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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9*
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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CRAY RESEARCH, INC.
(Name of Subject Company)
CRAY RESEARCH, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Including Associated Common Share Purchase Rights)
(Title of Class of Securities)
225224 10 4
(CUSIP Number of Class of Securities)
JOHN L. SULLIVAN
GENERAL COUNSEL
CRAY RESEARCH, INC.
655A LONE OAK DRIVE
EAGAN, MN 55121
(612) 452-6650
(Name, address and telephone number of person authorized to
receive notice and communications on behalf of the person(s) filing statement).
Copy to:
DANIEL R. KAPLAN, ESQ.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, NY 10036
(212) 969-3200
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*This Solicitation/Recommendation Statement on Schedule 14D-9 relates to an
offer for 19,218,735 shares of common stock of Cray Research, Inc. by a
wholly-owned subsidiary of Silicon Graphics, Inc.
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Cray Research, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 655A Lone Oak Drive, Eagan, MN 55121. The title of the class
of equity security to which this statement relates is the common stock, par
value $1.00 per share, of the Company (the "Common Stock" or the "Shares")
including the associated common stock purchase rights (the "Rights") to purchase
Shares pursuant to a Common Shares Rights Agreement, dated as of May 15, 1989,
between the Company and Norwest Bank Minnesota, N.A., as Rights Agent. Unless
the context otherwise requires, all references herein to the Shares shall
include the associated Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by C Acquisition Corporation, a
Delaware corporation ("Purchaser"), a wholly-owned subsidiary of Silicon
Graphics, Inc., a Delaware corporation (the "Parent"), disclosed in a Tender
Offer Statement on Schedule 14D-1, dated February 29, 1996 (the "Schedule
14D-1"), to acquire 19,218,735 Shares, at a price of $30.00 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated February 29, 1996 (the "Offer to Purchase"), and
the related letter of transmittal (which together with the Offer to Purchase
constitute the "Offer" and are contained within the Schedule 14D-1).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 25, 1996 (the "Merger Agreement"), among the Company, Parent and
Purchaser. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement Purchaser will be merged with and into the Company (the
"Merger" and, collectively with the Offer, the "Transaction"), and the Company
will continue as the surviving corporation (the "Surviving Corporation"). A copy
of the Merger Agreement is filed herewith as EXHIBIT 1 and is incorporated
herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of the
Parent and the Purchaser are located at 2011 North Shoreline Boulevard, Mountain
View, CA 94043-1389.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and its executive officers, directors and affiliates are described
on pages 6-13 of the Company's Proxy Statement, dated May 16, 1995, for its 1995
Annual Meeting of Stockholders (the "1995 Proxy Statement") in the section
entitled "Compensation of Directors" and in the section entitled "Executive
Compensation" under the following subheadings: "Compensation and Development
Committee Reports," "Summary Compensation Table," "Stock Options -- Aggregate
Option Exercises in the Last Fiscal Year and F-Y-End Option Values," "Stock
Options -- Option Grants in Last Fiscal Year," and "Executives Severance
Compensation Plan." Pages 6-13 of the 1995 Proxy Statement are filed as EXHIBIT
2 hereto and are incorporated herein by reference.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement (the "Employment
Agreement") with J. Phillip Samper ("Mr. Samper"), dated as of May 17, 1995, as
amended. The following summary is qualified in its entirety by reference to the
text of the Employment Agreement, a copy of which is filed as EXHIBIT 3 hereto
and is incorporated herein by reference.
Pursuant to the Employment Agreement, Mr. Samper serves as the Chairman and
Chief Executive Officer of the Company during the period commencing on May 17,
1995 and ending on December 31, 1999 (the "Employment Period"), unless sooner
terminated.
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The Employment Agreement contains a noncompetition provision the period of
which continues until the first anniversary after the date on which Mr. Samper's
employment ends. The Employment Agreement also contains confidentiality and
non-disclosure provisions.
In connection with the execution of the Employment Agreement, Mr. Samper was
paid a signing bonus of $100,000. For all services to be rendered by Mr. Samper
pursuant to the Employment Agreement, the Company pays Mr. Samper an annual base
salary of $600,000 per year.
While Mr. Samper is employed by the Company he is entitled to participate in
the Company's Performance Incentive Plan (the "Incentive Plan"). For each plan
year that Mr. Samper participates in the Incentive Plan, the Company agreed to
pay him an amount that is based on a minimum performance target of 80 percent of
Mr. Samper's eligible wages and a maximum performance target of 120 percent of
his eligible wages, which amount, subject to the Guarantee Incentive Award (as
defined below), shall be prorated for plan year 1995 to reflect the actual
amount of eligible wages paid to Mr. Samper by the Company in 1995. For the
first twelve months of the Employment Period, the Company is required to pay Mr.
Samper under the Incentive Plan an amount equal to the greater of the amount to
which Mr. Samper would otherwise be entitled under the Incentive Plan or an
amount (the "Guaranteed Incentive Award") no less than Mr. Samper would have
received if his minimum performance target of 80 percent of eligible wages had
been achieved, which eligible wages shall be prorated for the plan year 1995 as
provided above and shall be prorated for plan year 1996 based on an amount equal
to $600,000 minus Mr. Samper's eligible wages under the Incentive Plan for 1995,
regardless of the Company's actual performance, and regardless of whether Mr.
Samper's employment was terminated prior to the end of plan years 1995 or 1996,
as the case may be, provided that the total of the Guaranteed Incentive Award
paid to Mr. Samper by the Company for the first twelve months of Mr. Samper's
employment for plan years 1995 and 1996 does not exceed $480,000.
Pursuant to the Company's 1989 Employee Benefit Stock Plan, as amended (the
"1989 Stock Plan"), on May 17, 1995 the Compensation and Development Committee
granted Mr. Samper (i) an option to purchase 300,000 shares of Common Stock at a
price per share equal to the closing price for a share of Common Stock on the
New York Stock Exchange on the last trading day immediately preceding the public
announcement of Mr. Samper's agreement to be employed by the Company ($19.875
per share); and (ii) 200,000 shares of restricted Common Stock. On February 6,
1996, the Compensation and Development Committee of the Board of Directors
granted Mr. Samper options to purchase 100,000 shares of Common Stock at an
exercise price of $25.50 per share. All of such options and restricted stock
were granted pursuant to the 1989 Stock Plan. All outstanding options shall be
exercisable in full, whether or not then exercisable under the terms of their
grant, and the restrictions on the restricted stock shall lapse upon a Change of
Control (as defined in the 1989 Stock Plan).
If Mr. Samper's employment with the Company is terminated under certain
circumstances after a Change of Control (as such term is defined in the Cray
Research, Inc. Executives Severance Compensation Plan ("The Executives Severance
Plan")), then Mr. Samper shall receive from the Company as a result of such
employment termination the greater of the amount provided by the Severance Plan
or (A) Mr. Samper's base salary throughout the Employment Period or for two
years, whichever is less, (B) the difference between $480,000 and the amount of
the Guaranteed Incentive Award already paid to him, if any, and any other amount
which he should be entitled to receive under the Incentive Plan and (C) an
additional amount that is equal to (i) two years of base salary, minus (ii) the
amount, if any, of Mr. Samper's vested retirement benefits under the Company's
Retirement Savings Plan as it is then in effect.
STOCK OPTIONS AND RESTRICTED STOCK
The 1989 Stock Plan provides for the issuance of restricted stock and
options to purchase the Company's Common Stock. If a Change of Control (as
defined in the 1989 Stock Plan) occurs, then from and after the date of such
Change of Control all outstanding options shall be exercisable in full, whether
or not then exercisable under the terms of their grant, and the restrictions on
the restricted
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stock shall lapse. A schedule of restricted stock and options granted by the
Compensation and Development Committee of the Board of Directors since December
31, 1995, to the Company's executive officers has been filed as EXHIBIT 4 hereto
and is incorporated herein by reference.
The Cray Research, Inc. Non-Employee Directors' 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 granting of an initial option for 10,000 shares of
Common Stock on the date a 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 Directors' Plan
was amended on February 6, 1996, subject to stockholder approval, to provide
that upon reelection, a director shall receive an option for 2,500 shares of
Common Stock. The options granted are exercisable in four successive 25%
cumulative annual installments commencing one year after the date of grant and
do not automatically become exercisable upon a change of control of the Company.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which has been filed as EXHIBIT 1 hereto and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Merger
Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Purchaser's intention to commence
the Offer. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer is subject to the satisfaction, among other things, of the
Minimum Condition (as defined in the Merger Agreement). Purchaser and Parent
have agreed that no change in the Offer may be made without the prior written
consent of the Company which decreases the price per Share payable in the Offer,
changes the form of consideration to be paid in the Offer, reduces the maximum
number of Shares to be purchased in the Offer, or changes or waives the Minimum
Condition.
Subject to the terms and conditions of the Offer (including, without
limitation, the Minimum Condition), Purchaser shall, and Parent shall cause
Purchaser to, accept for payment and pay for, as promptly as practicable after
expiration of the Offer, all Shares validly tendered and not withdrawn;
PROVIDED, HOWEVER, that notwithstanding the foregoing Parent may, in its sole
discretion, extend the expiration date of the Offer for up to 15 business days,
and agrees on a one-time basis, if all other conditions to the Offer have been
met, to extend the expiration date for the Offer for 10 business days if on the
relevant date of expiration at least 45% of the then outstanding Shares
(calculated on a fully diluted basis) have been tendered and not withdrawn from
the Offer.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Delaware Law, at the effective
time of the Merger (the "Effective Time"), Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Purchaser will cease and the Company will continue as the Surviving Corporation
and will become a wholly owned subsidiary of Parent. Upon consummation of the
Merger, each Share held in the treasury of the Company and each Share owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent or
of the Company (collectively, "Ineligible Shares") shall be cancelled and
retired without payment of any consideration thereof and cease to exist.
Following completion of the Offer, the remaining Shares of the Company are
expected to be converted at a one to one ratio into Parent Common Stock. As more
completely described below, if fewer than 19,218,735 of the Shares are purchased
in the Offer, the remaining Company stockholders will receive a fraction of a
share of Parent Common Stock and cash for each Share so that the aggregate cash
and stock consideration paid in the Merger is the same as if the Offer had been
fully subscribed. Subject to adjustment to remove fractional shares, each
remaining outstanding Share (other than Shares held by stockholders who have
demanded and perfected appraisal rights, if any,
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under Delaware Law) shall be converted into the right to receive (i) 1.00 fully
paid and non-assessable share of common stock, par value $.001 per share of
Parent ("Parent's Common Stock") (the "Exchange Ratio"); PROVIDED, HOWEVER, that
if Purchaser accepts for payment and pays for less than 19,218,735 Shares in the
Offer (the "Offered Number"), then the Exchange Ratio shall be equal to a
fraction, (A) the numerator of which is equal to (x) the the number of
outstanding shares immediately prior to the Effective Time (excluding Ineligible
Shares) (the "Final Outstanding Number") PLUS (y) the number of Shares accepted
and paid for ("Accepted Share Number") MINUS (z) the Offered Number and (B) the
denominator of which is the Final Outstanding Number and (ii) if the Exchange
Ratio has been adjusted pursuant to the immediately preceding PROVISO, an amount
in cash equal to a fraction, (A) the numerator of which is the product of the
Per Share Amount and the amount by which the Offered Number exceeds the Accepted
Share Number and (B) the denominator of which is the Final Outstanding Number.
Pursuant to the Merger Agreement, each share of common stock, no par value,
of Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one share of common stock, par value
$1.00 per share, of the Surviving Corporation.
