<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------
COMMISSION FILE
NO. 1-8028
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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, Minnesota 55121 (612) 452-6650
(Address of principal executive offices) (Registrant's telephone number)
------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class: Name of each exchange on which registered:
Common Stock, $1.00 par value . New York Stock Exchange,
Boston Stock Exchange, Chicago Stock Exchange,
Pacific Stock Exchange, Philadelphia Stock
Exchange
6 1/8% Convertible Subordinated
Debentures due 2011 . . . . New York Stock Exchange
Common Share Purchase Rights. . New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of February 29, 1996, 25,635,177 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the Registrant's voting shares
held by non-affiliates (based upon the closing price therefor on the New York
Stock Exchange on said date) was approximately $717,859,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1 -- BUSINESS
Cray Research, Inc. (the Company) was incorporated in 1972 as a Delaware
corporation. Its principal corporate and administrative offices are located at
655A Lone Oak Drive, Eagan, Minnesota 55121 (telephone (612) 452-6650).
The Company's mission is to provide leading supercomputing tools and
services to help solve its customers' most challenging problems. The
computational tools created by the Company consist of high-performance computing
systems and related software and are used primarily by scientists and engineers
to perform computational research. Computational research, the mathematical
modeling and simulation of physical and other quantifiable phenomena, allows
researchers to investigate areas that are physically impossible or too time-
consuming, dangerous, or expensive to study in any other way. The Company's
computational tools are used by scientists and engineers in many commercial
industries including aerospace, automotive, chemical/pharmaceutical and
petroleum, as well as in many public and private research centers, such as
government and environmental science organizations and universities.
With the introduction of the CRAY Superserver 6400 series, the Company
entered the commercial market with customers in financial services,
telecommunications, transportation and manufacturing industries and with
applications in database and on-line transaction processing.
The Company's services include product maintenance, consulting and technical
support and providing high performance computing capability through the
Company's wholly-owned subsidiary, Minnesota Supercomputer Center, Inc.
On February 25, 1996, the Company entered into an Agreement and Plan of
Merger (Merger Agreement) with Silicon Graphics, Inc. ("SGI") and C Acquisition
aCorporation, a wholly owned subsidiary of SGI ("Merger Sub"). Pursuant to the
Merger Agreement, on February 29, 1996, Merger Sub commenced a tender offer to
purchase 19,218,735 shares of Company's common stock at $30.00 per share in cash
(the "Offer"). The consummation of the transactions contemplated by the Merger
Agreement, including, without limitation, the Offer and the Merger (as defined
below) are subject to customary closing conditions, including receipt of
governmental and third party consents and stockholder approval. As soon as
practicable following the completion of the Offer and satisfaction or waiver of
the conditions set forth in the Merger Agreement, Merger Sub will be merged with
and into the Company (the "Merger"). Upon consummation of the Offer, Merger Sub
will have sufficient voting power to cause the approval of the Merger, without
the vote of any other stockholder. As a result of the Merger, each share of the
Company's common stock issued and outstanding immediately prior to the effective
time of the Merger (other than shares of the Company's common stock held in the
treasury of the Company or owned by Merger Sub, SGI or any directly or
indirectly wholly owned subsidiary of SGI or of the Company (collectively
"Ineligible Shares") and other than shares of the Company's common stock held by
stockholders of the Company who shall have demanded and perfected appraisal
rights, if any, under Delaware law) will be cancelled and converted
automatically into the right to receive one share of SGI common stock. However,
if fewer than 19,218,735 shares of the Company's common stock are purchased in
the Offer, then each share of the Company's common stock that remains
outstanding after the expiration of the Offer shall be converted into the right
to receive a fractional share of common stock of SGI and cash so that the
aggregate cash and stock consideration paid in the Merger is the same as if the
Offer had been fully subscribed. Upon consummation of the Merger, the Company
will become a
<PAGE>
wholly-owned subsidiary of SGI. There can be no assurance that all
conditions to the consummation of the Offer and the Merger will be met.
SEGMENT DATA
The Company currently operates in the high-performance segment of the
computer industry.
PRODUCT AND SERVICES
The Company's products consist primarily of the CRAY T90 series of high-end
parallel vector processor (PVP) supercomputer systems; the CRAY J90 series of
lower-priced PVP supercomputer systems; the CRAY T3D series and the follow-on
CRAY T3E series of massively parallel processor (MPP) supercomputer systems; the
CRAY Superserver 6400 series of symmetric multiprocessor (SMP) systems; and
associated software, peripherals and support.
SUPERCOMPUTER SYSTEMS. The Company's supercomputer systems offer multiple
central processing unit (CPU) configurations that operate independently on
separate jobs or in combination on a single job.
The CRAY J90 series was introduced in September 1994 as the follow-on to
the CRAY EL series. It was enhanced in 1995 with the introduction of models
which can contain up to 32 CPU's in one system and is currently offered in
configurations of four to thirty-two CPU's ranging in price from $415,000 to
$2.7 million and began shipping in early 1995.
The CRAY T90 series of supercomputer systems, the Company's largest and
most powerful supercomputer systems, was officially launched in February 1995 as
the follow-on to the CRAY C90 series, which was first introduced in 1991. The
CRAY T90 system is offered in configurations ranging from one to 32 CPU's and
prices ranging from $2.5 million up to $35 million per system.
The CRAY T3D system was introduced in September 1993 as the Company's first
MPP supercomputer system. The CRAY T3D system is an MPP system which when
coupled to the Company's traditional PVP system creates a scalable heterogeneous
supercomputing system. The follow-on CRAY T3E series was introduced in November
1995 and scheduled for initial shipment in 1996. The CRAY T3E system is a
stand-alone system, in contrast to the predecessor CRAY T3D system. The CRAY
T3E system is currently offered in configurations ranging from 16 to 2048
processors at prices ranging from under $1 million up to over $100 million.
Included as standard equipment on all of the Company's supercomputer systems
is an Input/Output (I/O) Subsystem which is capable of transferring data
directly to and from central memory at extremely high speeds with minimal
interruption to central processing operations. In November 1995, the Company
announced the next generation of its I/O Subsystem product. The Company's
supercomputer systems use the UNICOS operating system, which is based on the
Santa Cruz Operations, Inc. operating system, an industry standard operating
system.
CRAY SUPERSERVER 6400 SYSTEM. In October 1993, the Company introduced the
CRAY Superserver 6400 (CS6400) system. The CS6400 system, the result of a 1992
joint technology agreement and collaboration with Sun Microsystems, Inc. (Sun),
is based on the SPARC/Solaris architecture. SPARC is a CPU architecture
pioneered by Sun. Solaris is an operating environment developed by Sun based on
the Santa Cruz Operations, Inc. operating system. The CS6400 system uses an
enhanced version of Solaris. The CS6400 system is a binary-compatible upward
extension of Sun's product line. (Binary compatibility refers to the ability of
a computer to run software applications from other computers without
modifications to the software). As such, the CS6400 system
<PAGE>
provides the basis for the Company's focus on the high-performance commercial
computing market. The CS6400 system can be configured with up to 64
SuperSPARC processors, up to 16 gigabytes (Gbytes) of central memory, and
over 5 terabytes (Tbytes) of on-line disk storage. The CS6400 system is
designed and manufactured by the Company's Business Systems Division.
The following table indicates the number of available CPU's, CPU cycle time
and the available amount of memory for the Company's computer systems. CPU
cycle time represents the amount of time in which the computer runs through one
complete instruction cycle and is measured in nanoseconds (nsec) or billionths
of a second. Central memory is measured in megawords. One megaword equals
eight megabytes (Mbytes) or eight million bytes.
<TABLE>
<CAPTION>
CPU Clock
Number of Cycle time Memory
System Series Architecture CPU's (in secs) (in megawords)
- ------------- ------------ --------- ---------- --------------
<S> <C> <C> <C> <C>
CS6400 SMP 4 to 64 11.8 32 to 2048
CRAY J90 PVP 4 to 32 10.0 64 to 1024
CRAY T90 PVP 1 to 32 2.2 64 to 1024
CRAY T3D MPP 32 to 2048 6.7 8 per CPU
CRAY T3E MPP 16 to 2048 3.3 8 to 64 per CPU
</TABLE>
SOFTWARE. The Company's software products primarily include operating
systems and compiler software. The Company also markets various applications,
networking, remote computing and file management software.
The Company's current operating system, the UNICOS 9.0 system, functions
across all the Company's supercomputer lines. The CRAY T3D and CRAY T3E systems
run derivatives of UNICOS, called UNICOS MAX and UNICOS/MK, respectively. The
CS6400 product line runs the Sun/Solaris operating system enhanced by the
Company to improve processor and memory management, incorporate parallel and
batch processing capabilities and accommodate the reliability, availability and
serviceability (RAS) features of the CS6400 system.
The Company's compiler products, Fortran 77, Fortran 90, C and C++, support
the programming environment for all the Company's supercomputer systems. In
addition to Company developed applications software products, many third-party
software applications are available for use on the Company's supercomputer
systems under the UNICOS operating system. Also, third party software
applications that run in a Sun/Solaris operating environment will run on the
CS6400 system.
PERIPHERAL EQUIPMENT. The Company's Solid-state Storage Device (SSD) is
designed to enhance high-end supercomputer system performance by providing high-
speed access to large datasets and temporary storage for system programs.
Traditional high-speed disk storage units transfer data at rates of up to 20
megabytes per second (Mbytes/sec) compared to a SSD transfer rate of up to 1800
Mbytes/sec. The SSD is available in sizes ranging from 128 megawords to 4096
megawords, at prices ranging from $250,000 to $6.3 million.
The Company also markets high-performance disk drives in various capacities
to meet the requirements of specific system configurations and support the mass
storage requirements of the Company's supercomputer products. The Company also
sells the Cray Research Network Disk Array, a bulk storage device designed to
reside on high-performance computer networks. This product provides users with
a flexible storage device that combines high-speed data
<PAGE>
transfer with the ability to partition the device to more than one system on the
network. These storage products range in price from $6,000 to $390,000.
MAINTENANCE AND SUPPORT. Maintenance and other support services following
installation are performed by hardware engineers and software analysts employed
by the Company. Such services are provided under separate maintenance contracts
between the Company and its customers. These contracts generally provide for
maintenance services for one year and are renewable annually at the customer's
election.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Most integrated circuits required for the Company's computer systems are
designed by the Company and then manufactured by and purchased from outside
sources. The Company has previously manufactured most of the printed circuit
boards used in its products. In February 1996, the Company entered into an
agreement to sell its primary printed circuit board manufacturing facility in
Chippewa Falls, Wisconsin for approximately $36,000,000. The sale closed in
March 1996, at which time a supply agreement with the buyer went into effect.
Due to the use of advanced technology components in the Company's products,
certain components are available only from a limited number of suppliers.
Supply of some memory product components is limited by allocations that result
from worldwide demand in excess of supply. Significant delays in the delivery
of a substantial number of these components could adversely affect production
schedules, revenues and operating results. The Company believes that its
sources of supply for components are adequate for 1996 production needs.
PATENTS
The Company has obtained patents relating to its computer systems. While
the Company may apply for patents as it develops products and processes which it
believes to be patentable, the Company believes that its success principally
will be dependent upon its ability to design advanced products rather that its
ability to secure patents.
SEASONALITY
The Company's business is not inherently seasonal in nature. However,
operating results are significantly influenced by the timing of the availability
of new products, the number of computer systems accepted within a reporting
period, the configuration of the systems accepted and whether a system is sold
or leased.
MARKETING AND LEASING ACTIVITY
The Company's central marketing activities are located in Eagan, Minnesota,
and Business Systems' marketing is located in Beaverton, Oregon. The Company
markets its computer systems through its own sales force to customers in North
America, Europe, Latin America, the Far East and Australia, and through
independent representatives in the Middle East and Far East. The Company also
offers products through distributors and re-sellers in selected markets.
The Company offers its systems for sale or lease. Sales include both
systems sold to customers or third-party lessors and certain long-term leases
that qualify for sales accounting treatment. Operating lease terms generally
are for one to three years, with a purchase option entitling the user to a
partial lease payment credit in the event of a purchase. These operating leases
do not return to the Company its selling price plus interest charges during the
initial noncancellable term of the lease. Therefore, in the accounting period
in which an operating lease begins, revenue and earnings are lower than the
levels which would be achieved if the system were sold. Leases also increase
cash requirements. Systems sold to third-party lessors are remarketed by the
Company upon lease termination on a non-priority basis.
<PAGE>
BACKLOG
The Company believes backlog information provides only a limited indication
of its expected future revenue. The Company measures backlog using contract
value which is based on selling price for sales orders and the guaranteed cash
flows for lease orders. The contract value of backlog at December 31, 1995 was
$437 million, the majority of which is expected to be installed in 1996. The
contract value of backlog at December 31, 1994 was $237 million, of which $159
million was installed in 1995. Sales to U.S. government agencies and commercial
customers primarily serving the U.S. government constitute a significant portion
of the Company's business. The backlog amount at December 31, 1995 includes
orders for systems, peripherals and upgrades from the U.S. government and
commercial customers primarily serving the U.S. government with a total contract
value of approximately $179 million; these orders are cancelable under standard
termination for convenience clauses included in most U.S. government contracts.
COMPETITION
Competition in the computer industry is based primarily on equipment
performance and reliability, manufacturer reputation, software capability and
availability, price, price/performance, and availability of support services.
The Company competes primarily in the market for high-performance scientific and
engineering computer systems and believes that it holds a competitive edge in
this market. With the introduction of the CRAY Superserver 6400 (CS6400) system
in late 1993, the Company faces new competition in the commercial marketplace.
There can be no assurance that levels of competition within the markets in which
the Company competes will not intensify or that the Company's advantages may not
be reduced or lost as a result of technological, sales, marketing or financial
advantages achieved by competitors. Furthermore, some of the Company's
competitors have significantly greater resources than the Company. The
Company's competitors include Digital Equipment Corporation, Fujitsu, Ltd.,
Hewlett Packard, Hitatchi Data Systems, IBM, NEC Corporation, Sequent Computer
Systems, Inc., Silicon Graphics, Inc., and Sun Microsystems, Inc.
DEVELOPMENT AND ENGINEERING
The Company is committed to leadership in the high-performance segment of
the computer systems market for scientific, technical, commercial and industrial
users. Its continued leadership will be dependent on successful development and
introduction of new products and enhancements to existing product lines. Such
product development and enhancements depend not only on the Company's internal
development and engineering activities, but also upon the availability of
advanced technology components from outside suppliers as described under
"Sources and Availability of Raw Materials" above. Development and engineering
costs, including costs of software development, totalled $123 million in 1995,
$141 million in 1994 and $146 million in 1993 or 18.2%, 15.3%, and 16.3% of
revenue respectively.
Hardware development and engineering expenditures in 1995 were focused on
the CRAY T90 system, the CRAY T3E system, enhancements to the CRAY J90 system, a
future SPARC based Superserver system, and an I/O Subsystem development. In
1994, the MPP project received renewed funding of $15.0 million over a three-
year period from the Advanced Research Projects Agency (ARPA), plus two one-year
extension options for an additional $5.0 million of funding per year.
The Company is continuing to enhance and develop its UNICOS operating
system, compilers, and application development tools to increase functionality
and performance. The Company is redefining the architecture of its UNICOS
operating system to improve its scalable performance in anticipation of the
industry moving to distributed systems. The Company also continues to expand
<PAGE>
its network and communications and open standards software, including the
industry standard client/server data sharing products that interoperate with
systems from multiple vendors. During 1995, the Company delivered enhancements
to several compiler products.
ENVIRONMENTAL COMPLIANCE
Compliance by the Company with federal, state and local environmental
protection laws during 1995 had no material effect upon capital expenditures,
earnings or competitive position and is expected to have none in the
foreseeable future.
EMPLOYEES
As of December 31, 1995, the Company had 4,225 full-time employees; 983 in
development and engineering, 1,399 in manufacturing, 763 in marketing and
sales, 915 in field service and 165 in general management and administrative
positions. The Company has never experienced any material work stoppage due
to labor disagreements, and in the opinion of management, the Company's labor
relations are satisfactory. No employees are represented by labor unions.
FINANCIAL INFORMATION ABOUT DOMESTIC AND FOREIGN OPERATIONS
Information concerning revenue, operating profit and identifiable assets by
geographical area and export sales for 1995, 1994 and 1993 is included in Item 8
of Part II "Financial Statements and Supplementary Data", which information is
incorporated herein by reference.
The Company's international business is subject to risks customarily
encountered in foreign operations, including fluctuations in monetary exchange
rates, import and export controls and the economic, political and regulatory
policies of foreign governments. The technological nature of the Company's
products may limit the Company's ability to market its products in some foreign
countries due to export licensing constraints.
<PAGE>
ITEM 2 -- PROPERTIES
The Company's principal properties are as follows:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION OF PROPERTY USES OF FACILITY SQUARE FOOTAGE DATE
- ------------------------ -------------------- -------------- ----------
<S> <C> <C> <C>
Chippewa Falls, Wisconsin Manufacturing, 982,400 Owned
engineering,development,
and service.
Eagan, Minnesota Executive offices, software 479,300 Owned
development and training,
corporate sales and
marketing.
Mendota Heights, Minnesota General and administrative 118,900 Owned
and sales offices.
Distribution center and 36,200 6/98
other support services.
Beaverton, Oregon Manufacturing, marketing 65,496 5/00
and administrative
operations (related to the
Business Systems Division)
San Diego, California Hardware and software 36,400 7/97
development operations
(related to the Business
Systems Division)
Minneapolis, Minnesota Computing services and 100,100 6/00
administrative operations
(Minnesota Supercomputer
Center, Inc.)
</TABLE>
The Company also leases approximately 153,600 square feet primarily for
sales and service offices in various domestic locations. In addition, various
foreign sales and service subsidiaries have leased approximately 169,200 square
feet of office space. The Company believes its manufacturing and sales
facilities are adequate to meet its needs in 1996.
ITEM 3 -- LEGAL PROCEEDINGS
On or about March 1, 1996, a putative class action was filed in the Court
of Chancery in the State of Delaware on behalf of the stockholders of the
Company alleging causes of action arising out of the Offer and the proposed
Merger described in Item 1 of Part I. SHADELINE V. CRAY RESEARCH, INC., ET
AL., Civil Action No. 14868. On or about March 5, 1996, an amended complaint
was filed in the Court of Chancery in the State of Delaware (the "Amended
Complaint"). The defendants in this action are the Company, its directors,
and SGI. The Amended Complaint alleges that the Board breached its fiduciary
duties and that SGI aided and abetted the breach of fiduciary duties and
specifically alleges that the Board breached its fiduciary duties by failing
to undertake an adequate evaluation of the Company as a potential acquisition
candidate and to take adequate steps to enhance the Company's value as an
acquisition candidate. The Amended Complaint also alleges the Schedule 14D-1
and Schedule 14D-9, filed by SGI and the Company, respectively, in connection
with the Offer, omitted information which is material to stockholders'
<PAGE>
assessments of the transaction and available alternatives. The Amended
Complaint seeks, INTER ALIA to enjoin the defendants from taking steps to
accomplish the Offer and the proposed Merger under their present terms. The
Company believes that the putative class action suit is without merit and
intends to defend it vigorously. The plantiff in the foregoing action has
subsequently agreed not to seek a preliminary injunction enjoining the tender
offer. Reference is made to Item 1 of this Part I and to the Company's
Schedule 14D-9 filed with the Securities and Exchange Commission on February
29, 1996, as amended on March 6, 1996, for more detailed information
regarding the contemplated transaction.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1995.
<PAGE>
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, high and low
prices for the Company's common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
1995 1994
--------------------------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter $ 18.63 $ 14.63 $ 33.75 $ 25.38
Second Quarter 26.00 18.13 29.75 19.13
Third Quarter 29.25 21.75 24.00 20.25
Fourth Quarter 24.88 20.25 21.50 14.63
</TABLE>
The Company's common stock is listed on the New York Stock Exchange
(primary listing) under the trading symbol CYR. The Boston, Philadelphia,
Pacific, and Chicago Exchanges have "unlisted trading privileges" (UTP).
As of February 29, 1996, there were approximately 4,800 record holders of
the Company's common stock.
The Company has never declared a cash dividend. The payment of future
dividends will be at the discretion of the Board of Directors and will
depend, among other things, on the Company's earnings, capital requirements,
and financial condition. At present, the Company expects to retain all of
its earnings for use in the business and has no present plans to pay a cash
dividend. The Merger Agreement described in Item 1 of Part I prohibits the
payment of any dividends by the Company prior to the effective time of the
Merger.
ITEM 6 -- SELECTED FINANCIAL DATA
Dollars in thousands except per share data.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $676,244 $ 921,609 $894,857 $797,578 $862,457
Net earnings (loss) (226,364) 55,696 60,855 (14,875) 113,047
Earnings (loss) per share (8.95) 2.16 2.33 (0.56) 4.15
Total assets 978,054 1,181,879 1,169,768 1,021,264 1,079,046
Long-term debt 92,682 97,000 105,478 106,402 107,426
Other long-term obligations 10,772 18,030 12,986 7,489 6,068
</TABLE>
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND OUTLOOK
In 1995 the Company continued to move to higher unit volumes and lower
average selling prices. It focused on maintaining its traditional high
performance supercomputing base, while also entering new markets where it has
not had a significant presence in the past. To better compete in these markets
and under these conditions, Cray made operational changes in 1995 to better
align its resources with its evolving strategy, improve efficiency, and achieve
a more competitive cost structure.
When considering its strategy, based upon past and anticipated conditions
within the technology industry and the Company's operations, the Board of
Directors has from time to time considered making acquisitions, forming
strategic alliances and entering into business combinations with companies
engaged in a similar or related business. Since 1994 the Company has had
occasional discussions with other companies regarding potential strategic
alliances and other opportunities for collaboration. In October 1995, the
Executive Committee of the Board of Directors determined that it would be in
the best interests of the Company and its stockholders for the Company to
take an active approach in pursuing opportunities with other companies.
Throughout the latter part of 1995 and early 1996 senior executives of the
Company communicated with several companies to indicate the Company's
interest in exploring opportunities for collaboration, strategic alliance or
some form of business combination. Discussions and negotiations with certain
of these companies followed, including discussions with Silicon Graphics,
Inc., which led to the Merger Agreement described in Item 1 of Part I. Upon
consummation of the Merger contemplated by the Merger Agreement, the Company
will become a wholly-owned subsidiary of SGI. There can be no assurance that
all conditions to the consummation of the Offer and the Merger described in
Item 1 of Part I will be met. The Company's Schedule 14D-9 filed with the
Securities and Exchange Commission on February 29, 1996, as amended, and
SGI's Schedule 14D-1 filed with the Securities and Exchange Commission on
February 29, 1996, as amended, provide additional information about the
contemplated transactions. See also Item 1 of Part I.
The year 1995 was a year of product transitions, both at the high-end and
the low-end of the product line. At the high-end, the CRAY T90 series began
shipping in larger volumes in the fourth quarter of 1995, while the CRAY T3E,
the follow-on to the current massively parallel product, will begin shipping in
1996.
The Company expects to be profitable in 1996, but performance will be
much stronger in the second half of the year. The first half will not be
profitable and this first half weakness is directly associated with the
delivery schedule for new products. CRAY T90 systems, while increasing in
volumes, will not be at full volume until sometime in the second quarter.
CRAY T3E systems, with strong demand as reflected in backlog, are not
scheduled to begin shipping until later in the year, and the Company's
commercial effort, which management views as a long term growth opportunity
for Cray, will not have positive impact on overall financial results until
the second half of 1996. Given these factors, while the Company anticipates
an operating profit for the full year 1996, it anticipates operating losses
in the first half.
See "FACTORS THAT MAY AFFECT FUTURE RESULTS" for a discussion of risks that
may cause actual results in 1996 to differ materially from expected results.
<PAGE>
REVENUE
<TABLE>
<CAPTION>
Percent of related revenue Change from prior year
- -------------------------- -----------------------
1995 1994 1993 1995 1994
- ------ ------ ------ ------ ------
<C> <C> <C> <S> <C> <C>
Revenue:
69.2% 78.9% 78.1% Sales & lease (35.6)% 4.1%
30.8 21.1 21.9 Service fees 7.2 (0.9)
- ------ ------ ------ ---------------- ------ ------
100.0% 100.0% 100.0% Total Revenue (26.6)% 3.0%
- ------ ------ ------ ---------------- ------ ------
- ------ ------ ------ ---------------- ------ ------
</TABLE>
Revenues decreased 26.6% in 1995 from 1994, reflecting a $259.4 million
decrease in sales and lease revenue and a $14.0 million increase in service
revenues.
The sales and lease revenue decrease in 1995 resulted from a significant
decrease in the number of high-end systems installed during the year. High-end
systems traditionally have generated most of the sales revenue. This decrease
in high-end system installations was primarily a result of a product transition
at the high-end: from the CRAY C90 series to the CRAY T90 series; and from
slowing CRAY T3D system sales in anticipation of the CRAY T3E systems. The CRAY
T90 series will ship in greater quantities in 1996 than in 1995, and the CRAY
T3E systems will begin shipping in 1996. This decrease in revenue derived from
high-end system installations was partially offset by an increase in low-end
system sales.
Sales revenues increased 4.7% in 1994 from 1993. In total, the Company
installed substantially more systems in 1994 compared with 1993, but at a lower
average selling price. In addition, revenue increased in several other
areas, most notably: upgrade and peripheral sales and the CRAY Superserver
CS6400 system product.
The Company expects a significant increase in total revenue for 1996 from
1995 levels due to an increase in the number of high-end systems to be
installed. Revenue in any period is impacted significantly by the number of
high-end systems installed in that period and whether these systems are sold or
leased.
Service revenues increased 7.2% in 1995 after a 0.9% decrease in 1994 as a
result of increases in value added services. Much of this $14.0 million
increase for 1995 was generated by the Minnesota Supercomputer Center, which
was acquired during the fourth quarter of 1994. Service revenues from the
traditional maintenance business declined in both 1995 and 1994, 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 while
the number of installations grows. This trend is caused by changes in the
product mix and the service options offered to customers. New 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 December 31, 1995 was $437 million, compared to $237
million a year earlier. Not all of the backlog is scheduled for delivery in
1996. The Company believes backlog information provides only a partial
indication of its expected future revenue.
<PAGE>
GROSS PROFIT
<TABLE>
<CAPTION>
Percent of related revenue Change from prior year
- -------------------------- -----------------------
1995 1994 1993 1995 1994
- ------ ------ ------ ------ ------
<C> <C> <C> <S> <C> <C>
Gross profit percent:
38.3% 48.2% 49.0% Sales & lease (9.9)% (0.8)%
29.1 21.9 24.9 Service fees 7.2 (3.0)
- ------ ------ ------ ---------------- ------ ------
35.4% 42.7% 43.7% Total Gross Profit (7.3)% (1.0)%
- ------ ------ ------ ---------------- ------ ------
- ------ ------ ------ ---------------- ------ ------
</TABLE>
The total gross profit percent declined to 35.4% in 1995 from 42.7% in 1994
and 43.7% in 1993.
In 1995, total gross margins were lower compared with 1994, due to several
factors. Sales gross margins were lower due to a shift in the product mix to
smaller, lower margin systems and also due to a decrease in sales and lower
gross margins on the high-end, resulting primarily from the product
transitions described above. In addition, service revenues, which have lower
gross margins than product revenues, represented a greater percentage of
total revenues in 1995. While service margins improved in 1995, they are not
anticipated to remain as high as the current levels.
EXPENSES
<TABLE>
<CAPTION>
Percent of related revenue Change from prior year
- -------------------------- -----------------------
1995 1994 1993 1995 1994
- ------ ------ ------ ------ ------
<C> <C> <C> <S> <C> <C>
Operating expenses:
18.2% 15.3% 16.3% Development & engineering (12.6)% (3.5)%
24.8 18.5 17.6 Sales, marketing & G & A (1.6) 7.9
27.6 0.8 - Restructure & one-time charges 2162.2 N/A
- ------ ------ ------ ------------------------------ ------- -------
70.6% 34.6% 33.9% Total Operating Expenses 49.8% 2.4%
- ------ ------ ------ ------------------------------ ------- -------
- ------ ------ ------ ------------------------------ ------- -------
</TABLE>
Operating expenses 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 1994,
but increased as a percentage of revenue because of the decrease in revenue
in 1995.
Development and engineering expenditures decreased as a result of cost
reduction efforts and also due to decreases in CRAY T90 series and CRAY J90
series development and engineering activity due to the movement of these
products into full production. Sales and marketing expenses were
approximately the same in 1995 as in 1994. 1994 sales and marketing expenses
were higher than 1993 due to investments in marketing, applications, and
field sales resources. General and administrative expenses decreased from
1994 due to cost reduction efforts. Expenses increased in 1994 from 1993 due
primarily to retirement accruals and consulting fees.
