hereto. The Executive and the Company agree that they
will execute and deliver a stock option agreement and restricted stock agreement
in the form of Exhibit A and Exhibit B hereto, respectively, on the first day of
the Executive's actual employment with the Company.
4. Fringe Benefits
(a) While the Executive is employed by the Company hereunder, the
Company shall provide to the Executive such health insurance, life insurance,
disability insurance, retirement savings, and other fringe benefits as are
provided from time to time by the Company to its senior executives, in
accordance with the Company's general benefits practices then in effect, and as
are not provided for expressly in this Agreement. A listing of such fringe
benefits as they are in effect on the date hereof appears on Attachment 1
hereto.
<PAGE>
(b) In addition to the fringe benefits provided to the Executive by
the Company in accordance with Section 4(a) hereof, while the Executive is
employed by the Company hereunder, the Executive shall be entitled to five weeks
of paid vacation per year (prorated for calendar year 1995), which shall include
any personal time benefit to which he is otherwise entitled under the Company's
general benefits practices, and, if the Executive elects to join a country club
located in the Twin Cities metropolitan area, then the Company shall reimburse
the Executive for the membership fees and monthly dues charged by such country
club.
(c) While the Executive is employed by the Company hereunder, the
Company shall reimburse the Executive for his reasonable and necessary business
and travel expenses in accordance with the Company's general expense
reimbursement practices in effect from time to time for its senior executives.
(d) After the Executive is employed by the Company hereunder, the
Company shall pay directly to the Executive's legal counsel a reasonable amount
for the attorneys' fees and costs that the Executive has incurred in connection
with the negotiation and preparation of this Agreement.
(e) Promptly after the execution of this Agreement by the Company and
the Executive hereunder, the Company shall pay to the Executive a one-time
signing bonus in the amount of $100,000.00.
(f) After the Executive is employed by the Company hereunder, the
Company shall reimburse the Executive for the following expenses associated with
his search for a residence in and his move to the Twin Cities metropolitan area:
(i) transportation costs incurred by the Executive and his wife for
travel between Maryland and the Twin Cities for a period of up to
six months;
<PAGE>
(ii) long-distance telephone charges incurred by the Executive
and his wife in connection with the search for a residence in the
Twin Cities metropolitan area for a period of up to six months;
(iii) the cost of temporary housing for the Executive and his wife
in the Twin Cities metropolitan area for a period of up to
six months;
(iv) all real estate brokerage and related fees, closing costs,
and legal expenses incurred by the Executive and his wife in
connection with the purchase of a residence in the Twin
Cities metropolitan area; and
(v) the actual cost of moving the household goods and personal
effects of the Executive and his wife from Maryland to the Twin
Cities metropolitan area.
5. Termination
The Executive's employment by the Company hereunder shall end
immediately upon:
(a) receipt by the Company of the Executive's resignation from the
Company (whether written or oral),
(b) the Executive's receipt of written notice from the Company of
termination of the Executive's employment,
(c) the Executive's death or disability, or
(d) expiration of the Employment Period,
and the date on which Termination occurs shall be "the Termination Date"
hereunder.
6. Payments Upon Termination
(a) If the Executive's employment hereunder ends by reason of:
(i) resignation by the Executive without Good Reason (as defined
below) or abandonment by the Executive of his employment,
(ii) termination by the Company For Cause (as defined below), or
(iii) the Executive's disability,
<PAGE>
then the Company shall pay the Executive's Base Salary and the Guaranteed
Incentive Award, if any, only through the Termination Date.
(b) If the Executive's employment hereunder ends by reason of:
(i) termination by the Company without cause,
(ii) resignation by the Executive for Good Reason, or
(iii) expiration of the Employment Period,
then the Company (A) shall continue to pay the Executive's Base Salary
throughout the Employment Period or for two years, whichever is less, (B) shall
pay to the executive (i) the difference between $480,000.00 and the amount of
the Guaranteed Incentive Award already paid to him, if any, and (ii) any other
amount which he is entitled to receive under the Incentive Plan, and (C) shall
pay to the Executive an additional amount that is equal to (i) two years of Base
Salary, (ii) minus the amount, if any, of the Executive's vested retirement
benefits under the Company's Retirement Savings Plus Plan as it is then in
effect, which amount the Company shall pay to the Executive in equal monthly
installments.