Under the Merger Agreement, all options to purchase Company Common Stock
granted under the Cray Research, Inc. 1985 Incentive Stock Option and
Nonstatutory Option Plan (the "1985 Employee Plan"), the 1989 Stock Plan and the
Directors' Plan and, together with the 1985 Employee Plan and the Stock Plan,
the "Stock Option Plans") or pursuant to any other arrangement adopted by the
Board to provide options to directors, officers or employees of the Company (in
any such case, an "Option") then outstanding shall be assumed by Parent as set
forth below. The above plans, along with all other employee related plans, are
herein collectively referred to as the "Employee Plans."
At the Effective Time, the Company's obligations with respect to each
outstanding Option, whether vested or unvested, shall, by virtue of the Merger
Agreement and without any further action of the Company, Parent or the holder of
any Option, be assumed by Parent. Each Option so assumed by Parent under the
Merger Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the applicable Stock Option Plan and the applicable
stock option agreement as in effect immediately prior to the Effective Time,
except that (i) such Option will be exercisable for that number of shares of
Parent Common Stock equal to the product of the number of shares of Common Stock
that were purchasable under such Option immediately prior to the Effective Time
multiplied by 1.0, subject to adjustment to eliminate fractional shares, rounded
up to the nearest whole number of shares of Parent Common Stock, and (ii) the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Option will be equal to the quotient determined by
dividing the exercise price per share of Common Stock at which such Option was
exercisable immediately prior to the Effective Time by 1.0, subject to
adjustment to eliminate fractional shares, and rounding the resulting exercise
price up to the nearest whole cent.
Pursuant to the Merger Agreement, the Company has agreed that it shall not,
directly or indirectly, through any officer, director, employee, representative
or agent of the Company or any of its subsidiaries, solicit or encourage
(including by way of furnishing information) the initiation of any inquiries or
proposals regarding any merger, take-over bid, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender or
exchange offer) or similar transactions involving the Company or any
subsidiaries of the Company (any of the foregoing inquiries or proposals being
referred to herein as an "Acquisition Proposal"); PROVIDED, HOWEVER, that
nothing contained in the Merger Agreement shall prevent the Board from referring
any third party that contacts the Company on an unsolicited basis after the date
of the Merger Agreement concerning an Alternative Transaction (as defined below)
(provided that Parent is concurrently notified of such contact and referral).
The parties have agreed that nothing contained in the Merger Agreement shall
prevent the Board, after receiving an opinion of outside counsel to the effect
that the Board is required to do so in order to discharge properly its fiduciary
duties, from considering, negotiating, approving and recommending to the
stockholders of the Company an unsolicited bona fide written Acquisition
Proposal which the Board of Directors of the Company determines in good faith
(after consultation
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with its financial advisors) (i) would result in a transaction more favorable to
the Company's stockholders than the transaction contemplated by the Merger
Agreement and (ii) is made by a person financially capable of consummating such
Acquisition Proposal (any such Acquisition Proposal being referred to herein as
a "Superior Proposal"). The Company shall immediately notify Parent after
receipt of any Acquisition Proposal or any request for nonpublic information
relating to the Company or any of its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company or any subsidiary by any person or entity that informs the Board that it
is considering making, or has made, an Acquisition Proposal. Such notice to
Parent shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact. If the Board receives a request for material
nonpublic information by a party who makes a bona fide Acquisition Proposal and
the Board determines that such proposal, if consummated pursuant to its terms is
a Superior Proposal, then, and only in such case, the Company may, subject to
the execution of a confidentiality agreement substantially similar to that then
in effect between the Company and Parent, provide such party with access to
information regarding the Company. The Merger Agreement also provides that the
Company shall immediately cease and cause to be terminated any existing
discussions or negotiations with any parties (other than Parent and Purchaser)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from any confidentiality or standstill agreement
to which the Company is a party. The Company shall ensure that the officers,
directors and employees of the Company and its subsidiaries and any investment
banker or other advisor or representative retained by the Company are aware of
the restrictions described in this paragraph; and shall be responsible for any
breach of this paragraph by such bankers, advisors and representatives
(PROVIDED, HOWEVER, that the Company shall not be liable for any consequential
damages with respect to such breaches).
For purposes of the Merger Agreement, "Alternative Transaction" means (i) a
transaction pursuant to which any person (or group of persons) other than Parent
or its affiliates (a "Third Party") acquires more than 20% of the outstanding
Shares, whether from the Company or pursuant to a tender offer or exchange offer
or otherwise, (ii) a merger or other business combination involving the Company
pursuant to which any Third Party acquires more than 20% of the outstanding
equity securities of the Company or the entity surviving such merger or business
combination or (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company, and the entity surviving any merger
or business combination including any of them) of the Company and its
subsidiaries having a fair market value equal to more than 20% of the fair
market value of all the assets of the Company and its subsidiaries, taken as a
whole, immediately prior to such transaction; PROVIDED, HOWEVER, that the term
Alternative Transaction shall not include any acquisition of securities by a
broker dealer in connection with a bona fide public offering of such securities.
The Merger Agreement provides that during the period from the date of the
Merger Agreement and continuing until the earlier of the termination of the
Merger Agreement or the Effective Time, Parent shall, unless the Company shall
otherwise agree in writing, conduct its business, and cause the businesses of
its subsidiaries to be conducted, in the ordinary course of business and
consistent with past practice, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company: (a) amend or otherwise change Parent's Certificate of
Incorporation (other than with respect to immaterial changes thereto), or amend
the terms of the Parent Common Stock;
(b) acquire or agree to acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets of any other person, which, in each case, would materially delay or
prevent the consummation of the transactions contemplated by the Merger
Agreement; (c) sell, transfer, license, sublicense or otherwise dispose of any
material assets; or (d) take, or agree in writing or otherwise to take, any of
the actions described in this paragraph or any action which would make any of
the representations or
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warranties of Parent contained in the Merger Agreement untrue or incorrect or
prevent Parent from performing or cause Parent not to perform its covenants
thereunder or would result in any of the conditions to the merger to be
satisfied by Parent not being satisfied.
The Merger Agreement provides that promptly upon the purchase by Purchaser
of a majority of the outstanding Shares pursuant to the Offer, and from time to
time thereafter as Shares are acquired by Purchaser, Purchaser shall be
entitled, subject to compliance with Section 14(f) of the Exchange Act, to
designate such number of directors, rounded up to the next greatest whole
number, on the Board as will give Purchaser representation on the Board equal to
that number of directors which equals the product of the total number of
directors on the Board (giving effect to the directors appointed or elected
pursuant to this sentence and including current directors serving as officers of
the Company) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate of Purchaser (including such
Shares as are accepted for payment pursuant to the Offer, but excluding Shares
held by the Company or any of its affiliates) bears to the number of Shares
outstanding. The Merger Agreement also provides that, at such times, the Company
will also cause (i) each committee of the Board of Directors, (ii) if requested
by Purchaser, the board of directors of each of the Company's subsidiaries and
(iii) if requested by Purchaser, each committee of such board to include persons
designated by Purchaser constituting the same percentage of each such committee
or board as Purchaser's designees are of the Board. The Company shall, upon
request by Purchaser, 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 Purchaser designees to be elected to the Board and shall
cause Purchaser's designees to be so elected.
The Merger Agreement provides that subject to applicable law, the Company
shall promptly take all action necessary pursuant to the Merger Agreement and
the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its
obligations under the Merger Agreement and shall include in the Schedule 14D-9
mailed to stockholders promptly after the commencement of the Offer (or an
amendment thereof or an information statement pursuant to Rule 14f-1 if
Purchaser has not theretofore designated directors) such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 in order to fulfill its obligations under the
Merger Agreement. Parent and Purchaser will supply the Company and be solely
responsible for any information with respect to itself and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
A copy of the information statement is attached hereto as SCHEDULE I and is
incorporated herein by reference.
Pursuant to the Merger Agreement, the Surviving Corporation and Parent shall
honor the terms and provisions in the Employment Agreement, dated May 27, 1995,
between the Company's chief executive officer, J. Phillip Samper, and the
Company. The Merger Agreement also provides that the Surviving Corporation
shall, subject to certain exceptions set forth in the Merger Agreement, offer
severance benefits to the Company's employees generally consistent with those
given in the Company's most recent reduction in force and, in general, in
accordance with the 1995 Amended and Restated Severance Pay Plan for Cray
Research, Inc.
The Merger Agreement further provides that the Certificate of Incorporation
of the Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Certificate of Incorporation and By-laws of the
Company, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors or officers of the Company, unless such modification is required
by law.
The Merger Agreement also provides that the Company shall, to the fullest
extent permitted under applicable law or under the Company's Certificate of
Incorporation or By-Laws and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and after the Effective Time, the Surviving
Corporation and Parent shall, to the fullest extent permitted under applicable
law or
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under the Surviving Corporation's and Parent's, as the case may be, Certificate
of Incorporation or By-Laws, indemnify and hold harmless, each director and
officer of the Company or any of its subsidiaries (collectively, the
"Indemnified Paries") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to any action or omission by such director or officer by
virtue of their holding the office of director or officer occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by the Merger Agreement) for a period of six years after the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving corporation and Parent
and (ii) neither the Surviving Corporation nor Parent shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
Pursuant to the Merger Agreement Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock to be issued in the Merger,
upon exercise of the Options and upon conversion of the Convertible Debentures,
to be approved for listing on the New York Stock Exchange, Inc. ("NYSE").
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company as to the absence of certain changes or events
concerning the Company's business, capitalization, compliance with law, material
contracts, litigation, employee benefit plans, labor matters, Commission
filings, real property and leases, taxes, intellectual property and
environmental matters. In addition to the foregoing, the Merger Agreement also
contains the representations of the Company described below.
The Company has represented that the Board has taken all necessary action to
amend the Rights Agreement, so that (A) none of the execution or delivery of the
Merger Agreement or the making of the Offer will cause (i) the Rights to become
exercisable under the Rights Agreement, (ii) Parent or Purchaser or any of their
affiliates to be deemed an "Acquiring Person" (as defined in the Rights
Agreement) or (iii) the "Shares Acquisition Date" (as defined in the Rights
Agreement) to occur upon any such event, (B) none of the acceptance for payment
or payment for Shares by Purchaser pursuant to the Offer or the consummation of
the Merger will cause (i) the Rights to become exercisable under the Rights
Agreement or (ii) Parent or Purchaser or any of their affiliates to be deemed an
Acquiring Person or (iii) the Shares Acquisition Date to occur upon any such
event, and (C) the "Expiration Date" (as defined in the Rights Agreement) shall
occur no later than immediately prior to the purchase of shares pursuant to the
Offer. The Company has also represented that the "Distribution Date" (as defined
in the Rights Agreement) has not occurred.
The Company has represented that the Board has taken all necessary action to
amend 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 "Parachute Plans") so that none of the execution, delivery or performance of
the Merger Agreement, including, without limitation, consummation of the Offer
and the Merger shall constitute a "Change of Control" for the purposes of such
Parachute Plans.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (a) the
Registration Statement shall have been declared effective by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose and no similar proceeding in respect of the Proxy Statement shall have
been initiated or threatened by the Commission; (b) the Merger Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
stockholders of the
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Company; (c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated; (d) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other similar binding legal restraint or
prohibition (an "Injunction") preventing the consummation of the Merger shall be
in effect, nor shall any proceeding brought by any administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; and there shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of the
Merger illegal; (e) the Parent Common Shares to be issued in the Merger, upon
exercise of the Options and upon conversion of the Convertible Debentures shall
have been approved for listing, subject to notice of issuance, on the NYSE; and
(f) Parent shall have made, or caused to be made, the Offer and shall have
purchased, or caused to be purchased, Shares pursuant to the Offer.