Development and engineering and general and administrative expenses are
expected to decrease below 1995 levels in 1996. Sales and marketing expenses
are expected to increase in 1996 due to continuing investments in marketing and
field sales resources, primarily for the evolving markets. General and
administrative expenses are expected to remain approximately at 1995 levels.
<PAGE>
RESTRUCTURE AND ONE-TIME CHARGES
As noted in the Overview and Outlook section, the Company made operational
changes in 1995 to better align its resources with its evolving strategy,
improve its efficiency, and achieve a more competitive cost structure.
Significant actions were completed and related charges were recorded.
Restructure and one-time charges totaling $187.7 million were recorded in
1995 as a result of these operational changes. This amount included provisions
for workforce reductions ($27.8 million), inventory writedowns ($82.7 million),
facilities writedowns and closings ($21.2 million), equipment writedowns and
disposals ($42.1 million), and other ($13.9 million). Of the total charges,
approximately $38.7 million is for cash expenditures; the remaining $149.0
million is for non-cash charges. In 1995, approximately $27.3 million was paid
out in cash related to these charges.
INCOME TAXES
The Company recorded an income tax benefit in 1995 of 4.0% of the pre-tax
loss, compared with an effective tax rate for 1994 of 28.4%.
The Company believes that, while it has incurred tax expense in various
foreign subsidiaries, that expense will be offset by current U.S. tax benefits.
At December 31, 1995, the Company has tax benefits which are available to offset
future taxable income. The realization of the tax
benefits in future periods is dependent on the future profitability of the
Company.
FINANCIAL CONDITION
Total cash and long-term cash remained relatively unchanged during 1995 with
balances of $254.4 million at December 31, 1995 compared to $255.5 million at
December 31, 1994.
Operations generated $93.8 million of cash during 1995, compared with $180.3
million provided during 1994. The $86.5 million decrease in cash provided from
operations reflects a reduction in receipts from customers and an increase in
payments to suppliers which was partially offset by reductions in income taxes
paid.
Investing activities, net of transfers of cash to and from long-term cash
investments, used $87.6 million of cash during 1995 compared with $143.8 million
during 1994, due primarily to lower fixed asset expenditures ($49.2 million in
1995 versus $87.3 million in 1994). The Company expects capital expenditures
for 1996 to approximate 1995 levels. There was a transfer from long-term cash
investments to short term cash and equivalents of $50 million in 1995 compared
to a $50 million transfer to long-term cash and investments from short term cash
and equivalents in 1994.
Financing activities used $9.9 million of cash in 1995. This net usage was
mainly due to repurchases of common stock ($11.3 million) and a net decrease in
debt ($6.7 million). The Company repurchased approximately 663,000 shares of
its common stock during the first quarter of 1995 and is authorized to
repurchase an additional 2,000,000 shares.
The Company believes that its future cash requirements can be met with
existing cash and investments and cash generated from operations. The Company
<PAGE>
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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Several statements in this document are forward looking statements about
expected future results. Actual results could differ materially from expected
results.
The Company operates in a highly competitive environment that is rapidly
changing and that involves a number of risks, many of which are beyond the
Company's control. These risks could result in situations that would adversely
impact the Company's performance. The following highlights some of these risk
factors:
Government agencies/research institutions represent a major customer
group. Governmental spending reductions could adversely affect results.
International sales comprise nearly half of sales revenues. Trade
protection measures, export licensing regulations, changes in political
conditions, or changes in foreign currency exchange rates could adversely
affect results.
A small number of large system sales comprise a significant portion of
the sales revenue. The timing of equipment acceptance dates on these
large systems can significantly affect results for any particular period.
Customer decisions to lease rather than purchase systems can significantly
affect results.
Recently introduced products comprise a substantial portion of the
revenue in any particular period. Development or manufacturing delays
could adversely affect results in a particular period.
Due to the high technology nature of the Company's products, component
availability is a critical factor. Delays in the availability of components
could adversely affect results in any period by impacting the ability to
manufacture and deliver products. For some components, the Company has
only one supply source.
Third party applications software is a key requirement for many of the
Company's customers. There can be no assurance that all competitively
important applications will be available for the Company's systems on a
timely basis.
The computer industry is highly competitive with rapid technological
advances and constantly improving price/performance. Many of the Company's
competitors have substantially greater technical, marketing and financial
resources and a wider range of available applications software. Competition
can result in significant discounting and lower gross margins.
Completion of the contemplated Merger described in Item 1 of Part I may
also affect actual results in 1996. Issues relative to integrating the
operations and management of the Company with those of SGI could affect
results. While no specific actions have yet been identified, operational
changes following the proposed Merger may affect results in 1996. Customer
and market reactions to the proposed Merger may also have an impact. These
and other uncertainties relating to the Merger may lead to actual results
in 1996 which materially differ from expected results.
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenue:
Sales and lease $ 468,315 $ 727,725 $699,143
Service fees 207,929 193,884 195,714
- ----------------------------------------- --------- --------- ---------
Total revenue 676,244 921,609 894,857
- ----------------------------------------- --------- --------- ---------
Cost of revenue:
Cost of sales and lease 289,158 376,740 356,809
Cost of services 147,411 151,407 146,937
- ----------------------------------------- --------- --------- ---------
Total cost of revenue 436,569 528,147 503,746
- ----------------------------------------- --------- --------- ---------
Gross profit 239,675 393,462 391,111
- ----------------------------------------- --------- --------- ---------
Operating expenses:
Development and engineering 122,965 140,632 145,700
Sales, marketing & general & administrative 167,259 170,062 157,616
Restructure and one-time charges 187,670 8,296 -
- ----------------------------------------- --------- --------- ---------
Total operating expenses 477,894 318,990 303,316
- ----------------------------------------- --------- --------- ---------
Operating income (loss) (238,219) 74,472 87,795
Other income (expense), net 2,423 3,261 (3,352)
- ----------------------------------------- --------- --------- ---------
Earnings (loss) before income taxes (235,796) 77,733 84,443
Income tax (expense) benefit 9,432 (22,037) (23,588)
- ----------------------------------------- --------- --------- ---------
Net earnings (loss) $(226,364) $ 55,696 $ 60,855
- ----------------------------------------- ========= ========= =========
Earnings (loss) per common and
common equivalent share $ (8.95) $ 2.16 $ 2.33
- ----------------------------------------- ========= ========= =========
Average number of common and
common equivalent shares outstanding 25,282 25,845 26,118
- ----------------------------------------- ========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
-------------------------
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Assets
================================================
Current assets:
Cash and equivalents $ 104,425 $ 55,543
Receivables 156,039 229,808
Inventories 177,359 207,496
Other current assets 60,082 41,191
- ------------------------------------------------ ---------- ----------
Total current assets 497,905 534,038
Long-term receivables 22,165 20,959
Leased systems and spares, net 69,671 110,207
Property, plant and equipment, net 200,875 265,116
Investments and other assets 187,438 251,559
- ------------------------------------------------- ---------- ----------
$ 978,054 $ 1,181,879
========== ==========
Liabilities and Stockholders' Equity
================================================
Current liabilities:
Current installments of long-term debt $ 5,679 $ 7,344
Accounts payable 42,924 37,999
Accrued expenses 99,314 110,373
Income taxes payable - 7,009
Deferred income and customer advances 124,255 75,214
- ------------------------------------------------- ---------- ----------
Total current liabilities 272,172 237,939
- ------------------------------------------------- ---------- ----------
Long-term debt, excluding current installments 92,682 97,000
Other long-term obligations 10,772 18,030
Stockholders' equity:
Common stock of $1 par value; authorized
100,000,000 shares; issued 31,511,000 shares 31,511 31,511
Additional paid-in capital 70,697 91,973
Retained earnings 696,196 922,560
Foreign currency translation adjustments 5,773 2,774
Unearned compensation-restricted stock (5,339) -
Treasury stock, at cost; 5,987,000 and
6,041,000 shares (196,410) (219,908)
- ------------------------------------------------- ---------- ----------
Total stockholders' equity 602,428 828,910
- ------------------------------------------------- ---------- ----------
$ 978,054 $1,181,879
========== ==========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1995 1994 1993
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows provided by (used in) operations:
Receipts from customers $ 777,624 $ 863,842 $ 885,111
Payments to suppliers and employees (668,520) (656,560) (698,006)
Income taxes paid (8,411) (28,393) (14,830)
Interest received 12,194 10,799 9,046
Interest paid (9,015) (8,529) (9,171)
Other, net (10,071) (880) 598
- ------------------------------------------ --------- --------- ---------
Total cash flows provided by operations 93,801 180,279 172,748
- ------------------------------------------ --------- --------- ---------
Cash flows provided by (used in) investing:
Expenditures for property,
plant and equipment (49,164) (87,266) (45,691)
Expenditures for leased systems and spares (32,887) (55,003) (46,991)
Transfers (to) from long-term investments 50,000 (50,000) (50,000)
Other, net (5,503) (1,502) 2,120
- ------------------------------------------ --------- --------- ---------
Total cash flows used in investing (37,554) (193,771) (140,562)
- ------------------------------------------ --------- --------- ---------
Cash flows provided by (used in) financing:
Proceeds from borrowings 16,827 22,183 5,554
Proceeds from purchases of common stock
by employees 8,050 7,311 5,564
Repayments of debt (23,518) (23,019) (10,208)
Repurchases of common stock (11,282) (19,407) (7,633)
- ------------------------------------------ --------- --------- ---------
Total cash flows used in financing (9,923) (12,932) (6,723)
- ------------------------------------------ --------- --------- ---------
Effect of exchange rate changes on cash 2,558 3,594 (2,043)
- ------------------------------------------ --------- --------- ---------
Increase (decrease) in cash and equivalents 48,882 (22,830) 23,420
Cash and equivalents at beginning of year 55,543 78,373 54,953
- ------------------------------------------ --------- --------- ---------
Cash and equivalents at end of year $104,425 $ 55,543 $ 78,373
- ------------------------------------------ ========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Foreign Unearned
Additional currency compensation
Common paid-in Retained translation restricted Treasury
stock capital earnings adjustments stock stock
------- --------- -------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1992 $31,511 $109,322 $806,009 $(429) - $(223,352)
Stock plans - (6,922) - - - 12,486
Income tax
benefit from
stock plans - 89 - - - -
Translation
adjustments - - - (2,595) - -
Repurchases of
common stock - - - - - (7,633)
Net earnings - - 60,855 - - -
- ----------- ------- ------- ------- -------- ------- --------
Balance at
December
31, 1993 31,511 102,489 866,864 (3,024) - (218,499)
Stock plans - (10,687) - - - 17,998
Income tax
benefit from
stock plans - 171 - - - -
Translation
adjustments - - - 5,798 - -
Repurchases of
common stock - - - - - (19,407)
Net earnings - - 55,696 - - -
- ----------- ------ ------- -------- ------- ------- --------
Balance at
December
31, 1994 31,511 91,973 922,560 2,774 - (219,908)
Stock plans - (21,389) - - $(5,339) 34,780
Income tax
benefit from
stock plans - 113 - - - -
Translation
adjustments - - - 2,999 - -
Repurchases of
common stock - - - - - (11,282)
Net loss - - (226,364) - - -
- ----------- ------ ------ -------- ------- ------- ---------
Balance at
December
31, 1995 $31,511 $ 70,697 $696,196 $ 5,773 $(5,339) $(196,410)
====== ====== ======== ======= ======= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Common Treasury
stock stock
shares shares
------- ---------
(In thousands)
<S> <C> <C>
Balance at
December
31, 1992 31,511 5,464
Stock plans - (221)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 288
Net earnings - -
- ----------- ------- -------
Balance at
December
31, 1993 31,511 5,531
Stock plans - (319)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 829
Net earnings - -
- ----------- ------- -------
Balance at
December
31, 1994 31,511 6,041
Stock plans - (716)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 662
Net loss - -
- ----------- ------- -------
Balance at
December
31, 1995 31,511 5,987
======= =======
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cray Research, Inc. and Subsidiaries
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Cray
Research, Inc. and its wholly-owned subsidiaries (the Company). All material
intercompany accounts and transactions have been eliminated. The accounts of
foreign subsidiaries are consolidated as of December 31 in 1995, and November 30
in 1994 and 1993. The change in fiscal year for
the foreign subsidiaries in 1995 did not have a material impact on the results
of operations in 1995.
SOURCES OF SUPPLY
The Company currently buys certain components which are important in the
manufacture of its products, from a limited number, and, in some cases, from a
single supplier. Although there are a limited number of manufacturers of these
components, management believes that other suppliers could provide similar
components on comparable terms. A change in suppliers, however, could cause a
delay in manufacturing and a possible loss of sales, which could adversely
affect operating results.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues during the reporting period. Actual results
could differ from those estimates.
REVENUE RECOGNITION
Revenue from system sales is recognized at the time the system is accepted by
the customer or independent distributor, or in the case of a conversion from
lease to purchase, at the time of the customer's election to convert.
Revenue from systems under operating lease contracts is recorded as earned over
the lease term. Service fees are recognized monthly as earned.
Trade-in allowances may be granted when a used system is traded-in on the
purchase or lease of a new system. These allowances are recorded as a reduction
of revenue on the new system.
FORWARD EXCHANGE CONTRACTS
Forward exchange contracts are purchased to hedge specific foreign currency
commitments, the majority of which are related to foreign sale and lease
contracts. Realized and unrealized gains and losses on these exchange contracts
are deferred and recognized as part of the related sale or lease transaction.
<PAGE>
DEVELOPMENT AND ENGINEERING
Development and engineering costs relate to hardware and software development
and enhancements to existing products. All such costs are expensed as incurred.
Software development costs incurred after the technological feasibility of a
software product has been established are not material. Funds earned by the
Company under research and development arrangements whereby the Company retains
the rights to any technologies developed are recorded as a reduction of the
development costs incurred.
UNIVERSITY RESEARCH AND DEVELOPMENT GRANTS
The Company sponsors software research and development projects at universities
under separate research and development grant agreements. These agreements
generally provide for funding of the projects in fixed amounts over periods of
one to five years.
In exchange for the funding, the Company receives nonexclusive rights to any
software developed. The entire cost of grants with terms in excess of one year
is accrued and charged to expense in the year in which the agreement becomes
effective.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No.109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are recognized based upon temporary
differences between the financial statement amounts and tax bases of
assets and liabilities using enacted tax rates. The Company previously accounted
for income taxes under SFAS No. 96. The cumulative effect of the change in the
method of accounting for income taxes did not have a material effect on 1993
consolidated results of operations and is included in 1993 income tax expense.
In connection with the exercise of nonstatutory stock options and disqualifying
dispositions of common stock acquired by employees under the incentive stock
option plans, the amounts deductible in determining Federal income taxes exceed
amounts charged to income. Any reduction in Federal income
taxes payable as a result of these differences is credited to additional paid-in
capital.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share is computed by dividing
net earnings (loss), adjusted for the dilutive effect of eliminating convertible
debenture interest expense, by the weighted average number of shares outstanding
and equivalent shares (excluding treasury shares). Equivalent shares result from
dilutive stock options and, if dilutive, the assumed conversion of convertible
debentures.
<PAGE>
CASH AND INVESTMENTS
Cash and equivalents consist of cash and highly liquid investments with low
interest rate risk. Long-term investments consist of investments which the
Company intends to hold beyond one year.
Equity securities are carried at the lower of cost or market. All other
investments are stated at cost, which approximates market.
Under SFAS No. 115, "Accounting for Certain Debt and Equity Securities," the
carrying values of certain securities are required to be adjusted to fair market
values and the resulting unrealized gain or loss included in earnings. The
implementation of this standard in 1994 did not have a material effect on
consolidated results of operations or financial condition.
INVENTORIES
Inventories are stated at the lower of cost (determined principally on a first-
in, first-out basis) or market.
LEASED SYSTEMS AND SPARES
Leased systems and spares for maintenance are capitalized and carried at cost
less accumulated depreciation and amortization. Leased systems are depreciated
using the sum-of-years-digits method over an estimated useful life of two to
four years. Spares are amortized to cost of services using the straight-line
method over an estimated useful life of two to four years. Depreciation
commences upon system acceptance.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. Plant and equipment are depreciated using the straight-line
method over their estimated useful lives or, in the case of leasehold
improvements, over the periods of the related leases, if shorter.
PRODUCT TECHNOLOGY AND GOODWILL
Other assets include product technology and goodwill, both of which represent
the excess of the cost of a purchased business over the fair value of the net
assets acquired. Product technology and goodwill are amortized using the
straight-line method over five to ten years.
POSTEMPLOYMENT BENEFITS
The Company accrues the cost of postretirement benefits other than pensions in
accordance with the provisions of SFAS No. 106. The Company implemented this
Statement in 1993. Implementation did not have a material impact on consolidated
results of operations.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries are translated to U.S. dollars
in accordance with the provisions of SFAS No. 52. Under this
<PAGE>
Statement, all assets and liabilities are translated using period-end exchange
rates and earnings statement items are translated using average exchange rates
for the period. The resulting translation adjustments are made directly to a
separate component of stockholders' equity.
RECLASSIFICATION
Restructuring and one-time charges expense has been reclassified in the 1994
consolidated statements of operations from cost of sales to a separate line item
to conform to the 1995 presentation. The reclassification had no effect on
previously reported operating income (loss) or net earnings (loss).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cray Research, Inc. and Subsidiaries
BUSINESS AND GEOGRAPHIC SEGMENT DATA
The Company is engaged in the design, development, and manufacture of high-speed
computing systems and related software intended for scientific and commercial
applications, and the marketing and support of such systems and software.
The Company's manufacturing and development operations are located in the United
States.
The Company has wholly-owned foreign subsidiaries and branches engaged primarily
in providing marketing and maintenance services throughout the world including
Europe, Asia Pacific, and the Mideast.
Comparative operating and segment data for the Company's domestic and foreign
operations follows:
<TABLE>
<CAPTION>
Revenue
------------------------------------- Operating Identifiable
Total Intercompany Consolidated profits assets
-------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
UNITED STATES:
1995 $338,690 $(46,922) $291,768 $ 32,236 $ 803,610
1994 503,754 (12,242) 491,512 209,765 1,015,923
1993 564,421 (494) 563,927 229,003 1,049,159
WESTERN EUROPE:
1995 $257,809 $(36,784) $221,025 $ 47,672 $ 126,039
1994 266,488 (38,786) 227,702 73,581 121,200
1993 255,367 (30,163) 225,204 75,673 79,382
ASIA PACIFIC:
1995 $158,406 $(14,961) $143,445 $ 38,276 $ 41,491
1994 197,794 (15,889) 181,905 68,690 32,074
1993 101,649 (12,449) 89,200 24,817 32,828
OTHER FOREIGN:
1995 $ 21,548 $ (1,542) $ 20,006 $ 4,207 $ 6,914
1994 20,718 (228) 20,490 5,667 12,682
1993 18,631 (2,105) 16,526 4,610 8,399
CONSOLIDATED:
1995 $776,453 $(100,209) $676,244 $122,391 $ 978,054
1994 988,754 (67,145) 921,609 357,703 1,181,879
1993 940,068 (45,211) 894,857 334,103 1,169,768
=============================================================================
</TABLE>
<PAGE>
RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Consolidated operating profits $ 122,391 $ 357,703 $ 334,103
General corporate expenses (360,610) (283,231) (246,308)
Other income (expense), net 2,423 3,261 (3,352)
- ----------------------------------- --------- --------- ---------
Consolidated earnings (loss)
before income taxes $(235,796) $ 77,733 $ 84,443
- ----------------------------------- ========= ========= =========
</TABLE>
Revenue, operating profit, and the related identifiable assets are included in
the geographic area in which the customer is located. International revenue
includes export sales and leases from the United States of approximately
$218,250,000 in 1995, $324,772,000 in 1994 and $227,749,000 in 1993.
Revenue from U.S. Government agencies or commercial customers primarily serving
the U.S. Government totalled approximately $109,901,000 in 1995, $333,887,000 in
1994 and $386,056,000 in 1993.
Net assets of foreign subsidiaries included in the consolidated balance sheets
are $93,086,000 in 1995 and $69,978,000 in 1994.
CONSOLIDATED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
CASH AND INVESTMENTS:
Cash and commercial paper $127,343 $119,794
Certificates of deposit 24,047 26,825
Auction rate government securities 52,150 99,550
Government revenue bonds 32,361 2,000
Money market funds 18,524 4,613
Long-term equity investments 8,681 7,210
Other - 2,761
- ------------------------------------------- -------- --------
Total cash and investments 263,106 262,753
Less long-term equity investments (8,681) (7,210)
- ------------------------------------------- -------- --------
Cash and long-term cash investments 254,425 255,543
Less long-term cash investments (150,000) (200,000)
- ------------------------------------------- -------- --------
Cash and equivalents $104,425 $ 55,543
- ------------------------------------------- ======== ========
RECEIVABLES:
Trade $113,646 $194,710
Current portion of long-term receivables 10,289 10,486
Other 32,104 24,612
- ------------------------------------------- -------- --------
$156,039 $ 229,808
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------- ---------
(In thousands)
<S> <C> <C>
INVENTORIES:
Components and subassemblies $ 90,891 $ 97,717
Systems in process 47,403 74,940
Finished goods 39,065 34,839
- ------------------------------------------ --------- --------
$ 177,359 $ 207,496
========= ========
LEASED SYSTEMS AND SPARES:
Leased systems and spares $ 296,659 $ 320,276
Less accumulated depreciation
and amortization (226,988) (210,069)
- ------------------------------------------ --------- --------
$ 69,671 $ 110,207
========= =========
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements $ 22,916 $ 23,199
Buildings and improvements 161,128 166,318
Machinery and equipment 136,452 150,107
Data processing equipment 203,370 215,014
Office furniture and equipment 22,432 21,322
Construction in progress 5,313 9,307
- ------------------------------------------ --------- --------
551,611 585,267
Less accumulated depreciation
and amortization (350,736) (320,151)
- ------------------------------------------ --------- --------
$ 200,875 $ 265,116
========= =========
ACCRUED EXPENSES:
Employee compensation $ 41,168 $ 57,279
Accrued warranty costs 8,162 13,290
Accrued restructure costs 13,780 -
Current portion of capital lease obligations 7,567 6,919
Other 28,637 32,885
- ------------------------------------------ --------- --------
$ 99,314 $ 110,373
========= =========
OTHER LONG-TERM OBLIGATIONS:
Retiree medical benefits $ 6,941 $ 4,092
Capital lease obligations 1,359 8,874
University research and development
grants payable 2,189 4,783
Other 283 281
- ------------------------------------------ --------- --------
$ 10,772 $ 18,030
========= =========
</TABLE>
<PAGE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Convertible Subordinated Debentures, 6 1/8% $82,000 $ 82,000
Term loan 15,000 20,000
Other 1,361 2,344
- ------------------------------------------ ------- --------
Total long-term debt 98,361 104,344
Less current installments (5,679) (7,344)
- ------------------------------------------ ------- --------
Long-term debt, excluding
current installments $92,682 $ 97,000
- ------------------------------------------ ======= ========
</TABLE>
The subordinated debentures are convertible into the Company's common stock at a
conversion price of $78 per share at any time prior to maturity. The debentures
may be redeemed at the Company's option at a price of 101.23% after January 31,
1994, decreasing to 100% after January 31, 1996. In April 1994, the Company
repurchased a portion of the debentures with a face value of $23,000,000 for a
purchase price of $20,400,000. The repurchase resulted in a gain of $2,600,000
which was recorded as other income. This repurchase satisfied the first four
required annual sinking fund payments of $5,750,000 originally scheduled for the
years 1997 to 2000. Remaining annual sinking fund payments of $5,750,000 each
are scheduled from 2001 to 2010 with a final maturity payment of $24,500,000 in
2011.
To fund the debenture repurchase, the Company entered into a four year
$20,000,000 term loan agreement. The fixed borrowing rate is 6.72% and interest
payments are due semi-annually in arrears each year in October and April. The
first annual principal installment of $5,000,000 was paid in April 1995. Annual
principal installments of $5,000,000 are due April, 1996 to April 1998.
The Company has an unused, unsecured $75,000,000 revolving credit agreement.
Interest is based on various short-term floating rates. The agreement contains a
number of restrictive covenants with which the Company was in compliance at
December 31, 1995.
In addition, the Company's foreign subsidiaries had approximately $23,472,000 of
unused lines of credit at December 31, 1995.
Annual installments of long-term debt as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Long-term debt
installments
--------------
(In thousands)
<S> <C>
Years ending December 31:
1996 $ 5,679
1997 5,682
1998 5,000
1999 -
2000 -
Thereafter 82,000
-------
$98,361
=======
</TABLE>
<PAGE>
FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
foreign currency fluctuation risks: specific firm foreign exchange commitments
related to customer transactions and certain foreign subsidiary investments. At
December 31, 1995, and 1994, the Company had forward exchange contracts
outstanding as noted in the chart below.
<TABLE>
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1995
- --------------------------------- -------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
- ---------- ---------------------- -------------- ------------ --------------
<C> <S> <C> <C> <C>
Sell (net) Customer transaction $163,752,000 $167,967,000 1996-1999
Buy Subsidiary investment $ 38,100,000 $ 38,116,000 1996
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1994
- --------------------------------- -------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
- ---------- ---------------------- -------------- ------------ --------------
Sell (net) Customer transaction $125,928,000 $128,786,000 1995-1997
Buy Subsidiary investment $ 20,240,000 $ 20,097,000 1995
</TABLE>
Generally these forward contracts are placed at the time the Company signs a
foreign currency sale or lease contract with a customer, or when a foreign
subsidiary makes a U.S. dollar investment, and they mature at the time the
customer's payment is due or when the subsidiary investment matures. At the time
of recognition of the related equipment sale or lease revenue, the forward
exchange contract becomes the basis for recording revenue and the related
receivable from the customer. Accordingly, exchange gains and losses are
generally not material.
The market value of these contracts was determined by obtaining quotes from
financial institutions. The Company is subject to the remote risk that parties
to the underlying hedged contracts fail to perform their obligations to the
Company when they become due.
The Company's 6 1/8% Convertible Subordinated Debentures are traded on the New
York Stock Exchange. The market values of these debentures were $65,526,000 and
$54,120,000 at December 31, 1995, and 1994, respectively. The carrying values at
December 31, 1995, and 1994 of all other financial instruments approximate their
market values.
A concentration of credit risk exists due to the significance of revenues from
U.S. Government customers. Current and long-term receivables include amounts due
from U.S. Government agencies (or commercial customers primarily serving the
U.S. Government) of $58,500,000 and $125,481,000 at December 31, 1995, and 1994,
respectively. It is the Company's policy to collateralize sales receivables by
obtaining a security interest in the equipment sold.
<PAGE>
STOCK PLANS
At December 31, 1995, 6,720,000 shares of common stock were reserved for
issuance pursuant to stock plans.
STOCK OPTION PLANS
The Company has a stock option plan which provides that incentive stock options
or nonstatutory stock options to purchase an aggregate of 7,122,000 shares of
common stock may be granted to selected technical and management employees. The
plan also provides for a limited number of shares to be issued to employees as
stock grants, which may or may not have accompanying
restrictions. In 1995, many of the stock grants issued were subject to
restrictions. The number of shares authorized for issuance is increased each
year by three percent of the total outstanding shares of the Company as of the
end of the previous year.
The Company also has a stock option plan which provides for grants to non-
employee directors of the Company of nonstatutory stock options to purchase up
to an aggregate of 200,000 shares of common stock.
Under the plans, the option price is equal to the fair market value on the date
of grant. Generally, options may be exercised at a rate of 25 percent annually,
beginning one year from the date of grant, and terminate seven to ten years from
the date of grant.
Stock option plan activity is summarized as follows:
<TABLE>
<CAPTION>
Option price Available
per share Outstanding Exercisable for grant
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
At December 31, 1993 $22.00-47.63 3,857,280 2,029,550 1,666,289
Authorized for issuance - - - 779,000
Options granted 18.75-33.00 804,683 - (804,683)
Stock grants - - - (10,885)
Became exercisable 22.00-47.63 - 799,012 -
Exercised 27.50-31.50 (45,151) (45,151) -
Canceled 26.50-47.63 (269,986) (187,310) 269,986
- ------------------------- ------------ ---------- --------- ----------
At December 31, 1994 $18.75-47.63 4,346,826 2,596,101 1,899,707
Authorized for issuance - - - 764,000
Options granted 14.75-26.88 1,401,139 - (1,401,139)
Stock grants - - - (461,602)
Became exercisable 22.00-47.63 - 713,719 -
Exercised 14.75-14.75 (4,500) (4,500) -
Canceled 14.75-47.63 (864,086) (562,020) 864,086
- ------------------------- ------------ ---------- --------- ----------
At December 31, 1995 $14.75-47.63 4,879,379 2,743,300 1,665,052
============ ========== ========= ==========
</TABLE>
During 1993, no options were exercised.