(c) If the Executive's employment hereunder ends by reason of the
Executive's death, then the Company shall pay to the Executive's wife an amount
equal to the total of (i) six months of Base Salary, plus (ii) the Guaranteed
Incentive Award, if any.
(d) If the Executive's employment hereunder ends by reason of:
(i) resignation by the Executive for Good Reason,
(ii) termination by the Company without cause,
(iii) the Executive's death or disability, or
(iv) expiration of the Employment Period,
<PAGE>
then the Company shall pay to the Executive (or to his estate) an amount equal
to the total of (i) the difference, if any, between the actual cost of his
residence in the Twin Cities metropolitan area and the actual price at which the
Executive (or his estate) sells such residence, assuming that the actual selling
price is at least equal to the appraised fair market value of such residence,
and (ii) the actual cost of moving the household goods and personal effects of
the Executive and his wife from Maryland to the Twin Cities metropolitan area
previously paid to the Executive pursuant to Section 4(f)(v) hereof, adjusted
for inflation, if any, since the time of such payment according to a standard
cost-of-living index.
(e) "Termination by the Company For Cause" shall mean termination
for:
(i) an act or acts of dishonesty undertaken by the Executive and
intended to result in substantial gain or personal enrichment of
the Executive at the expense of the Company,
(ii) persistent failure to perform the duties and
obligations of the Executive's employment which are
demonstrably willful and deliberate on the Executive's
part and which are not remedied in a reasonable period
of time after receipt of written notice from the
Company, or
(iii) the conviction of the Executive of a felony.
(f) "Good Reason" for resignation by the Executive shall mean
resignation because of:
(i) the removal of the Executive as Chairman or Chief Executive
Officer of the Company by action of the Company's Board of
Directors;
<PAGE>
(ii) a "Change of Control" as defined in the Cray Research, Inc.
Executives Severance Compensation Plan (the "Severance Plan")
that results either in removal of the Executive as Chairman or
Chief Executive Officer of the Company;
(iii) any reason that would constitute "good
reason" for termination under the Severance Plan regardless of
whether or not there has been a Change of Control; or
(iv) a lapse of coverage under or determination by the Audit
Committee of the Board of Directors of the Company pursuant
to Section 7 hereof of that the Company has failed to
maintain and is unable to obtain within 60 days after such
determination directors' and officers' liability insurance
satisfactory to the Audit Committee.
(g) In the event of termination of the Executive's employment, the
sole obligation of the Company shall be its obligation to make the payments
called for by Section 6(a), Section 6(b), Section 6(c), or Section 6(d) hereof,
as the case may be, and the Company shall have no other obligation to the
Executive or to his wife or his estate, except as otherwise provided by law,
under the Stock Option Agreement or the Restricted Stock Option Agreement or, in
the event of termination by reason of the Executive's death or disability, under
insurance policies then in effect. Without limiting the generality of the
foregoing, the Company shall not be required to make any payments under the
Incentive Plan except to the extent provided in the Incentive Plan (as modified
by Section 3(b) hereof) with respect to plan years completed as of the
Termination Date.
(h) "Disability" means the inability of the Executive to perform the
Executive's duties hereunder by reason of illness or other physical or mental
impairment or condition, if such inability continues for an uninterrupted period
of 90 days or more. A period of inability shall be "uninterrupted" unless and
until the Executive returns to full-time work for a continuous period of at
least 30 days.
<PAGE>
(i) Notwithstanding the foregoing provisions of this Section 6, if the
Executive's employment with the Company terminates after a "Change of Control"
as defined in the Severance Plan, then the Executive shall be entitled to
receive from the Company as a result of such employment termination the greater
of the amount provided under Section 6(b) hereof or under such Severance Plan.