In addition to the foregoing, the obligations of Parent and Purchaser to
effect the Merger are also subject to the following conditions: (a) the
representations and warranties of the Company contained in the Merger Agreement
shall be true and correct in all respects on and as of the Effective Time,
except for (i) changes contemplated by the Merger Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date) and (iii) where the
failure to be true and correct would not have a material adverse effect on the
Company, with the same force and effect as if made on and as of the Effective
Time; (b) the Company shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to be
performed or complied with by it on or prior to the Effective Time; (c) all
material consents, waivers, approvals, authorizations or orders required to be
obtained, and all filings required to be made, by the Company for the
authorization, execution and delivery of the Merger Agreement and the
consummation by it of the transactions contemplated thereby shall have been
obtained and made by the Company; (d) there shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or other
inquiry that might result in such an action or proceeding) by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, nor shall there be in
effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit Parent from exercising all material rights and
privileges pertaining to its ownership of the Surviving Corporation or the
ownership or operation by Parent or any of its subsidiaries of all or a material
portion of the business or assets of Parent or any of its subsidiaries, or
seeking to compel Parent or any of its subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of Parent or any
of its subsidiaries, as a result of the Merger or the transactions contemplated
by the Merger Agreement; (e) since the date of the Merger Agreement, there shall
have been no change, occurrence or circumstance in the business, results of
operations or financial condition of the Company or any subsidiary of the
Company having or reasonably likely to have a material adverse effect; and (f)
Parent shall have received from each officer and director and each other person
who is identified as an "affiliate" of the Company an affiliate agreement, and
each such affiliate agreement shall be in full force and effect.
In addition to the foregoing, the obligation of the Company to effect the
Merger is also subject to the following conditions: (a) the representations and
warranties of Parent and Purchaser contained in the Merger Agreement shall be
true and correct in all respects on and as of the Effective Time, except for (i)
changes contemplated by the Merger Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date) and (iii) failures to be true and
correct that would not have a material adverse effect on the Company, with the
same force and effect as if made on and as of the Effective Time; (b) Parent and
Purchaser shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by them on or prior to the Effective Time; (c) all material
consents, waivers, approvals, authorizations or orders required to be obtained,
and all filings required to be made, by Parent and Purchaser for the
authorization, execution
8
<PAGE>
and delivery of the Merger Agreement and the consummation by them of the
transactions contemplated thereby shall have been obtained and made by Parent
and Purchaser; and (d) since the date of the Merger Agreement, there shall have
been no change, occurrence or circumstance in the business, results of
operations or financial condition of Parent or any subsidiary of Parent having
or reasonably likely to have a material adverse effect.
TERMINATION; FEES AND EXPENSES. The Merger Agreement provides that it may
be terminated at any time prior to the Effective Time, notwithstanding approval
thereof by the stockholders of the Company: (a) by mutual written consent duly
authorized by the boards of directors of Parent and the Company; or (b) by
either Parent or the Company if the Merger shall not have been consummated by
September 30, 1996 (PROVIDED that the right to terminate the Merger Agreement
shall not be available to any party whose failure to fulfill any obligation
under the Merger Agreement has been the cause of or resulted in the failure of
the Merger to occur on or before such date); or (c) by either Parent or the
Company if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued a non-appealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or (d) by Parent, if the Offer shall not have been consummated prior to
June 30, 1996 (PROVIDED that Parent is not then in material breach of the Merger
Agreement); or (e) by Parent, if (i) the Board shall withdraw, modify or change
its recommendation of the Merger Agreement, the Offer or the Merger in a manner
adverse to Parent or shall have resolved to do so; or (ii) the Board shall have
taken a "neutral" position with respect to an Alternative Transaction; or (iii)
any person or "group" (other than Parent or an affiliate of Parent) becomes the
owner of 20% or more of the outstanding shares of Company Common Stock; or (f)
by Parent or the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company or Parent and Purchaser,
respectively, set forth in the Merger Agreement or in certain events where the
representations or warranties of the Company or Parent and Purchaser,
respectively, shall have become untrue, (a "Terminating Breach"), PROVIDED that,
if such Terminating Breach is curable prior to the expiration of 30 days from
its occurrence (but in no event later than September 30, 1996) by Parent or the
Company, as the case may be, through the exercise of its reasonable best efforts
and for so long as Parent or the Company, as the case may be, continues to
exercise such reasonable best efforts, neither the Company nor Parent,
respectively, may terminate the Merger Agreement under this provision until the
expiration of such period without such Terminating Breach having been cured; or
(g) by the Company or Parent, if the Board shall have resolved to accept, or
accepted, a Superior Proposal.
In the event of the termination of the Merger Agreement, the Merger
Agreement provides that it shall forthwith become void and there shall be no
liability thereunder on the part of any party thereto, or any of its affiliates,
directors, officers or stockholders except under the provisions of the Merger
Agreement related to fees and expenses described below and under certain other
provisions of the Merger Agreement which survive termination.
Except as described herein, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is consummated.
The Company has agreed to pay Parent a fee of $25,000,000 (the "Fee"), plus
actual, documented and reasonable out-of-pocket expenses of Parent, not in
excess of $2,500,000, relating to the transactions contemplated by the Merger
Agreement (including, but not limited to, fees and expenses of Parent's
counsel), if the Merger Agreement is terminated because (i) the Board has
withdrawn or changed its recommendation of the Merger Agreement, the offer or
the Merger in a manner adverse to Parent or taken a "neutral" position with
respect to an Alternative Transaction or any person or group (other than Parent
or an affiliate of Parent) becomes the owner of 20% or more of the outstanding
shares of Common Stock, (ii) the Board has resolved to accept or accepted a
Superior Proposal, (iii) the Company has committed a Terminating Breach and has
failed to cure such breach in the manner set forth above, PROVIDED, that if the
breach is curable prior to the expiration of 30 days from its occurrence (but in
no event later than September 30, 1996) by the Company through the exercise of
9
<PAGE>
reasonable best efforts and for so long as the Company continues to exercise
such reasonable best efforts, Parent may not terminate the Merger Agreement
until the expiration of such period without such breach having been cured, (iii)
the Offer has not been consummated by June 30, 1996 and an Alternative
Transaction has been publicly announced and not withdrawn or (iv) an Alternative
Transaction is consummated on or prior to December 31, 1996, provided Parent or
Purchaser in each case is not in intentional material breach of its obligations
under the Merger Agreement.
CONFIDENTIALITY AGREEMENT
Parent and the Company entered into the confidentiality agreement, dated
December 15, 1995 (the "Confidentiality Agreement"), a copy of which is filed as
EXHIBIT 5 hereto and incorporated herein by reference. Pursuant to the
Confidentiality Agreement, the parties agreed, among other things, that they
would keep confidential certain information ("Evaluation Material") furnished to
it by the other party and that they would use the Evaluation Material solely for
the purpose of evaluating a business transaction between the parties.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting of the Board of Directors held on February 25, 1996, the Board
of Directors, based upon and subject to the terms and conditions set forth in
the Merger Agreement, unanimously approved and adopted the Merger Agreement, the
Merger and the Offer; and recommended that the stockholders of the Company
accept the Offer and adopt the Merger Agreement and the transactions
contemplated thereby.
A letter to the Company's stockholders communicating the Board's
recommendation and a press release announcing the Offer, the Merger and the
Merger Agreement are filed herewith as EXHIBIT 6 and EXHIBIT 7, respectively,
and are incorporated herein by reference.
(b) BACKGROUND REASONS FOR THE BOARD'S RECOMMENDATION.
BACKGROUND. 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.
On October 5, 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. The Board of Directors also authorized the
executive officers of the Company to engage an investment banking firm to assist
the Company with these efforts.
On October 9, 1995, the Company retained Salomon Brothers Inc ("Salomon
Brothers") on an exclusive basis to render financial advisory and investment
banking services to the Company in connection with a possible combination with,
or sale of a controlling interest in the Company to, another corporation or
other business entity. The Company's efforts were not limited to acquisition
discussions.
On November 21, 1995, members of management met with representatives of
Salomon and analyzed and discussed potential strategic alliances. In December,
the Company communicated to representatives of several companies that the
Company was interested in exploring opportunities for collaboration, strategic
alliance or some form of business combination. Discussions and negotiations with
certain of these companies followed.
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In late 1995, representatives of management initiated contact with Parent to
determine if Parent had any interest in exploring a possible strategic alliance
or business combination with the Company. Senior executives of the Company and
Parent met on December 7, 1995 and agreed to have their respective
representatives continue discussions.
On December 15 and 16, 1996, the Company and Parent entered into a
confidentiality agreement, attached hereto as EXHIBIT 5 and incorporated herein
by reference, pursuant to which, among other things, the Company and Parent
agreed that if either party received confidential non-public information
concerning the other party, the party receiving such information would not
disclose or use such information other than in connection with evaluating the
proposed transactions between the parties. Representatives of the Company and
representatives of the Parent then met and held discussions in connection with
various possible relationships. In connection with the execution of the
confidentiality agreement, the Company provided Parent with certain financial
and other information regarding the Company and its business. Shortly thereafter
a meeting of representatives was held at the Company's headquarters in Eagan,
Minnesota. At the meeting, the parties discussed their respective product and
technology plans and financial outlooks, and how the two companies might
consolidate their operations in the event of a business combination. No
acquisition proposal was made at or following this meeting, but representatives
of the two companies continued to be in communication, and a follow-up meeting,
including each company's financial and legal representatives, was held in
California on Janaury 22, 1996.
On February 3, 1996 representatives of the Company had a discussion with
representatives of Parent in which Parent expressed the interest of its Board of
Directors in pursuing a business combination with the Company whereby the
Company would be maintained as a separate operating unit. Parent and the Company
discussed the timetable for a due diligence evaluation of the Company in
connection with the proposed business combination.
On February 5, 1996, a regular meeting of the Board of Directors of the
Company was held to discuss, among other things, the Company's strategic
partnering efforts as well as the recent communications between representatives
of the Company and representatives of Parent. At the meeting, the executive
officers reviewed communications with Parent, the respective technological
abilities of Parent and the Company as well as the potential synergies of a
combination of the Company with the Parent and other matters related thereto. At
the conclusion of the meeting, the Board determined that it would be consistent
with the Company's objectives to continue to investigate a possible business
combination with Parent as well as other possible strategic alternatives for the
Company.
On February 13, 1996, at a special meeting of the Board of Directors of the
Company, management reviewed the status of its continuing discussions.
Representatives of Salomon Brothers then reviewed the environment in which the
Company operates, the pressures facing industry participants, strategies
undertaken by other industry participants, the reaction of the stock market to
major industry transactions, public trading values of Parent and the Company,
valuations of the Company and the methodology by which such valuations were
derived.
On February 14, 1996, the parties and their financial and legal
representatives met to discuss whether a business combination could be agreed to
on terms acceptable to both sides. The parties discussed several possible
transaction structures and values. After further discussions and negotiations,
which continued into the following day, the parties agreed to discuss with their
boards of directors a transaction valued at $30 per Share in cash for 75% of the
Shares and one share of Parent Common Stock for each remaining Share.
On February 18, 1996, a special meeting of the Board of Directors of the
Company was held. At the meeting, the executive officers indicated that Parent
was interested in acquiring the Company, subject to further due diligence,
negotiation of a satisfactory agreement, approval by its Board of Directors and
certain other conditions, pursuant to a cash tender offer to acquire 75% of the
outstanding shares of common stock of the Company's for $30 per share, net to
seller in cash, and followed by a merger in which each Share that remains
outstanding will be converted into the right to receive one share of
11
<PAGE>
Parent Common Stock. At the conclusion of the meeting the Board determined that
the Company should continue to negotiate the terms of a business combination
with Parent, including but not limited to the terms and provisions of a merger
agreement, which would be subject to final review and approval by the Board of
Directors.
During the week of February 19, 1996, the parties conducted due diligence
investigations of each other's businesses, negotiated the terms of a definitive
merger agreement and, beginning in the afternoon of February 23, 1996, had
meetings and telephone calls with certain key customers of the Company to
discuss the potential transaction.