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Stock Purchase Investment Plan under which a maximum
of 2,200,000 shares of common stock are available for sale to employees. Under
this plan, eligible employees may designate from 2 to 15 percent of their
compensation to be withheld through payroll deductions for the purchase of
common stock at 85% of the lower of the market price on the first or the last
day of the offering period. Participant elections resulted in the issuance of
262,406 shares at a per share price of $17.74 in 1995, 181,072 shares at a per
share price of $17.64 in 1994 and 186,485 shares at a per share price of $24.86
in 1993.
ANNUAL INCENTIVE AWARD PLAN
Prior to 1995 the Company had an Annual Incentive Award Plan providing for
performance incentive awards to key employees based on the achievement of
individual and stated company financial and technical objectives. Awards were
payable at year-end in cash or, at the employee's election, up to 50% may have
been received in common stock of the Company (up to an aggregate maximum of
500,000 newly issued or repurchased shares) at 85% of its fair market value.
Plan awards totalled $12,611,000 in 1994 and $18,258,000 in 1993.
Participant elections resulted in the issuance of 93,350 shares of common stock
at a per share price of $12.43 in February 1995 and 82,653 shares of common
stock at a per share price of $26.35 in February 1994. Cash awards totalled
$11,322,000 and $15,876,000 for 1994 and 1993, respectively.
PERFORMANCE INCENTIVE PLAN
In 1995, the Company implemented its Performance Incentive Plan which provides
for incentive awards to employees based upon the achievement of individual and
stated Company financial and technical objectives. This plan replaces both the
Annual Incentive Award Plan and the Incentive Cash Profit Sharing Plan. Awards
are payable in cash or, at the election of certain specific groups of employees,
up to 50 percent may be received in common stock of the Company (up to an
aggregate maximum of 500,000 newly issued or repurchased shares) at 85 percent
of its fair market value. Based upon the Company not achieving the minimum
performance objective stated for 1995, no award payments were made in 1995.
DEFERRED COMPENSATION PLAN
During 1995, the Company adopted a Deferred Compensation Plan which allows
senior level employees an election to make pre-tax investments of cash
compensation and accumulate tax-deferred earnings. Under this plan, eligible
employees may defer a portion of salary, commissions, or incentive compensation
and the Company matches deferrals by contributing $.50 for each $1.00 deferred
up to 6% of cash compensation. Employee contributions are always 100% vested
and Company matching contributions vest over a 7 year period. The plan is
effective beginning January 1, 1996 based on employee elections made in
December 1995.
PROFIT SHARING PROGRAM
The Company's profit sharing program consists of, for domestic employees,
contributions to a defined contribution Retirement Savings Plus Plan that
<PAGE>
meets the qualifications of Section 401(k) of the Internal Revenue Code. All
employees of the Company with at least six months of service are eligible to
participate in the program.
The Retirement Savings Plus Plan allows eligible domestic employees to
contribute up to 15 percent of their base compensation to an investment savings
account. The Company's contributions to the plan consist of a matching
contribution of 50 cents per dollar contributed by the employee up to a maximum
of $1,000 per employee, and an annual deferred profit sharing contribution equal
to 4% of an employee's eligible wages. The Company's deferred profit sharing
contribution is limited to the maximum amount allowable for income tax purposes.
The Company's contributions to the Retirement Savings Plus Plan were $9,466,000
in 1995, $9,973,000 in 1994 and $9,714,000 in 1993. Employees of the Company's
foreign subsidiaries participate in other retirement plans.
Prior to 1995, the Company had an Incentive Cash Profit Sharing Plan for all
employees. Payments under the plan were based on achieving operating income
targets. The payments for 1994 and 1993 totalled $2,005,000 and $4,031,000,
respectively. In 1995, the Incentive Cash Profit Sharing Plan was replaced by
the Performance Incentive Plan, which is described under "Stock Plans".
INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Federal State Foreign Total
--------- --------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
1995
Current $(22,067) $ 629 $11,653 $ (9,785)
Deferred - - 353 353
- --------------------------- -------- -------- ------- --------
Provision for income taxes $(22,067) $ 629 $12,006 $ (9,432)
- --------------------------- ======== ======== ======= ========
1994
Current $ (8,148) $(2,151) $16,880 $ 6,581
Deferred 15,532 (1,798) 1,722 15,456
- --------------------------- -------- -------- ------- --------
Provision for income taxes $ 7,384 $ (3,949) $18,602 $ 22,037
- --------------------------- ======== ======== ======= ========
1993
Current $ 22,491 $ 4,837 $16,926 $ 44,254
Deferred (15,705) (3,191) (1,770) (20,666)
- --------------------------- -------- --------- ------- --------
Provision for income taxes $ 6,786 $ 1,646 $ 15,156 $ 23,588
- --------------------------- ======== ======== ======= ========
</TABLE>
The provision for foreign income taxes is based upon foreign pretax earnings of
approximately $29,343,000 in 1995, $37,811,000 in 1994 and $34,864,000 in 1993.
The provision for income taxes differs from the expected tax expense (benefit)
(computed by applying the Federal corporate tax rate to earnings or loss before
income taxes) as follows:
<PAGE>
<TABLE>
<CAPTION>
Percentage of pretax
earnings or loss
----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Expected Federal income tax rate (35.0)% 35.0% 35.0%
Increase (reduction) attributed to:
State taxes, net of Federal tax benefit 0.2 (3.2) 4.7
Impact of foreign subsidiaries subject
to higher tax rates 0.3 4.4 1.1
Foreign tax credit (0.1) (2.8) (0.8)
Research and development tax credit (0.8) (5.0) (5.8)
FSC (foreign sales corporation)
exempt income (0.5) (4.3) (2.4)
Nondeductible amortization of
intangible assets 0.6 1.7 1.7
Tax exempt interest income (0.4) (1.1) (1.4)
Valuation allowance 31.5 3.8 (4.4)
Other, net 0.2 (0.1) 0.2
- ------------------------------------------- ------ ------ ------
Actual effective income tax rate (4.0)% 28.4% 27.9%
- ------------------------------------------- ====== ====== ======
</TABLE>
Components of and changes in the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
Deferred tax
asset (liability) Deferred
-------------------- expense
1995 1994 (benefit)
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Inventory valuation $ 38,153 $ 34,179 $ (3,974)
Accrued compensation 5,488 9,962 4,474
Accrued cost of sales 610 1,789 1,179
University research and
development grants 4,491 5,417 926
Depreciation 8,798 12,944 4,146
Restructuring 49,236 - (49,236)
Net operating loss carryforward 8,764 - (8,764)
Credit carryforwards 32,073 - (32,073)
Other, net 816 1,419 603
- ------------------------------------ ------- -------- --------
Total gross deferred income taxes 148,429 65,710 (82,719)
Valuation allowance (98,928) (16,561) 82,367
- ------------------------------------ ------- -------- --------
Total net deferred income taxes 49,501 49,149 $ (352)
Less current portion (38,275) (30,861) ========
- ------------------------------------ -------- --------
Noncurrent deferred income taxes $ 11,226 $ 18,288
- ------------------------------------ ======== ========
</TABLE>
<PAGE>
A valuation allowance is provided when there is some likelihood that a portion
of the deferred tax asset may not be realized. The valuation allowance relates
to certain temporary differences that reverse in the years 1996 through 2035.
Based on tax rates in effect on December 31, 1995, approximately $124,000,000 of
future taxable income is required prior to December 31, 2010 for full
realization of the net deferred tax asset. Although realization is not assured,
management believes it is more likely than not that all of the net deferred tax
asset will be realized.
At December 31, 1995, there was a net operating loss carryforward of
approximately $22,707,000 for federal income tax purposes which expires on
December 31, 2010. For tax purposes, there was a federal foreign tax credit
carryforward of approximately $26,965,000 which begins expiring on December 31,
1998, federal research credit carryforwards of approximately $2,000,000 which
expire on December 31, 2010, and a federal minimum tax credit carryforward of
approximately $3,108,000 which has no expiration date. For tax purposes, there
are state research credit carryforwards of approximately $7,000,000 which expire
on December 31, 2010.
At December 31, 1995, there were approximately $79,476,000 of accumulated
undistributed earnings of subsidiaries outside the United States. These
earnings, which reflect full provision for non-U.S. income taxes, are
indefinitely reinvested in non-U.S. operations or will be remitted substantially
free of additional tax. Accordingly, no material provision has been made for
taxes that might be payable upon remittance of such earnings nor is it
practicable to determine the amount of this liability.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into two agreements with the Advanced Research Projects
Agency (ARPA) to collaborate on the research and development of technologies for
massively parallel processing (MPP) computer systems.
Under the first agreement, ARPA contributed $12,700,000 in funding support over
a three-year period ending in 1993. Under the second agreement, ARPA will
contribute $15,000,000 in funding support over a three-year period ending in
1996, with two one-year extension options for an additional $5,000,000 of
funding per option. The Company may elect to retain title to any technologies
developed and ARPA will receive a license to the technologies for its internal
use. The timing of the funding is based on the achievement of milestones
contained in the agreements. Based on these milestones, $5,000,000, $5,000,000
and $4,200,000 was earned in 1995, 1994 and 1993, respectively, and recorded as
a reduction of development and engineering expense.
<PAGE>
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest income $12,568 $10,360 $ 9,622
Interest expense (8,944) (8,967) (8,531)
Other income (expense), net (1,201) 1,868 (4,443)
- ------------------------------------- ------- ------- -------
$ 2,423 $ 3,261 $(3,352)
======= ======= =======
</TABLE>
LEASING ARRANGEMENTS AS LESSOR
The Company leases computer equipment to its customers under operating leases
with terms which generally range from one to four years. Contracts with U.S.
Government agencies generally provide for cancellation upon 30 days notice.
At December 31, 1995 and 1994, leased equipment aggregated $66,301,000 and
$94,053,000, less accumulated depreciation of $30,961,000 and $40,313,000,
respectively.
The Company also enters into lease transactions which are accounted for as sales
in accordance with statements issued by the FASB.
The net investment in sales-type leases as of December 31, 1995 and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Total minimum lease payments receivable $ 36,418 $ 34,936
Less unearned interest income (3,964) (3,491)
- ---------------------------------------------------- -------- --------
Net investment in sales-type leases 32,454 31,445
Less current portion included in current receivables (10,289) (10,486)
- ---------------------------------------------------- -------- --------
Long-term receivables, excluding current portion $ 22,165 $ 20,959
- ---------------------------------------------------- ======== ========
</TABLE>
Aggregate future minimum lease rentals on noncancelable operating leases and
sales-type lease agreements are as follows:
<TABLE>
<CAPTION>
Sales-type Operating
leases leases
---------- ----------
(In thousands)
<S> <C> <C>
Years ending December 31:
1996 $ 11,903 $ 15,346
1997 16,901 5,797
1998 6,777 1,882
1999 837 -
- ---------------------------------------------------- -------- --------
$ 36,418 $ 23,025
======== ========
</TABLE>
<PAGE>
LEASING ARRANGEMENTS AS LESSEE
The Company leases office facilities, sales and service facilities, and
equipment under operating leases. The rental payments under these leases are
charged to expense as incurred. Future minimum lease payments under operating
leases with noncancelable terms of more than one year are identified in the
schedule below.
Total rent expense for all operating leases, including rents under lease
arrangements with terms of one year or less, aggregated $ 19,653,000 in 1995,
$17,827,000 in 1994, and $21,409,000 in 1993.
Substantially all operating leases provide that the Company pay taxes,
maintenance, insurance, and certain other operating expenses applicable to the
leased premises.
The Company also leases equipment under capital leases (primarily
computer equipment). As of December 31, 1995, this equipment had a cost of
$12,666,000 and accumulated depreciation of $6,402,000. The amortization of
these assets is recorded to depreciation expense. Future minimum lease payments
under capital leases are identified in the schedule below.
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- ---------
(In thousands)
<S> <C> <C>
Years ending December 31:
1996 $12,603 $ 7,984
1997 9,429 1,349
1998 5,648 21
1999 3,775 3
2000 2,362 -
Thereafter 18,500 -
- --------------------------------------------- ------- -------
Total minimum lease payments $52,317 9,357
=======
Less amount representing interest (426)
-------
Present value of net minimum lease payments $ 8,931
- --------------------------------------------- =======
</TABLE>
RESTRUCTURE AND ONE-TIME CHARGES
During 1995, the Company made operational changes intended to better align its
resources with its evolving strategy, improve its efficiency, and achieve a
more competitive cost structure. The Company recorded pre-tax restructure and
one-time charges totalling $187,670,000 related to reserves for excess
inventories compared to anticipated future demands ($82,703,000), reserves for
adjustments to net book value of equipment ($42,122,000), charges related to
excess capacity in facilities, primarily a manufacturing and development
facility ($21,134,000), costs related to staff reductions ($27,816,000), and
other miscellaneous charges ($13,895,000).
The following table summarizes the changes in the Company's restructure
reserves for 1995 (in thousands):
<PAGE>
<TABLE>
<S> <C>
Restructure reserves at December 31, 1994 $ 0
Restructure and one-time charges 187,670,000
Payments and asset write-downs (173,890,000)
-------------
Restructure reserves at December 31, 1995 $ 13,780,000
=============
</TABLE>
The restructure and one-time charges included a $15,600,000 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 versus externally. The 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.
The restructure reserves at December 31, 1995 represent primarily severance
accruals for terminated employees. It is expected that most of these severance
payments will be made during first quarter 1996.
PRODUCT TECHNOLOGY AND GOODWILL
Product technology and goodwill represents the excess of the cost of a purchased
business over the fair value of the net assets acquired. Product technology and
goodwill is included in other assets and totals $5,297,000 and $9,430,000 at
December 31, 1995 and 1994, respectively, net of accumulated amortization of
$24,597,000 and $20,464,000 at each respective year end.
Net operating losses of purchased businesses of $14,900,000 prior to acquisition
are available to the Company, subject to limitations, to offset federal taxable
income through 2005. In 1994, tax benefits realized reduced the carrying value
of product technology by $894,000.
LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company which,
in the opinion of management, will have a material adverse effect upon
consolidated results of operations or financial position.
ACQUISITIONS
In September 1994, the Company acquired all the outstanding capital stock of
Savant Systems, Incorporated for $4,250,000. The excess of the purchase price
over the fair value of the identifiable assets acquired was recorded as goodwill
totalling $3,841,000.
In October 1994, the Company acquired all of the capital stock of Minnesota
Supercomputer Center for $10,400,000 in cash, which approximated the fair value
of identifiable net assets acquired.
These acquisitions did not have a material impact on consolidated results of
operations during 1994.
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION 1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS (LOSS) TO
CASH FLOWS PROVIDED BY OPERATIONS:
Net earnings (loss) $(226,364) $ 55,696 $ 60,855
Items which do not use (provide) operating
cash flow:
Depreciation and amortization 139,138 126,250 124,350
Other 59,794 (13,363) 867
(Increase) decrease in operating assets:
Receivables 72,563 (51,159) (29,423)
Inventories 30,137 107,604 (51,816)
Other 515 9,122 (29,506)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (6,782) (13,289) 36,219
Income taxes payable (17,631) (23,413) 26,399
Deferred income and customer advances 49,042 (14,939) 29,306
Other (6,611) (2,230) 5,497
- --------------------------------------------- -------- -------- --------
Cash flows provided by operations $ 93,801 $180,279 $172,748
- --------------------------------------------- ======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities assumed in acquisition $ - $17,924 $ -
</TABLE>
SUBSEQUENT EVENTS (Unaudited)
In February 1996, the Company entered into an agreement to sell its primary
printed circuit board manufacturing facility in Chippewa Falls, Wisconsin for
approximately $36,000,000. The sale closed in March 1996, at which time a
supply agreement with the buyer went into effect.
In February 1996, the Company and Silicon Graphics Incorporated (SGI) announced
a merger agreement. Under this agreement, SGI will make a friendly tender offer
to acquire the Company. If the tender offer is successful, SGI will acquire all
of the outstanding shares of the Company, through a combination of cash
purchases and stock swaps.
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Annual
quarter quarter quarter quarter total
------- ------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1995
Revenue $131,063 $139,734 $169,178 $236,269 $676,244
Gross profit 46,823 43,101 57,786 91,965 239,675
Net earnings (loss) (48,292) (138,907) (13,536) (25,629) (226,364)
Earnings (loss) per common and
common equivalent share (1.90) (5.51) (.54) (1.00) (8.95)
1994
Revenue $248,866 $215,818 $219,859 $237,066 $921,609
Gross profit 108,120 88,259 96,276 100,807 393,462
Net earnings 21,953 8,202 16,042 9,499 55,696
Earnings per common and
common equivalent share .84 .32 .62 .38 2.16
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders of Cray Research, Inc.:
We have audited the accompanying consolidated balance sheets of Cray Research,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Cray Research, Inc.
and subsidiaries at December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1996
<PAGE>
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lawrence E. Eaton 58 Executive Vice President, 3M Company 1994
(Diversified Manufacturing) St. Paul,
Minnesota
Robert H. Ewald 48 President and Chief Operating Officer 1994
of the Company
Catherine M. Hapka 41 Executive Vice President - Markets, 1994
U S WEST Communications, Inc.
(Telecommunications)
Denver, Colorado
Philip G. Heasley 46 Vice Chairman, First Bank System, Inc. 1994
and President, Retail Product Group
(Banking)
Minneapolis, Minnesota
Robert G. Potter 56 Corporate Executive Vice President, 1990
Monsanto Company (Chemicals)
St. Louis, Missouri
J. Phillip Samper 61 Chairman and Chief Executive 1995
Officer of the Company
Jan H. Suwinski 54 Executive Vice President, Opto- 1992
Electronics Group, Corning Inc.
(Specialty Materials and
Laboratory Services)
Corning, New York
</TABLE>
The principal occupations of all directors are indicated in the preceding
table. All directors except Mr. Samper and Ms. Hapka have served their
respective employers in either their present positions or other executive
capacities for more than five years. Ms. Hapka was President of Data Services
Division for Control Data Corporation from 1989-1990, prior to joining U S WEST
Communications, Inc., as Vice President, Advanced Communication Services in May,
1991. Biographical information for Mr. Samper and Mr. Ewald is set forth below.
In addition to serving as a director of the Company, Mr. Eaton serves as a
director of 3M Company, Ms. Hapka serves as a director of Honeywell, Inc., and
Mr. Samper is a director of Armstrong World Industries, Inc., Interpublic Group
of Companies, Inc. and Sylvan Learning Centers, Inc.
The Merger Agreement described in Item 1 of Part I provides that promptly
upon the purchase of a majority of the outstanding shares of the Company
pursuant to the Offer SGI shall be entitled to designate such number of
directors as will give SGI representation on the Board proportionate to the
aggregate number of shares of the Company beneficially owned by SGI or any
<PAGE>
affiliate of SGI. The Merger Agreement also provides that upon completion of
the Offer the Company will cause (i) each committee of the Board of
Directors, (ii) if requested by SGI, the board of directors of each of the
Company's subsidiaries and (iii) if requested by SGI, each committee of such
board to include persons designated by SGI constituting the same percentage
of each such committee or board as the SGI designees are of the Board. The
Company shall, upon request by SGI, promptly increase the size of the Board
or exercise its best efforts to secure the resignations of such number of
directors as is necessary to enable SGI designees to be elected to the Board.
It is expected that the SGI designees may assume office at any time
following the purchase by SGI of a majority of the outstanding shares of the
Company on a fully diluted basis pursuant to the Offer, which purchase cannot
be earlier than April 2, 1996, and that, upon assuming office, the SGI
designees together with the continuing directors of the Company will
thereafter constitute the entire Board of Directors of the Company.
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND TITLE AGE BIOGRAPHICAL INFORMATION
- ------------------ --- -------------------------------------------------
<S> <C> <C>
J. Phillip Samper 61 Chairman and Chief Executive Officer since May
Chairman and Chief 1995. President of Sun Microsystems Computer
Executive Officer and Corporation and Corporate Executive
Director Officer of Sun Microsystems Inc. from
February 1994 to February 1995. President and
Chief Executive Officer of Kinder-Care
Learning Centers, Inc. from June 1990 to February
1991.
Robert H. Ewald 48 President and Chief Operating Officer
President and Chief since December 1994. Chief Operating
Operating Officer Officer, Supercomputer Operations from
and Director December 1993 to December 1994. Executive Vice
President and General Manager,
Supercomputer Operations from January 1993 to
December 1993. Executive Vice President,
Development from September 1991 to January 1993.
Executive Vice President, Software from September
1987 to September 1991.
Irene M. Qualters 46 Senior Vice President, Supercomputing
Senior Vice President, Systems since July 1995. Senior Vice
Supercomputing Systems President, Software from December 1993 to July
1995. Vice President, Software from
September 1991 to December 1993. Vice
President, Software Development from
November 1990 to September 1991.
Laurence L. Betterley 42 Chief Financial Officer since November
Chief Financial Officer 1994. Vice President, Finance and
Administration from November 1993 to
November 1994. Corporate Controller from March
1989 to November 1993.
Michael Dungworth 53 Vice President, Technical Sales since
Vice President, February 1996. Vice President, Customer
Technical Sales Service from February 1994 to February 1996.
Vice President, Central Region from December
1993 to February 1994. General Manager, Central
Region Sales from October 1992 to December 1993.
MPP Product Manager from January 1992 to October
1992. General Manager, Cray Asia Pacific from
December 1987 to January 1992.
</TABLE>
There are no family relationships among the officers or directors listed,
and there are no arrangements or understandings pursuant to which any of them
were elected as officers or directors. The officers are elected annually by and
serve at the pleasure of the Board of Directors. Directors are elected annually
by the stockholders of the Company. If the Offer contemplated by the Merger
Agreement described in Item 1 of Part I is consummated, SGI will control
sufficient shares of the Company's common stock to elect at least a majority of
the members of the Board of Directors, without the vote of any other
stockholder.
<PAGE>
ITEM 11 -- EXECUTIVE COMPENSATION
COMPENSATION OF NON-EMPLOYEE DIRECTORS
The Company paid each director during the year ended December 31, 1995,
other than Messrs. Ewald and Samper, directors' fees of $20,000 plus $1,000 for
each board and committee meeting attended. The chairs of the Audit, Compensation
and Development and Finance Committees each received an additional $1,500 for
chairing those committees.
A retirement income plan established for non-employee directors provided for
payment upon retirement to each director of an amount equal to the final annual
retainer times the number of years served on the Board of Directors or 15 years,
whichever is less. In February, 1996, the board terminated the plan, freezing
the benefits payable to current directors. No additional amounts will accrue
under the plan. In 1995, the Company accrued $71,330 of expense and made
payments totalling $20,000 under the plan.
The 1989 Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
provides for the issuance to non-employee directors of the Company of options to
purchase authorized but unissued or reacquired common stock. The Directors' Plan
provides for the granting of an initial option for 10,000 shares of common stock
on the date the director first assumes office as a director and the grant of an
option for an additional 1,000 shares upon the reelection of such director at
each subsequent annual stockholders' meeting. The options granted under the
Directors' Plan are "nonstatutory options" not qualifying under Section 422A or
other similar provisions of the Internal Revenue Code. The option price per
share for options granted under the Directors' Plan is the closing price for the
common stock on the New York Stock Exchange on the date of grant. The options
granted are exercisable in four successive 25% cumulative annual installments
commencing one year after the date of grant and expire ten years from the date
of grant if unexercised. In February, 1996, the Board approved an amendment to
the Directors' Plan increasing the annual grant of options to 2,500. The
amendment is subject to approval by stockholders.
In 1995, the Board of Directors approved a Deferred Compensation Plan for
Non-Employee Directors pursuant to which directors may elect to defer directors'
fees which become payable.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below includes individual compensation
information for the "named executive officers" for services rendered in all
capacities during the fiscal years ended December 31, 1995, 1994 and 1993.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- --------------------------------
NAME AND OTHER ANNUAL RESTRICTED NUMBER OF SHARES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDED UNDERLYING STOCK COMPENSATION
(1) (2) (3) (4) OPTIONS GRANTED (5)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Phillip Samper 1995 $364,626 $391,701 $9,078 $4,100,000 300,000 $4,513
Chairman and Chief 1994 -- -- -- -- -- --
Executive Officer 1993 -- -- -- -- -- --
Robert H. Ewald 1995 378,064 113,710 3,346 953,125 100,000 7,999
President and Chief 1994 334,497 15,910 6,756 493,125 -- 7,326
Operating Officer 1993 296,317 159,782 3,380 -- 40,000 10,731
Laurence L. Betterley 1995 155,627 -- 2,189 150,600 22,000 7,000
Chief Financial 1994 137,054 20,354 -- -- 5,000 7,134
Officer 1993 113,734 46,543 2,497 -- 10,000 5,633
Irene M. Qualters 1995 168,917 -- 2,756 157,680 40,000 7,035
Senior Vice President 1994 168,257 37,961 2,977 -- 7,500 7,414
Supercomputing Operations 1993 151,757 66,049 2,561 -- 10,000 7,278
Michael Dungworth 1995 145,529 83,819 -- 151,485 45,000 7,547
Vice President 1994 143,249 134,371 -- -- 5,000 13,964
Customer Service 1993 120,016 111,552 -- -- 10,000 8,624
Don F. Whiting 1995 195,187 -- 3,893 19,125 7,000 453,501
(former officer) 1994 194,171 51,575 3,835 -- 7,500 7,188
1993 168,750 99,770 4,113 -- 29,500 7,912
<FN>
(1) Principal position represents the capacity in which the executive served
as of December 31, 1995.
(2) For 1993 and 1994, the amounts shown consist of cash compensation accrued
during the fiscal year pursuant to the Annual Incentive Plan or
Performance Incentive Plan and the cash bonus under the Incentive Cash
Profit Sharing Plan. This column shows for Mr. Samper a $100,000 signing
bonus for joining the Company on May 18, 1995 and a guaranteed bonus of
$291,701 provided for under his employment agreement with the Company.
For Mr. Ewald, this amount shown for 1995 includes a $113,710 bonus for
taking on additional responsibilities during the Company's search for a
CEO from January 1, 1995 through May 18, 1995. For Mr. Dungworth, the
1995 amount includes a $45,375 bonus for performing the duties of acting
Executive Vice President of Sales. In addition, Mr. Dungworth received a
$38,444 bonus for exceeding Customer Service operating income goals.
(3) Amounts in this column represent compensation related to income tax and
financial planning services provided to the executive. All executive
officers of the Company are offered professional income tax services. The
cost of these services and the personal income taxes owed by the executive
on the imputed income resulting from the receipt of this benefit are paid
by the Company and are reflected in this column.
(4) On January 31, 1995, on which date the price per share of the Company's
Common Stock was $14.75, the following grants of restricted stock were
made: Mr. Dungworth - 1,160 shares, resulting in a valuation of $17,110;
Ms. Qualters - 1,580 shares, resulting in a valuation of $23,305; Mr.
Betterley - 1,100 shares, resulting in a valuation of $16,225; Mr.
<PAGE>
Whiting - 1,300 shares resulting in a valuation of $19,175. The shares
vest over a two year period, 50% on December 31, 1995 and 50% on
December 31, 1996; however, on Mr. Whiting's retirement on December 31,
1995, all shares of restricted stock granted to him vested. On
February 27, 1995, Mr. Ewald received a grant of 50,000 shares of
restricted stock. The market price on the date of grant was $16.375,
resulting in a valuation of $818,750. The shares vest 20% each year
over a five year period.
In addition, Mr. Dungworth, Ms. Qualters, Mr. Betterley and Mr. Ewald
received grants of 5,000 shares of restricted stock each on July 25,
1995. The price per share on the date of grant was $26.875, resulting
in a valuation of $134,375 for each grant. These shares were subject
to vesting conditions based on increasing stock price, with 50% vesting
when the price per share of Common Stock reaches $31.875 and holds at
that level for 20 consecutive trading days, and the balance vesting
when the price per share reaches $36.875 and holds for 20 consecutive
trading days.
Mr. Samper received 200,000 shares of restricted stock in May, 1995.
The price per share on the date of grant was $20.50, resulting in a
valuation of $4,100,000. The shares are subject to vesting conditions
based on increasing the stock price, with 25% increments vesting when
the price per share reaches and holds for 20 consecutive trading days
at the following levels: $25.00, $30.00, $37.50, and $45.00.
The shares of restricted stock granted to Mr. Ewald in 1994 were
subject to vesting conditions based on growth in earnings per share
over a three year period. The minimum vesting requirements were not
met, and all of these shares were forfeited to the Company as of
January 31, 1995. The shares are not currently outstanding and no
dividends were paid on such shares.
On December 31, 1995, the price per share for the Company's Common
Stock was $24.625, resulting in the following valuations for the shares
of restricted stock held by the persons named: Mr. Samper - $4,925,000;
Mr. Ewald -$1,354,375; Ms. Qualters - $162,033; Mr. Betterley -
$150,213; Mr. Dungworth -$151,690; and Mr. Whiting -$32,013. Dividends,
if any are declared, would be paid on the outstanding shares of
restricted stock.