Notwithstanding the provisions of the Severance Plan, in the event that a Change
of Control occurs before the Executive has completed six months of continuous
employment with the Company, the amount to which the Executive shall be entitled
under the Severance Plan shall be determined, without reduction as otherwise
provided for under Section 4.3(b) of the Severance Plan, and "Cash Compensation"
as defined in the Severance Plan shall include the Guaranteed Incentive Award
provided in Section 3(b) hereof without regard to the actual date of the
actual date of the
<PAGE>
(ii) long-distance telephone charges incurred by the Executive
and his wife in connection with the search for a residence in the
Twin Cities metropolitan area for a period of up to six months;
(iii) the cost of temporary housing for the Executive and his wife
in the Twin Cities metropolitan area for a period of up to
six months;
(iv) all real estate brokerage and related fees, closing costs,
and legal expenses incurred by the Executive and his wife in
onable to
obtain coverage satisfactory to the Audit Committee, and if the Company is
unable to do so at a reasonable cost and within 60 days after such conclusion,
then the Audit Committee shall promptly so advise the Executive in writing.
8. Certain Covenants of the Executive
(a) As used in this Section 8, "Company" shall include the Company
and each corporation, partnership, and other entity which controls the Company,
<PAGE>
is controlled by the Company, or is under common control with the Company (in
each case "control" meaning the direct or indirect ownership of 50 percent or
more of all outstanding equity interests).
(b) The Executive hereby agrees that, while the Executive is employed
by the Company, until the first anniversary of the Employment Period if the
Executive's employment ends at that time, or until the first anniversary of the
Termination Date if the Executive's employment ends as a result of one of the
reasons set forth in Sections 6(a) and (b) hereof, the Executive shall not,
directly or indirectly:
(i) own, operate, invest in, lend money to, be employed by, consult
with, render services to, act as agent, officer, or director for,
or acquire or hold any interest in (A) any computer business or
other business of any nature which competes with any business
owned or operated by the Company; or (B) any corporation,
partnership, association, or other entity of any nature which
owns, operates, or has an interest in any such computer or other
competing business (except that nothing herein shall prohibit the
Executive from owning not more than 1.0 percent of the
outstanding shares of any class of stock of a corporation if such
class of stock is regularly traded on a recognized national
securities exchange);
(ii) employ or attempt to employ any director, officer, or employee
of the Company, or otherwise interfere with or disrupt any
employment relationship (contractual or other) of the Company;
(iii) solicit, request, advise, or induce any present or
potential customer, supplier, or other business
contact of the Company to cancel, curtail, or
otherwise change its relationship with the Company; or
(iv) publicly criticize or disparage in any manner or by any means
the Company, or any aspect of its management, policies,
operations, products, services, practices, or personnel thereof.
(c) The Executive hereby acknowledges and agrees that all non-public
information and data of the Company, including without limitation that related
to product and service formulation, customers, pricing, sales, and financial
<PAGE>
results (collectively "Trade Secrets") are of substantial value to the Company,
provide it with a substantial competitive advantage in its business, and are and
have been maintained in the strictest confidence as trade secrets. Except as
otherwise approved in writing in advance by the Chair of the Executive Committee
of the Board of Directors of the Company, the Executive shall not at any time
divulge, furnish, or make accessible to anyone (other than the Company and its
directors and officers) any Trade Secrets.
(d) The Executive hereby specifically acknowledges and agrees that
this Section 8 and each provision hereof are reasonable and necessary to ensure
that the Company receives the expected benefits of this Agreement and that
violation of this Section 8 will harm the Company to such an extent that
monetary damages alone would be an inadequate remedy. Therefore, in the event
of any violation by the Executive of any provision of this Section 8, the
Company shall be entitled to an injunction (in addition to all other remedies it
may have) restraining the Executive from committing or continuing such
violation. If any provision or application of this Section 8 is held unlawful
or unenforceable in any respect, then this Section 8 shall be revised or applied
in a manner that renders it lawful and enforceable to the fullest extent
possible.