On February 25, 1996, a special meeting of the Board of Directors of the
Company was held. At such meeting, the Board reviewed with certain of its
executive officers, legal counsel and financial advisors the discussions and
negotiations between the Company and Parent. Following such discussions, the
Board heard presentations by its legal counsel on the terms and conditions
contained in the proposed Merger Agreement and by Salomon Brothers on its
analysis of the proposed transaction. The termination provisions, as modified
through negotiations, were described to the Board and matters related to the
effects of the termination provisions were discussed with the Board.
Representatives of Salomon Brothers then discussed matters related to the
proposed transaction with Parent. At the conclusion of their presentation,
Salomon Brothers delivered its oral opinion to the Board (subsequently confirmed
by a written opinion) that, as of such date, the $30.00 in cash to be received
by the holders of shares in the Offer and the consideration to be received in
the Merger is fair to the stockholders of the Company from a financial point of
view. Thereafter, the Board authorized the Offer, the Merger and the execution
and delivery of the Merger Agreement substantially in the form presented to it;
and recommended that the stockholders of the Company accept the Offer and tender
their shares to Parent and approve and adopt the Merger Agreement.
REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE BOARD. In approving
the Merger, the Offer and the Merger Agreement and recommending that all
stockholders tender their Shares pursuant to the Offer, the Board of Directors
considered a number of factors, including:
1. the financial and other terms and conditions of the Offer, the
Merger and Merger Agreement;
2. the presentation of Salomon Brothers at the February 25, 1996 Board
of Directors' meeting and the opinion of Salomon Brothers (the "Opinion") to
the effect that, as of the date of the Opinion and based upon and subject to
certain matters stated therein, the consideration to be received by the
holders of Shares in the Transaction is fair, from a financial point of
view, to such holders. The full text of the Opinion, which sets forth the
assumptions made, general procedures followed, matters considered and
limitations on the review undertaken by Salomon Brothers, is attached hereto
as EXHIBIT 8 and is incorporated herein by reference. Stockholders are urged
to read the Opinion carefully in its entirety;
3. the possible alternatives to the Offer and the Merger, including,
without limitation, continuing to operate the Company as an independent
entity and the risks associated therewith;
4. the familiarity of the Board of Directors with the business, results
of operations, properties and financial condition of the Company and the
nature of the industry in which it operates;
5. the compatibility of the business and operating strategies of the
Parent and the Company;
6. the fact that the Merger Agreement, which prohibits the Company, its
subsidiaries and their respective officers, directors, employees,
representatives, agents or affiliates from initiating, soliciting or
knowingly encouraging any potential Acquisition Proposal (as defined in the
Merger Agreement) does permit the Company to furnish non-public information
to, or to enter into, maintain or continue discussions and negotiations
with, any person or entity that makes an unsolicited inquiry, offer or
proposal relating to an Acquisition Proposal after the date of the
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Merger Agreement, if the Board of Directors, after consultation with its
financial advisors and based upon the advice of counsel, determines that it
is necessary to do so in the exercise of its fiduciary duties;
7. the fact that in the event that the Board decided to accept a
Superior Proposal (as defined in the Merger Agreement) of a third party, the
Board may terminate the Merger Agreement and pay Parent a termination fee of
$25 million plus actual documented expenses and reasonable out-of-pocket
expenses of Parent, not in excess of $2,500,000 relating to the transactions
contemplated by the Merger Agreement (including, but not limited to, fees
and expenses of Parent's counsel) (or approximately $1.00 per outstanding
Share). The Board, after considering, among other things, the advice of
Salomon Brothers, did not believe that such termination provision would be a
significant deterrent to a higher offer by a third party interested in
acquiring the Company;
8. the fact that the terms of Merger Agreement should not unduly
discourage other third parties from making bona fide proposals subsequent to
the execution of the Merger Agreement and, if any such proposals were made,
the Company, in the exercise of its fiduciary duties, could determine to
provide information to and engage in negotiations with any such third party;
and
9. the regulatory approvals required to consummate the Merger,
including, among others, antitrust approvals, and the prospects for
receiving such approvals.
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendation as being on the totality of the
information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company and Salomon Brothers entered into an agreement dated October 9,
1995 (the "Retention Letter") pursuant to which Salomon Brothers was retained as
the Company's financial advisor in connection with a possible sale, merger,
consolidation, tender offer or other transaction involving the Company (a
"Significant Transaction"). For its services as financial advisor in connection
with these possible transactions, the Company has agreed to pay Salomon Brothers
the following fees: (a) $75,000, paid upon the Company's execution of the
Retention Letter; plus (b) an additional fee of $425,000, contingent upon and
payable promptly following the execution of a definitive agreement to affect a
Significant Transaction; plus (c) an additional fee to be contingent upon the
consummation of a Significant Transaction and payable at the closing thereof
equal to $2,500,000. The Company has also agreed to reimburse Salomon Brothers
for its reasonable out-of-pocket expenses (including the fees and disbursements
of its counsel) and to indemnify Salomon Brothers against certain liabilities
and expenses.
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Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been affected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company, other than grants of
restricted stock and options.
(b) The Company does not know the extent to which its executive officers and
directors plan to tender pursuant to the Offer or hold any Shares beneficially
owned by them, nor does the Company know of any current intention by its
executive officers or directors to otherwise dispose of such Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4, there are no transactions,
Board resolutions, agreements in principle, or signed contracts in response to
the Offer, which relate to or would result in one or more of the matters
referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- - - ----------- ----------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger dated as of February 25, 1996 between Cray Research, Inc.,
Silicon Graphics, Inc. and C Acquisition Corporation.
Exhibit 2 Pages 6-13 of the Company's Proxy Statement dated May 16, 1995.
Exhibit 3 Employment Agreement, dated May 17, 1995 between Cray Research, Inc. and J. Phillip
Samper.
Exhibit 4 Schedule of Stock Options Granted to Executive Officers on February 6, 1996.
Exhibit 5 Confidentiality Agreement dated December 15, 1995 between Cray Research, Inc. and
Silicon Graphics, Inc.
Exhibit 6 Letter to Stockholders of Cray Research, Inc. dated February 29, 1996.
Exhibit 7 Press Release issued by Silicon Graphics, Inc. and Cray Research, Inc. dated February
26, 1996.
Exhibit 8 Opinion, dated February 25, 1996, of Salomon Brothers Inc.
</TABLE>
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
CRAY RESEARCH, INC.
By /s/ J. Phillip Samper
-----------------------------------
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
Dated: February 29, 1996
<PAGE>
SCHEDULE I
CRAY RESEARCH, INC.
655A LONE OAK DRIVE
EAGAN, MN 55121
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULES 14F-1 THEREUNDER
The Information Statement is being mailed on or about February 29, 1996 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"). You are receiving this Information Statement in connection
with the possible election of persons designated by the Parent to a majority of
the seats on the Board of Directors of the Company (the "Purchaser Designees").
The Merger Agreement requires the Company to take all action necessary to cause
the Purchaser Designees to be elected to the Board of Directors under the
circumstances described therein. This Information Statement is required by
Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. See "General
Information Regarding the Company." You are urged to read this Information
Statement carefully. You are not, however, required to take any action.
Capitalized terms used and not otherwise defined herein shall have the meaning
set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Parent commenced the Offer on February
29, 1996. The Offer is scheduled to expire at 12:00 Midnight on March 27, 1996,
unless the Offer is extended.
The information contained in this Information Statement (including
information incorporated by reference) concerning the Parent, the Purchaser and
the Purchaser Designees has been furnished to the Company by the Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information. Certain capitalized terms used but not defined in this Information
Statement have the meanings ascribed to them in the Schedule 14D-9.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company. Each
Share entitles its record holder to one vote. As of February 22, 1996, there
were 25,624,980 Shares issued and outstanding.
ELECTION OF DIRECTORS
The Merger Agreement provides that promptly upon the purchase by Purchaser
of a majority of the outstanding Shares pursuant to the Offer, and from time to
time thereafter as Shares are acquired by Purchaser, Purchaser shall be
entitled, subject to compliance with Section 14(f) of the Exchange Act, to
designate such number of directors, rounded up to the next greatest whole
number, on the Board as will give Purchaser representation on the Board equal to
that number of directors which equals the product of the total number of
directors on the Board (giving effect to the directors appointed or elected
pursuant to this sentence and including current directors serving as officers of
the Company) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate of Purchaser (including such
Shares as are accepted for payment pursuant to the Offer, but excluding Shares
held by the Company or any of its affiliates) bears to the number of Shares
outstanding. The Merger Agreement also provides that, at such times, the Company
will also cause (i) each committee of the Board of Directors, (ii) if requested
by Purchaser, the board of directors of each of the Company's subsidiaries and
(iii) if requested by Purchaser, each committee of such board to include persons
designated by Purchaser constituting the same percentage of each such committee
or board as the Purchaser Designees are of the Board. The Company shall, upon
request by Purchaser, 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 Purchaser designees to be elected to the Board and shall
cause the Purchaser Designees to be so elected.
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It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Parent of a majority of the outstanding Shares on
a fully diluted basis pursuant to the Offer, which purchase cannot be earlier
than March 28, 1996, and that, upon assuming office, the Purchaser Designees
together with the continuing directors of the Company will thereafter constitute
the entire Board of Directors of the Company.
Biographical information concerning each of the Purchaser Designees is
presented below.
PURCHASER DESIGNEES
Purchaser has informed the Company that the Purchaser Designees shall be the
persons set forth in the following table. The following table sets forth the
name, age, present principal occupation or employment and five-year employment
history for each of the persons who the Purchaser has designated as the
Purchaser Designees.
The current business address of each person is 2011 North Shoreline
Boulevard, Mountain View, California 94043-1389. Unless otherwise indicated,
each such person is a citizen of the United States of America, and each
occupation set forth opposite an individual's name refers to employment with
Parent.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS YEARS AND BUSINESS ADDRESSES THEREOF
- - - ------------------------------------------- ------------------------------------------------------------------
<S> <C>
Edward R. McCracken Director
UNITED STATES Chairman and Chief Executive Officer.
Mr. McCracken became Chairman of Parent in 1994.
Thomas A. Jermoluk Director
President and Chief Operating Officer
Mr. Jermoluk became an Executive Vice President of Parent in 1991,
was named Chief Operating Officer in 1992, and President in 1994.
Mr. Jermoluk, who joined Parent in 1986, was Parent's Vice
President and General Manager, Advanced Systems Division, from
1988 to 1991.
Stanley J. Meresman Senior Vice President, Finance and Chief Financial Officer
UNITED STATES
Kenneth L. Coleman Senior Vice President, Administration
UNITED STATES
William M. Kelly Director
Vice President
Mr. Kelly joined Parent in 1994 as Vice President, Business
Development, General Counsel and Secretary. Prior to joining
Parent, Mr. Kelly had practiced law since 1978 with the firm of
Shearman & Sterling, most recently as co-managing partner of that
firm's San Francisco office, located at 555 California Street,
Suite 2000, San Francisco, California 94104.
Daniel P. McBride Vice President, Controller
UNITED STATES
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS YEARS AND BUSINESS ADDRESSES THEREOF
- - - ------------------------------------------- ------------------------------------------------------------------
<S> <C>
Robert W. Saltmarsh Vice President, Treasurer
Mr. Saltmarsh joined Parent in February 1996 as Vice President,
Treasurer. Between 1994 and 1995, Mr. Saltmarsh served as Chief
Financial Officer of Radius, Inc. (215 Moffett Park Drive,
Sunnyvale, CA 94089) and prior to that spent 12 years with Apple
Computer, Inc. (20525 Mariani Avenue, Cupertino CA 95014) in
several executive positions, most recently serving as Vice
President of Finance.