Upon the completion of the tender offer commenced pursuant to the
Merger Agreement described in Item 1 of Part I, a change of control
will be deemed to have occurred with the result that all vesting
restrictions on unforfeited restricted stock will lapse and the
unforfeited restricted stock grants referred to above will be fully
vested.
(5) Represents contributions to the Company's Retirement Savings Plus Plan
and term life insurance premiums paid by the Company for the benefit of
the executive officer. For Mr. Whiting the amounts also include
payments to be made in connection with his retirement.
</TABLE>
<PAGE>
STOCK OPTIONS
The following table presents, for each of the named executive officers
identified in the "Summary Compensation Table" above, the number of shares of
common stock purchased upon exercise of stock options during fiscal year
1995, the aggregate dollar value realized upon exercise based on the market
price of the stock on the dates of exercise, and the number of stock options
held by such named executive officers as of December 31, 1995, distinguishing
between options that are exercisable as of December 31, 1995 and those that
will become exercisable at various times in the future.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT FY-END FY-END (1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Phillip Samper 0 0 0 300,000 0 1,425,000
Robert H. Ewald 0 0 67,163 120,000 0 0
Laurence L. Betterley 0 0 19,183 29,000 17,281 51,844
Irene M. Qualters 0 0 36,560 55,875 17,281 51,844
Michael Dungworth 0 0 8,475 50,225 12,344 37,031
Don F. Whiting 0 0 61,074 0 69,125 (2) 0
<FN>
(1) The fair market value of the Company's Common Stock on December 31, 1995
was $24.625 per share.
(2) Mr. Whiting retired on December 31, 1995. Upon retirement all outstanding
options became exercisable in accordance with the terms of the 1989
Employee Benefit Stock Plan.
Upon completion of the tender offer commenced pursuant to the
Merger Agreement described in Item 1 of Part I, a change of control
will be deemed to have occurred with the result that all
outstanding options, including those identified as unexercisable at
fiscal year end, become fully exercisable.
</TABLE>
<PAGE>
The following table presents, for each named executive officer
identified in the "Summary Compensation Table" above, the number of shares
underlying options granted during 1995, the exercise price for such options,
their expiration date and their potential realizable value. The exercise
price for all options granted was the fair market value of the shares of
common stock of the Company on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED RATES OF STOCK
SHARES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR PER SHARE (1) DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Phillip Samper 300,000 21.32% $19.875 5/17/05 $3,749,784 $9,502,689
Robert H. Ewald 100,000 7.11% $26.875 7/25/05 $1,690,154 $4,283,183
Irene M. Qualters 40,000 2.84% $26.875 7/25/05 $676,062 $1,713,273
Laurence L. Betterley 7,000 0.50% $14.750 1/31/05 $64,933 $164,554
15,000 1.07% $26.875 7/25/05 $253,523 $642,477
Michael Dungworth 40,000 2.84% $26.875 7/25/05 $676,062 $1,713,273
5,000 0.36% $14.750 1/31/05 $46,381 $117,539
Don F. Whiting 7,000 0.50% $14.750 1/31/05 $64,933 $164,554
<FN>
(1) All options were granted with an exercise price equal to the market price
on the date of grant. All options to the named executive officers other
than Mr. Samper become exercisable in 25% annual installments commencing
one year from the date of grant. The options granted to Mr. Samper vest in
50% installments commencing one year from the grant date. All options were
granted under the 1989 Employee Benefit Stock Plan. Upon the completion of
the tender offer commenced pursuant to the Merger Agreement described in
Item 1 of Part I, a change of control will be deemed to have occurred,
with the result that all outstanding options, including the options
reflected in this table, become fully exercisable.
(2) These values assume options are exercised at the end of their ten year
term and assume a prescribed rate of stock price appreciation. The actual
value of these options is dependent on future performance of the Common
Stock, and there is no assurance the values reflected in the table will be
realized.
</TABLE>
<PAGE>
Non-cash personal benefits paid to executive officers during each year in
the three-year period ended December 31, 1995 did not exceed in the aggregate
the lesser of 10% of cash compensation or $50,000 for any individual
executive officer.
Mr. Samper and the Company entered into an employment agreement in May,
1995, when Mr. Samper joined the Company as Chairman and CEO. The term of the
agreement is until December 31, 1999. Under the agreement, his 1995 annualized
salary was $600,000. Mr. Samper's agreement provides for a guaranteed bonus
during the first twelve months of his employment, regardless of Company
performance, equal to 80% of Mr. Samper's wages up to a maximum guaranteed
bonus of $480,000, and he received a bonus of $291,701 with respect to 1995.
The agreement also provided for payment of a $100,000 one-time signing bonus,
the grant of a stock option covering 300,000 shares, and a grant of 200,000
shares of restricted stock. The agreement with Mr. Samper also provides for
certain severance benefits. Unless termination of Mr. Samper's employment was
voluntary (and without justification as described in the agreement) or for cause
(as defined in the agreement), Mr. Samper would continue to receive base salary
through the balance of the agreement's term or two years, whichever is less,
plus any unpaid guaranteed bonus, plus an additional two years of base salary
less vested benefits under the Company's Retirement Savings Plus Plan. In the
event of death, the Company would pay an amount equal to six months base salary
plus any unpaid guaranteed bonus. The Company would also provide relocation
benefits unless termination was for cause. The Company will also reimburse Mr.
Samper for certain tax preparation and financial planning fees up to $15,000 and
for certain membership dues.
The Company and Mr. Whiting have entered into an agreement providing for the
payment in 1996 of $195,187, together with tax preparation expenses up to $2,500
and certain outplacement expenses, in connection with Mr. Whiting's retirement
from the Company as of December 31, 1995. In addition, the Company and Mr.
Whiting entered into a consulting agreement providing for payment of $250,000 in
March, 1996, for services related to disposition of certain facilities of the
Company.
In 1989, the Company adopted an Executives' Severance Compensation Plan
(the "Plan") covering employees who have been elected by the Board of
Directors of the Company to a position of Vice President or higher. The Plan
provides for a payment if a covered employee's employment with the Company is
terminated (other than voluntarily, by retirement, death or disability or for
"just cause" as defined in the Plan) within 15 months after a "change of
control" (as defined in the Plan) equal to two times his or her annual
compensation. The Company may amend or terminate the Plan at any time prior
to a change of control. In February, 1996, the Plan was amended to exclude
from the definition of change of control any transactions approved by the
Board of Directors.
Other than as described above, the Company is not party to any employment
agreement with any of its executive officers, and during 1995 it had no pension,
profit sharing, remuneration, incentive or other retirement, deferred
compensation or contingent compensation plans of any kind solely for the benefit
of its executive officers.
<PAGE>
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table contains information as of February 29, 1996, regarding
beneficial ownership of Common Stock of the Company, its only class of voting
securities, by each person known by the Company to own 5% or more of such
outstanding shares, each director, each of the named executive officers
identified in the "Summary Compensation Table" included in Item 11, and the
executive officers and directors as a group.
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1)(4) OF CLASS
- ----------------- --------------------------- --------
<S> <C> <C>
First Bank System, Inc. 1,837,490 (2) 6.4%
601 2nd Avenue South
Minneapolis, MN 55402
Smith Barney Holdings Inc. 1,577,032 (3) 5.5%
Travelers Group Inc.
388 Greenwich Street
New York, NY 10013
Laurence L. Betterley 26,368 *
Michael R. Dungworth 21,990 *
Lawrence E. Eaton 7,500 *
Robert H. Ewald 132,091 *
Catherine M. Hapka 5,250 *
Philip G. Heasley 15,250 *
Irene M. Qualters 71,900 *
Robert G. Potter 13,500 *
J. Phillip Samper 200,000 *
Jan H. Suwinski 9,350 *
Don F. Whiting 68,967 (5) *
All executive officers and
directors as a group (10 persons) 503,199 (6) 1.8%
- ----------
<FN>
* Less than 1%.
(1) Beneficial ownership results from sole voting and investment power except
as noted in footnotes below.
(2) Information is based on the stockholder's Schedule 13G dated February 9,
1996. Stockholder reported beneficial ownership of 1,837,490 shares, as to
which it had sole dispositive power as to 1,787,340 shares, shared
dispositive power as to 15,450 shares, sole voting power as to 1,771,740
shares and shared voting power as to 39,750 shares.
(3) Information is based on the stockholders' Schedule 13G dated February 1,
1996. Travelers Group Inc. is the sole stockholder of Smith Barney
Holdings Inc. Travelers Group reported beneficial ownership of 1,577,032
shares as to which it shared voting and dispositive power. Smith Barney
Holdings reported beneficial ownership of 1,416,777 shares as to which it
shared voting and dispositive power.
<PAGE>
(4) Includes shares which the officer or director has the right to acquire
within 60 days upon exercise of presently outstanding stock options as
follows: Laurence L. Betterley - 11,223; Michael R. Dungworth - 11,300;
Lawrence E. Eaton - 2,500; Robert H. Ewald - 69,799; Catherine M. Hapka -
5,250; Philip G. Heasley - 5,250; Irene M. Qualters - 40,935; Robert G.
Potter - 12,500; Jan H. Suwinski - 8,250; Don F. Whiting - 61,074.
(5) Includes 4,331 shares held by Mr. Whiting's spouse. Mr. Whiting retired
December 31, 1995.
(6) Includes 167,007 shares which certain of the officers and directors have
the right to acquire within 60 days upon exercise of presently outstanding
stock options.
</TABLE>
On February 25, 1996, the Company entered into a Merger Agreement with
SGI as described in Item 1 of Part I. The consummation of the Offer
contemplated by the Merger Agreement would constitute a change of control of
the Company which would result in vesting of currently unexercisable stock
options held by employees and former employees of the Company, including
options held by the named executive officers of the Company. Upon
consummation of the Offer, the executive officers and directors as a group
would beneficially own an additional 774,150 shares as a result of the
vesting of outstanding options. The additional shares which would be
beneficially owned by the executive officers are as follows: Laurence L.
Betterley - 55,250; Michael R. Dungworth - 77,400; Robert H. Ewald - 160,000;
Irene M. Qualters - 81,500; and J. Phillip Samper - 400,000.
<PAGE>
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has agreed to accept the surrender of shares of common stock of
the Company from Mr. Ewald in satisfaction of an obligation to pay certain
withholding taxes due, if any, upon vesting of shares of restricted stock in
February 1996.
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this Report:
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Independent Auditors' Report
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable, or not required,
or because the required information is included in the consolidated financial
statements or notes thereto.
REPORTS ON FORM 8-K
The Company was not required to and did not file any reports on Form 8-K
during the three months ended December 31, 1995. The Company did file a
Current Report on Form 8-K on February 29, 1996.
<PAGE>
EXHIBITS
- --------
<TABLE>
<C> <C> <S>
(2.1) -- Agreement and Plan of Merger with Silicon Graphics, Inc.
(incorporated by reference to Exhibit 1 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated
February 29, 1996).
(3.1) -- Copy of Certificate of Incorporation of the Company as filed with
the Delaware Secretary of State on April 6, 1972, and amendments
thereto as filed: (i) December 22, 1975 and May 14, 1979
(incorporated by reference to Exhibit 4 of Item 13 to the Company's
Registration Statement on Form S-16, as filed with the Securities
and Exchange Commission on October 16, 1980, Registration No. 2-
69445); (ii) December 10, 1980 (incorporated by reference to Exhibit
3 of Item 11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1980); (iii) May 21, 1985 (incorporated by
reference to Exhibit 4 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1985); (iv) July 9, 1987
(incorporated by reference to Exhibit 3 of Item 6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987);
(v) and May 29, 1990 (incorporated by reference to Exhibit 3.1 of
Item 14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
(3.2) -- Copy of the Company's By-Laws, as effective January 1, 1995
(incorporated by reference to Exhibit 3.2 of Item 14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994).
(4.1) -- Copy of Indenture dated February 1, 1986 between the Company and
Manufacturers Hanover Trust Company, Trustee, relating to the
Company's 6 1/8% Convertible Subordinated Debentures due 2011
(incorporated by reference to Exhibit 4 of Item 14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1985).
(4.2) -- Copy of Common Shares Rights Agreement dated as of May 15, 1989
between Cray Research, Inc., and Norwest Bank Minnesota, N.A.
(incorporated by reference to the Company's Registration Statement
on Form 8-A, dated May 24, 1989, as filed with the Securities and
Exchange Commission, File #1-8028).
(4.3) -- See 3.1 above.
(4.4) -- Amendment to Common Shares Rights Agreement, dated February 25,
1996.
(10.1) -- Copy of Credit Agreement dated May 26, 1992 (incorporated by
reference to Exhibit 10 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992).
(10.2) -- Copy of 1989 Non-Employee Directors' Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.3 of Item 14 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).*
<FN>
* Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
EXHIBITS
- --------
<TABLE>
<C> <C> <S>
(10.3) -- Copy of 1989 Employee Benefit Stock Plan, as amended (incorporated
by reference to Exhibit 10.4 of Item 14 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1991 and to
Exhibit 10.2 of Item 6 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995).*
(10.4) -- Copy of Executives' Severance Compensation Plan (incorporated by
reference to Exhibit 10.7 of Item 14 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1991).*
(10.5) -- Second Amendment dated as of June 30, 1994 to the Credit Agreement
dated as of May 26, 1992 between the Company and Chemical Bank
(incorporated by reference to Exhibit 10.1 of Item 6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
(10.6) -- Term Loan Agreement dated as of April 8, 1994 between the Company
and the Sanwa Bank Limited (incorporated by reference to Exhibit
10.2 of Item 6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994).
(10.7) -- Copy of Performance Incentive Plan (incorporated by reference to
Exhibit 10.7 of Item 14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).*
(10.8) -- Employment Agreement with J. Phillip Samper (incorporated by
reference to Exhibit 10 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995).*
(10.9) -- Deferred Compensation Plan for Senior Level and Senior Sales
Employees (incorporated by reference to Exhibit 4 of the Company's
Registration Statement on Form S-8, dated November 21, 1995, as
filed with the Securities and Exchange Commission, File #1-8028).*
(10.10) -- Asset Purchase Agreement between Johnson Matthey Semiconductor
Packages, Inc. and Cray Research, Inc.
(10.11) -- Amendment Number One to Executives' Severance Compensation Plan,
dated February 25, 1996.*
(10.12) -- Deferred Compensation Plan for Non-Employee Directors, as
effective January 1, 1996.*
(10.13) -- Consulting Agreement and Letter Agreement between Cray Research,
Inc. and Don Whiting.*
(10.14) -- Amendment to 1989 Non-Employee Directors' Stock Option Plan,
dated February 6, 1996.*
(10.15) -- Third Amendment dated as of February 14, 1996 to the Credit
Agreement dated as of May 26, 1992 between the Company and Chemical
Bank.
<FN>
* Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
EXHIBITS
- --------
<TABLE>
<C> <C> <S>
(11) -- Computation of Earnings (Loss) Per Share.
(21) -- Subsidiaries of the Registrant.
(23) -- Independent Auditors' Consent.
(24) -- Power of Attorney (see the signature page of this Report).
(27) -- Financial Data Schedule.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CRAY RESEARCH, INC.
By /s/ J. PHILLIP SAMPER
--------------------------------------
J. Phillip Samper
Chief Executive Officer
(Principal Executive Officer)
By /s/ LAURENCE L. BETTERLEY
--------------------------------------
Laurence L. Betterley
Chief Financial Officer
(Principal Financial Officer)
By /s/ STEVEN E. SNYDER
--------------------------------------
Steven E. Snyder
Controller
(Principal Accounting Officer)
Dated: March 28, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below constitutes and appoints J. Phillip Samper and Laurence L.
Betterley, or either of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
in their respective capacities as directors of the Company.
<TABLE>
<CAPTION>
SIGNATURE DATE
- ----------------------- --------------
<S> <C> <C>
/s/ J. PHILLIP SAMPER Director March 25, 1996
- -----------------------
J. Phillip Samper
/s/ LAWRENCE E. EATON Director March 23, 1996
- -----------------------
Lawrence E. Eaton
/s/ ROBERT H. EWALD Director March 28, 1996
- -----------------------
Robert H. Ewald
/s/ CATHERINE M. HAPKA Director March 23, 1996
- -----------------------
Catherine M. Hapka
/s/ PHILIP G. HEASLEY Director March 29, 1996
- -----------------------
Philip G. Heasley
/s/ ROBERT G. POTTER Director March 23, 1996
- -----------------------
Robert G. Potter
/s/ JAN H. SUWINSKI Director March 24, 1996
- -----------------------
Jan H. Suwinski
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 14 TO THE ANNUAL REPORT OF CRAY RESEARCH, INC. AND
ITS SUBSIDIARIES ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995.
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <C> <S> <C>
(2.1) -- Agreement and Plan of Merger with Silicon Graphics, Inc.
(incorporated by reference to Exhibit 1 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated
February 29, 1996).
(3.1) -- Copy of Certificate of Incorporation of the Company as filed with
the Delaware Secretary of State on April 6, 1972, and amendments
thereto as filed: (i) December 22, 1975 and May 14, 1979
(incorporated by reference to Exhibit 4 of Item 13 to the Company's
Registration Statement on Form S-16, as filed with the Securities
and Exchange Commission on October 16, 1980, Registration No. 2-
69445); (ii) December 10, 1980 (incorporated by reference to Exhibit
3 of Item 11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1980); (iii) May 21, 1985 (incorporated by
reference to Exhibit 4 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1985); (iv) July 9, 1987
(incorporated by reference to Exhibit 3 of Item 6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987);
(v) and May 29, 1990 (incorporated by reference to Exhibit 3.1 of
Item 14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
(3.2) -- Copy of the Company's By-Laws, as effective January 1, 1995
(incorporated by reference to Exhibit 3.2 of Item 14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994).
(4.1) -- Copy of Indenture dated February 1, 1986 between the Company and
Manufacturers Hanover Trust Company, Trustee, relating to the
Company's 6 1/8% Convertible Subordinated Debentures due 2011
(incorporated by reference to Exhibit 4 of Item 14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1985).
(4.2) -- Copy of Common Shares Rights Agreement dated as of May 15, 1989
between Cray Research, Inc., and Norwest Bank Minnesota, N.A.
(incorporated by reference to the Company's Registration Statement
on Form 8-A, dated May 24, 1989, as filed with the Securities and
Exchange Commission, File #1-8028).
(4.3) -- See 3.1 above.
(4.4) -- Amendment to Common Shares Rights Agreement, dated February 25,
1996.
(10.1) -- Copy of Credit Agreement dated May 26, 1992 (incorporated by
reference to Exhibit 10 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <C> <S> <C>
(10.2) -- Copy of 1989 Non-Employee Directors' Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.3 of Item 14 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991 and to Exhibit 10.2 of Item 6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995).*
(10.3) -- Copy of 1989 Employee Benefit Stock Plan, as amended (incorporated
by reference to Exhibit 10.4 of Item 14 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1991).*
(10.4) -- Copy of Executives' Severance Compensation Plan (incorporated by
reference to Exhibit 10.7 of Item 14 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1991).*
(10.5) -- Second Amendment dated as of June 30, 1994 to the Credit Agreement
dated as of May 26, 1992 between the Company and Chemical Bank
(incorporated by reference to Exhibit 10.1 of Item 6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
(10.6) -- Term Loan Agreement dated as of April 8, 1994 between the Company
and the Sanwa Bank Limited (incorporated by reference to Exhibit
10.2 of Item 6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994).
(10.7) -- Copy of Performance Incentive Plan (incorporated by reference to
Exhibit 10.7 of Item 14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).*
(10.8) -- Employment Agreement with J. Phillip Samper (incorporated by
reference to Exhibit 10 of Item 6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995).*
(10.9) -- Deferred Compensation Plan for Senior Level and Senior Sales
Employees (incorporated by reference to Exhibit 4 of the Company's
Registration Statement on Form S-8, dated November 21, 1995, as
filed with the Securities and Exchange Commission, File #1-8028).*
(10.10) -- Asset Purchase Agreement between Johnson Matthey Semiconductor
Packages, Inc. And Cray Research, Inc.
(10.11) -- Amendment Number One to Executives' Severance Compensation Plan,
dated February 25, 1996.*
(10.12) -- Deferred Compensation Plan for Non-Employee Directors, as
effective January 1, 1996.*
(10.13) -- Consulting Agreement and Letter Agreement between Cray Research,
Inc. and Don Whiting.*
(10.14) -- Amendment to 1989 Non-Employee Directors' Stock Option Plan,
dated February 6, 1996.*
<FN>
* Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <C> <S> <C>
(10.15) -- Third Amendment dated as of February 14, 1996 to the Credit
Agreement dated as of May 26, 1992 between the Company and Chemical
Bank.
(11) -- Computation of Earnings (Loss) Per Share.
(21) -- Subsidiaries of the Registrant.
(23) -- Independent Auditors' Consent.
(24) -- Power of Attorney (see the signature page of this Report).
(27) -- Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 4.4
AMENDMENT TO COMMON SHARES RIGHTS AGREEMENT
AMENDMENT, DATED FEBRUARY 25, 1996, TO COMMON SHARES RIGHTS AGREEMENT,
dated May 15, 1989, between Cray Research, Inc. and Norwest Bank Minnesota,
N.A., as Rights Agent.
The parties hereby agree as follows:
1. That certain Common Shares Rights Agreement dated as of May 15,
1989 between the parties hereto (the "Agreement") is hereby amended so that
Section 1(a) thereof shall read in its entirety as follows:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% or more of the Common Shares then outstanding, but shall not include the
Company, any Subsidiary of the Company or any employee benefit plan of the
Company or of any Subsidiary of the Company, any entity holding Common Shares
for or pursuant to the terms of any such plan, or Silicon Graphics, Inc. or any
of its subsidiaries or any of their Affiliates. Notwithstanding the foregoing,
(i) neither Silicon Graphics, Inc. nor its subsidiaries shall become an
"Acquiring Person" as the result of the execution and delivery of the Agreement
and Plan of Merger by and among Cray Research, Inc., Silicon Graphics, Inc. and
C Acquisition Corporation dated February 25, 1996 (the "Merger Agreement"), or
by reason of the announcement or commencement of the Offer, the acceptance for
payment or payment for Common Shares pursuant to the Offer or consummation of
the Merger (as such terms are defined in the Merger Agreement) and (ii) no
Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 20% or more of the Common Shares of the Company then outstanding;
PROVIDED, HOWEVER, that if a Person shall become the Beneficial Owner of 20% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person."
2. The Agreement is hereby amended so that Section 1(h) thereof
shall read in its entirety as follows:
(h) "Distribution Date" shall mean the earlier of (i) the Close of
Business on the tenth day (or such later date as may be determined by action of
a majority of Continuing Directors then in office) after the Shares Acquisition
Date (or, if the tenth day after the Shares Acquisition Date occurs before the
Record Date, the Close of Business on the Record Date) or (ii) the Close of
Business on the tenth day (or such later date as may be determined by action of
a majority of Continuing Directors then in office) after the date that a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan, or Silicon Graphics, Inc.
or any of its subsidiaries or any of their Affiliates pursuant to the Offer) is
first published or sent or given within the meaning of Rule 14e-2(a) of the
General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be the Beneficial Owner of
20% or more of the shares of Common Stock then outstanding.
3. The Agreement is hereby amended so that Section 1(j) thereof
shall read in its entirety as follows:
(j) "Expiration Date" shall mean the earliest of (i) the Close of Business
on the Final Expiration Date, (ii) the Redemption Date, (iii) the time at which
the Board of Directors orders the exchange of Rights as provided in Section 24
hereof, (iv) the consummation of a transaction contemplated by Section 13(d)
hereof, or (v) the time immediately prior to the purchase of Common Shares by
Silicon Graphics, Inc. or any of its subsidiaries or any of
<PAGE>
their Affiliates pursuant to the Offer.
4. The Agreement is hereby amended so that Section 1(t) thereof
shall read in its entirety as follows:
(t) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person (other than an announcement with respect to
the execution and delivery of the Merger Agreement, or by reason of the
commencement of the Offer, the acceptance for payment or payment for Common
Shares pursuant to the Offer or consummation of the Merger) that an Acquiring
Person has become such.
5. The Agreement is hereby amended so that Section 1(x) thereof
shall read in its entirety as follows:
(x) A "Triggering Event" shall be deemed to have occurred upon any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan, or Silicon
Graphics, Inc. or any of its subsidiaries or any of their Affiliates pursuant to
the Offer), together with all Affiliates and Associates of such Person, becoming
the Beneficial Owner of 20% or more of the Common Shares of the Company then
outstanding. Notwithstanding the foregoing, no Triggering Event shall be deemed
to have occurred as the result of (i) the execution and delivery of the Merger
Agreement, or by reason of the announcement or commencement of the Offer, the
acceptance for payment or payment for Common Shares pursuant to the Offer or
consummation of the Merger or (ii) an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Company then outstanding; PROVIDED, HOWEVER, that in
the event that a Person shall become the Beneficial Owner of 20% or more of the
Common Shares of the Company then outstanding by reason of share purchases by
the Company and shall, after such share purchases by the Company, a Triggering
Event shall be deemed to have occurred upon such Person, after such share
purchases by the Company, becoming the Beneficial Owner of any additional Common
Shares of the Company.
6. Except as aforesaid, the Agreement shall remain in full force and
effect and unchanged.
CRAY RESEARCH, INC.
By /S/ J. Phillip Samper
---------------------------------
J. Phillip Samper
Chairman and Chief
Executive Officer
NORWEST BANK MINNESOTA,
N.A., as Rights Agent
By /S/ Barbara M. Novak
---------------------------------
Name: Barbara M. Novak
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
between
JOHNSON MATTHEY SEMICONDUCTOR PACKAGES, INC.
and
CRAY RESEARCH, INC.
February 16, 1996
<PAGE>
Table of Contents
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Basic Transaction . . . . . . . . . . . . . . . . . . . . . 7
3. Representations and Warranties of Seller. . . . . . . . . . 9
4. Representations and Warranties of Buyer . . . . . . . . . . 21
5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . 22
6. Post-Closing Covenants. . . . . . . . . . . . . . . . . . . 27
7. Conditions to Obligation to Close . . . . . . . . . . . . . 29
8. Remedies for Breaches of this Agreement . . . . . . . . . . 31
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . 34
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 35
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 40
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . 41
<PAGE>
ASSET PURCHASE AGREEMENT
Agreement entered into on February 16, 1996, by and between Johnson
Matthey Semiconductor Packages, Inc., a Minnesota corporation ("BUYER"), and
Cray Research, Inc., a Delaware corporation ("SELLER"). Buyer and Seller are
referred to collectively herein as the "PARTIES."
This Agreement contemplates a transaction in which Buyer will purchase
substantially all of the assets of the printed circuit manufacturing operations
of Seller.
This Agreement further contemplates that Buyer will enter into an
Supply Agreement providing for the production of printed circuit boards by Buyer
for Seller at a facility purchased under this Agreement.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACQUIRED ASSETS" means all right, title, and interest in and to all
of the assets constituting the Business, INCLUDING all of its (a) real property
described on Exhibit A hereto on which the PCBM and 850 Industrial Boulevard are
situated, including all improvements, fixtures, and fittings thereon, and
easements, rights-of-way, and other appurtenants thereto (such as appurtenant
rights in and to public streets), (b) tangible personal property located at the
PCBM and the PCBD and modular office furniture located at 850 Industrial
Boulevard (such as machinery, equipment, inventories of raw materials and
supplies, manufactured and purchased parts, goods in process, furniture, tools,
jigs, and dies), (c) Core PC Technology, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, and rights to protection of interests therein under the laws of all
jurisdictions, and a nonexclusive license to use and access Cray-Specific
Technology, (d) leases, subleases and rights thereunder, (e) agreements,
contracts, indentures, mortgages, instruments, Security Interests, warranties,
guaranties, purchase orders, service agreements, licenses, other similar
arrangements, and rights thereunder pertaining primarily to the Business, (f)
franchises, approvals, permits, licenses, orders, registrations, certificates,
variances and similar rights obtained from governments and governmental agencies
pertaining primarily to the Business, (g) records, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, studies, reports, and other printed or written materials
pertaining primarily to the
<PAGE>
Business and all tangible personal property situated in the PCBD and 850
Industrial Boulevard and (h) all enforcement rights Seller holds with respect to
trade secrets other than Cray-Specific Technology assigned to Buyer by reason of
Seller's employer relationship to its employees or by reason of express or
implied confidentiality agreements with present and former employees,
consultants or other contractors of Seller who worked in or with the Business;
PROVIDED, HOWEVER, that the Acquired Assets shall not include Excluded Assets or
any of the rights of Seller under this Agreement (or under any side agreement
between Seller on the one hand and Buyer on the other hand entered into on or
after the date of this Agreement).