9. No Violation of Other Agreements
The Executive hereby represents and agrees that neither (a) the
Executive's entering into this Agreement nor (b) the Executive's carrying out
the provisions of this Agreement, shall violate any other agreement (oral or
written) to which Executive is a party or by which Executive is bound.
<PAGE>
10. Successors and Assigns
This Agreement is binding on the Executive and on the Company and
its successors and assigns. The rights and obligations of the Company under
this Agreement may be assigned to a successor. No rights or obligations of the
Executive hereunder may be assigned by the Executive to any other person or
entity.
11. Separate Representation
The Executive hereby acknowledges that the Executive has sought and
received independent advice from counsel of the Executive's own selection in
connection with this Agreement and has not relied to any extent on any officer,
director, or shareholder of, or counsel to, the Company in deciding to enter
into this Agreement.
12. Governing Law
This Agreement shall be construed under and governed by the laws of
the State of Minnesota.
13. Severability
Each section and provision of this Agreement shall be considered
severable and any invalidity of any provision shall not render invalid or impair
to any extent any other section or provision hereof.
14. Withholding of Taxes, Etc.
All payments to the Executive hereunder are subject to withholding
of income and employment taxes and all other amounts required by law.
15. Arbitration
If any dispute arises between the parties with respect to the
application, interpretation, or termination of this Agreement (excluding any
dispute that gives the Company the right to seek injunctive relief against the
<PAGE>
Executive pursuant to Section 8 hereof), then such dispute shall be submitted to
arbitration for resolution. The arbitrator shall be selected and the
arbitration shall be conducted pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association ("AAA") (effective January 1,
1993). Any request for arbitration must be made in writing by the party seeking
arbitration and must be delivered by hand or sent by registered or certified
mail, return receipt requested, postage prepaid, to both the other party and the
AAA within 90 days after the date on which the dispute between the parties first
arose. The decision of the arbitrator regarding any such dispute shall be final
and binding on both parties, and any court of competent jurisdiction may enter
judgment upon the award. In the event any dispute is arbitrated or the Company
seeks injunctive relief, the prevailing party shall be reimbursed by the other
party for any costs of the proceeding charged to such party, including
reasonable attorneys' fees and costs.
16. Notices
All notices hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand or sent by registered or certified
mail, return receipt requested, postage prepaid, to the party to receive the
same at the address set forth with the signature of such party hereto or at such
other address as may have been furnished to the sender by notice hereunder. All
notices shall be deemed given on the date on which delivered or, if mailed, on
the date postmarked.
<PAGE>
17. Miscellaneous
This Agreement contains the entire understandings of the parties
hereto with respect to the employment of the Executive by the Company, and no
provision hereof may be altered, amended, modified, waived, or discharged in
any way whatsoever except by written agreement executed by both parties. No
delay or failure of either party to insist, in any one or more instances, upon
performance of any of the terms and conditions of this Agreement or to
exercise any rights or remedies hereunder shall constitute a waiver or a
relinquishment of such rights or remedies or any other rights or remedies
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the date and year first above written.
J. PHILLIP SAMPER CRAY RESEARCH, INC.
804 Robin Hood Hill 655A Lone Oak Drive
Sherwood Forest, MD 21405 Eagan, MN 55121
/s/ J. Phillip Samper By: /s/ Philip G. Heasley
J. PHILLIP SAMPER PHILIP G. HEASLEY
Member of the Board of Directors
Cray Research, Inc.