</TABLE>
I-3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- - - ----------- --------------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger dated as of February 25, 1996 between Cray Research, Inc., Silicon
Graphics, Inc. and C Acquisition Corporation.
Exhibit 2 Pages 6-13 of the Company's Proxy Statement dated May 16, 1995.
Exhibit 3 Employment Agreement, dated May 17, 1995 between Cray Research, Inc. and J. Phillip Samper.
Exhibit 4 Schedule of Stock Options Granted to Executive Officers on February 6, 1996.
Exhibit 5 Confidentiality Agreement dated December 15, 1995 between Cray Research, Inc. and Silicon
Graphics, Inc.
Exhibit 6 Letter to Stockholders of Cray Research, Inc. dated February 29, 1996.
Exhibit 7 Press Release issued by Silicon Graphics, Inc. and Cray Research, Inc. dated February 26, 1996.
Exhibit 8 Opinion, dated February 25, 1996 of Salomon Brothers Inc.
</TABLE>
<PAGE>
EXHIBIT (C)
FINAL EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SILICON GRAPHICS, INC.
C ACQUISITION CORPORATION
AND
CRAY RESEARCH, INC.
DATED AS OF FEBRUARY 25, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE I
THE OFFER
SECTION 1.01. The Offer................................................................... 1
SECTION 1.02. Company Action.............................................................. 2
SECTION 1.03. Directors................................................................... 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.................................................................. 3
SECTION 2.02. Effective Time.............................................................. 4
SECTION 2.03. Effect of the Merger........................................................ 4
SECTION 2.04. Certificate of Incorporation; By-Laws....................................... 4
SECTION 2.05. Directors and Officers...................................................... 4
SECTION 2.06. Effect on Capital Stock..................................................... 4
SECTION 2.07. Exchange of Certificates.................................................... 5
SECTION 2.08. Stock Transfer Books........................................................ 7
SECTION 2.09. Dissenting Shares........................................................... 7
SECTION 2.10. No Further Ownership Rights in Company Common Stock......................... 7
SECTION 2.11. Lost, Stolen or Destroyed Certificates...................................... 7
SECTION 2.12. Taking of Necessary Action; Further Action.................................. 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries................................ 8
SECTION 3.02. Certificate of Incorporation and By-Laws.................................... 8
SECTION 3.03. Capitalization.............................................................. 8
SECTION 3.04. Authority Relative to this Agreement........................................ 9
SECTION 3.05. No Conflict; Required Filings and Consents.................................. 10
SECTION 3.06. Compliance; Permits......................................................... 10
SECTION 3.07. SEC Filings; Financial Statements........................................... 11
SECTION 3.08. Absence of Certain Changes or Events........................................ 12
SECTION 3.09. No Undisclosed Liabilities.................................................. 12
SECTION 3.10. Absence of Litigation....................................................... 12
SECTION 3.11. Employee Benefit Plans; Employment Agreements............................... 12
SECTION 3.12. Labor Matters............................................................... 14
SECTION 3.13. Registration Statement; Proxy Statement..................................... 14
SECTION 3.14. Restrictions on Business Activities......................................... 14
SECTION 3.15. Title to Property........................................................... 15
SECTION 3.16. Taxes....................................................................... 15
SECTION 3.17. Environmental Matters....................................................... 16
SECTION 3.18. Brokers..................................................................... 17
SECTION 3.19. Intellectual Property....................................................... 17
SECTION 3.20. Vote Required............................................................... 18
</TABLE>
ii
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<TABLE>
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SECTION 3.21. Opinion of Financial Advisor................................................ 18
<S> <C> <C>
SECTION 3.22. Full Disclosure............................................................. 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. Organization and Qualification.............................................. 18
SECTION 4.02. Authority Relative to This Agreement........................................ 18
SECTION 4.03. No Conflict; Required Filings and Consents.................................. 19
SECTION 4.04. Certificate of Incorporation and By-Laws.................................... 19
SECTION 4.05. Capitalization.............................................................. 19
SECTION 4.06. Compliance; Permits......................................................... 20
SECTION 4.07. SEC Filings; Financial Statements........................................... 20
SECTION 4.08. Absence of Certain Changes or Events........................................ 21
SECTION 4.09. Restrictions on Business Activities......................................... 21
SECTION 4.10. Title to Property........................................................... 21
SECTION 4.11. No Undisclosed Liabilities.................................................. 21
SECTION 4.12. Absence of Litigation....................................................... 21
SECTION 4.13. Registration Statement; Proxy Statement/Prospectus.......................... 21
SECTION 4.14. Brokers..................................................................... 22
SECTION 4.15. No Stockholder Vote......................................................... 22
SECTION 4.16. Financing................................................................... 22
SECTION 4.17. Full Disclosure............................................................. 22
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger....................... 22
SECTION 5.02. No Solicitation............................................................. 24
SECTION 5.03. Conduct of Business by Parent Pending the Merger............................ 25
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Proxy Statement/Prospectus; Registration Statement.......................... 25
SECTION 6.02. Stockholders' Meeting....................................................... 26
SECTION 6.03. Access to Information; Confidentiality...................................... 26
SECTION 6.04. Consents; Approvals......................................................... 26
SECTION 6.05. Stock Options............................................................... 26
SECTION 6.06. Company Stock Purchase Plan................................................. 27
SECTION 6.07. Employment Matters.......................................................... 27
SECTION 6.08. Agreements of Affiliates.................................................... 27
SECTION 6.09. Indemnification............................................................. 27
SECTION 6.10. Notification of Certain Matters............................................. 28
SECTION 6.11. Further Action.............................................................. 28
SECTION 6.12. Public Announcements........................................................ 28
SECTION 6.13. Listing of Parent Common Shares............................................. 28
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Obligation of Each Party to Effect the Merger................. 29
</TABLE>
iii
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SECTION 7.02. Additional Conditions to Obligations of Parent and Merger Sub............... 29
<S> <C> <C>
SECTION 7.03. Additional Conditions to Obligation of the Company.......................... 30
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination................................................................. 30
SECTION 8.02. Effect of Termination....................................................... 31
SECTION 8.03. Fees and Expenses........................................................... 31
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements................. 32
SECTION 9.02. Notices..................................................................... 32
SECTION 9.03. Certain Definitions......................................................... 33
SECTION 9.04. Amendment................................................................... 34
SECTION 9.05. Waiver...................................................................... 34
SECTION 9.06. Headings.................................................................... 34
SECTION 9.07. Severability................................................................ 34
SECTION 9.08. Entire Agreement............................................................ 34
SECTION 9.09. Assignment, Merger Sub...................................................... 34
SECTION 9.10. Parties in Interest......................................................... 34
SECTION 9.11. Failure or Indulgence Not Waiver; Remedies Cumulative....................... 35
SECTION 9.12. GOVERNING LAW............................................................... 35
SECTION 9.13. Counterparts................................................................ 35
SECTION 9.14. WAIVER OF JURY TRIAL........................................................ 35
</TABLE>
Annexes:
Annex A: Conditions to the Offer
Annex B: Certain Employee Matters
Annex C: Form of Affiliate Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 25, 1996 (this
"AGREEMENT"), among SILICON GRAPHICS, INC., a Delaware corporation ("PARENT"), C
ACQUISITION CORPORATION, a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and CRAY RESEARCH, INC., a Delaware corporation (the
"COMPANY"),
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, it is proposed that Merger Sub
shall make a cash tender offer (the "OFFER") to acquire 19,218,735 of the issued
and outstanding shares of common stock, par value $1.00 per share, of the
Company ("COMPANY COMMON STOCK") and the associated Common Share Purchase Rights
(the "RIGHTS") (shares of Company Common Stock together with the associated
Rights being hereinafter collectively referred to as "SHARES") for $30.00 per
Share (such amount, or any greater amount per Share paid pursuant to the Offer,
being hereinafter referred to as the "PER SHARE AMOUNT") net to the seller in
cash, upon the terms and subject to the conditions of this Agreement and the
Offer;
WHEREAS, the board of directors of the Company (the "BOARD") has approved
the making of the Offer and resolved and agreed to recommend that holders of
Shares tender their Shares pursuant to the Offer;
WHEREAS, also in furtherance of such combination, the boards of directors of
Parent, Merger Sub and the Company have each approved the merger (the "MERGER")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law ("DELAWARE LAW"), and upon
the terms and subject to the conditions set forth herein;
WHEREAS, pursuant to the Merger, each outstanding Share shall be converted
into the right to receive the Merger Consideration (as defined in Section
2.07(b)), consisting of shares of common stock, par value $0.001 per share, of
Parent ("PARENT COMMON STOCK") and, if applicable, cash upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.01 and none of the events set forth
in ANNEX A shall have occurred or be existing, Merger Sub shall commence the
Offer as promptly as reasonably practicable after the date hereof, but in no
event later than five business days after the initial public announcement of
Merger Sub's intention to commence the Offer. The obligation of Merger Sub to
accept for payment and pay for Shares tendered pursuant to the Offer shall only
be subject to (i) the condition (the "MINIMUM CONDITION") that at least the
number of Shares that when added to the Shares already owned by Parent shall
constitute a majority of the then outstanding Shares on a fully diluted basis
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer and (ii) the satisfaction or waiver of the other conditions set forth
in ANNEX A. Merger Sub expressly reserves the right to waive any such condition
(other than the Minimum Condition), to increase the price per Share payable in
the Offer and to make any other changes in the terms and conditions of the
Offer; PROVIDED, HOWEVER, that unless Parent and Merger Sub shall have obtained
the prior written approval of the Company, no change may be made in the Offer
which (i) decreases the price per Share payable in the Offer, (ii) changes the
form of consideration to be paid in the Offer, (iii) reduces the maximum number
of
<PAGE>
Shares to be purchased in the Offer, (iv) changes or waives the Minimum
Condition, or (v) modifies the conditions to the Offer set forth in ANNEX A or
imposes conditions to the Offer in addition to those set forth in ANNEX A. The
Per Share Amount shall, subject to applicable withholding of taxes, be net to
the seller in cash, upon the terms and subject to the conditions of the Offer.
Subject to the terms and conditions of the Offer (including, without limitation,
the Minimum Condition), Merger Sub shall, and Parent shall cause Merger Sub to,
accept for payment and pay for, as promptly as practicable after expiration of
the Offer, all Shares validly tendered and not withdrawn; PROVIDED, HOWEVER,
that notwithstanding the foregoing Parent may, in its sole discretion, extend
the expiration date of the Offer for up to 15 business days, and agrees on a
one-time basis if all other conditions to the Offer have been met, to extend the
expiration date for the Offer for 10 business days if on the relevant date of
expiration at least 45% of the then outstanding Shares (calculated on a fully
diluted basis) have been tendered and not withdrawn from the Offer.
(b) As soon as practicable on the date of commencement of the Offer, Merger
Sub shall file with the Securities and Exchange Commission (the "SEC") a Tender
Offer Statement on Schedule 14D-1 (together with all amendments and supplements
thereto, the "SCHEDULE 14D-1") with respect to the Offer. The Schedule 14D-1
shall contain or shall incorporate by reference an offer to purchase (the "OFFER
TO PURCHASE") and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "OFFER DOCUMENTS"). The Offer Documents will
comply in all material respects with the provisions of applicable federal
securities laws. Parent, Merger Sub and the Company agree to correct promptly
any information provided by any of them for use in the Offer Documents which
shall have become false or misleading, and Parent and Merger Sub further agree
to take all steps necessary to cause the Schedule 14D-1 as so corrected to be
filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Parent and Merger Sub shall give the Company
and its counsel the opportunity to review and comment upon the Offer Documents
prior to their being filed with, or sent to, the SEC.