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and attorneys' fees and expenses.
"APPLICABLE RATE" means the corporate prime rate of interest reported
from time to time by THE WALL STREET JOURNAL.
"ASSUMED LIABILITIES" means (a) all obligations of the Business under
the agreements, contracts, leases, licenses and other arrangements constituting
Acquired Assets and which are listed in the DISCLOSURE SCHEDULE and (b) Vacation
Pay; PROVIDED, HOWEVER, that the Assumed Liabilities shall not include (i) any
Liability of Seller for unpaid Taxes (with respect to the Business or otherwise)
for periods prior to the Closing, (ii) except as provided in Section 2(h), any
Liability of Seller for income, transfer, sales, use, deed and other Taxes
arising in connection with the consummation of the transactions contemplated
hereby (including any income Taxes arising because Seller is transferring the
Acquired Assets), (iii) any obligation of Seller to indemnify any Person by
reason of the fact that such Person was a director, officer, employee, or agent
of Seller or was serving at the request of Seller as a partner, trustee,
director, officer, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement, or otherwise),
(iv) any Liability of Seller for costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby, (v) any Liability or
obligation of Seller under this Agreement (or under any side agreement between
Seller on the one hand and Buyer on the other hand entered into on or after the
date of this Agreement), or (vi) any Liability or obligation of the Business to
its employees, other than as expressly set forth in this Agreement.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BUSINESS" means Seller's printed circuit manufacturing operations.
"BUYER" has the meaning set forth in the preface above.
"BUYER'S 401(K) PLAN" has the meaning set forth in Section 4(e) below.
"CLOSING" has the meaning set forth in Section 2(d) below.
"CLOSING DATE" has the meaning set forth in Section 2(d) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CORE PC TECHNOLOGY," "CORE PC INTELLECTUAL PROPERTY RIGHTS,"
"CRAY-SPECIFIC TECHNOLOGY," "CRAY-SPECIFIC INTELLECTUAL PROPERTY RIGHTS,"
"PATENT RIGHTS," "PATENT DISCLOSURES," and "OPERATIONS MANUALS" shall have the
meanings set forth in the Technology Assignment and License Agreement.
"DISCLOSURE SCHEDULE" means the DISCLOSURE SCHEDULE delivered
<PAGE>
concurrently herewith containing exceptions to Seller's representations made in
Section 3 and certain other information.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, and the Americans with Disabilities Act, each as amended, together with
all other laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or employee health
and safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"EXCLUDED ASSETS" shall mean (i) cash, cash equivalents, securities
and investments; (ii) accounts and notes receivable; (iii), except as expressly
set forth in the definition of Acquired Assets, all rights of Seller to any
claims, prepayments, deposits, refunds, causes of action, choses in action,
rights of recovery, rights of set off and rights of recoupment (including,
without limitation, any refund of any Tax); (iv) Seller's rights under any
policies of insurance purchased by Seller or any benefits, proceeds or premium
refunds payable or paid thereunder or with respect thereto; (v) the corporate
charter, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, Tax returns and other Tax records, general
ledgers, seals, minute books, stock transfer books and similar documents of
Seller relating to the organization, maintenance and existence of Seller as a
corporation; (vi) the Cray-Specific Technology (other than the license thereof
under the Technology Transfer and License Agreement); (vii) any trademark, trade
name, service mark, logo, copyright, corporate name or comparable property that
uses in whole or in part the name "Cray", "Cray Research" or any derivative or
diminutive form or expansion thereof, whether or not stylized; (viii) all assets
held in Plans, assets held as reserves for worker's compensation claims against
Seller and assets held as reserves for any and all other accrued liabilities of
Seller; (ix) options or rights to purchase any real property (except as
expressly set forth in the definition of Acquired Assets); (x) all inventory
other than Transferred Inventory; (xi) any tangible personal property located at
850 Industrial Boulevard (other than modular office furniture); (xii)
automobiles, trucks, tractors and trailers, other than a 1989 Ford F150 truck
(VIN#2FTEF14NOKCB52291); (xiii) finished goods; (xiv) product specifications for
printed circuit boards and flex circuits, including any design rules therein
contained, save and except for design rules relating to manufacturability of
Existing Products (as defined in the Supply Agreement); (xv) the optical masks
or similar tooling used to manufacture Existing Products (as defined in the
Supply Agreement) and electric data files corresponding to such masks or similar
tooling; and (xvi) such other property, if any, as listed on Exhibit B hereto.
"EXON-FLORIO" means the Exon-Florio provision to the Omnibus Trade and
Competitiveness Act.
"EXPENSE STATEMENT" has the meaning set forth in Section 3(f) below.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d) below.
<PAGE>
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d) below.
"INVENTORY VALUE" has the meaning set forth in Section 2(g) below.
"KNOWLEDGE" means actual knowledge of Brad R. Anderson, John L.
Sullivan, Mark Lang, David Swoboda or Paul Schroeder after reasonable
investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MASTER CONFIDENTIALITY AGREEMENT" shall mean the Master
Confidentiality Agreement in the form attached to the Technology Assignment and
License Agreement.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PCBD" shall mean Seller's PCB Development Facility located in
Chippewa Falls, Wisconsin.
"PCBM" shall mean the facility used in the Business as described on
Exhibit A.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PLAN" has the meaning set forth in Section 3(v) below.
"PRELIMINARY INVENTORY VALUE" has the meaning set forth in Section
2(g) below.
"PURCHASE PRICE" means $35,750,000 less Vacation Pay plus Inventory
Value.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"SELLER'S 401(K) PLAN" has the meaning set forth in Section 3(v)(v)
below.
"SERVICES AGREEMENT" means the Services Agreement in the form attached
as Exhibit G.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"SUPPLY AGREEMENT" means the Supply Agreement in the form attached as
Exhibit F.
"SURVEY" has the meaning set forth in Section 5(i) below.
"TAX" means any federal, state, local, or foreign income, gross
<PAGE>
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT" means the Technology
Assignment and License Agreement in the form attached as Exhibit E.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d) below.
"TRANSFERRED INVENTORY" has the meaning set forth in Section 2(g)
below.
"850 INDUSTRIAL BOULEVARD" shall mean the facility described on
Exhibit A.
"VACATION PAY" means liabilities for earned and accrued vacation pay
for employees of the Business who accept employment with Buyer.
2. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller, and Seller
agrees to sell, transfer, convey and deliver to Buyer, all of the Acquired
Assets at the Closing for the consideration specified below in this Section 2.
(b) ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of this Agreement, Buyer agrees to assume and become responsible for
all of the Assumed Liabilities at the Closing. Buyer will not assume or have
any responsibility with respect to any other obligation or Liability of Seller
not included within the definition of Assumed Liabilities.
(c) PURCHASE PRICE. Buyer agrees to pay to Seller the Purchase Price
by wire transfer or delivery of other immediately available funds. Of the
Purchase Price, $17,875,000 plus Inventory Value less Vacation Pay shall be
payable on the Closing Date and the balance shall be payable on December 18,
1996. Provision is made in Section 2(h) for certain additional payments.
(d) THE CLOSING. The Closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Dorsey &
Whitney P.L.L.P. in Minneapolis, Minnesota, commencing at 9:00 a.m. local time
on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "CLOSING DATE"). The Closing shall be
deemed to be effective as of 12:01 a.m. on the Closing Date.
(e) DELIVERIES AT THE CLOSING. At the Closing, (i) Seller will
deliver to Buyer the various certificates, instruments and documents referred to
in Section 7(a) below; (ii) Buyer will deliver to Seller the various
certificates, instruments and documents referred to in Section 7(b) below; (iii)
Seller will execute, acknowledge (if appropriate), and deliver to Buyer (A)
warranty deeds, assignments (including formal transfer documents for Core PC
Intellectual Property Rights) in the forms attached hereto as Exhibits C-1
through C-4; (B) such other instruments of sale, transfer, conveyance, and
assignment as Buyer and its counsel may reasonably request; and (C) the title
insurance commitment pursuant to Section 5(h) appropriately modified to reflect
actions pursuant to Section 5(m); (iv) Buyer will execute, acknowledge (if
<PAGE>
appropriate), and deliver to Seller an assumption in the form attached hereto as
Exhibit D; (v) Buyer and Seller shall enter into a Technology Assignment and
License Agreement in the form attached hereto as Exhibit E, the Supply Agreement
in the form attached hereto as Exhibit F, the Master Confidentiality Agreement
and the Services Agreement in the form attached hereto as Exhibit G; and (vii)
Buyer will deliver to Seller the consideration specified in Section 2(c) above.
(f) ALLOCATION. The Parties agree to allocate the Purchase Price
among the Acquired Assets for tax purposes in accordance with the allocation
schedule attached hereto as Exhibit H.
(g) TRANSFERRED INVENTORY.
(i) All inventory of the Business (other than finished goods and
excess inventory) shall be purchased by Buyer at cost plus attributable
overhead. In valuing the inventory, the 1996 unit costing set forth on Exhibit
I shall be applied. "Excess" inventory shall be that not expected to be used for
the manufacture of Products (as defined in the Supply Agreement) within 180 days
of the Closing Date.
(ii) Seller shall conduct, and representatives of Buyer shall observe,
a physical inventory prior to Closing. The physical inventory shall be
conducted at such time or times ("Inventory Date") as Seller deems necessary to
avoid any interference with production at the PCBM but not more than 15 days
prior to Closing. Seller shall prepare and present to Buyer prior to Closing
the preliminary results of the physical inventory, including the valuation
thereof. The valuation of the inventory included in such preliminary results,
as adjusted for excess inventory, is the "Preliminary Inventory Value."
(iii) The Preliminary Inventory Value shall be adjusted through
the close of business on the day immediately preceding the Closing Date by
adding the value of raw materials purchased since the Inventory Date and
deducting the value of finished goods becoming finished goods after the
Inventory Date. The Preliminary Inventory Value, as so adjusted, shall be the
"Inventory Value." Transferred Inventory constitutes inventory (other than
finished goods and excess inventory) at the close of business on the day
immediately preceding the Closing Date.
(h) PRORATIONS; OTHER PAYMENTS. On the Closing Date, utility
charges, rents under assumed leases, property taxes payable in 1996 and other
similar obligations to third parties shall be prorated between Seller and
Buyer. On the Closing Date, Seller shall pay all real property assessments
and similar charges, and any accrued interest thereon, including any unpaid
installments of special assessments. Seller shall pay any deed or other
transfer taxes associated with this Agreement, other than sales or use taxes,
if any, which Buyer agrees to pay. Seller and Buyer shall cooperate in
applying for or otherwise perfecting any exemption from any such taxes.
Seller shall provide title insurance commitments as contemplated by Section
5(h), and Buyer shall pay for any title insurance that it may require.
(i) CERTAIN EQUIPMENT. The Parties shall negotiate in good faith
an arrangement for the reasonable use of the equipment listed on Items 1 and
2 of Schedule 3(m) for such period of time as may be reasonably required in
Buyer's business, without charge.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer that the statements contained in this Section 3 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3).
(a) ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
<PAGE>
(b) AUTHORIZATION OF TRANSACTION. Seller has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of Seller has duly
authorized the execution, delivery and performance of this Agreement by Seller.
This Agreement constitutes the valid and legally binding obligation of Seller,
enforceable in accordance with its terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Seller is subject or any provision
of the charter or bylaws of Seller or (ii) except as set forth in Section 3(o)
of the DISCLOSURE SCHEDULE with respect to assignability, conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any of Seller is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except for filings under the Hart-
Scott-Rodino Act, Seller is not required to give any notice to, make any filing
with or obtain any authorization, consent or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Section 2 above). Notwithstanding anything to the contrary
contained in this Section 2(c), Seller makes no representation or warranty
regarding the assignability or transferability of any governmental license or
permit pertaining to the Business.
(d) BROKERS' FEES. Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Buyer could become liable
or obligated.
(e) TITLE TO ASSETS. Seller has, or at Closing will have, good and
marketable title to all of the Acquired Assets, free and clear of all Security
Interests or restriction on transfer.
(f) OPERATING STATEMENTS. Attached hereto as Exhibit J are expense
statements (collectively the "EXPENSE STATEMENTS") of the Business: (i) for the
fiscal years ended December 31, 1994 and 1995; and (ii) for the one-month ended
January 31, 1996. The expenses reflected in the Expense Statements have been
determined in accordance with Seller's past practices applied on a consistent
basis throughout the periods covered thereby, are correct and complete in all
material respects, and are consistent with the books and records of the Business
(which books and records are correct and complete in all material respects).
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
December 31, 1995, there has not been any adverse change in the business,
financial condition, operations, results of operations or future prospects of
the Business. Without limiting the generality of the foregoing, since that
date, except as set forth in Section 3(g) of the DISCLOSURE SCHEDULE:
(i) Seller has not sold, leased, transferred or assigned any of
the assets, tangible or intangible, of the Business other than for a fair
consideration in the Ordinary Course of Business;
(ii) Seller has not entered into any agreement, contract, lease
or license (or series of related agreements, contracts, leases and
licenses) pertaining to the Business either involving more than $25,000 or
outside the Ordinary Course of Business;
(iii) no party has accelerated, terminated, modified or
<PAGE>
canceled any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) involving more than $25,000
relating to the Business;
(iv) no Security Interest has been imposed upon any of the
assets, tangible or intangible of the Business;
(v) no capital expenditure (or series of related capital
expenditures) either involving more than $25,000 or outside the Ordinary
Course of Business has been made with respect to the Business;
(vi) Seller has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) pertaining
to the Business either involving more than $25,000 or outside the Ordinary
Course of Business;
(vii) Seller has not delayed or postponed the payment of
accounts payable and other Liabilities of the Business outside the Ordinary
Course of Business;
(viii) Seller has not canceled, compromised, waived or released
any right or claim (or series of related rights and claims) pertaining to
the Business either involving more than $25,000 or outside the Ordinary
Course of Business;
(ix) Seller has not granted any license or sublicense of any
rights under or with respect to any Core PC Technology or Cray-Specific
Technology;
(x) Seller has not experienced any damage, destruction or loss
exceeding $25,000 (whether or not covered by insurance) to the property
pertaining to the Business;
(xi) Seller has not made any loan to, or entered into any other
transaction with, any of the employees of the Business outside the Ordinary
Course of Business;
(xii) Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement pertaining to the Business;
(xiii) Seller has not granted any increase in the base
compensation of any of the employees of the Business other than in the
Ordinary Course of Business;
(xiv) except for pending changes in Seller's Performance
Incentive Plan, Seller has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of the employees of the Business, or
taken any such action with respect to any Plan;
(xv) Seller has not made any other change in employment terms for
any of the employees of the Business;
(xvi) Seller has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xvii) there has not been any other occurrence, event,
incident, action, failure to act or transaction or incurrence of any known
Liability outside the Ordinary Course of Business involving any of the
Business; and
(xviii) Seller has not committed to any of the foregoing.
(h) BUDGETS. Attached hereto as Exhibit K is the budget for
<PAGE>
the Business for year ending December 31, 1996 prepared by the Seller in good
faith in the Ordinary Course of Business.
(i) LEGAL COMPLIANCE. Seller complies in all material respects with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) pertaining to the
Business, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply; PROVIDED, HOWEVER, that Environmental,
Health, and Safety Laws are expressly excluded from the scope of this
representation and warranty.
(j) TAX MATTERS.
(i) Seller has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All Taxes owed
by Seller (whether or not shown on any Tax Return) have been paid. There are no
Security Interests on any of the assets of the Business that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(k) REAL PROPERTY.
(i) Except as set forth in Section 3(k)(i) of the DISCLOSURE
SCHEDULE, with respect to each parcel of real property described in Exhibit A
hereto:
(A) Seller has, or at Closing will have, good and marketable
title to the parcel of real property, free and clear of any Security
Interest, easement, covenant or other restriction and special assessment,
except for recorded easements, covenants, and other restrictions which do
not impair Seller's current use of the parcel;
(B) there are no pending or, to the knowledge of Seller,
threatened condemnation proceedings, lawsuits or administrative actions
relating to the property, materially affecting adversely the current use,
occupancy or value thereof;
(C) the legal description for the parcel at Closing will
constitute a separate parcel for purposes of conveyance and real property
taxes, the buildings and improvements are located within the boundary lines
of the described parcels of land, are not in violation of applicable
setback requirements, zoning laws, and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted
non-conforming use" or "permitted non-conforming structure"
classifications), and do not encroach on any easement which may burden the
land, the land does not serve any adjoining property for any purpose
inconsistent with the use of the land, and the property is not located
within any flood plain or in a designated wetland or subject to any similar
type restriction for which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received a certificate of occupancy and
all licenses and permits required in connection with the ownership or
operation thereof and have been operated and maintained in all material
respects in accordance with applicable laws, rules, and regulations;
PROVIDED, HOWEVER, that Environmental, Health, and Safety Laws, including
any licenses and permits required thereby, are expressly excluded from the
scope of this representation and warranty, and Seller makes no
representation or warranty regarding the assignability or transferability
of any governmental license or permit pertaining to the Business.
<PAGE>
(E) there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties the
right of use or occupancy of any portion of the parcel of real property;
(F) there are no outstanding options or rights of first refusal
to purchase the parcel of real property, or any portion thereof or interest
therein;
(G) there are no parties (other than the Seller) in possession
of the parcel of real property;
(H) except for direct telephone lines to provide telephone
services, all facilities located on the parcel of real property are
supplied with utilities and other services necessary for Seller's operation
of such facilities, including gas, electricity, water, sanitary sewer, and
storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules, and regulations and, as of the Closing
Date, upon the grant of easements contemplated by Section 5(q) hereof,
will be are provided via public roads or via permanent, irrevocable,
appurtenant easements benefitting the parcel of real property;
(I) each parcel of real property abuts on and has direct
vehicular access to a public road, or has access to a public road via a
permanent, irrevocable, appurtenant easement benefitting the parcel of real
property, and access to the property is provided by paved public
right-of-way with adequate curb cuts available; and
(J) there are no wells or petroleum storage tanks located in or
under the property;
(ii) no real property is leased or subleased to the Business.
(l) SOFTWARE LICENSES. Except as set forth in Section 3(l) of the
DISCLOSURE SCHEDULE, no software licenses material to the Business are
considered Excluded Assets, and any software used in the Business that is not an
Acquired Asset is readily obtainable off-the-shelf software with a license fee
not exceeding $5,000 per annum per copy or per user.
(m) TANGIBLE ASSETS. Seller owns or leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of the
Business as presently conducted. Each such tangible asset has been maintained
in accordance with normal industry practice, consistent with Seller's use
thereof, is in good operating condition and repair (subject to normal wear and
tear), consistent with Seller's use thereof, and is suitable for the purposes
for which it presently is used by Seller. Except as expressly set forth in this
Section 3(m) and in Section 3(x), no further representation is made concerning
the physical condition of such buildings, machinery, equipment and other
tangible assets, all of which are being accepted "AS IS AND WHERE IS" by Buyer
as of the Closing (including as to all environmental aspects thereof, except as
otherwise provided in Section 3(x)). EXCEPT AS SET FORTH EXPRESSLY IN THIS
AGREEMENT, SELLER DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY WITH RESPECT TO THE
ASSETS, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF FITNESS,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Except as set forth in
Section 3(m) of the DISCLOSURE SCHEDULE, the tangible personal property included
in Acquired Assets includes all tangible personal property material to the
conduct of the Business.
(n) INVENTORY. The inventory of the Business to be purchased
pursuant to this Agreement consists of raw materials and supplies, manufactured
and purchased parts, and goods in process, all of which is merchantable and fit
for the purpose for which it was procured or manufactured, and none of which is
damaged or defective.
(o) CONTRACTS. Section 3(o) of the DISCLOSURE SCHEDULE lists the
<PAGE>
following contracts and other agreements pertaining primarily to the Business:
(i) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of $5,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than 30 days, result
in a loss to any of the Business, or involve consideration in excess of
$5,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $5,000 or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of the current employees of the Business;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis;
(ix) any agreement under which it has advanced or loaned any
amount to any employee of the Business;
(x) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of any of
the Business; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $50,000.
Seller has delivered to Buyer a correct and complete copy of each written
agreement (as amended to date) listed in Section 3(o) of the DISCLOSURE SCHEDULE
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 3(o) of the DISCLOSURE SCHEDULE (as amended to
date). With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) except as set forth in
Section 3(o) of the DISCLOSURE SCHEDULE with respect to assignability, the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in Section 2 above); (C) to the Knowledge of Seller, no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement. Except as set forth in "Shared Agreements" on Exhibit B,
there is no agreement, contract, indenture, mortgage, contract, Security
Interest, warranty, guaranty, purchase order, other similar arrangement or right
thereunder material to Seller's conduct of the Business that does not constitute
an Acquired Asset.
(p) POWERS OF ATTORNEY. There are no outstanding powers of
<PAGE>
attorney executed on behalf of any of the Business.
(q) INSURANCE. Section 3(q) of the DISCLOSURE SCHEDULE lists and
describes each insurance policy currently maintained by Seller pertaining to the
Business (including policies providing property, casualty, liability, and
workers' compensation coverage and bond and surety arrangements).
(r) LITIGATION. Section 3(r) of the DISCLOSURE SCHEDULE sets forth
each instance in which Seller, as pertains to the Business, (i) is subject to
any outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the Knowledge of Seller, is threatened to be made a party to
any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 3(r) of the
DISCLOSURE SCHEDULE could result in any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
any of the Business.
(s) PRODUCT WARRANTIES AND LIABILITIES. Section 3(s) of the
DISCLOSURE SCHEDULE sets forth each written claim and to Seller's Knowledge each
oral claim made during the six years ended prior to the date of this Agreement
with respect to warranties in respect of products of the Business or any injury
or alleged injury to individuals or property arising from products of the
Business.
(t) INTELLECTUAL PROPERTY RIGHTS.
(i) The Cray-Specific Technology and Core PC Technology include
all of the intellectual property rights owned or controlled by Seller that
are material to the conduct of the Business. The descriptions of the Cray-
Specific Technology and the Patent Rights included in Core PC Technology in
Schedules 2.1 and 3.1 to the Technology Assignment and License Agreement
are complete and accurate.
(ii) Except for four cross-license agreements between Seller and
third parties (the "Cross-License Agreements"), Seller is not party to any
written agreement that transfers, licenses or otherwise grants any interest
in the Core PC Technology. The Cross-License Agreements relate solely to
patents and do not apply to other technology. The Cross-License
Agreements contain non-exclusive cross-licenses granted by Seller to the
third parties and granted by the third parties to Seller of certain broadly
defined classes of patents (the "Subject Patents"). No royalties are
payable thereunder. The Cross-License Agreements contain covenants not to
sue and/or releases with respect to the Subject Patents. The Cross-License
Agreements were not entered into in connection with the Business. Seller
does not rely on the Cross-License Agreements for the conduct of the
Business. The licenses granted to Seller in the Cross-License Agreements
will inure to the benefit of Buyer in connection with the manufacture of
products for Seller.
(iii) Except for the Cross-License Agreements, which contain a
requirement that any assignment of a Subject Patent be made subject to the
Cross-License Agreements, Seller has the right to assign to Buyer all
right, title and interest in the Core PC Technology, has the right to grant
Buyer the licenses and access rights granted in the Cray-Specific
Technology without geographical limitation and has the full right to make
disclosure of all information included in the Core PC Technology and the
Cray-Specific Technology. There are no pending or asserted claims by third
parties contesting Seller's rights to the Core PC Technology and the Cray-
Specific Technology. To the extent required to obtain any procedural or
substantive rights, all assignments of or other documents affecting title
to Patent Rights (other than "Patent Disclosures") listed on Schedule 2.1
to the Technology Assignment and License Agreement have been recorded in
all appropriate government
<PAGE>
offices and there are no breaks in the chain of title to Seller
with respect to any such Patent Rights (other than "Patent Disclosures").
To the extent any defect is found with respect to such perfection of
title, Seller agrees to use all reasonable efforts to remedy such defect
at Seller's expense. The Core PC Intellectual Property Rights listed
on Schedule 2.1 to the Technology Assignment and License Agreement are
owned by Seller free and clear of any mortgages, pledges, liens, other
encumbrances, or, except for the Cross-License Agreements, covenants.
(iv) As to the Patent Rights included in the Core PC Intellectual
Property Rights (other than "Patent Disclosures"):
(1) all such rights have been duly registered or filed in the
U.S. Patent and Trademark Office; and
(2) Seller has paid any fees, including patent maintenance fees,
and taken all other actions due or required prior to the Closing Date
that are necessary to obtain or maintain all such Patent Rights in
force.
(v) To the Knowledge of Seller, no act or failure to act by
Seller, any of its employees, duly authorized attorneys or agents during
the registration or filing or any proceeding relating to any Patent Rights
included in the Core PC Intellectual Property Rights would make such right
invalid, or unenforceable or negate the right to issuance of such right.
No claim by any third party contesting the validity of any Core PC
Intellectual Property Rights has been made or is currently outstanding, and
the Seller has not received any notice of, and to the Knowledge of Seller,
there is no infringement, misappropriation or violation by others of, (i)
any Core PC Intellectual Property Rights or (ii) any Cray-Specific
Intellectual Property Rights.
(vi) No third party has claimed or asserted that the possession
or use of any material asset of the Business, in the manner it has been
possessed or used in the Business before the Closing Date has resulted in
any infringement, misappropriation or violation of any patent, copyright,
trade secret or any other intellectual property right of any third party
that would have a material adverse effect on the business or financial
condition of the Business, taken as a whole, or the ability of Seller to
consummate the transactions contemplated hereby.
(vii) The Seller has taken reasonable secrecy measures to
protect material Trade Secrets used in the Business, and, to the Knowledge
of Seller, no third party has obtained any substantial portion of the
Operations Manuals or the Seller-developed design rules relating to
manufacturability contained in the product specifications for Existing
Products (as defined in the Supply Agreement).
(viii) No royalty or other payment obligation and no
contractual restriction binding on Seller exists with respect to use by
Seller or any successor of Seller of the Core PC Technology or the Cray-
Specific Technology.
(ix) All third party software used in the Business is used under
and in full compliance with the terms of a shrink-wrap or signed license
held by Seller that is in effect as of the Closing Date, and except for
such licenses for third party software and the Cross-License Agreements,
there are no licenses of any patent, copyright, trade secret or any other
intellectual property right of any third party granted to Seller for use in
connection with the Business.
(u) EMPLOYEES. Except as set forth in Section 3(u) of the DISCLOSURE
SCHEDULE, to the actual Knowledge of Seller, without inquiry, no executive, key
employee, or group of employees of the Business has any plans to terminate
employment. Seller is not a party to or bound by any collective bargaining
<PAGE>
agreement pertaining to the Business, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. Seller has not committed any unfair labor practice. Seller has no
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Business.
(v) EMPLOYEE BENEFITS.
(i) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the term "PLAN" means every plan, fund, contract, program
and arrangement (whether written or not) which is maintained or contributed to
by Seller for the benefit of present or former employees of the Business,
including those intended to provide: (i) medical, surgical, health care,
hospitalization, dental, vision, workers' compensation, life insurance, death,
disability, legal services, severance, sickness or accident benefits (whether or
not defined in Section 3(1) of ERISA), (ii) pension, profit sharing, stock
bonus, retirement, supplemental retirement or deferred compensation benefits
(whether or not tax qualified and whether or not defined in Section 3(2) of
ERISA), (iii) bonus, incentive compensation, stock option, stock appreciation
right, phantom stock or stock purchase benefits or (iv) salary continuation,
unemployment, supplemental unemployment, termination pay, vacation or holiday
benefits (whether or not defined in Section 3(3) of ERISA).
(ii) The term "PLAN" shall also include every such plan, fund,
contract, program and arrangement for the benefit of present or former employees
of the Business: (i) which Seller has committed to implement, establish, adopt
or contribute to in the future, (ii) for which Seller is or may be financially
liable as a result of the direct sponsor's affiliation to Seller or its owners
(whether or not such affiliation exists at the date of this Agreement and
notwithstanding that the Plan is not maintained by Seller for the benefit of its
employees or former employees), (iii) which is in the process of terminating
(but such term does not include any arrangement that has been terminated and
completely wound up prior to the date of this Agreement such that Seller has no
present or potential liability with respect to such arrangement) or (iv) for or
with respect to which Seller is or may become liable under any common law
successor doctrine, express successor liability provisions of law, provisions of
a collective bargaining agreement, labor or employment law or agreement with a
predecessor employer.
(iii) Section 3(v) of the DISCLOSURE SCHEDULE lists all Plans by
name and brief description identifying: (i) the type of Plan, (ii) the funding
arrangements for the Plan, (iii) the sponsorship of the Plan and (iv) the
participating employers in the Plan.