<PAGE>
<TABLE>
ATTACHMENT 1
SENIOR EXECUTIVE BENEFITS SUMMARY
<C> <C>
BENEFIT COVERAGE
Health Insurance
-Four plans available Plans include: *MedOne
-Eligible for immediate coverage *MedTwo
-No pre-existing limitation Health Partners (HMO)
-Employee pays for portion of *MedThree
coverage elected (from 4% to 31% (domestic partner coverage
for employee plus one dependent) *Preferred provider organization
Health Care & Dependent Care May elect to contribute pre-tax
Expense Account earnings up to: $5,000 for
DCEA/$2,000 for HCEA
Life Insurance
-Basic life** 1X annual salary
-Additional life 1 to 4X annual salary
(purchased by employee)**
-Basic AD&D** 1X annual salary
-Additional AD&D 1 to 4X annual salary
(purchased by employee)**
-Dependent life Spousal coverage = $25,000
(purchased by employee) Dependent child coverage = $10,000
-Business travel insurance $200,000
**Coverage capped at $750,000 each for
Basic/Additional Life and
Basic/Additional AD&D
Short-Term Disability Plan
-Covers first 180 days 75% of base pay
Long-Term Disability Plan
-PIP bonus included in pay 60% of base pay, up to
calculation maximum of $15,000/month
<PAGE>
Deferred Compensation Plan
-Rabbi Trust Eligible to defer:
-Three investment funds *Base pay (up to 50%)
-Deferral election made by *Commissions (up to 90%)
end of calendar year Incentive - PIP (up to 100%)
(for next year's eligible earnings)
* Must first reach 401(k)
maximum ($9,240 for 1995)
Retirement Savings Plan (401k)
-Pre-tax retirement savings Defer up to lesser of
15% or federally allowed
maximum
-Cray match Cray contributes $.50 for
each dollar contributed by employee
up to a maximum contribution of
$1,000 annually
Cray targets a contribution of
-Deferred 4% annually (up to federal limit
- currently set at $150,000
- $9,240 for 1995)
Personal Time Benefit Plan
-Full annual benefit is 0-5 years service = 122.2 hours
credited at all times 6-15 years service = 163.8 hours
15+ years service = 200.2 hours
Physical Exam Benefit
-Physical by private physician Eligible for all features
age 30-44: biennial -(dependent on age)
age 45 & over: annual
-In or outpatient hospital or
clinic under age 45: no benefit
age 45 & over: biennial
Tax Planning/Prep & Financial
Counseling Services
-Annual dollar limit $8,000
-3 year accumulation limit $10,000
</TABLE>
<PAGE>
Exhibit A
CRAY RESEARCH, INC.
1989 NONSTATUTORY OPTION AGREEMENT
CRAY RESEARCH, INC., a Delaware corporation (the "Company"),
pursuant to the 1989 Employee Benefit Stock Plan of the Company (the "Plan"),
and in consideration of services to be rendered to the Company or its
subsidiaries by J. Phillip Samper (the "Employee"), grants to the Employee a
nonstatutory option to purchase 300,000 shares of the Company's Common Stock
(the "Shares") at a price of $19.875 per share (the "Purchase Price"), all on
the following terms and conditions.
1. The Employee may exercise this nonstatutory option on a
cumulative basis at any time after May 16, 1996 (one year after the date of
grant) and prior to May 17, 2005 (ten years after the date of grant), subject to
prior termination or modification or acceleration of vesting as herein provided,
in whole or in part with respect to the following:
(a) 50% of the Shares one year after the date of grant; and
(b) the remaining 50% of the Shares two years after the date
of grant.
2. This nonstatutory option shall not be transferable by the
Employee, except by will or the laws of descent and distribution and, during
the Employee's life, shall be exercisable only by the Employee and only while
<PAGE>
and if the Employee is continuously employed by the Company or a subsidiary of
the Company, except as provided in Section 4 of this Agreement.
3. This nonstatutory option may be exercised in whole or in
part, from time to time, by delivery to the Company of a written notice
specifying the number of Shares desired to be purchased and accompanied by
full payment to the Company of the Purchase Price, at the election of the
Employee, in cash and/or by deliver of certificate(s) duly endorsed for
transfer, in shares of the Company's Common Stock already owned by the
Employee, or by delivery of a notice of exercise of the option and
simultaneous sale of the shares of Common Stock thereby acquired pursuant to a
brokerage or similar arrangement approved by the Company, using the proceeds
from the sale as payment of the Purchase Price. Any shares endorsed and
delivered to the Company in payment of the Purchase Price shall be valued at
the closing price for the Common Stock on the New York Stock Exchange (or
other appropriate market price) on the last business day preceding such
exercise date on which there were sales. Any fractional share not required
for payment of the Purchase Price shall be paid for by the Company in cash on
the basis of the same value utilized for such exercise.