SECTION 1.02. COMPANY ACTION. (a) The Company hereby approves of and
consents to the Offer and represents that the Board, at a meeting duly called
and held on February 25, 1996, has (i) unanimously approved and adopted this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger (the "TRANSACTIONS"), and (ii) unanimously recommended that the
stockholders of the Company accept the Offer and approve and adopt this
Agreement and the Transactions. The Company hereby consents to the inclusion in
the Offer Documents of the recommendation of the Board described in the
immediately preceding sentence, subject to the second sentence of Section
5.02(a).
(b) As soon as practicable on the date of commencement of the Offer, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, the
"SCHEDULE 14D-9") containing the recommendation of the Board described in
Section 1.02(a) and shall disseminate the Schedule 14D-9 to the extent required
by Rule 14d-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), and any other applicable federal securities laws. The
Schedule 14D-9 will comply in all other material respects with the provisions of
applicable federal securities laws. The Company, Parent and Merger Sub agree to
correct promptly any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws.
(c) The Company shall promptly furnish Merger Sub with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Merger Sub with such
additional information, including, without
2
<PAGE>
limitation, updated listings and computer files of stockholders, mailing labels
and security position listings, and such other assistance as Parent, Merger Sub
or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Merger Sub shall, and each of Parent and Merger Sub shall
cause its affiliates, associates, agents and advisors to, (i) hold in confidence
the information contained in such labels, listings and files, (ii) use such
information only in connection with the Offer and the Merger, and (iii) if this
Agreement shall be terminated in accordance with Section 8.01, promptly deliver
to the Company all copies (whether in human or machine readable form) of such
information then in their possession.
SECTION 1.03. DIRECTORS. (a) Promptly upon the purchase by Merger Sub of a
majority of the outstanding Shares pursuant to the Offer, and from time to time
thereafter as Shares are acquired by Merger Sub, Merger Sub shall be entitled,
subject to compliance with Section 14(f) of the Exchange Act, to designate such
number of directors, rounded up to the next greatest whole number, on the Board
as will give Merger Sub representation on the Board equal to that number of
directors which equals the product of the total number of directors on the Board
(giving effect to the directors appointed or elected pursuant to this sentence
and including current directors serving as officers of the Company) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Merger Sub or any affiliate of Merger Sub (including for purposes of this
Section 1.03 such Shares as are accepted for payment pursuant to the Offer, but
excluding Shares held by the Company or any of its affiliates) bears to the
number of Shares outstanding. At such times, the Company will also cause (i)
each committee of the Board of Directors, (ii) if requested by Merger Sub, the
board of directors of each of the Company's subsidiaries and (iii) if requested
by Merger Sub, each committee of such board to include persons designated by
Merger Sub constituting the same percentage of each such committee or board as
Merger Sub's designees are of the Board. The Company shall, upon request by
Merger Sub, 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
Merger Sub designees to be elected to the Board and shall cause Merger Sub's
designees to be so elected.
(b) Subject to applicable law, the Company shall promptly take all action
necessary pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under this Section
1.03 and shall include in the Schedule 14D-9 mailed to stockholders promptly
after the commencement of the Offer (or an amendment thereof or an information
statement pursuant to Rule 14f-1 if Merger Sub has not theretofore designated
directors) such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill
its obligations under this Section 1.03. Parent and Merger Sub will supply the
Company and be solely responsible for any information with respect to itself and
its nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1.
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. (a) Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined below) Merger Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (the "SURVIVING CORPORATION").
(b) Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 8.01 and
subject to the satisfaction or waiver of the conditions set forth in Article
VII, the consummation of the Merger will take place as promptly as practicable
(and in any event within two business days) after satisfaction or waiver of the
conditions set forth in Article VII, at the offices of Shearman & Sterling, 555
California Street, Suite 2000, San Francisco, California, unless another date,
time or place is agreed to in writing by the parties hereto.
3
<PAGE>
SECTION 2.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VII, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or certificate of ownership and merger (in either case,
the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, Delaware Law (the date and time of such filing being the
"EFFECTIVE TIME").
SECTION 2.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 2.04. CERTIFICATE OF INCORPORATION; BY-LAWS. (a) CERTIFICATE OF
INCORPORATION. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Delaware Law and such Certificate of Incorporation; PROVIDED, HOWEVER, that
Article I of the Certificate of Incorporation of the Surviving Corporation shall
be amended to read as follows: "FIRST: The name of the corporation is Cray
Research, Inc."
(b) BY-LAWS. The By-Laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of Incorporation
of the Surviving Corporation and such By-Laws.
SECTION 2.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.06. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) CANCELLATION. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
("INELIGIBLE SHARES") shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(b) CONVERSION OF SECURITIES. Subject to Section 2.06(f), each remaining
outstanding Share (other than Dissenting Shares) shall be converted into the
right to receive (i) 1.00 fully paid and non-assessable share of Parent Common
Stock (the "EXCHANGE RATIO"); provided, however, that if Merger Sub accepts for
payment and pays for less than 19,218,735 (the "OFFERED NUMBER") Shares in the
Offer (the number of Shares so accepted for payment and paid for being referred
to herein as the "ACCEPTED SHARE NUMBER"), then the Exchange Ratio shall be
equal to a fraction (the "ADJUSTED EXCHANGE RATIO"), (A) the numerator of which
is equal to (x) the number of outstanding Shares immediately prior to the
Effective Time (excluding Ineligible Shares) (the "FINAL OUTSTANDING NUMBER")
PLUS (y) the Accepted Share Number MINUS (z) the Offered Number and (B) the
denominator of which is the Final Outstanding Number and (ii) if the Exchange
Ratio has been adjusted pursuant to the immediately preceding PROVISO, an amount
in cash equal to a fraction, (A) the numerator of which is the product of the
Per Share Amount and the amount by which the Offered Number exceeds the Accepted
Share Number and (B) the denominator of which is the Final Outstanding Number.
4
<PAGE>
(c) ASSUMPTION OF STOCK OPTIONS AND STOCK PURCHASE RIGHTS. All options to
purchase Company Common Stock granted under the Cray Research, Inc. 1985
Incentive Stock Option and Nonstatutory Option Plan (the "1985 EMPLOYEE PLAN"),
the Cray Research, Inc. 1989 Employee Benefit Stock Plan (the "EMPLOYEE STOCK
PLAN") and the Cray Research, Inc. 1989 Non-Employee Directors' Stock Option
Plan (the "DIRECTORS' PLAN" and, together with the 1985 Employee Plan and the
Employee Stock Plan, the "STOCK OPTION PLANS") or pursuant to any other
arrangement adopted by the Board to provide options to directors, officers or
employees of the Company (in any such case, an "OPTION") then outstanding shall
be assumed by Parent in accordance with Section 6.05. Immediately prior to the
Effective Time, all rights to purchase Company Common Stock then outstanding
under the Company's Qualified Stock Purchase Investment Plan (the "COMPANY STOCK
PURCHASE PLAN") shall be converted into shares of Company Common Stock in
accordance with Section 6.06.
(d) CAPITAL STOCK OF MERGER SUB. Each share of common stock, no par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving Corporation.
Each stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Common Stock), reorganization, recapitalization or other
like change with respect to Parent Common Stock or Company Common Stock the
record date for which shall occur after the date hereof and prior to the
Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock will
be issued, but in lieu thereof each holder of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by such
holder) shall receive from Parent an amount of cash (rounded to the nearest
whole cent), without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average of the closing price for trades of Parent Common
Stock as of each of the thirty (30) consecutive trading days immediately
preceding the Effective Time as quoted in the Wall Street Journal or other
reliable financial newspaper or publication. For the purposes of the preceding
sentence, a "trading day" means a day on which trading generally takes place on
the New York Stock Exchange (the "NYSE") and on which trading in Parent Common
Stock has occurred.
(g) CONVERTIBLE DEBENTURES. The 6 1/8% Convertible Subordinated Debentures
due 2011 of the Company (the "CONVERTIBLE DEBENTURES") shall, pursuant to the
terms of the Indenture between the Company and Manufacturers Hanover Trust
Company (the "TRUSTEE"), dated as of February 1, 1986 (the "INDENTURE"), become
thereafter convertible only into that number of shares of Parent Common Stock
and cash, if any, that the holder of any such Convertible Debentures would have
received if such holder had converted such Convertible Debentures immediately
prior to the Effective Time as provided in Section 15.06 of the Indenture.
Parent shall execute and deliver a supplemental indenture (the "SUPPLEMENTAL
INDENTURE"), which shall evidence Parent's assumption of the Convertible
Debentures and provide that the holder of each Convertible Debenture shall have
the right thereafter to convert such Convertible Debenture as described above,
in each case in accordance with the terms of the Indenture.
SECTION 2.07. EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Parent shall
deposit, or shall cause to be deposited, to or for the account of a bank or
trust company designated by Parent (the "EXCHANGE AGENT"), in trust for the
benefit of the holders of Company Common Stock (other than Dissenting Shares),
for exchange in accordance with this Section 2.07, through the Exchange Agent,
certificates evidencing the Parent Common Stock and, if applicable, the cash
portion of the Merger Consideration, issuable pursuant to Section 2.06 in
exchange for outstanding Shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which
5
<PAGE>
immediately prior to the Effective Time evidenced outstanding Shares (other than
Dissenting Shares) (the "CERTIFICATES") (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions to effect the surrender of
the Certificates in exchange for the certificates evidencing shares of Parent
Common Stock and, in lieu of any fractional shares thereof, cash, and, if
applicable, the cash portion of the Merger Consideration payable pursuant to
Section 2.06(b). Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and such
other customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
certificates evidencing that number of whole shares of Parent Common Stock which
such holder has the right to receive in accordance with the Exchange Ratio in
respect of the Shares formerly evidenced by such Certificate, (B) the amount of
cash, if any, payable with respect to such shares pursuant to Section 2.06(b),
(C) any dividends or other distributions to which such holder is entitled
pursuant to Section 2.07(c), and (D) cash in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.06(f) (the
Parent Common Stock, cash, dividends and distributions described in clauses (A),
(B), (C) and (D) being, collectively, the "MERGER CONSIDERATION"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company as of the Effective Time, the Merger Consideration may be issued
and paid in accordance with this Article II to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
2.07(b) and by evidence that any applicable stock transfer taxes have been paid.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of the Company Common Stock will be deemed from and
after the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of the Company Common Stock shall have been
so converted, the right to receive the cash portion of the Merger Consideration
payable with respect thereto pursuant to Section 2.06(b) and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 2.06(f).
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(d) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any person designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
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(f) WITHHOLDING RIGHTS. Parent, the Surviving Corporation and the Exchange
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "CODE") or any provision of
state, local, provincial or foreign tax law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made.
SECTION 2.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 2.09. DISSENTING SHARES. (a) Notwithstanding any provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have available
to them and who shall have demanded properly in writing appraisal for such
Shares in accordance with Section 262 of Delaware Law (collectively, the
"DISSENTING SHARES') shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such Shares held by them in accordance with
the provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such Shares under such Section
262 shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.07, of the certificate or certificates that formerly
evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to Delaware Law and received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
SECTION 2.10. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article II.
SECTION 2.11. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Merger
Consideration as may be required pursuant to Section 2.06; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
and delivery thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
SECTION 2.12. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company in good faith will take all such commercially
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full
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right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("APPROVALS") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not have a Material Adverse Effect. Each of the Company and its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by the
Company or another subsidiary, is set forth in Section 3.01 of the written
disclosure schedule previously delivered by the Company to Parent (the "COMPANY
DISCLOSURE SCHEDULE"). Except as set forth in Section 3.01 of the Company
Disclosure Schedule, the Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate of
Incorporation and By-Laws, as amended to date. Within 14 days after the date
hereof, the Company will provide Parent a complete and correct copy of the
equivalent organizational documents of each of its subsidiaries. Such
Certificate of Incorporation, By-Laws and equivalent organizational documents of
each of its subsidiaries are in full force and effect. The Company is not in
violation of any of the provisions of its Certificate of Incorporation or
By-Laws. None of the Company's subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or By-Laws or equivalent
organizational documents, except for any such violations as would not have a
Material Adverse Effect.