(iv) Section 3(v) of the DISCLOSURE SCHEDULE identifies each employee
of the Business who is: (i) absent from active employment due to short or long
term disability, (ii) absent from active employment on a leave pursuant to the
Family and Medical Leave Act or a comparable state law, (iii) absent from active
employment on any other leave or approved absence (together with the reason for
each leave or absence, (iv) absent from active employment due to military
service (under conditions that give the employee rights to re-employment).
(v) The Cray Research, Inc. Retirement Savings Plus Plan ("Seller's
401(k) Plan") is tax qualified.
(w) GUARANTIES. Seller is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person with
respect to the Business.
(x) ENVIRONMENT, HEALTH, AND SAFETY. Seller and Buyer have caused an
environmental assessment (the "Environmental Assessment") of the Business to be
completed. Seller has notified Buyer of Environmental, Health, and Safety Laws
set forth on Section 3(x) of the DISCLOSURE SCHEDULE to be cured by or
indemnified against Seller. To its Knowledge, Seller has not failed to
disclose to Buyer (A) any material existing violation of
<PAGE>
Environmental, Health, and Safety Laws in connection with the Business and
known to Seller to be such a violation; or (B) any material contamination of
the environment by Seller in connection with the Business and known by Seller
to give rise, if identified by the appropriate governmental authority or
other person, to liability for remediation and/or damages.
(y) DISCLOSURE. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of Buyer, enforceable in accordance
with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Buyer is subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject. Except for filings under the Hart-Scott-Rodino Act, Buyer does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in Section 2 above).
(d) BROKERS' FEES. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Seller could become liable
or obligated.
(e) BUYER'S 401(K) PLAN. Buyer's 401(k) plan ("Buyer's 401(k) Plan")
is tax qualified and on the Closing Date will contain all provisions necessary
for the acceptance of a plan-to-plan transfer of assets in cash from Seller's
401(k) Plan.
(f) OFFERS OF EMPLOYMENT. The offers of employment to be extended to
Seller's employees pursuant to Section 5(l) hereof are not in excess of Buyer's
projected labor requirements for the six-month period following the Closing and
Buyer does not have any present intention to terminate within such six-month
period any of Seller's employees who accept such offers of employment from
Buyer.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect
to the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its best efforts to take
all action and to do all things necessary, proper, or advisable in order
<PAGE>
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the Closing conditions
set forth in Section 7 below) and shall cooperate with one another in good
faith to examine and evaluate the contractual matters disclosed in Section
3(o) of the DISCLOSURE SCHEDULE to ensure that they are correctly and
completely disclosed in a manner that will give effect to the intent of the
parties hereunder.
(b) NOTICES AND CONSENTS. Seller will give any notices to third
parties, and Seller will use its best efforts to obtain any third party
consents, that Buyer may request in connection with the matters referred to in
Section 3(c) above. Each of the Parties will give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(c) and Section 4(c) above. Without limiting
the generality of the foregoing, each of the Parties will (x) file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the United States Department of
Justice under the Hart-Scott-Rodino Act, will use its best efforts to obtain an
early termination of the applicable waiting period, and will make any further
filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith and (y) make either joint or separate filings with the
Committee on Foreign Investment in the United States under Exon-Florio within
two business days of the date hereof, except for classified information,
provision for which shall be made as soon as reasonably practicable.
(c) OPERATION OF BUSINESS. Seller will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, Seller will not
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 3(g) above.
(d) PRESERVATION OF BUSINESS. As it pertains to the Business, Seller
will keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. Seller will permit representatives of Buyer to have
full access to all premises, properties, personnel, books, records, contracts,
and documents pertaining to the Business; PROVIDED, HOWEVER, that Buyer shall
not unreasonably interfere with the manufacture of products in the Ordinary
Course of Business.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other Party of any material adverse development causing a breach
of any of its own representations and warranties in Section 3 and Section 4
above. No disclosure by any Party pursuant to this Section 5(f), however, shall
be deemed to amend or supplement the DISCLOSURE SCHEDULE or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to the
acquisition of the Business or any substantial portion of the Business or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Seller will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) TITLE INSURANCE. Seller will obtain and deliver to Buyer within
seven days of the date hereof a commitment for an ALTA Owner's Policy of Title
Insurance Form B-1992 issued by Chicago Title Insurance Company, in such amount
as Buyer may determine to be the fair market value of such real property
(including all improvements located thereon), insuring, subject to such title
company's closing requirements, title to the real property described in Exhibit
A to be in Buyer as of the Closing (subject only to the title exceptions
described above in Section 3(k)(i) and Section 3(k)(i) of the DISCLOSURE
<PAGE>
SCHEDULE). Each title insurance commitment shall commit to issue a policy which
shall (A) insure title to the real property and all recorded easements
benefitting such real property, (B) contain a "non-imputation" endorsement to
the effect that title defects known to the officers and directors of the owner
prior to the Closing shall not be deemed "facts known to the insured" for
purposes of the policy, and (C) be accompanied by recorded copies of all
documents referred to therein. In addition, Seller shall request that the
commitment (A) contain an "extended coverage endorsement" insuring over the
general exceptions contained customarily in such policies, (B) contain an ALTA
Zoning Endorsement 3.1 (or equivalent), (C) contain an endorsement insuring that
the real property described in the title insurance policy is the same real
estate as shown on the Survey delivered with respect to such property, (D)
contain an endorsement insuring that each street adjacent to the real property
is a public street and that there is direct and unencumbered pedestrian and
vehicular access to such street from the real property, (E) contain an inflation
endorsement providing for annual adjustments in the amount of coverage
corresponding to the annual percentage increase, if any, in the United States
Department of Commerce Composite Construction Cost Index and (F) if the real
property consists of adjacent record parcels, contain a "contiguity" endorsement
insuring that all of the record parcels are contiguous to one another.
(i) SURVEYS. With respect to each parcel of real property as to
which a title insurance policy is to be procured pursuant to Section 5(h) above,
Seller will procure in preparation for the Closing a current survey of the real
property certified to Buyer, prepared by a licensed surveyor and conforming to
current ALTA Minimum Detail Requirements for Land Title Surveys (1992 Urban),
disclosing the location of all improvements, easements, party walls, sidewalks,
roadways, utility lines, and other matters shown customarily on such surveys,
and showing access affirmatively to public streets and roads (the "Survey").
(j) ENVIRONMENTAL ACCESS. Seller shall allow Buyer and its
representatives access to the real property of the Business, at all reasonable
times upon prior written notice to Seller prior to Closing, for the purpose of
conducting such inspections, reviews, inventories, observations, tests,
analyses, examinations and investigations as Buyer may desire (including,
without limitation, soil borings and tests, chemical tests and the installation
of monitoring wells); PROVIDED, HOWEVER, that Buyer and its representatives
shall not unreasonably interfere with the manufacture of products in the
Ordinary Course of Business. Seller shall allow Buyer and its representatives
access to all plans and specifications for the improvements on such real
property and all current and historical maintenance records, licenses, permits,
reports, certificates, correspondence with governmental authorities or other
items relating to the construction, operation or environmental assessment of the
real property and/or the environmental audit of the Business for the purposes of
reviewing and making photocopies (or other reproductions) of the same. Upon
request and subject to reasonable limitations, Seller shall make available, for
the purpose of interviews with Buyer and its representatives such employees and
representatives of Seller as may have knowledge useful in the environmental
assessment of such real property and/or the environmental audit of the Business.
(k) CONFIGURATION. Prior to Closing, Seller shall disassemble,
reassemble, rearrange, equip and otherwise further outfit the PCBM, including
moving Acquired Assets from the PCBD to the PCBM. Seller shall move and/or
rearrange equipment between Side A and Side B of the PCBM, so that Side B is
fully capable of producing prior to Closing the Products (as defined in the
Supply Agreement) required to be manufactured by Buyer in 1996. Other than the
foregoing, Buyer would be solely responsible for costs incurred for the
exclusive purpose of manufacturing products other than under the Supply
Agreement.
(l) EMPLOYEES. Buyer shall offer employment to substantially all of
the employees of the Business, subject to Closing. Buyer shall preserve
approximately the wage rates paid by Seller, but Buyer may adjust any
<PAGE>
scales in its discretion and need not offer a comparable classification as to
any employee. Buyer will offer its standard benefit and welfare plans
listed on Exhibit L to any person to whom an employment offer is made and
will provide credit for eligibility and vesting (but not benefit accrual) for
service with Seller prior to the Closing Date. This Section 5(l) is an
agreement solely between Seller and Buyer. Nothing contained in this
Section, whether express or implied, confers upon any employee of Seller, any
employee of Buyer or any other person, any rights or remedies, including, but
not limited to (a) any right to employment, (b) any right to continued
employment for any specified period, or (c) any right to claim any particular
compensation, benefit, or aggregation of benefits, of any kind or nature
whatsoever, as a result of this Section. Seller shall not take any action
that would impair or hinder Buyer's ability to successfully employ employees
of the Business on the date hereof. Buyer shall have no responsibility for
continuation rights arising under federal or state law as applied to plans
that are group health plans (as defined in Section 601 ET SEQ. of ERISA), and
Seller shall retain all responsibility for such continuation rights. As soon
as reasonably possible following the Closing Date, Seller and Buyer shall
make all filings required under the Code or otherwise and then cause a
transfer from Seller's 401(k) Plan to Buyer's 401(k) Plan of the accounts of
each employee of Seller participating in Seller's 401(k) Plan who accepts
Buyer's offer of employment.
(m) OBJECTIONS TO TITLE. Within ten days after receiving the last
of the materials to be delivered pursuant to Section 5(h) and 5(i) Buyer shall
have the right to make written objections ("Objections") to the failure of such
materials to comply with those sections or to the marketability of title to
parcels shown on Exhibit A, including the disclosure in the Survey of a survey
defect or encroachment from or onto the real property covered thereby. Buyer
shall not make any Objections with respect to the matters set forth in Section
3(k)(i) of the DISCLOSURE SCHEDULE. Buyer's failure to make Objections within
such time period will constitute waiver of Objections. Seller will have ten
days after receipt of the Objections to cure the Objections, during which period
the Closing will be postponed at the option of Buyer. Seller shall use its best
efforts to cure any Objections. To the extent an Objection relates to a
mortgage, lien or monetary judgment, Buyer shall have the right to apply a
portion of the cash payable to Seller at the Closing to satisfaction of such
Objection and the amount so applied shall reduce the amount of cash payable to
Seller at the Closing. If the Objections are not cured within such period,
Buyer will have the option to (i) terminate this Agreement, (ii) close and
withhold from the Purchase Price an amount which, in the reasonable judgment of
Buyer, is sufficient to assure cure of the Objections (provided, however, that
the amount of such reduction shall not exceed $100,000 exclusive of any such
reduction with respect to mortgages, liens or monetary judgments), and if Seller
does not cure such Objections within 90 days after the Closing Date, Buyer may
then cure such Objections and charge the costs of such cure (including
reasonable attorney's fees) against the amount withheld, or (iii) waive the
objections.
(n) UCC SEARCHES. Seller shall obtain and deliver to Buyer a report
of UCC searches made of the applicable Uniform Commercial Code records showing
no UCC filings regarding any of the Business or its properties.
(o) INSPECTIONS. Seller and Buyer shall jointly cause (i) an
occupational health and safety inspection and (ii) an Americans with
Disabilities Act inspection by inspectors mutually agreeable to the Parties, who
shall deliver their reports as to actions reasonably necessary to bring the PCBM
and 850 Industrial Boulevard into reasonable compliance with OSHA and ADA,
respectively. The items disclosed in such reports shall be added to the
information contained on DISCLOSURE SCHEDULE 3(x).
(p) CONVEYANCING. At or before Closing, at Seller's expense, each
parcel of real property shown on Exhibit A will be (i) subdivided from adjacent
property owned by Seller which is not included on Exhibit A and (ii) resurveyed
consistent with the descriptions shown on Exhibit A pursuant to Certified Survey
Maps filed with the Register's Office of Chippewa County, Wisconsin. The legal
descriptions contained in deeds and other conveyancing
<PAGE>
documents delivered at Closing shall be consistent with such Certified Survey
Maps.
(q) EASEMENTS AND EXCEPTIONS. In addition to the exceptions shown in
Section 3(k)(i) of the DISCLOSURE SCHEDULE, Buyer and Seller agree in connection
with the subdivision and resurveying described in Section 5(p) to enter into at
Closing and record reasonable reciprocal easement agreements with respect to
each parcel of real property shown on Exhibit A for any access ways, utility
lines and improvements, drainage facilities or slopes as may be reasonably
necessary to accommodate the separate ownership of each parcel of real property
shown on Exhibit A and the adjacent property owned by Seller. Buyer and Seller
agree to negotiate reasonably and in good faith with respect to such easements.
(r) CITY RIGHT OF FIRST REFUSAL. Seller, the City of Chippewa Falls
("City") and the Chippewa Falls Industrial Development Corporation ("IDC") are
parties to that certain First Right of Refusal dated June 7, 1988 (the "Refusal
Agreement"), pursuant to which Seller is purportedly the holder of a right of
first refusal with respect to certain land in the vicinity of Parcel 1 of the
real estate shown on Exhibit A. Seller agrees prior to Closing to request both
the City and the IDC to consent to the partial assignment by Seller to Buyer of
the Refusal Agreement and the rights and obligations thereunder to the extent
the same relate to the East 11.76 acres of Lot 1, C.S.M. #769 (the "Identified
Parcel"), but only to the extent the Identified Parcel is currently owned by the
IDC and remains subject to the Refusal Agreement. From and after the date
hereof, to and including April 1, 1997 or such earlier date as the above
described assignment is consummated, (i) Seller shall not relinquish any right
under the Refusal Agreement relating to the Identified Parcel without the
consent of Buyer, and (ii) should the City propose to sell the Identified Parcel
or any portion thereof to a third party, Seller shall provide Buyer any notice
that it shall receive from the City, shall, if directed by Buyer, exercise its
first refusal right, purchase such parcel on terms approved by Buyer and, upon
such purchase, convey such parcel to Buyer, and Buyer shall reimburse Seller for
its costs incurred in such purchase; provided, however, that in no event shall
Seller be required by the foregoing provisions to purchase any property covered
by the Refusal Agreement other than the Identified Parcel.
6. POST-CLOSING COVENANTS. The Parties agree as follows with
respect to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party may
reasonably request, at the sole cost and expense of the requesting Party (unless
the requesting Party is entitled to indemnification therefor under Section 8
below). Seller acknowledges and agrees that from and after the Closing Buyer
will be entitled to possession of all documents, records, and agreements of any
sort relating to the Business to the extent included in the Acquired Assets.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Business, the other Party will cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available its personnel, and provide such testimony and access to its books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
<PAGE>
(c) TRANSITION. Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of any of the Business from maintaining
the same business relationships with Buyer after the Closing as it maintained
with the Business prior to the Closing. Seller will refer all customer
inquiries relating to the businesses of the Business to Buyer from and after the
Closing.
(d) CONFIDENTIALITY. To the extent Seller continues to have copies
of or to otherwise have access to or possession of information that was treated
by Seller as confidential information of Seller prior to the Closing Date, such
confidential information shall be handled in accordance with the Master
Confidentiality Agreement.
(e) OTHER PARTY EMPLOYEES. To the extent permitted under the law,
Buyer agrees not to initiate contact with the intent to recruit and hire any
then current Seller employee not associated in any significant way with the
Business for a period of two years from the Closing Date. To the extent
permitted under the law, Seller agrees not to initiate contact with the intent
to recruit and hire any then current Buyer employee for a period of two years
from the Closing Date. This section does not prohibit either Party from placing
general advertisements, accepting unsolicited employment applications and/or
resumes, responding to job seekers initiating their own contact with the Party,
or the like; PROVIDED, HOWEVER, that in the event either Party hires in excess
of twelve then-current employees of the other Party during any year in such two-
year period, the hiring Party will pay to the other Party at the end of each
year during such two-year period an amount equal to $2,000 multiplied by the
number of such persons in excess of twelve so hired during the year.
(f) ENVIRONMENTAL AND SAFETY MATTERS. Seller agrees to cure those
matters set forth on Section 3(x) of the DISCLOSURE SCHEDULE as amended pursuant
to Section 5(o) to the reasonable satisfaction of Buyer or to indemnify Buyer
with respect to any claims or liabilities arising from such matters as permitted
in Section 8(b); PROVIDED, HOWEVER, that the aggregate liability of Seller for
such cure and/or indemnification shall be limited to $1,000,000.
(g) SIGNS; USE OF CRAY NAME. Within 60 days after the Closing Date,
Buyer will, at its own expense, remove any and all exterior and interior signs
and identifiers which refer or pertain to Seller at all locations occupied by
the Business listed on Exhibit A. After such period, except as otherwise
provided herein, Buyer will not use or display Seller's name, service marks,
trademarks or other identifiers without the prior written consent of Seller.
(h) SUPPLIES AND DOCUMENTS. Buyer shall have the right to use
existing supplies and documents acquired with the facilities of the Business,
including, but not limited to, operating manuals, instructional documents and
similar materials, for a period not to exceed 12 months following the Closing
Date, provided that Buyer agrees (i) to use only those Seller-labeled supplies
and documents existing in inventory as of the Closing Date, (ii) to
conspicuously state on any purchase orders or other documents intended to have
legal effect vis-a-vis third parties that they are no longer documents of Seller
and (iii) not to order or utilize in any manner any additional supplies and
documents containing the name of Seller. In the event Buyer demonstrates a good
faith need to extend the 12-month use period specified above, Seller shall not
unreasonably withhold its consent to such extension.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
<PAGE>
the Closing Date;
(ii) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) Seller shall have procured all of the third party
consents specified in Section 5(b) above material to the conduct of the
Business of Buyer, all of the title insurance commitments specified in
Section 5(h) above (and the title insurance company shall be prepared to
issue policies in accordance with the commitments), and all of the surveys
specified in Section 5(i) above, and any objections made by Buyer pursuant
to Section 5(m) shall have been handled as provided therein;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or
(C) affect adversely the right of Buyer to own the Acquired Assets or to
operate the former businesses of the Business;
(v) Seller shall have delivered to Buyer a certificate to the
effect that each of the conditions specified above in Section 7(a)(i)-(iv)
is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and Seller, and Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vii) Buyer shall have received from counsel to Seller an
opinion in form and substance as set forth in Exhibit M attached hereto,
addressed to Buyer, and dated as of the Closing Date;
(viii) the configuration contemplated by Section 5(k) shall
have been completed and Seller shall demonstrate to Buyer's satisfaction
that the PCBM is capable of producing the Products (as defined in the
Supply Agreement) required to be manufactured by Buyer in 1996 in a
quantity and of a quality sufficient to allow Buyer to satisfy its
obligations under the Supply Agreement.
(ix) Buyer shall have employed, subject to Closing, at least
eight of the persons shown on Exhibit N.
(x) all actions to be taken by Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to Buyer.
Buyer may waive any condition specified in this Section 7(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
<PAGE>
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and
no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified above in Section 7(b)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and Seller and Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vi) Seller shall have received from counsel to Buyer an opinion
in form and substance as forth in Exhibit O attached hereto, addressed to
Seller, and dated as of the Closing Date; and
(vii) all actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to Seller.
Seller may waive any condition specified in this Section 7(b) if it executes a
writing so stating at or prior to the Closing.
(c) LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE TO ASSETS. If, between
the date of this Agreement and the Closing Date, tangible Acquired Assets are
lost, destroyed, or condemned or suffer any material damage, and if Buyer shall
have waived the condition contained in Section 7(a)(i) as it relates to Section
3(g)(x), then, at the option of Buyer, either (a) the Purchase Price shall be
reduced by the excess of (i) the fair market value of such Acquired Assets prior
to such loss, destruction, condemnation or damage over (ii) the salvage value,
if any, of such Acquired Assets following such loss, destruction, condemnation
or damage, or (b) no adjustment to the Purchase Price shall be made and Seller
shall, on the Closing Date, assign to Buyer all insurance and/or condemnation
proceeds payable to Seller on account of such loss, destruction, condemnation,
or damage pursuant to an assignment in form and substance satisfactory to Buyer
and pay to Buyer the amount of any deductible under any such insurance.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of Buyer and Seller contained in this Agreement
shall survive the Closing (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect thereafter (subject to the limitations set
forth in Section 8(g)(i) hereof).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER.
(i) In the event Seller breaches (or in the event any third Party
alleges facts that, if true, would mean Seller has breached) any of its
representations, warranties and covenants contained in this Agreement (including
its attachments), other than the last sentence of Section 3(x), Seller agrees to
indemnify Buyer from and against the entirety of any Adverse Consequences Buyer
may suffer through and after the date of the claim for indemnification resulting
from, arising out of, relating to, in the nature of,
<PAGE>
or caused by the breach (or the alleged breach), subject to limitations set
forth in Section 6(f) and Section 8(g); and
(ii) Seller agrees to indemnify Buyer from and against the entirety of
any Adverse Consequences Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of Seller which is not
an Assumed Liability (including any Liability of Seller that becomes a Liability
of Buyer under any bulk transfer law of any jurisdiction, under any common law
doctrine of de facto merger or successor liability, or otherwise by operation of
law); PROVIDED, HOWEVER, that this Section 8(b)(ii) shall not be deemed to apply
to any Environmental, Health, and Safety Laws or any liability arising
thereunder.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER.
(i) In the event Buyer breaches (or in the event any third party
alleges facts that, if true, would mean Buyer has breached) any of its
representations, warranties, and covenants contained in this Agreement
(including its attachments), Buyer agrees to indemnify Seller from and against
the entirety of any Adverse Consequences Seller may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach), subject
to the limitations set forth in Section 8(g).
(ii) Buyer agrees to indemnify Seller from and against the entirety of
any Adverse Consequences Seller may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Assumed Liability.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give rise
to a claim for indemnification against the other Party (the "INDEMNIFYING
PARTY") under this Section 8, then the Indemnified Party shall promptly notify
the Indemnifying Party thereof in writing; PROVIDED, HOWEVER, that no delay on
the part of the Indemnified Party in notifying the Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify, to the extent required by this Agreement, the
Indemnified Party from and against any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder, (C)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (D) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party and (C) without the prior written consent of the Indemnified
Party, the Indemnifying Party will not consent to the entry of
<PAGE>
any judgment or enter into any settlement with respect to the Third Party
Claim (1) for injunctive or other equitable relief or (2) except for monetary
damages to be contemporaneously paid by the Indemnifying Party.
(iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (B) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the reasonable
costs of defending against the Third Party Claim (including attorneys' fees and
expenses), and (C) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
extent provided in this Section 8.
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take
into account the time cost of money (using the Applicable Rate as the discount
rate) in determining Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.
(f) EXCLUSIVE REMEDIES. Buyer acknowledges and agrees that its sole
and exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Section 8. In furtherance of the foregoing, Buyer waives, to the
fullest extent permitted under applicable law, any and all rights, claims, and
causes of action that it may have against Seller arising under or based upon any
Federal, state or local statute, law, ordinance, rule or regulation (including,
without limitation, those relating to Environmental, Health, and Safety Laws),
or arising under or based upon common law or otherwise, except to the extent
provided in this Section 8.
(g) OTHER INDEMNIFICATION PROVISIONS.
(i) Notwithstanding anything to the contrary provided elsewhere in
this Agreement, the obligations of Seller and Buyer under this Agreement to
indemnify each other with respect to any claim pursuant to Section 8(b)(i) or
Section 8(c)(i) hereof, shall be of no force or effect unless the party claiming
an indemnification obligation by the other party has given such other party
written notice of such claim prior to the 28-month anniversary of the Closing
Date, except (a) for (i) any claim based on the untruth or inaccuracy of any
representations or warranties of Seller contained in Section 3(e) (regarding
title to assets), the indemnification obligations for which shall survive
without time limit, or (ii) any claim based on the untruth or inaccuracy of the
last sentence contained in Section 3(x) (regarding Environmental, Health and
Safety), the indemnification provisions for which are set forth in Section
8(g)(iii), and (b) that with respect to any pending claim for indemnity
hereunder which shall have been made prior to such 28-month anniversary, the
right to indemnity shall not terminate until the final determination and
satisfaction of such claim.
(ii) No claim for indemnification under this Section 8 shall be made
by Buyer or Seller unless and until the aggregate amount of all such claims by
such party shall exceed $50,000, and then only as to the amount by which
aggregate claims by such party exceed $50,000.
(iii) The obligations of Seller under this Agreement to indemnify
Buyer with respect to any claim based on the untruth or inaccuracy of the last
sentence contained in Section 3(x) (regarding Environmental, Health and Safety),
shall be of no force or effect unless the Buyer has given Seller written notice
of such claim prior to the third anniversary of the Closing Date.
Notwithstanding anything to the contrary provided in this Agreement, in no event
shall Seller be liable to the Buyer for amounts payable under this Section
8(g)(iii) to the extent such amounts exceed in the aggregate $5,000,000.
<PAGE>
(iv) Notwithstanding anything to the contrary provided in this
Agreement, in no event shall Seller be liable to the Buyer for amounts payable
under this Section 8 to the extent such amounts exceed in the aggregate
$17,500,000 (excluding any amounts payable by Seller under the Section
8(g)(iii)).
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) Buyer and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice
to Seller at any time prior to the Closing (A) in the event Seller has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Buyer has notified Seller of the
breach, and the breach has continued without cure for a period of 15 days
after the notice of breach, (B) pursuant to Section 5(m) or (C) if the
Closing shall not have occurred on or before March 31, 1996, by reason of
the failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iii) Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event Buyer has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Seller has notified Buyer of the
breach, and the breach has continued without cure for a period of 15 days
after the notice of breach, or (B) if the Closing shall not have occurred
on or before March 31, 1996, by reason of the failure of any condition
precedent under Section 7(b) hereof (unless the failure results primarily
from Seller itself breaching any representation, warranty, or covenant
contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to the other Party
(except for any Liability of any Party then in breach).
10. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they have related in any way
to the subject matter hereof, except that the Amended and Restated
Confidentiality Agreement effective October 21, 1995, between Seller and Johnson
Matthey Inc. shall remain in full force and effect.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
<PAGE>
or any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party; PROVIDED, HOWEVER, that Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
affiliates and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Seller:
Cray Research, Inc.
655A Lone Oak Drive
Eagan, Minnesota 55121
Attention: Executive Vice President of
Supercomputing Operations
Copy to:
Cray Research, Inc.
655A Lone Oak Drive
Eagan, Minnesota 55121
Attention: General Counsel
If to Buyer:
Johnson Matthey Electronics Division
15128 East Euclid Avenue
Spokane, Washington 99216
Attention: President
Copy to:
Johnson Matthey Inc.
Legal Department
1401 King Road
West Chester, Pennsylvania 19380-1497
Attention: Division General Counsel
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Minnesota
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Minnesota or any other jurisdiction) that would cause
<PAGE>
the application of the laws of any jurisdiction other than the State of
Minnesota.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in
any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of Buyer and Seller will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
DISCLOSURE SCHEDULE shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the DISCLOSURE SCHEDULE identifies
the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 10(o)
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Minneapolis, Minnesota, in
any action or proceeding arising out of or relating to this
<PAGE>
Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement
in any other court. Each of the Parties waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives
any bond, surety, or other security that might be required of any other Party
with respect thereto. Any Party may make service on the other Party by
sending or delivering a copy of the process (i) to the Party to be served at
the address and in the manner provided for the giving of notices in Section
10(g) above. Nothing in this Section 10(o), however, shall affect the right
of any Party to serve legal process in any other manner permitted by law or
in equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Asset
Purchase Agreement on the date first above written.
JOHNSON MATTHEY
SEMICONDUCTOR PACKAGES, INC.
By: /S/ David Morgan
-----------------------------------
Title: Group Corporate Development
Director
CRAY RESEARCH, INC.
By: /S/ J. Phillip Samper
-----------------------------------
Title: Chief Executive Officer
<PAGE>
GUARANTY
Johnson Matthey Inc., a Pennsylvania corporation of which Johnson
Matthey Semiconductor Packages, Inc. is a wholly owned subsidiary, hereby
unconditionally guarantees to and for the benefit of Cray Research, Inc., its
successors and assigns, payment, observance and performance of all
obligations of Johnson Matthey Semiconductor Packages, Inc. under the
foregoing Asset Purchase Agreement, as from time to time supplemented,
modified or amended.
JOHNSON MATTHEY INC.
By: _________________________________________
Name: _____________________________________
Finance Director, Electronics
<PAGE>
EXHIBIT 10.11
AMENDMENT NUMBER ONE TO
THE CRAY RESEARCH, INC. EXECUTIVES
SEVERANCE COMPENSATION PLAN;
THE CRAY RESEARCH, INC. KEY MANAGEMENT/PROFESSIONAL
SEVERANCE COMPENSATION PLAN; AND
THE CRAY RESEARCH, INC. GENERAL EMPLOYEE
SEVERANCE COMPENSATION PLAN
WHEREAS, Cray Research, Inc. (the "Company") maintains the Cray
Research, Inc. Executives Severance Compensation Plan, the Cray Research, Inc.