<PAGE>
4. In the event that the Employee's employment with the Company
and its subsidiaries is terminated by reason of death, disability or
retirement (as defined below), this nonstatutory stock option, to the extent
not previously exercised, shall become immediately exercisable in full without
regard to the percentage limitations set forth in Section 1(a) through (d)
above as follows:
(a) Death -- at any time by the Employee's estate prior to
expiration of the term of the option specified in Section 1;
(b) Disability -- within one year after termination of
employment because of disability; provided, however, that
the option must be exercised prior to the expiration of the
term of the option; and
(c) Retirement -- within two years after termination of
employment; provided, however, that the option must be
exercised prior to the expiration of the term of the option.
If employment is terminated for any other reason, the unexercised portion of
this nonstatutory stock option shall expire. For purposes of this Agreement:
"retirement" shall mean termination of Employee's employment under that
<PAGE>
certain Employment Agreement, dated May 17, 1995 (the "Employment Agreement"),
between the Company and Employee either (i) by the Company without cause
(cause being defined in Section 6(e) of the Employment Agreement), (ii) by the
Employee for good reason (good reason being defined in Section 6(f) of the
Employment Agreement), or (iii) by reason of the expiration of the Employment
Period (Employment Period being defined in Section 1 of the Employment
Agreement); and "disability" shall have the meaning given it in Section 6(h)
of the Employment Agreement.
5. Unless the issuance of the Shares purchased upon the
exercise of this nonstatutory option is registered with federal and state
regulatory authorities, or is determined by counsel for the Company to be
exempt from such registration, the Employee shall be required to give an
investment representation in connection with such exercise and purchase, and
transfer of the Shares received shall be appropriately restricted and
requisite legends placed upon certificates of the Shares.
<PAGE>
6. If prior to the expiration of this nonstatutory option, the Shares
then subject to this nonstatutory option shall be affected by any
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split, or other change in capitalization affecting the present Common Stock of
the Company, then the number and kind of shares covered by this Agreement, and
the Purchase Price per share, shall be appropriately adjusted by the
Compensation Committee, as it may deem necessary to prevent dilution or
enlargement of rights which might otherwise result.
7. If a Charge of Control of the Company occurs which, in the
opinion of the Company's independent certified public accountants may not be
accounted for under generally accepted accounting principles as a "pooling of
interests", then from and after the "Change of Control Date" all options
outstanding hereunder shall be immediately exercisable in full,
notwithstanding the provisions of paragraph 1. The terms "Change of Control"
and "Change of Control Date" shall have the meanings given to such terms in
the Plan.
8. It is intended that the Plan and this nonstatutory option comply and be
interpreted in accordance with Rule 16b-3 under the Securities
<PAGE>
Exchange Act of 1934, as amended. The provisions of the Plan pertaining to
nonstatutory options, to the extent not set forth in this Agreement, are
incorporated by reference.
IN WITNESS WHEREOF, this Nonstatutory Stock Option Agreement is
hereby executed as of May 17, 1995 (date of grant).
CRAY RESEARCH, INC.
By: /s/ Philip G. Heasley
Company Representative Signature
/s/ J. Phillip Samper
Employee Signature
<PAGE>
Exhibit B
CRAY RESEARCH, INC.
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made this 17th day of May, 1995, by and between
CRAY RESEARCH, INC., a Delaware corporation (the "Company"), and J. Phillip
Samper ("Employee").
The Cray Research, Inc. 1989 Employee Benefit Stock Plan (the
"Plan") permits the Company to award shares of its Common Stock to the
Employee on the restricted basis set forth herein.