SECTION 3.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 Shares. As of February 22, 1996, (i) 25,624,980 Shares
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 5,886,041 Shares were held in the treasury of the Company,
(iii) 5,530,573 Shares were reserved for future issuance pursuant to outstanding
Options granted under the Employee Stock Plan, (iv) 1,622,638 Shares were
reserved for future issuance pursuant to future option grants under the Employee
Stock Plan, (v) 90,000 Shares were reserved for future issuance pursuant to
outstanding Options granted under the Directors' Plan, (vi) 107,500 Shares were
reserved for future issuance pursuant to future option grants under the
Directors' Plan, (vii) 663,304 Shares were reserved for future issuance pursuant
to option grants under the Company Stock Purchase Plan, (viii) 1,051,282 Shares
were reserved for future issuance with respect to the Convertible Debentures and
(ix) 500,000 Shares were reserved for issuance pursuant to the Company's
Performance Incentive Plan. No change in such capitalization has occurred
between February 22, 1996 and the date hereof other than any change associated
with the
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exercise of vested Options or purchases under the Company Stock Purchase Plan.
Except for the Convertible Debentures and as set forth in this Section 3.03 or
Section 3.11 hereof or in Section 3.03 or Section 3.11 of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, the Company or any of its subsidiaries. All
Shares subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. Except
as is set forth in Section 3.03 of the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire any shares of Company capital stock
or the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of the Company's subsidiaries are
duly authorized, validly issued, fully paid and nonassessable, and, other than
directors' or similar DE MINIMIS statutory qualifying shares, all such shares
are owned by the Company or another subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in the Company's
voting rights, charges or other encumbrances of any nature whatsoever.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. (a) The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the approval and adoption of the Merger by the holders
of at least a majority of the outstanding shares of the Company Common Stock
entitled to vote in accordance with Delaware Law and the Company's Certificate
of Incorporation and By-Laws). The Board of Directors of the Company has
determined that it is advisable and in the best interest of the Company's
stockholders for the Company to enter into a business combination with Parent
upon the terms and subject to the conditions of this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Parent and Merger Sub, as
applicable, constitutes the legal, valid and binding obligation of the Company.
(b) The Board has taken all necessary action to amend the Rights Agreement,
dated as of May 15, 1989, between the Company and Norwest Bank Minnesota, N.A.,
as Rights Agent (the "RIGHTS AGREEMENT"), so that (A) none of the execution or
delivery of this Agreement or the making of the Offer will cause (i) the Rights
(as defined in the Rights Agreement) to become exercisable under the Rights
Agreement, (ii) Parent or Merger Sub or any of their affiliates to be deemed an
"Acquiring Person" (as defined in the Rights Agreement) or (iii) the "Shares
Acquisition Date" (as defined in the Rights Agreement) to occur upon any such
event, (B) none of the acceptance for payment or payment for Shares by Merger
Sub pursuant to the Offer or the consummation of the Merger will cause (i) the
Rights to become exercisable under the Rights Agreement, (ii) Parent or Merger
Sub or any of their affiliates to be deemed an Acquiring Person or (iii) the
Shares Acquisition Date to occur upon any such event, and (C) the "Expiration
Date" (as defined in the Rights Agreement) shall occur no later than immediately
prior to the purchase of Shares pursuant to the Offer. The "Distribution Date"
(as defined in the Rights Agreement) has not occurred.
(c) As of the date hereof and pursuant to Section 203(a)(1) of the Delaware
Law, the restrictions contained in Section 203 of the Delaware Law are, and at
all times on or prior to the Effective Time such restrictions shall be,
inapplicable to the Offer, the Merger and the transactions contemplated by this
Agreement. The Company has heretofore delivered to Parent a complete and correct
copy of the
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resolutions of the Board of Directors of the Company to the effect that pursuant
to Section 203(a)(1) of the Delaware Law, the restrictions contained in Section
203 of the Delaware Law are and shall be inapplicable to the Offer, the Merger
and the transactions contemplated by this Agreement.
(d) The Board has taken all necessary action to amend 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 "PARACHUTE
PLANS") so that none of the execution, delivery or performance of this
Agreement, including, without limitation, consummation of the Offer and the
Merger shall constitute a "Change of Control" for the purposes of such Parachute
Plans.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Section
3.05(a) of the Company Disclosure Schedule includes a list as of the date hereof
(i) all contracts of the Company and its subsidiaries the loss of which would
have a Material Adverse Effect on the Company, (ii) all contracts pursuant to
which the Company expects or is scheduled to receive (assuming full performance
by the Company pursuant to the terms thereof) revenue of $5,000,000 or more
during the eighteen (18) month period following the date hereof, and (iii) all
agreements which, as of the date hereof, will be required to be filed, with the
Securities Exchange Commission (the "SEC") pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and the SEC's rules thereunder
(collectively, the "EXCHANGE ACT") as "material contracts" ((i), (ii) and (iii)
being, collectively, the "MATERIAL CONTRACTS") of the Company and its
subsidiaries).
(b) Except as set forth in Section 3.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, (i) conflict with
or violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of the Company or any of its subsidiaries, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default), or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any Material Contract, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), the Exchange Act, state securities laws ("BLUE SKY
LAWS"), the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), any non-United
States competition, antitrust and investment laws and the filing and recordation
of appropriate merger or other documents as required by Delaware Law and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent or delay the Company from
performing its obligations under this Agreement, or would not otherwise have a
Material Adverse Effect.
SECTION 3.06. COMPLIANCE; PERMITS. (a) Except as disclosed in Section
3.06(a) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit,
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franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except where
such conflicts, defaults and violations would not have a Material Adverse Effect
on the Company.
(b) The Company and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
the Company and its subsidiaries taken as a whole (collectively, the "COMPANY
PERMITS"). The Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to so comply would not have a
Material Adverse Effect.
SECTION 3.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company has filed
all forms, reports and documents required to be filed with the SEC since
December 31, 1993 and has made available to Parent (i) its Quarterly Reports on
Form 10-Q for the periods ended June 30 and September 30, 1995, respectively,
(ii) all proxy statements relating to the Company's meetings of stockholders
(whether annual or special) held since December 31, 1993, (iii) all other
reports or registration statements filed by the Company with the SEC (other than
Reports on Form 10-Q, Reports on Forms 3, 4 or 5 and Schedule 13G filed on
behalf of affiliates of the Company) since December 31, 1993, and (iv) all
amendments and supplements to all such reports and registration statements filed
by the Company with the SEC (collectively, the "COMPANY SEC REPORTS"). The
Company SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of the
Company's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports and contained in
Section 3.09 of the Company Disclosure Schedule was prepared in accordance with
United States Generally Accepted Accounting Principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated
therein or in the notes thereto) and each fairly presented the consolidated
financial position of the Company and its subsidiaries as at the respective
dates thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
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SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.08 of the Company Disclosure Schedule and the Company SEC Reports,
since December 31, 1995, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any amendments or changes in the Articles
of Incorporation or Bylaws of the Company; (ii) any damage to, destruction or
loss of any assets of the Company (whether or not covered by insurance) that had
a Material Adverse Effect; (iii) any change by the Company in its accounting
methods, principles or practices; (iv) any revaluation by the Company of any of
its assets, including, without limitation, writing down the value of capitalized
software or inventory or writing off notes or accounts receivable other than in
the ordinary course of business; (v) any other action or event that would have
required the consent of Parent pursuant to Section 5.01 had such action or event
occurred after the date of this Agreement; or (vi) any sale of a material amount
of assets of the Company, except for the sale of inventory in the ordinary
course of business.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
Section 3.09 of the Company Disclosure Schedule, neither the Company nor any of
its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) which are, in the aggregate, material to the business, operations or
financial condition of the Company and its subsidiaries taken as a whole, except
liabilities (a) adequately provided for in the Company's balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1995 included in Section 3.09 of the Company Disclosure Schedule (the "1995
BALANCE SHEET"), (b) incurred in the ordinary course of business and not
required under GAAP to be reflected on the 1995 Balance Sheet, or (c) incurred
since December 31, 1995 in the ordinary course of business and consistent with
past practice, and liabilities incurred in connection with this Agreement.
SECTION 3.10. ABSENCE OF LITIGATION. Except for routine litigation that
individually and in the aggregate if determined adversely to the Company would
not result in the Company paying damages net of insurance in excess of $250,000
and except as is set forth in Section 3.10 of the Company Disclosure Schedule or
in the Company SEC Reports filed prior to the date of this Agreement, there are
no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign.
SECTION 3.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS. (a) Section
3.11(a) of the Company Disclosure Schedule lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance or termination pay,
medical or life insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, agreements or arrangements and other similar
material fringe or employee benefit plans, programs or arrangements, and any
current or former employment or executive compensation or severance agreements,
regardless of whether ERISA is applicable thereto, for the benefit of, or
relating to, any employee or former employee of the Company or any trade or
business (whether or not incorporated) which is a member of a controlled group
including the Company or which is under common control with the Company (an
"ERISA AFFILIATE") within the meaning of Section 414 of the Code (the "EMPLOYEE
PLANS"), and a copy of each such written Employee Plan has been made available
to Parent (other than Foreign Employee Plans (as defined herein), which shall be
made available to the Parent prior to the Effective Time to the extent
practicable).
(b) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, and except as any inaccuracy in the following statements, individually
or in the aggregate, would not have a Material Adverse Effect on the Company,
(i) none of the Employee Plans provides retiree medical or other retiree welfare
benefits to any person and none of the Employee Plans is a "multiemployer plan"
as such term is defined in Section 3(37) of ERISA; (ii) all Employee Plans are
in compliance in all material respects with the requirements prescribed by any
and all applicable statutes, orders, or governmental rules and regulations
currently in effect with respect thereto, and the Company and
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each of its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Employee Plans; (iii) each Employee Plan intended to
qualify under Section 401(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which could
reasonably be expected to impair such determination; (iv) all contributions
required to be made to any Employee Plan under the terms of the Employee Plan or
any collective bargaining agreement or as required by law, have been made on or
before their due dates and, to the extent required by GAAP, a reasonable amount
has been accrued for contributions to each Employee Plan for the current plan
years; (v) none of the Employee Plans are, or are expected to become, subject to
the provisions of Title IV of ERISA or Section 412 of the Code and (vi) neither
the Company nor any ERISA Affiliate has incurred, nor reasonably expects to
incur, any liability under Title IV of ERISA (other than liability for premium
payments to the Pension Benefit Guaranty Corporation arising in the ordinary
course).
(c) To the knowledge of the Company, there are no pending material
investigations, litigation or other enforcement actions against the Company with
respect to any of the Employee Plans.
(d) Other than as set forth in Section 3.11(d) of the Company Disclosure
Schedule, there are no material actions, suits or claims pending or, to the best
knowledge of the Company, threatened by former or present employees of the
Company (or their beneficiaries) with respect to Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(e) Other than as described in Section 3.11(e) of the Company Disclosure
Schedule, to the knowledge of the Company, no condition or event has occurred
with respect to the Employee Plans which has or could reasonably be expected to
result in a material liability to the Company.
(f) Section 3.11(f)(1) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds an Option as of the date hereof,
together with the number of shares of Company Common Stock subject to such
Option, the date of grant of such Option, the exercise price of such Option (to
the extent determined as of the date hereof), whether such Option is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b) of
the Code (an "ISO"), and the expiration date of such Option. Section 3.11(f)(2)
of the Company Disclosure Schedule also sets forth the total number of Options.