Key Management/Professional Severance Compensation Plan, and the Cray Research,
Inc. General Employee Severance Compensation Plan (collectively, the "1989
Severance Plans");
WHEREAS, the Company wishes to amend the 1989 Severance Plans to
clarify the original intention of each of the 1989 Severance Plans by clarifying
the definition of "Change of Control" under each of the 1989 Severance Plans;
NOW, THEREFORE, pursuant to Section 9.2 of each of the 1989 Severance
Plans, each of the 1989 Severance Plans is hereby amended effective as of
November 15, 1989 as follows:
1. Section 2.1 of each of the 1989 Severance Plans is hereby amended
by amending the definition of "Change of Control" where it appears by replacing
the language prior to the first semicolon with the following language:
" 'Change of Control' of the Company excludes a consensual offer to
purchase shares of capital stock of the Company, merger, or other
acquisition approved by the Board of Directors of the Company as such Board
of Directors is constituted prior to the commencement of a potential Change
of Control (without regard to this exclusion) and includes each and all of
the following occurrences:"
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed on its behalf on this 25th day of February, 1996.
CRAY RESEARCH, INC.
By: /S/ J. Phillip Samper
---------------------------------
J. Phillip Samper
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 10.12
CRAY RESEARCH, INC.
DEFERRED COMPENSATION PLAN
CRAY RESEARCH, INC. (the "Company") hereby establishes this DEFERRED
COMPENSATION PLAN for NON-EMPLOYEE DIRECTORS (the "Plan"), effective January 1,
1996, to attract high quality non-employee directors and promote an interest in
the successful operation of the company by providing deferred compensation
benefits. The benefits provided under the Plan shall be provided in
consideration for services to be performed after the effective date of the Plan,
but prior to the ceasing to be such a director.
ARTICLE 1
Definitions
1.1 When used in this Plan document with initial capital letters the following
terms have the meanings indicated unless a different meaning is plainly required
by the context.
Administrator shall mean the Company but the Plan Committee may act for the
Company in its capacity as Administrator as more fully described in Article 8 of
the Plan.
Annual Deferral shall mean the amount of Compensation which the Participant
elects to defer for a Plan Year pursuant to Articles 2 and 3 of the Plan.
Beneficiary shall mean the person or persons or entity designated as such
in accordance with Article 9 of the Plan.
Change in Control shall include a consolidation or merger where more than
75% of the Company's voting stock changes hands, a sale of more than 75% of the
Company's assets, a liquidation of more than 75% of the Company's assets, an
acquisition by a "beneficial owner", directly or indirectly, of 30% or more of
the combined voting power of the outstanding share of capital stock of the
Company entitled to vote for the Board of Directors of the Company, or a change
in the Board of Directors of the Company which results in fewer than a majority
of Directors being incumbent Directors (or Directors nominated by incumbent
Directors).
Any good faith determination by the Board of Directors of the Company as
constituted prior to any consolidation, merger, sale, stock acquisition, change
in the Board of Directors or other event as to whether a Change in Control
within the meaning of this definition has occurred as a result of such event
shall be conclusive.
Company shall mean Cray Research, Inc.
Compensation shall mean the sum of the Participant's Retainer, and Meeting
Fees for a Plan Year.
Deferral Account shall mean each account established for a Participant
pursuant to Paragraph 4.2 of the Plan.
Deferral Account Benefit shall mean the benefit which may become payable to
the Participant with respect to the Deferral Account as described in Article 6.
Deferred Compensation Plan shall mean this Cray Research, Inc. non-
qualified elective deferred compensation plan.
<PAGE>
Deferred Payment Year means the year elected by the Participant for the
payment of Deferral Account Benefits, pursuant to Articles 2 and 5 of the Plan.
The Deferred Payment Year shall not be later than the year in which the
Participant will attain age 70.
Earnings Rate shall mean the notional rate of return of the Investment
Option for the applicable period, taking into account any fees or charges which
would have been incurred had the Deferral Account actually been invested in the
Investment Option.
Eligible Director shall mean a non-employee member of the Board or
Directors of the Company.
Enrollment Period shall mean the periods for open enrollments designated in
the sole discretion of the Administrator.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended.
Investment Option shall mean the simulated financial investment designated
by the Plan Committee each Plan Year for purposes of calculating gains or losses
to be credited to a Participant's Deferral Account.
Meeting Fee shall mean cash compensation paid annually to members of the
company's board of directors for attendance at board meetings and committee
meetings.
Participant shall mean an Eligible Director who has elected to participate
and has completed a Participation Election pursuant to Article 2 of the Plan, or
an individual who is entitled to an immediate or deferred benefit under this
Plan by reason of having been such an Eligible Director.
Participation Election shall mean the Participant's written election to
participate in the Plan.
Plan means this Cray Research, Inc. Deferred Compensation Plan for Non-
Employee Directors, including amendments thereto.
Plan Committee shall mean the Committee appointed by the Compensation and
Development Committee of the Board of Director's to administer the Plan on
behalf of the Company as described in Article 8.
Plan Year shall mean the calendar year, and the first Plan Year shall be
the period from January 1, 1996 through December 31, 1996.
Retainer shall mean the Participant's annual basic rate of pay from the
Company (excluding meeting fees, and other non-regular forms of compensation)
before reductions for deferrals under the Plan.
Retirement shall mean (i) voluntary Termination of Membership after five
(5) or more years of service on the Board of Directors, or (ii) Termination of
Membership at the end of the term during which the age of seventy (70) is
reached.
Retirement Date shall mean the date on which a participant terminates
his/her membership on the Board of Directors, provided the director has
satisfied the definition of Retirement as defined in Article 1.
Scheduled Withdrawal shall mean a distribution of all of the entire amount
of Annual Deferrals and earnings thereon credited to the Participant's Deferral
Account as elected by the Participant pursuant to the provisions of Article 6.
Termination of Membership shall mean the Participant's membership on the
Company's Board of Directors ceasing for any reason whatsoever, whether
voluntary or involuntary.
<PAGE>
Unscheduled Withdrawal shall mean a distribution of all or a portion of the
amount credited to the Participant's Deferral Account as requested by the
Participant pursuant to the provisions of Article 6.
Valuation Date shall mean the last business day of the month in which
Termination of Membership, death, or Unscheduled Withdrawal occurs. In the
event of a Scheduled Withdrawal, the Valuation Date shall mean November 30 of
the year preceding the Plan Year in which benefit payments are to be made.
ARTICLE 2
Participation
2.1 Participation Election Form / Annual Deferral. An Eligible Director shall
become a Participant in the Plan on the first day of the Plan Year coincident
with or next following the date the director becomes an Eligible Director,
provided such Eligible Director has submitted to the Administrator a
Participation Election. To be effective, the Eligible Director must submit the
Participation Election to the Administrator during the Enrollment Period
designated by the Administrator. In the Participation Election Form, the
Eligible Director shall designate a Beneficiary, the Annual Deferral for the
covered Plan Year, the Deferred Payment Year or Years, the form of benefit
distributions, the simulated investment options for crediting gains or losses to
the account, and any other information or elections required by the
Administrator. Notwithstanding the foregoing, the Administrator, in its sole
discretion, may permit a newly Eligible Director to submit a Participation
Election within 30 days of that director becoming eligible, and deferrals shall
commence as soon as practical thereafter.
2.2 Annual Deferral. In the Participation Election, and subject to the
restrictions in Article 3, the Eligible Director shall designate the percentage
rate of the Annual Deferral for the next Plan Year. The Participation Election
shall apply to compensation earned after the date of the election and, except in
the case of a newly Eligible Director, paid in the following Plan Year. The
designated percentage must be expressed in whole percentages.
2.3 Duration of Annual Deferral. Annual Deferrals shall commence January 1 of
the covered Plan Year and shall continue through December 31 of that Plan Year,
except in the case of a newly Eligible Director.
2.4 Continuation of Participation. An Eligible Director who has elected to
participate in the Plan by making an Annual Deferral shall continue as an active
Participant in the Plan until such director ceases to be an Eligible Director.
A Participant shall not be eligible to elect a new Annual Deferral unless the
Participant is an Eligible Director for the Plan Year for which the election is
made
ARTICLE 3
Deferrals
3.1 Deferral Election. The Participation Election shall designate a specified
percentage of either Retainer and/or Meeting Fees to be deferred. Annual
Deferrals under this Plan shall be irrevocable, except as provided under
Articles 7 and 8 of the Plan. For deferrals to occur, the Participant must be
an active non-employee member of the Company's Board of Directors at the time
the Compensation is to be paid.
3.2 Minimum Annual Deferral. The Annual Deferral must equal or exceed a
minimum established by the Administrator. The minimum deferral is 50% from
Retainer and Meeting Fees.
3.3 Maximum Annual Deferral. The Annual Deferral may not exceed a maximum as
defined by the plan administrator. The Annual Deferral from Retainer and
Meeting Fees for a Plan Year may not exceed 100% of Retainer and Meeting Fees.
3.4 Delay Before Payment of Benefit. A Participant cannot
<PAGE>
elect deferrals to a Deferral Account for which the Participant has elected a
Deferred Payment Year for in-service distribution purposes if the deferral
will not be credited to the account at least one full calendar year before
the Deferred Payment Year.
3.5 Vesting. The Participant's right to receive Compensation deferred under
this Article 3 shall be 100% vested at all times
ARTICLE 4
Deferral Account
4.1 Deferral Account.
4.1.1 Deferral Account. The Company shall establish on its books a Deferral
Account for each Participant who elects Annual Deferrals under Article 2. When
completing a Participation Election, the Participant shall indicate the
percentage of the Annual Deferral that is to be allocated to the Deferral
Account. The Participant shall elect a form of payment for the benefit to be
paid upon retirement. The election of a Deferred Payment Year for an account is
irrevocable. Once the Deferred Payment Year for an account arrives, the
Participant shall have the option of designating a new Deferred Payment Year for
such account applicable to Annual Deferrals deferred into the account in
subsequent Plan Years.
4.1.2 Timing of Credits. The Company shall credit to the Deferral Account
the Annual Deferrals under Article 3 as of the same day of the month in which
the amounts would have been paid to the Participant but for the deferral.
4.2 Bookkeeping Accounts. The Deferral Account are solely an accounting device
for measuring the benefits that may become payable to a Participant under this
Plan. Participants and the Participant's Beneficiaries shall at all times be
general unsecured creditors of the Company for the payment of benefits, with no
special or prior right to any Company assets.
4.3 Statement of Account. The Administrator shall provide periodically to each
Participant a statement setting forth the balance of the Deferral Account
maintained for such Participant.
ARTICLE 5
Gains And Losses
5.1 Deferral Account.
5.1.1 General Crediting. The Company shall credit gains and losses at the
Earnings Rate to the Deferral Account as of the end of each month (including
during the benefit payment period) and as of the date the benefit representing
the last credits in the account are paid.
5.1.2 Investment Option. The available Investment Option, and the rules and
procedures for allocating the Deferral Account among such options (including the
frequency of changes to such allocations both before and after termination of
membership), shall be determined by the Administrator. The Administrator may in
its sole discretion amend the Plan's Investment Options from time to time;
provided, however, that no Investment Option may include a simulated or other
investment in common stock in a Participating Employer or Related Employer.
Neither the Administrator, the Company, the Board of Directors of the Company
nor any member of the Board or any agent, employee or advisor of such bodies
shall be liable for the performance or lack of performance of any Investment
Option.
5.1.3 Simulated Investment. The Participant's allocation of deferrals in a
simulated investment is solely for the purpose of calculating the Earnings
Rate. Notwithstanding the method of calculating the Earnings Rate, the
Company shall be under no obligation to purchase any investments used for
determining Earnings Rate.
<PAGE>
5.2 Beneficiary Powers. Following the Participant's death, the allocation of
any unpaid balances in the Participant's Deferral Account shall be as
determined by the Participant's Beneficiary, consistent with rules of the
Plan.
ARTICLE 6
Deferral Account Benefits
The provisions of this Article 6 shall apply separately to each Deferral
Account created for each Participant.
6.1 Calculation. The Deferral Account Benefit shall be an amount equal to
the Annual Deferrals credited to the account plus the gains or losses
credited to the account.
6.2 Retirement Benefits. The provisions of this paragraph 6.2 apply to
distributions from a Deferral Account if the Participant elects distributions
for such account to commence on or after Termination of Membership.
6.2.1 Entitlement. The Participant shall be entitled to benefits under this
paragraph 6.2 upon Retirement from the Company's Board of Directors.
6.2.2 Form of Benefit. The Company shall pay the Deferral Account Benefit
in the form of benefit the Participant elected for such account. Permissible
forms of benefits shall be determined by the Administrator, but shall include
a lump sum, monthly installments over 5, 10 or 15 years, or an initial lump
sum with the balance paid in monthly installments over 5, 10 or 15 years.
Absent an election by the Participant, the benefit shall be paid in monthly
installments over 15 years. The Participant election shall be as indicated
on the Participation Election on which the Participant first elected
deferrals to such account, unless the Participant elected a different form of
benefit by a written election filed with the Administrator at least 13 months
prior to the Deferred Payment Year and prior to the calendar year in which
the participant incurs a Termination of Membership, in which case the
different form elected shall control. However, the Administrator, in its
sole discretion, may ignore any change in the form of benefit elected by the
Participant if it determines that the ability to make such changes causes the
Deferral Account Benefit to become taxable to the Participant prior to actual
receipt of the benefit payments. If installment payments apply, the
Administrator shall adjust the amount of each installment to reflect interest
credited to the account during the benefit payment period.
6.2.3 Timing. The Company shall commence benefit payments no later than the
latest of (i) January 31 following the Retirement, (ii) 90 days after the
Participant's Termination of Membership, or (iii) January 31 of the Deferred
Payment Year.
6.2.4 Small Benefit Exception. Notwithstanding any of the foregoing, if at
Retirement the sum of all benefits payable to the Participant from the Deferral
Account is no greater than $10,000, the Administrator may, in its sole
discretion, elect to pay such benefits in a single lump sum. If the installment
payments are less than $300 each, the Administrator may, in its sole discretion,
elect to shorten the benefit payment period.
6.3 Scheduled Withdrawals. The provisions of this Paragraph 7.3 apply if
the Participant elects in-service distributions from a Deferral Account by
specifying a Deferred Payment Year on the Participation Election creating
such account.
6.3.1 Entitlement. If the Participant continues to be an active non-
employee member of the Company's Board of Directors to the Deferred Payment
Year, the Company shall commence payment to the Participant of the Deferral
Account Benefit.
6.3.2 Form of Benefit. The Company shall pay the Deferral Account Benefit
in a single lump sum.
6.3.3 Timing. The Company shall pay the benefit in January
<PAGE>
of the year specified; provided, however, that the Administrator may defer
commencement of the payment of benefits for one year if it determines, in its
sole discretion, that the Company would lose the tax deduction for payment of
the benefit if the benefit were paid earlier.
6.4 Early Termination Benefits. If the Participant terminates membership on
the Company's Board of Directors prior to meeting the Retirement definition as
defined in Article 1 for reasons other than Disability or death, the
Administrator shall pay the Deferral Account Benefit to the Participant in a
lump sum within 90 days after the last day of the month in which the termination
occurred; provided, however, that the Administrator may defer payment of the
benefit until January of the year following the Participant's termination if it
determines, in its sole discretion, that the Administrator would not have
taxable income against which the tax deduction would apply if the benefit were
paid earlier.
6.5 Unscheduled Withdrawals.
6.5.1 General Provisions. A Participant may request an Unscheduled
Withdrawal of all or any portion of the entire amount credited to the
Participant's Deferral Account, subject to the following restrictions: (i) the
minimum withdrawal shall be 25% of the balance of the specified account, (ii) an
election to withdraw 75% or more of the account balance shall be deemed to be an
election to withdraw the entire account balance, (iii) an Unscheduled Withdrawal
may be made only once a year, and (iv) the Company shall deduct (and retain)
from the Unscheduled Withdrawal a forfeiture amount of 10% of the amount
withdrawn, or such other amount determined by the Administrator to be necessary
to maintain the deferral of income taxes on Plan benefits. In addition, if the
Participant is a non-employee member of the Company's Board of Directors at the
time of the withdrawal, (i) deferrals for the year in which the election for an
Unscheduled Withdrawal is made shall cease, and (ii) the Participant shall not
recommence deferrals under the Plan until after the end of the Plan Year
following the Plan Year in which the election for the Unscheduled Withdrawal is
made.
6.5.2 Following Change in Control. If the Participant's election for an
Unscheduled Withdrawal occurs within two years after a Change in Control, the
provisions under both Paragraphs 6.5.1 and 6.5.2 shall apply, except that the
forfeiture amount shall be reduced to 5% of the amount withdrawn.
6.5.3 Timing of Payment. The Company shall pay the Unscheduled Withdrawal
amount within 90 days after receiving the request under paragraphs 6.5.1, and
within 30 days after receiving the request under paragraph 6.5.2.
6.6 Survivor Benefits.
6.6.1 Pre-Termination Death. If the Participant dies prior to termination
of membership on the Company's Board of Directors for any other reason, the
Company shall pay to the Participant's Beneficiary a survivor benefit equal to
the balance of the Participant's Deferral Account. The Company shall pay such
amount to the Beneficiary in a cash lump sum within 90 days after the
Participant's death.
6.6.2 Post-Termination Death. If the Participant dies after termination of
membership on the Company's Board of Directors, the Company shall pay to the
Participant's Beneficiary a survivor benefit equal to the balance of the
Participant's Deferral Account, with payment made in a cash lump sum within 90
days after the Participant's death; provided, however, that if the Participant
was receiving benefit installments at the time of death, the Company shall not
pay the benefits in a lump sum, but shall continue to pay such benefit
installments to the Beneficiary at the same time they would have been paid to
the Participant.
6.6.3 Alternate Forms of Payment. Within 60 days after the Participant's
death, the Beneficiary may petition the Administrator for a different form of
benefit payment than that provided above. The Administrator shall have sole
discretion in determining whether to grant or deny the Beneficiary's petition.
6.6.4 Small Benefit Exception. Notwithstanding any of the foregoing, if the
sum of all benefits payable to the Beneficiary from the Deferral Account is no
greater than $10,000, the Administrator may, in its sole discretion, elect to
pay such
<PAGE>
benefits in a single lump sum. If the installment payments are less than
$300 each, the Administrator may, in its sole discretion, elect to shorten
the benefit payment period.
6.7 Constructive Receipt Distribution. Anything herein to the contrary
notwithstanding, if, at any time, a court or the Internal Revenue Service
determines that an amount credited to a Participant's account is includable in
the gross income of the Participant and subject to tax, the Administrator may,
in its sole discretion, cause a lump sum cash distribution to be made to the
Participant of an amount equal to the amount determined to be includable in the
Participant's gross income.
ARTICLE 7
Conditions Related to Benefits
7.1 Nonassignability. The benefits provided under the Plan may not be
alienated, assigned, transferred, pledged or hypothecated by or to any person or
entity, at any time or any manner whatsoever. These benefits shall be exempt
from the claims of creditors of any Participant or other claimants and from all
orders, decrees, levies, garnishment or executions against any Participant to
the fullest extent allowed by law.
7.2 No Right to Company Assets. The benefits paid under the Plan shall be paid
from the general funds of the Company, and the Participant and any Beneficiary
shall be no more than unsecured general creditors of the Company with no special
or prior right to any assets of the Company for payment of any obligations
hereunder.
7.3 Protective Provisions. The Participant shall cooperate with the Company by
furnishing any and all information requested by the Administrator, in order to
facilitate the payment of benefits hereunder. If the Participant refuses to
cooperate, the Company shall have no further obligation to the Participant under
the Plan.
7.4 Withholding. The Participant or the Beneficiary shall make appropriate
arrangements with the Company for satisfaction of any federal, state or local
income tax withholding requirements and Social Security or other employment-
related tax requirements applicable to the payment of benefits under the Plan.
If no other arrangements are made, the Company may provide, at its discretion,
for such withholding and tax payments as may be required.
ARTICLE 8
Administration of Plan
The general administration of the Plan and the responsibility for carrying out
its provisions shall be vested in the Plan Administrator. However, the
Compensation and Development Committee of the Company's Board of Directors may
designate a Plan Committee, which shall act on behalf of the Company with
respect to its duties and powers as the Administrator subject to any direction
of the Company.
The Administrator shall administer the Plan and interpret, construe and apply
its provisions as it deems appropriate. The Administrator shall further
establish, adopt or revise such rules and regulations as it may deem necessary
or advisable for the administration of the Plan. All decisions of the
Administrator shall be final and binding.
The individuals serving on the Plan Committee shall, except as prohibited by
law, be indemnified and held harmless by the Company from any and all
liabilities, costs, and expenses (including legal fees), to the extent not
covered by liability insurance arising out of any action taken by any member of
the committee with respect to the Plan, unless such liability arises from the
individual's own gross negligence or willful misconduct.
ARTICLE 9
Beneficiary Designation
The Participant shall have the right, at any time, to designate any person or
persons as
<PAGE>
Beneficiary (both primary and contingent) to whom payment under the Plan
shall be made in the event of the Participant's death. The Beneficiary
designation shall be effective when it is submitted in writing to the
Administrator during the Participant's lifetime on a form prescribed by the
Administrator. The submission of a new Beneficiary designation shall cancel
all prior Beneficiary designations.
If a Participant fails to designate a Beneficiary as provided above, or if the
Beneficiary designation is revoked by marriage, divorce, or otherwise without
execution of a new designation, or if every person designated as Beneficiary
predeceases the Participant or dies prior to complete distribution of the
Participant's benefits, then the Administrator shall direct the distribution of
such benefits to the Participant's estate.
ARTICLE 10
Amendment and Termination of Plan
10.1 Amendment of Plan. The Board of Directors of the Company may at any time
amend the Plan in whole or in part, provided, however, that such amendment (i)
shall not decrease the balance of the Participant's Deferral Account at the time
of such amendment and (ii) shall not retroactively decrease the applicable
Earnings Rate of the Plan prior to the time of such amendment. The
Administrator may amend the Earnings Rate and/or the Investment Option of the
Plan prospectively, in which case the Administrator shall notify the Participant
of such amendment in writing within thirty (30) days after such amendment.
10.2 Termination of Plan. The Board of Directors of the Company may at any time
terminate the Plan. If the Company terminates the Plan, the date of such
termination shall be treated as the date of Termination of Membership on the
Company's Board of Directors for the purpose of calculating Plan benefits, and
the Company shall pay to the Participant the benefits the Participant is
entitled to receive under the Plan as monthly installments over a three (3) year
period commencing within ninety (90) days. Notwithstanding the foregoing, if
the Participant had previously elected a Scheduled Withdrawal under Paragraph
6.3, and such benefit would otherwise have been paid within three years but for
termination of the Plan, the benefit shall be paid in a lump sum.
ARTICLE 11
Miscellaneous
11.1 Successors of the Company. The rights and obligations of the Company
under the Plan shall inure to the benefit of, and shall be binding upon, the
successors and assigns of the Company.
11.2 ERISA Plan. The Plan is intended to be an unfunded plan maintained
primarily to provide deferred compensation benefits for "a select group of
management or highly compensated employees" within the meaning of Sections
201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of
Title I of ERISA.
11.3 Trust. The Company shall be responsible for the payment of all
benefits under the Plan. At its discretion, the Company may establish one or
more grantor trusts for the purpose of providing for payment of benefits
under the Plan. Such trust or trusts may be irrevocable, but the assets
thereof shall be subject to the claims of the Company's creditors. Benefits
paid to the Participant from any such trust shall be considered paid by the
Company for purposes of meeting the obligations of the Company under the Plan.
11.4 Board Membership Not Guaranteed. Nothing contained in the Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Participant any right to continued membership on the Company's
Board of Directors.
11.5 Gender, Singular and Plural. All pronouns and variations thereof shall
be deemed to refer to the masculine, feminine, or neuter, as the identity of
the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
11.6 Captions. The captions of the articles and paragraphs
<PAGE>
of the Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
11.7 Validity. If any provision of the Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provisions of the Plan.
11.8 Waiver of Breach. The waiver by the Company of any breach of any
provision of the Plan by the Participant shall not operate or be construed as
a waiver of any subsequent breach by the Participant.
11.9 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand-delivered,
or sent by first class mail to the principal office of the Company, directed
to the attention of the Administrator. Such notice shall be deemed given as
of the date of delivery, or, if delivery is made by mail, as of the date
shown on the postmark.
11.10 Authorization. Whenever the Company, under the terms of this Plan, is
permitted or required to do or perform any act of matter or thing, it shall
be done and performed by the Chief Executive Officer of the Company or by any
other officer or committee of the Company duly authorized by the Chief
Executive Officer of the Company.
ARTICLE 12
Claims and Review Procedures
12.1 Claims Procedure. The Plan Administrator or its designee shall notify
a Participant in writing, within ninety (90) days after his or her written
application for benefits, of his or her eligibility or noneligibility for
benefits under the Plan. If the Plan Administrator or its designee
determines that a Participant is not eligible for benefits or full benefits,
the notice shall set forth (1) the specific reasons for such denial, (2) a
specific reference to the provisions of the Plan on which the denial is
based, (3) a description of any additional information or material necessary
for the claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Plan's claims review procedure and
other appropriate information as to the steps to be taken if the Participant
wishes to have the claim reviewed. If the Plan Administrator or its designee
determines that there are special circumstances requiring additional time to
make a decision, the Plan Administrator or its designee shall notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional
ninety-day period.
12.2 Review Procedure. If a Participant is determined by the Plan
Administrator not to be eligible for benefits, or if the Participant believes
that he or she is entitled to greater or different benefits, the Participant
shall have the opportunity to have such claim reviewed by the Plan
Administrator by filing a petition for review with the Plan Administrator
within sixty (60) days after receipt of the notice issued by the Plan
Administrator. Said petition shall state the specific reasons which the
Participant believes entitle him or her to benefits or to greater or
different benefits. The Plan Administrator shall notify the Participant of
its decision in writing within the sixty-day period, stating specifically the
basis of its decision, written in a manner calculated to be understood by the
Participant and the specific provisions of the Plan on which the decision is
based. If, because of the need for additional information, the sixty-day
period is not sufficient, the decision may be deferred for up to another
sixty-day period at the election of the Plan Administrator, but notice of
this deferral shall be given to the Participant. In the event of the death of
the Participant, the same procedures shall apply to the Participant's
Beneficiaries.
In Witness Whereof, Cray Research, Inc. has caused its name to be hereto
subscribed this 12th day of December, 1995.
Cray Research, Inc.
By: Karalyn Harrington
Title: Vice President, Human Resources
<PAGE>
EXHIBIT 10.13
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made by and entered into between
Don Whiting ("Whiting") and Cray Research, Inc. ("Cray ").
RECITALS
A. Whiting has decided to retire from his employment with Cray as of
December 31, 1995;
B. Cray and Whiting have entered into a separate Letter Agreement dated
December 22, 1995 (the "Letter Agreement") which states the terms and conditions
of Whiting's retirement; and
C. The Letter Agreement between Cray and Whiting requires that Cray
retain Whiting as a consultant and that Whiting provide consulting services to
Cray under the terms and conditions of this Agreement.
AGREEMENT
In consideration of the mutual promises stated below, and in consideration
of the mutual promises stated in the Letter Agreement between Cray and Whiting,
the parties agree as follows:
1. SERVICES.
Whiting will provide advice and counsel to Cray on an as-needed basis
to assist Cray in the disposition of its machining and printed circuits
facilities and in improving utilization of the integrated circuits facility
in Chippewa Falls, Wisconsin. Whiting agrees to use his best efforts in
performing this consulting work for Cray.
2. TERM OF AGREEMENT.
Effective January 1, 1996, Whiting will begin providing consulting
services to Cray and will continue doing so for up to three months.
3. PAYMENT.
Cray will pay Whiting a total of $250,000 for his services, which will
be allocated as follows:
- $50,000 for advice and counsel in connection with the
disposition of the machining center in Chippewa Falls,
Wisconsin, to be paid upon the earlier of closing or March 31,
1996, provided that the failure to close by March 31, 1996 is not
because of some act or omission of Whiting that was intended by
Whiting to obstruct closing.
- $100,000 for advice and counsel in connection with the
disposition of the printed circuits facility in Chippewa Falls,
Wisconsin, to be paid upon the earlier of closing or March
31, 1996, provided that the failure to close by March 31, 1996 is
not because of some act or omission of Whiting that was intended
by Whiting to obstruct closing.
<PAGE>
- $100,000 for advice and counsel in connection with the
improved utilization of the integrated circuits facility in
Chippewa Falls, Wisconsin, to be paid upon the earlier of the
conclusion of an agreement for improved utilization or March 31,
1996, provided that the failure to reach such an agreement by
March 31, 1996 is not because of some act or omission of Whiting
that was intended by Whiting to obstruct an agreement.