Accordingly, in consideration of the agreements hereinafter set
forth, the parties hereto hereby agree as follows:
1. Award of Restricted Stock
The Company hereby awards to the Employee 200,000 shares of its
Common Stock, subject to the restrictions set forth in the Plan and herein
(the "Restricted Stock"). Upon satisfaction of the conditions for the
termination of the restrictions set forth in the Plan and herein, the
restrictions shall lapse and the Restricted Stock shall vest in the Employee
free of any restrictions. In the event the conditions for the termination of
such restrictions are not satisfied, the Restricted Stock shall be forfeited
to the Company and shall be surrendered to and canceled by the Company.
2. Vesting and Forfeiture
(a) The Restricted Stock shall vest in the Employee free of the
restrictions in the Plan and herein at the end of the applicable period (the
"Restricted Period") set forth in Section 3 hereof and upon satisfaction of
the conditions for release or lapse of other restrictions contained in the
Plan or herein. In the event that the conditions for release or lapse of the
restrictions are not satisfied with respect to any shares of Restricted stock,
such shares shall be forfeited, and all rights of the Employee in such shares
of Restricted Stock (and to other securities and other property, other than
cash dividends, distributed with respect to such shares) shall terminate.
<PAGE>
(b) Upon satisfaction of the conditions for release of
restrictions applicable to any shares of Restricted Stock, the Company shall
issue a certificate representing such shares and deliver the certificate to
the Employee free of any restriction, subject to any applicable federal or
state securities laws or other laws.
3. Restrictions
The Restricted Stock shall be forfeited to the Company in the
event and to the extent that such Restricted Stock does not vest in accordance
with Exhibit A hereto.
4. General Conditions Applicable to Restricted Stock
(a) Shares of Restricted Stock may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of until the shares
vest and are issued free of any restriction.
(b) A certificate or certificates evidencing the shares of
Restricted Stock awarded hereby shall be prepared and registered in the name
of the Employee but shall be held in the custody of the Company until the
conditions for termination of restrictions thereon are satisfied. Prior to
issuance of any shares of the Restricted Stock, Employee shall deliver to the
Company a stock power or stock powers endorsed in blank relating to the
Restricted Stock sufficient to permit the Company to transfer the Restricted
Stock to it or to cancel the Restricted Stock. Certificates issued with
respect to the Restricted Stock shall bear a restrictive legend in
substantially the following form:
The transferability of this certificate and the shares
represented hereby are subject to the terms and
conditions (including forfeiture) contained in the
Cray Research, Inc. 1989 Employee Benefit Stock Plan
and a Restricted Stock Agreement entered into between
the registered owner and Cray Research, Inc. Copies
of such Plan and Agreement are on file in the offices
<PAGE>
of Corporate Secretary of Cray Research, Inc. The
shares represented by this certificate may not be
sold, exchanged, transferred, pledged or otherwise
disposed of without the prior written consent of the
Company.
When any shares of Restricted Stock vest and are to be issued free
of any restrictions, the Employee's certificate(s) being held by the Company
evidencing such shares shall be delivered to the Employee and the above
restrictive legend shall be removed therefrom subject only to such further
restrictive legend, if any, as may be required under the then applicable
securities laws.
(c) Any additional shares of Common Stock or other securities or
property issued in respect of outstanding Restricted Stock shall be issued
subject to the same restrictions applicable to the Restricted Stock in respect
of which they are issued.
(d) In the event of forfeiture of any Restricted Stock, any
additional shares of Common Stock or other securities or property (other than
cash dividends) distributed with respect to such Restricted Stock shall be
forfeited as well and the Company shall be entitled to have any and all
certificates and other instruments evidencing such Restricted Stock and other
securities and property transferred to it or canceled.
(e) If, prior to vesting of Restricted Stock in accordance with
the above performance goals or forfeiture thereof, a Change of Control (as
defined in the Plan) of the Company occurs which, in the opinion of the
Company's independent certified public accountants may not be accounted for
under generally accepted accounting principles as a "pooling of interests",
then, effective upon the Change of Control Date (as so defined), all
Restricted Stock shall vest immediately. The committee of the Board of
Directors of the Company that administers the Plan may make such provision as
it deems equitable respecting the continuance of the restrictions contained
herein on any Restricted Stock held by the employee during an approved leave
of absence.