4. EXPRESS CONDITION OF ENFORCEABILITY.
Because Cray's entering into this Agreement is an express condition of
the separate Letter Agreement between the Cray and Whiting, Whiting
understands and agrees that his rights under this Agreement are enforceable
only if his obligations under the Letter Agreement are enforceable. If
Whiting rescinds the Letter Agreement during the applicable rescission
period or later challenges the Letter Agreement's enforceability in any
way, Cray will have no further obligations under this Agreement and will be
entitled to reimbursement of any consulting fees already paid to Whiting
under this Agreement.
5. PROGRESS REPORTS.
Whiting will make periodic progress reports to Cray regarding his
consulting work under this Agreement at such times and in such form as Cray
may reasonably request.
6. CONFIDENTIALITY OBLIGATIONS.
a. As a result of the performance of Whiting's duties under
this Agreement, he may obtain trade secrets or confidential
information of Cray, of customers of Cray, or of third parties
involved in joint undertakings with Cray, which Cray is under
obligation to protect. Except as is necessary to carry out his
responsibilities under this Agreement, Whiting will not, during or
after the term of this Agreement, use or divulge to others any such
trade secrets or confidential information unless authorized in writing
to do so by Cray. Whiting agrees to treat as confidential and not to
use or disclose to third parties any information provided by Cray
which is marked or otherwise identified to indicate its confidential
nature or which, under the circumstances, Whiting should reasonably
know is being disclosed in confidence. In the event that Whiting
breaches his obligations under this provision, Cray shall be entitled
to monetary damages and injunctive relief.
b. Whiting agrees that prior to or upon termination of this
Agreement, he will return to Cray all manuals, equipment, materials,
or other property furnished by Cray to him in the course of his work
under this Agreement.
7. INDEPENDENT CONTRACTOR STATUS.
It is understood and agreed by the parties that Whiting will act as an
independent contractor under this Agreement and not as Cray's agent or
employee.
Cray has no obligation to provide any type of insurance to Whiting
under this Agreement.
Because Whiting will be providing consulting services to Cray on an
independent contractor basis, Cray will not make any tax withholdings from
the payments made to Whiting under this Agreement. Cray will issue a Form
1099 in connection with each payment made to Whiting under this Agreement,
and Whiting shall be solely responsible for the payment of any taxes that
are or may be due as a result of those payments.
<PAGE>
8. COMPLIANCE WITH LAWS AND AGREEMENTS.
Whiting represents and warrants that he may legally provide the
services described in this Agreement and that his performance shall be in
compliance with all statutes, rules, or regulations of any jurisdiction or
governmental agency and with agreements to which he is a party or by which
he is bound.
9. RECORD KEEPING, CERTIFICATIONS, TRAINING.
Whiting agrees to keep such records and make such reports and
certifications as Cray may from time to time request in connection with
requirements imposed on Cray by any laws, regulations or other requirements
of any governmental or regulatory body, including any agency of the U.S.
government. Whiting also agrees to take and complete any training required
by Cray in order for Cray to be in compliance with any laws, regulations or
other requirements of any governmental or regulatory body. Whiting
acknowledges that Cray may have reporting, training, certification and
other obligations with respect to his activities under various lobbying,
ethics and other laws and regulations, and he agrees to take such actions
as are reasonably necessary to insure that Cray is in compliance with such
laws and regulations.
10. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties with respect to the consulting arrangement
between them. This Agreement may not be amended or modified in any
manner except by a written amendment or modification signed by both
parties.
b. SEVERABILITY. The invalidity or unenforceability of one or
more provisions of this Agreement shall not affect the validity or
enforceability of any of the other provisions, and this Agreement
shall be construed as if such invalid or unenforceable provisions were
omitted.
c. CONSTRUCTION. This Agreement shall be construed and
enforced in accordance with the laws of the State of Minnesota.
d. WAIVERS. The failure of any party to insist, in any one or
more instances, upon the performance of any of the terms or conditions
of this Agreement or to exercise any right under this Agreement shall
not be construed as a waiver of the future performance of any such
term or condition or the future exercise of such right.
e. HEADINGS. Paragraph headings used in this Agreement are
included for convenience only and are not to be used in construing or
interpreting this Agreement.
f. NOTICES. Any notice to be given to either party under this
Agreement shall be sufficiently given on the date of mailing if sent
by certified mail, postage prepaid, to the address of the party set
forth on the last page of this Agreement (or to such other address as
the parties shall designate by written notice).
g. PUBLICITY. Neither Cray nor Whiting shall release any
information about this Agreement in any publicity releases,
advertising, or other promotional materials without the prior written
approval of the other party.
<PAGE>
h. ASSIGNMENT. Whiting may not assign or subcontract his
obligations under this Agreement without the prior written consent of
Cray.
IN WITNESS WHEREOF, the parties have signed this Agreement.
CRAY RESEARCH, INC. Address:
Signature /s/ J. PHILLIP SAMPER 655A Lone Oak Drive
---------------------------------------------------------------------
Name J. Phillip Samper Eagan, MN 55121
---------------------------------------------------------------------
Title Chairman and CEO Attention: General Counsel
---------------------------------------------------------------------
Date December 22, 1995
---------------------------------------------------------------------
DON WHITING Address:
Signature /S/ DON WHITING Route 5 Box 383
---------------------------------------------------------------------
Date December 22, 1995 Chippewa Falls, WI 54729
---------------------------------------------------------------------
Social Security Number ###-##-####
-----------
<PAGE>
December 22, 1995
Mr. Don Whiting
Route 5, Box 382
Chippewa Falls, WI 54729
Dear Don:
This Letter Agreement governs the terms and conditions of your retirement
from Cray Research, Inc. ("Cray"), effective December 31, 1995. This Letter
Agreement also sets forth our agreement as to severance payments and other
matters relating to your retirement.
Specifically, in consideration of the mutual promises contained in this Letter
Agreement, Cray and you agree as follows:
1. LEAVE OF ABSENCE. You will be placed on a paid leave of absence
through December 31, 1995, at which time your employment with Cray will
terminate. During your paid leave of absence, you will receive your
current salary on regular payroll dates.
2. PAYMENTS. Cray will pay you $195,187.20, less withholding taxes and
other normal deductions. This amount will be paid in a lump sum after you
have executed this Letter Agreement and delivered it to Cray, and have also
delivered to Cray an appropriately dated and signed Acknowledgment of Non-
Rescission as described at the end of this Letter Agreement. Any payments
in addition to the above mentioned payment and those specifically described
in this Letter Agreement are outlined in Exhibit A.
3. INSURANCE BENEFITS. See Exhibit A for further information.
4. RETIREMENT SAVINGS PLUS INFORMATION. See Exhibit A for information.
5. 1995 TAX PREPARATION. Cray will pay the expenses associated with
preparation of your 1995 tax forms, up to a maximum allowable expense of
$2,500.
6. OUTPLACEMENT. As additional consideration for your promises in this
Letter Agreement, Cray will provide you with executive career and
outplacement services through Market Share, Inc.
7. RETURN OF PROPERTY. Except as mutually agreed by you and the
undersigned, on or before your last date of employment, you will return to
Cray all Cray information and other property, including reports, files,
memoranda, records, credit cards, keys, software, and equipment in your
possession. You agree not to keep any duplicate copies or extracts
thereof.
8. CONFIDENTIALITY. You acknowledge that, as a result of your employment
by Cray, you have obtained trade secrets and other confidential and
proprietary information which are owned by Cray, customers of Cray or third
parties involved in joint undertakings with Cray. You agree that you will
keep such information and trade secrets confidential and will not use them
for yourself or others, or disclose them to others. The trade secrets and
other confidential and proprietary information referred to in this
paragraph include product development, marketing or sales plans or any
other technical, financial, marketing or other information which is not
generally known to the public and which has value.
You agree to keep this Letter Agreement confidential and not disclose
its contents, or the substance of the discussions between you and Cray
regarding your retirement and payments by Cray, except to your financial
and legal advisors, or if necessary in connection with your potential
employment, to a prospective employer who shall be advised with respect to
your obligations of confidentiality, or as may be required by law.
9. YOUR RELEASE OF CLAIMS. In consideration of Cray's obligations under
this Letter Agreement, you hereby fully and completely release and waive
any and all claims,
<PAGE>
complaints, causes of action or demands, known or unknown, of whatever
kind which you have or may have against Cray and all of its successors,
assigns, subsidiaries, officers, employees, directors and agents
arising out of any action, conduct, decision, behavior or event occurring
on or before the date you sign this Letter Agreement, including, but
not limited to, claims relating to the terms, conditions and
circumstances of your employment and the termination of your employment
with Cray, except as specifically set forth below in the last sentence of
this section. Without limitation, this release extends to all claims,
whether based on statutory or common law, for age (whether arising under
the Age Discrimination in Employment Act of 1967 or otherwise), disability,
race, sex or other forms of employment discrimination, defamation,
negligent or intentional infliction of emotional harm, breach of contract,
interference with contract or prospective advantage, promissory estoppel,
fraud, wrongful discharge, impairment of economic opportunity, or any other
theory, legal or equitable.
Neither this Letter Agreement nor any other document or statement made
or issued in conjunction with your retirement shall constitute or be
construed to constitute an admission of liability. This release will not
and does not impair or apply to any existing rights you may have under
present existing employee benefit plans of Cray (other than any severance
plans) or under this Letter Agreement.
10. CRAY'S RELEASE OF CLAIMS. In consideration of your obligations under
this Letter Agreement, Cray hereby fully and completely releases and waives
any and all claims, complaints, causes of action or demands, known or
unknown, of whatever kind which Cray has or may have against you and your
successors, assigns and agents arising out of any action, conduct,
decision, behavior or event occurring on or before the date Cray signs this
Letter Agreement, including, but not limited to, claims relating to your
employment with Cray, except as specifically set forth below in the last
sentence of this section.
Neither this Letter Agreement nor any other document or statement made
or issued in conjunction with your retirement shall constitute or be
construed to constitute an admission of liability.
11. CONSULTING AGREEMENT. Following your retirement, you agree to serve
as a consultant for Cray and Cray agrees to retain you as a consultant
according to the terms and conditions set forth in the Consulting Agreement
attached as Exhibit B.
12. MISCELLANEOUS PROVISIONS.
a. This Letter Agreement will be binding on and inure to the
benefit of the successors and assigns of Cray and you.
b. This Letter Agreement shall be governed by and construed in
accordance with Minnesota law.
c. This Letter Agreement and the Consulting Agreement attached
as Exhibit B constitute the entire understanding between you and Cray
and supersede all prior discussions, representations and negotiations
with respect to the matters addressed therein. However, any existing
agreements regarding confidentiality and assignment of intellectual
property shall remain in effect. No amendment of this Letter
Agreement shall be binding unless executed in writing by both you and
Cray.
d. The invalidity of any provision of this Letter Agreement
will not affect the other provisions, provided that in the event all
or any portion of the release in section 9 is determined by a court of
competent jurisdiction to be invalid or unenforceable in connection
with an action by you against Cray, Cray shall have no obligation to
make any payments under section 2, 5 or 6 and if any payments have
been made, you will repay them to Cray.
By signing below, you acknowledge that you fully understand and accept the terms
of this Letter Agreement, including the release set forth in section 9, and you
represent and agree that your signature is freely and voluntarily given. You
have up to 21 days from the day that you receive this Letter Agreement to review
it and decide whether you will sign it. You should consult with legal counsel of
your choice with respect to the terms of this Letter
<PAGE>
Agreement before signing. You represent that if you sign before the
expiration of the 21 day period it is because you do not need additional time
to decide whether to sign this Letter Agreement. You have the right to
rescind this Letter Agreement within 15 calendar days after the day that you
sign it. This Letter Agreement will not become effective or enforceable
unless and until the rescission period has expired and you have not exercised
your right to rescind it. If you wish to rescind, your rescission must be
in writing and hand delivered or mailed within the 15-day rescission period
to:
Karalyn Harrington
Vice President, Human Resources
Cray Research, Inc.
655A Lone Oak Drive
Eagan, MN 55121
If mailed, the rescission must be postmarked within the 15-day rescission period
and sent by certified mail, return receipt requested.
If you do not rescind, you must confirm that fact by signing and dating the
attached Acknowledgment of Non-Rescission no sooner than the day after the
expiration of the rescission period and delivering it to Cray at the address
stated above. The payment referred to in section 2 of this Letter Agreement
will be processed and sent to you upon receipt of the properly signed and dated
Acknowledgment of Non-Rescission.
<PAGE>
If this Letter Agreement accords with your understanding of our agreement,
please sign and date both copies and return one to me.
Sincerely yours,
Cray Research, Inc.
/S/ PHIL SAMPER December 22, 1995
- --------------------------------------
Phil Samper Date
Chairman and Chief Executive Officer
Agreed to and accepted:
/S/ DON WHITING December 22, 1995
- --------------------------------------
Don Whiting Date
<PAGE>
ACKNOWLEDGMENT OF NON-RESCISSION
By this Acknowledgment I hereby represent and affirm that I have not rescinded,
revoked or otherwise attempted to negate the Letter Agreement dated December 22,
1995 between Cray Research, Inc. and me relating to the resignation of my
employment with Cray Research, Inc., and the release set forth in the Letter
Agreement is valid and binding on me.
/S/ DON WHITING December 22, 1995
- --------------------------------------
Don Whiting Dated:
<PAGE>
EXHIBIT A
BENEFITS SUMMARY BASED ON RETIREMENT DATE
OF DECEMBER 31, 1995
THIS INFORMATION IS PROVIDED AS AN OVERVIEW FOR EASE OF REFERENCE. IF THERE
ARE ANY DISCREPANCIES, PROVISIONS OF THE ACTUAL PLAN DOCUMENTS WILL PREVAIL.
REFER TO THE OFFICE NOTIFICATION PACKAGE FROM BENEFITS CONNECTION FOR
DETAILED INFORMATION REGARDING HEALTH INSURANCE, LIFE INSURANCE, AND THE
HEALTH CARE EXPENSE ACCOUNT. IF YOU HAVE ANY QUESTIONS REGARDING YOUR
BENEFITS, PLEASE CALL 1-800-BENE-BIT (1-800-236-3248). ALSO, IF YOUR ADDRESS
CHANGES, PLEASE BE CERTAIN TO COMPLETE AND RETURN THE ATTACHED "CHANGE OF
ADDRESS NOTICE."
MEDICAL. Your current medical coverage will continue through December 31,
1995. The regular bi-weekly deduction will continue to be taken. As a
retiree, medical coverage is then available for you and your Covered
Dependents under the Company's Medical Plan as follows:
- for the first 24 months you are a "retiree", Cray Research
continues to pay the employer's share of the premiums as if you were
still a "covered employee"; and
- after the first 24 months of being a "retiree", you may
continue coverage by paying 100% of the applicable premiums.
Benefits Connection will provide you with information regarding continuation
of medical coverage.
LIFE INSURANCE. Your current life insurance coverage will continue through
December 31, 1995. Cray Research will continue to pay the cost of your basic
life insurance for the first 24 months after you retire. You may continue to
pay for your optional life coverage at group rates for the first 24 months
after you retire. After the 24 months have elapsed, you may convert your
basic life coverage and your optional life coverage to an individual policy.
The type of individual policy and cost depend on a number of factors
including your age at the time of conversion. You are able to convert your
basic and optional accidental death and dismemberment coverage. You are also
able to continue dependent life coverage for up to 24 months after you
retire. Contact Benefits Connection at 1-800-236-3248 for a form and further
instructions.
SHORT AND LONG-TERM DISABILITY. Both of these company provided benefits
cease as of your termination date. There is no continuation or conversion
available for short-term disability. There is a conversion policy available
for long-term disability coverage provided you have been covered under Cray
Research, Inc.'s plan for at least twelve (12) months and are less than age
69 1/2. As you meet these requirements, if you wish to convert your LTD
coverage, please contact Benefits Connection at 1-800-236-3248 for the
application.
<PAGE>
HEALTH CARE EXPENSE ACCOUNT (HCEA). You may choose to continue your
participation in the Health Care Expense Account (HCEA) for up to 18 months
after December 31, 1995. If you wish to continue, you must pay both the
contribution you were paying on the date of termination, plus $15 per month for
the Cray contribution. You have 60 days to determine if you wish to continue
the coverage. Refer to the continuation package for more detail.*
If you do not elect to continue coverage, your participation will end at
midnight on December 31, 1995 and you will not be reimbursed for expenses
incurred after that date.
RETIREMENT SAVINGS PLUS (RSP) PLAN. You will receive your share of any
contributions made to the RSP for the plan year ending December 31, 1995, based
on your compensation through December 31, 1995. Because your RSP Plan account
balance is greater than $3,500, you may leave the funds in the Plan up to the
April following your reaching age 70 1/2. If you leave the funds in the Plan,
you have the same rights as other participants, other than the ability to
request a Plan loan. You will continue to receive RSP Plan statements and be
eligible to make investment fund election changes.
If you withdraw your money from the plan, you can roll it into an IRA or take it
as taxable income. In general, the money you withdraw from the plan is taxable
income when you receive it. You may be able to delay treating these funds as
taxable income by rolling them over into an IRA within 60 days after you receive
the withdrawal from the Plan.
As a retiree, you can elect to receive a lump sum distribution or periodic
payments. An amount can be designated for payment on a monthly, quarterly,
semiannual or annual basis.
There is a law which will affect any distribution check. This law requires that
20% be withheld for federal income taxes. This withholding is, in effect, a
"downpayment" on one's tax liability for the distribution. The actual tax
liability will be determined when you file your income taxes for the year in
which you received the money. Special tax rules may apply if you are at least
55 when you receive the distribution. You should consult your tax advisor
regarding this.
Please Use the 1-800-BENE-BIT (1-800-236-3248) for additional information.
Distributions are processed on a bi-weekly basis.
STOCK PURCHASE INVESTMENT PLAN. If you are enrolled in the Stock Purchase
Investment Plan you may request an immediate cash distribution of purchase
shares at the election period. Contributions to the plan end at your retirement
date, December 31, 1995.
PERSONAL TIME. You will receive the full value of all your personal time in the
amount of $18,786.77. If you have any questions regarding personal time, please
call the Payroll Department.
<PAGE>
STOCK OPTIONS. Stock options issued on or after September 20, 1989, vest at
100% upon retirement. The right to exercise continues for the lesser of two (2)
years after the date of retirement or the expiration date of the option. Please
contact Mickey Caskinette (x 3332) in the Compensation Function for additional
information or questions.
RESTRICTED STOCK. Your 1,477 shares of Restricted Stock vest at 100% upon
retirement.
EMPLOYEE ASSISTANCE PROGRAM (EAP). You and your family may continue to use the
services of EAP for up to one full year following your termination date.
THIS IS A SUMMARY OF BENEFIT PLAN PROVISIONS. IF THERE ARE ANY DISCREPANCIES
BETWEEN THIS SUMMARY AND THE ACTUAL PLAN DOCUMENTS, PROVISIONS OF THE ACTUAL
PLAN DOCUMENTS WILL PREVAIL.
<PAGE>
EXHIBIT 10.14
AMENDMENT TO 1989 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY BOARD OF DIRECTORS ON FEBRUARY 6, 1996
The 1989 Non-Employee Directors' Stock Option Plan (the Plan) is amended by
the deletion of the third paragraph of Section 5 and the substitution therefor
of the following: Each Non-Employee Director who is reelected to office at an
annual stockholders meeting of any year after 1989 and through 1995 shall be
granted an option of 1,000 shares as of the date of each such stockholders
meeting, and each Non-Employee Director who is reelected to office at an annual
stockholders meeting of any year after 1995 shall be granted an option of 2,500
shares as of the date of each such stockholders meeting.
<PAGE>
EXHIBIT 10.15
THIRD AMENDMENT
TO CREDIT AGREEMENT
THIRD AMENDMENT (the "THIRD AMENDMENT") dated as of February 14, 1996,
to the Credit Agreement dated as of May 26, 1992 (as heretofore amended,
supplemented or otherwise modified, the "AGREEMENT"), among CRAY RESEARCH, INC.,
a Delaware corporation (the "COMPANY"), CHEMICAL BANK ("CHEMICAL"), a new York
banking corporation, as successor by merger with Manufacturers Hanover Trust
Company; THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH; COMMERZBANK
AKTIENGESELLSCHAFT, GRAND CAYMAN BRANCH; SOCIETE GENERALE (each a "Bank" and,
collectively, the "Banks"); and Chemical, as Agent (the "AGENT") for the Banks.
W I T N E S S E T H :
WHEREAS, The Company, the Banks and the Agent have agreed to amend a
certain provision of the Agreement in the manner hereinafter set forth;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms used herein which are defined
in the Agreement are used herein with such defined meanings.
2. AMENDMENTS. (a) The definition of "Indebtedness" in subsection
1.1 of the Agreement is hereby amended to read in its entirety as follows:
""INDEBTEDNESS" of any Person, at a particular time, shall mean,
without duplication, (a) all indebtedness of such Person for borrowed
money, in respect of which such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, (b) the face amount
of all letters of credit and performance bonds (to the extent not
covered by clause (a) hereof), (c) obligations under leases which
shall have been or should be, in accordance with GAAP, recorded as
capital leases in respect of which obligations such person is
liable, contingently or otherwise as obligor, guarantor (other
than guarantees or other similar obligations incurred on behalf of
consolidated Subsidiaries) or otherwise, and (d) any obligation of
such Person or Commonly Controlled Entity to a Multiemployer Plan."
(b) Subsection 7.4 of the Agreement is hereby amended to read in its
entirety as follows:
"7.4. MAINTENANCE OF CONSOLIDATED TANGIBLE NET WORTH. Permit its
Consolidated Tangible Net Worth at the end of any fiscal quarter of
the Company to be less than (i) in the case of the fiscal quarter
ending on December 31, 1995, $750,000,000 and (ii) in the case of
any such fiscal quarter of the Company thereafter, the sum of (A)
if Consolidated Net Income of the Company is positive for such
fiscal quarter, an amount equal to 50% of such Consolidated Net
Income plus (B) an amount equal to 100% of the aggregate amount
realized (in any event, net of any underwriting discount and
reasonable expenses) by the Company in all issuances of its capital
stock during such fiscal quarter plus (C) an amount equal to
Consolidated Tangible Net Worth required by this subsection 7.4 to
be maintained as at the end of the previous fiscal quarter of the
Company."
(c) Subsection 7.5 of the Agreement is hereby amended to read in its
entirety as follows:
"7.5 LIMITATION ON INDEBTEDNESS. Permit the aggregate amount of
Indebtedness of the Company and its consolidated Subsidiaries at
any time to exceed $200,000,000."
3. CONDITION PRECEDENT TO EFFECTIVE DATE. This Third Amendment will
become effective on the date upon which the Agent shall have received this Third
Amendment, duly executed and delivered by the Company, the Required Banks and
the Agent.
<PAGE>
4. GOVERNING LAW; THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
5. CONTINUING EFFECT; AMENDMENT AND WAIVERS LIMITED. Except as
expressly amended hereby, the Agreement shall continue to be and shall remain in
full force and effect in accordance with its terms.
6. COUNTERPARTS. This Third Amendment may be executed in any number
of counterparts, and all of which counterparts, taken together, shall constitute
one and the same instrument.
7. EXPENSES. The Company agrees to pay and reimburse the Agent for
all out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation, execution and delivery of this Third Amendment,
including the reasonable fees and expenses of counsel to the Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed and delivered by their proper and duly authorized officers as of the
date first above written.
CRAY RESEARCH, INC.
By: /S/ Laurence L. Betterley
------------------------------
Title: Chief Financial Officer
By: /S/ Steven D. VanHee
------------------------------
Title: Treasurer
CHEMICAL BANK, as Agent as a
Bank
By:
------------------------------
Title: Vice President
THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH, as a Bank
By:
------------------------------
Title: Assistant Vice President
COMMERZBANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH, as a Bank
By: /S/ Dr. Helmut R. Tollner
------------------------------
Title: Executive Vice President
By: /S/ William Brent Peterson
------------------------------
Title: Assistant Vice President
SOCIETE GENERALE, as a Bank
By:
------------------------------
Title: Vice President
<PAGE>
EXHIBIT 11
CRAY RESEARCH, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Net earnings (loss) $(226,364) $55,696 $60,855
Add - net earnings effect of interest on
6 1/8% convertible subordinated debentures -(a) -(a) -(a)
--------- ------- -------
Net earnings (loss) applicable to common and
common equivalent shares $(226,364) $55,696 $60,855
--------- ------- -------
--------- ------- -------
Weighted average number of common shares
outstanding during the period 25,282 25,841 26,117
Add - common stock equivalents - outstanding
stock options - 4 1
- common stock equivalents - convertible
debentures -(a) -(a) -(a)
--------- ------- -------
Weighted average number of common and common
equivalent shares outstanding, as adjusted 25,282 25,845 26,118
--------- ------- -------
--------- ------- -------
Earnings (loss) per common and common equivalent
share $ (8.95) $ 2.16 $ 2.33
--------- ------- -------
--------- ------- -------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net earnings (loss) per primary computation
above $(226,364) $55,696 $60,855
--------- ------- -------
--------- ------- -------
Weighted average number of common shares
outstanding, as adjusted per primary
computation above 25,282 25,845 26,118
Add - additional dilutive effect of outstanding
options - - -
--------- ------- -------
Weighted average number of common and common
equivalent shares outstanding, as adjusted 25,282 25,845 26,118
--------- ------- -------
--------- ------- -------
Earnings (loss) per common and common equivalent
share assuming full dilution $ (8.95) $ 2.16 $ 2.33
--------- ------- -------
--------- ------- -------
<FN>
- ------------------
(a) The effect of convertible debentures on the earnings (loss) per share is
anti-dilutive and therefore is excluded from the calculation.
</TABLE>
<PAGE>
EXHIBIT 21
CRAY RESEARCH, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following are the Company's significant subsidiaries as of December 31,
1995. All are majority owned and are included in the Company's consolidated
financial statements.
STATE OR
NAME JURISDICTION
- ---- ------------
DOMESTIC:
Cray Asia/Pacific, Inc. Delaware
Cray Financial Corporation Delaware
Cray Research (India) Ltd. Delaware
Cray Research International, Inc. Delaware
Cray Research (America Latina) Ltd. Delaware
Research Equipment, Inc. dba Minnesota
Supercomputer Center, Inc. Minnesota
INTERNATIONAL:
Cray Research A.B. Sweden
Cray Research Scandinavia A/S Norway
Cray Research (Australia) Pty. Ltd. Australia
Cray Research B.V. The Netherlands
Cray Research (Canada) Inc. Canada
Cray Research Europe Ltd. United Kingdom
Cray Research France S.A. France
Cray Research GmBH Germany
Cray Research Japan, Ltd. Japan
Cray Research (Korea) Ltd. Korea
Cray Research (Malaysia) Sdn. Bhd. Malaysia
Cray Research de Mexico, S.A. de C.V. Mexico
Cray Research OY Finland
Cray Research, S.A.E. Spain
Cray Research S.R.L. Italy
Cray Research (Suisse) S.A. Switzerland
Cray Research (UK) Ltd. United Kingdom
<PAGE>
EXHIBIT 23
CRAY RESEARCH, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cray Research, Inc.:
We consent to incorporation by reference in the Registration Statements
on Form S-8 (File numbers 2-99254; 33-42914; 33-8633; 33-32602; 33-49396;
33-49398; 33-25858; 33-33374; 33-33375; 33-62410; 33-62414; 33-55361;
33-58451; 33-58453 and 33-64483) of Cray Research, Inc. of our report dated
January 24, 1996 relating to the consolidated balance sheets of Cray
Research, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31,
1995, which report is included in this Form 10-K Annual Report filed by Cray
Research, Inc. on April 1, 1996.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 1, 1996
<TABLE> <S> <C>
<PAGE>
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 104,425
<SECURITIES> 150,000
<RECEIVABLES> 128,981
<ALLOWANCES> 0
<INVENTORY> 177,359
<CURRENT-ASSETS> 497,905
<PP&E> 551,611
<DEPRECIATION> 350,736
<TOTAL-ASSETS> 978,054
<CURRENT-LIABILITIES> 272,172
<BONDS> 92,682
0
0
<COMMON> 31,511
<OTHER-SE> 570,917
<TOTAL-LIABILITY-AND-EQUITY> 978,054
<SALES> 468,315
<TOTAL-REVENUES> 676,244
<CGS> 289,158
<TOTAL-COSTS> 436,569
<OTHER-EXPENSES> 122,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,944
<INCOME-PRETAX> (235,796)
<INCOME-TAX> (9,432)
<INCOME-CONTINUING> (226,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,364)
<EPS-PRIMARY> (8.95)
<EPS-DILUTED> (8.95)
</TABLE>