<PAGE>
5. Rights of a Stockholder
The Employee shall have all of the rights and privileges of a
stockholder and owner as of the date on which the Restricted Stock is awarded,
including (i) the right to vote the Restricted Stock and (ii) the right to
receive all dividends or other distributions paid or made with respect to the
Restricted Stock; provided, however, that all distributions with respect to
Restricted Stock (with the exception of cash dividends) shall be deposited
with the Company and shall be subject to forfeiture in accordance with the
Plan and this Agreement to the same extent as the Restricted Stock in respect
of which such distributions were made.
6. Miscellaneous
(a) The Restricted Stock is awarded pursuant to the Plan and is
subject to its terms. A copy of the Plan is available to the Employee upon
request.
(b) This Agreement shall not confer on the Employee any right
with respect to continuance of employment at any time.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the date first set forth above.
CRAY RESEARCH, INC.
By:/s/ Philip G. Heasley
Its: Member of the Board of Directors
EMPLOYEE
/s/ J. Phillip Samper May 17, 1995
Signature Date
<PAGE>
Exhibit A
Vesting of Restricted Stock
1. Subject to paragraph 2 below, the 200,000 shares of
Restricted Stock issued pursuant to the Restricted Stock Agreement between the
Company and J. Phillip Samper (the "Employee") shall vest as follows:
(a) At any time that the Fair Market Value (as hereinafter
defined) of a share of Common Stock of the Company (a "Share") equals or
exceeds $25.00, 50,000 shares of Restricted Stock will vest.
(b) At any time that the Fair Market Value of a Share equals or
exceeds $30.00, an additional 50,000 shares of Restricted Stock will
vest.
(c) At any time that the Fair Market Value of a Share equals or
exceeds $37.50, an additional 50,000 shares of Restricted Stock will
vest.
(d) At any time that the Fair Market Value of a Share equals or
exceeds $45.00, the remaining 50,000 shares of Restricted Stock will
vest.
If the Shares are affected by recapitalization, merger, consolidation,
reorganization, stock dividend, stock split or other change in
capitalization then the target Fair Market Values set forth above shall be
appropriately adjusted by the committee of the Board of Directors of the
Company that administers the Plan.
2. Notwithstanding the foregoing:
(a) if Employee's employment with the Company is terminated by
reason of Employee's death, disability or termination without cause or
for good reason (each as defined in the Employment Agreement), then any
shares of Restricted Stock that do not vest prior to the first
anniversary of such termination of employment will be forfeited to the
Company; and
(b) if Employee's employment with the Company is terminated for
any reason other than Employee's death, disability or termination
without cause or for good reason (each as defined in the Employment
Agreement), then any shares of Restricted Stock that have not previously
vested will be forfeited to the Company.
<PAGE>
3. For purposes hereof:
(a) "Fair Market Value" as of any date means: (i) the average
closing price of a Share on the composite tape for New York Stock
Exchange ("NYSE") listed shares, or, if the Shares are not quoted on the
NYSE composite tape, on the principle United States Securities Exchange
on which the Shares are listed, in either case during the twenty trading
days preceding that date, or (ii) if subparagraph (i) is not applicable,
what the committee administering the Plan determines in good faith to be
100% of the Fair Market Value of a Share on that date.
(b) "Disability" has the meaning given it in Section 6(h) of the
Employment Agreement.
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 58,733
<SECURITIES> 175,000
<RECEIVABLES> 101,205
<ALLOWANCES> 0
<INVENTORY> 235,133
<CURRENT-ASSETS> 452,739
<PP&E> 568,860
<DEPRECIATION> 348,739
<TOTAL-ASSETS> 993,590
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<BONDS> 92,703
<COMMON> 31,511
0
0
<OTHER-SE> 611,232
<TOTAL-LIABILITY-AND-EQUITY> 993,590
<SALES> 162,712
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<OTHER-EXPENSES> 64,807
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<INCOME-PRETAX> (195,060)
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