(g) With respect to each scheme or arrangement mandated by a government
other than the United States (a "FOREIGN GOVERNMENT SCHEME OR ARRANGEMENT") and
with respect to each Employee Plan maintained or contributed to by any
subsidiary of the Company that is not subject to United States law (a "FOREIGN
EMPLOYEE PLAN"), except as any inaccuracy in the following statements,
individually or in the aggregate, would not have a Material Adverse Effect:
(i) Any employer and employee contributions required by law or by the
terms of any Foreign Government Scheme or Arrangement or any Foreign
Employee Plan have been made, or, if applicable, accrued, in accordance with
normal accounting practices.
(ii) Except as disclosed in Section 3.11(g) of the Company Disclosure
Schedule, the fair market value of the assets of each funded Foreign
Employee Plan, the liability of each insurer for any Foreign Employee Plan
funded through insurance or the book reserve established for any Foreign
Employee Plan, together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations, as of the date of
this Agreement, with respect to all current and former participants in such
Foreign Employee Plan according to the actuarial assumptions and valuations
most recently used to determine employer contributions to such Foreign
Employee Plan and no transaction contemplated by this Agreement shall cause
such assets or insurance obligations to be less than such benefit
obligations.
(iii) Each Foreign Employee Plan required to be registered has been
registered and has been maintained in good standing with applicable
regulatory authorities.
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(h) Section 3.11(h) of the Company Disclosure Schedule sets forth the wage
review and compensation guidelines for employees adopted by the Company in 1996.
(i) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company; (ii) copies of all agreements with
consultants who are individuals obligating the Company to make annual cash
payments in an amount exceeding $100,000 and which are not terminable on less
than 60 days' notice without penalty; (iii) copies of all plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change in control provisions; and (iv) the various forms
of employment agreement, if any, of the Company for its non-executive employees.
SECTION 3.12. LABOR MATTERS. (i) There are no controversies pending or, to
the knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies are reasonably likely to have a Material Adverse Effect; (ii)
neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or its subsidiaries nor does the Company or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) neither the Company nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the Company
or any of its subsidiaries.
SECTION 3.13. REGISTRATION STATEMENT; PROXY STATEMENT. Neither the
Schedule 14D-9 nor any of the information supplied or to be supplied by the
Company in writing for inclusion or incorporation by reference in (i) the Offer
Documents, (ii) the Registration Statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock in the Merger
(together with any amendments thereof or supplements thereto, the "REGISTRATION
STATEMENT") or (iii) the proxy and/or information statement relating to the
meeting of the Company's stockholders (the "COMPANY STOCKHOLDERS' MEETING") to
be held in connection with the Merger (the "PROXY STATEMENT" and, together with
the Registration Statement, the "PROXY STATEMENT/PROSPECTUS") will, at the
respective times filed with the SEC or other regulatory agency and, in addition,
(A) in the case of the Offer Documents, at the date they or any amendments or
supplements thereto are mailed to Stockholders, (B) in the case of the Proxy
Statement/Prospectus, at the date it or any amendments or supplements thereto
are mailed to stockholders, at the time of the Company Stockholders' Meeting and
at the Effective Time and (C) in the case of the Registration Statement, when it
becomes effective under the Securities Act and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement and Schedule 14D-9 will comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time any
event relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment or supplement to the Registration Statement, Offer Documents or the
Proxy Statement/Prospectus, the Company shall promptly inform Parent and Merger
Sub. Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any information supplied by Parent or Merger Sub which
is contained in any of the foregoing documents.
SECTION 3.14. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have (after giving effect to the consummation of the
Offer and the Merger) the effect of prohibiting or impairing any material
business operations of the Company or any of its subsidiaries, acquisition of
property by the Company or any of its subsidiaries or the conduct of business by
the Company or any of its subsidiaries as currently conducted or as proposed to
be conducted by the Company.
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SECTION 3.15. TITLE TO PROPERTY. The Company and each of its subsidiaries
have good, marketable and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances except liens for
taxes not yet due and payable and such liens or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which would not have a Material
Adverse Effect on the Company.
SECTION 3.16. TAXES. (a) For purposes of this Agreement, "TAX" or "TAXES"
shall mean taxes, fees, levies, duties, tariffs, imposts and governmental
impositions or charges of any kind in the nature of (or similar to) taxes,
payable to any federal, state, provincial, local or foreign taxing authority,
including (without limitation) (i) income, franchise, profits, gross receipts,
AD VALOREM, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes and (ii) interest, penalties, additional taxes
and additions to tax imposed with respect thereto; and "TAX RETURNS" shall mean
returns, reports and information statements with respect to Taxes required to be
filed with the United States Internal Revenue Service (the "IRS") or any other
taxing authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) Other than as disclosed on Section 3.16(b) of the Company Disclosure
Schedule, the Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member, have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them or any of them, and have paid and discharged all Taxes shown
therein to be due and there are no other Taxes that would be due if asserted by
a taxing authority, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
or with respect to which the Company is maintaining reserves in accordance with
GAAP in its financial statements to the extent currently required in all
material respects adequate for their payment, except, in each instance, to the
extent the failure to do so would not have a Material Adverse Effect. To the
best of the Company's knowledge, the Company and each of its subsidiaries have
disclosed to the relevant taxing authority any position taken where the failure
to make such disclosure would enable the taxing authority to subject such person
to penalties or additions to Tax that would have a Material Adverse Effect.
Neither the IRS nor any other taxing authority or agency is now asserting or, to
the best of the Company's knowledge, threatening to assert against the Company
or any of its subsidiaries any deficiency or claim for additional Taxes other
than additional Taxes with respect to which the Company is maintaining reserves
in accordance with GAAP in its financial statements which are in all material
respects adequate for their payment. There are no requests for information from
the IRS or any other taxing authority or agency currently outstanding that could
have a Material Adverse Effect imposed on the Company or any subsidiaries.
Except as disclosed in Section 3.16(b) of the Company Disclosure Schedule, no
material Tax Return of either the Company or any of its subsidiaries is
currently being audited by any taxing authority. No material tax claim has
become a lien on any assets of the Company or any subsidiary thereof and neither
the Company nor any of its subsidiaries has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any federal income tax (except as disclosed in Section 3.16(b) of the Company
Disclosure Schedule) or material state corporate income or franchise tax (except
as the Company has advised Parent's representatives). Neither the Company nor
any of its subsidiaries is required to include in income (i) any material items
in respect of any change in accounting principles or any deferred intercompany
transactions, or (ii) any installment sale gain, where the inclusion in income
would result in a tax liability materially in excess of the reserves therefor.
(c) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 3.16(c) of the Company
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect: (i) to the best of the Company's
knowledge, neither the Company nor any of its subsidiaries is a party to any
agreement, contract or
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arrangement, or maintains or sponsors any Employee Plans, that will reasonably
be expected to result, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Section 280G(b)(1) of the Code,
determined without regard to Section 280G(b)(4) of the Code; (ii) since January
1, 1989, neither the Company nor any of its subsidiaries has been subject or is
likely to be subject to any accumulated earnings tax or personal holding company
tax; (iii) except for its subsidiaries organized in Germany, France and the
Netherlands, none of the Company's foreign subsidiaries have material "excess
passive assets" as defined in section 956A(c) of the Code; (iv) neither the
Company nor any of its subsidiaries is obligated under any agreement with
respect to industrial development bonds or other obligations with respect to
which the excludability from gross income of the holder for United States
federal or state income tax purposes could be affected by the transactions
contemplated hereunder; (v) neither the Company nor any of its subsidiaries has
entered into any deferred intercompany transaction within the meaning of section
1.1502-13(a)(2) of the United States Treasury Regulations as to which material
items of deferred gain or loss has not been restored; and (vi) no material
excess loss account within the meaning of section 1.1502-31T(a)(2)(v) of the
United States Treasury Regulations exists with respect to the stock of any of
its subsidiaries.
(d) Except as set forth in Section 3.16(d) of the Company Disclosure
Schedule, no power of attorney has been granted by the Company or any of its
subsidiaries with respect to any material matter relating to Taxes which is
currently in force.
(e) Neither the Company nor any of its subsidiaries is a party to any
material agreement or arrangement (written or oral) providing for the allocation
or sharing of Taxes.
(f) The Company and each of its subsidiaries have withheld from each payment
made to any of their respective past or present employees, officers or directors
the amount of all Taxes and other deductions required to be withheld therefrom
and paid the same to the proper tax or other receiving officers within the time
required by law, except where the failure to do so would not have a Material
Adverse Effect.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as set forth in Section 3.17
of the Company Disclosure Schedule, and except in all cases, in the aggregate,
as have not had and would not reasonably be expected to have a Material Adverse
Effect, the Company and each of its subsidiaries (i) have obtained all
applicable permits, licenses and other authorization which are required under
federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic materials
or wastes into ambient air, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by the Company or its subsidiaries (or their
respective agents) (the "ENVIRONMENTAL LAWS"); (ii) are in compliance with all
terms and conditions of such required permits, licenses and authorization, and
also are in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws or contained in any regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) as of the date hereof, are not aware of nor have
received notice of any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with the
Company's operations, or prevent continued compliance with the Environmental
Laws, or which would reasonably be likely to give rise to any common law or
statutory liability of, or otherwise form the basis of any claim, action, suit
or proceeding against, the Company or any of its subsidiaries (or any of their
respective agent's) based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable requirements of federal, state or local laws,
rules or regulations to register any products or materials required to be
registered by the Company or its subsidiaries (or any of their respective
agents) thereunder.
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SECTION 3.18. BROKERS. No broker, finder or investment banker (other than
Salomon Brothers Inc) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and Salomon Brothers Inc pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereunder.
SECTION 3.19. INTELLECTUAL PROPERTY. (a) The Company owns, or is licensed
or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights and any applications
therefor, technology, know-how, computer software programs or applications (in
both source code and object code form) and tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
the Company, each of which, where applicable, is to the Company's knowledge
valid and subsisting. Section 3.19(a) of the Company Disclosure Schedule lists
all current patents, registered and material unregistered trademarks and service
marks, registered and material unregistered copyrights, trade names and any
applications therefor owned by the Company (the "COMPANY INTELLECTUAL PROPERTY
RIGHTS"), and specifies the jurisdictions in which each such Company
Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners, together with a list of all of the Company's currently marketed software
products and an indication as to which, if any, of such software products have
been registered for copyright protection with the United States Copyright Office
and any foreign offices and by whom such items have been registered. Section
3.19(a) of the Company Disclosure Schedule (as supplemented during the 14 day
period following the date hereof) includes and specifically identifies all
material third-party patents, trademarks or copyrights (the "THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS"), to the knowledge of the Company, which are
incorporated in, are, or form a part of, any Company product. Section 3.19(a) of
the Company Disclosure Schedule (as supplemented during the 14 day period
following the date hereof (in the case of clause (iii))) lists (i) any requests
the Company has received since December 31, 1993 to make any such registration,
including the identity of the requestor and the item requested to be so
registered, and the jurisdiction for which such request has been made; (ii)
except for object code and source code license agreements for the Company's
products executed in the ordinary course of business and in accordance with the
Company's past practices, all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which any person
is authorized to use any Company Intellectual Property Right, or any trade
secret material to the Company; and (iii) all material licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to which the
Company is authorized to use any Third Party Intellectual Property Rights, or
other trade secret of a third party in or as any product, and includes the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof.
(b) Except as set forth in Section 3.19(b) of the Company Disclosure
Schedule, the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any Third Party Intellectual Property Rights license, sublicense or
agreement described in Section 3.19(a) of the Company Disclosure Schedule. No
claims with respect to the Company Intellectual Property Rights, any trade
secret material to the Company, or Third Party Intellectual Property Rights to
the extent arising out of any use, reproduction or distribution of such Third
Party Intellectual Property Rights by or through the Company, are currently
pending or, to the knowledge of the Company, are threatened by any person, nor,
to the Company's knowledge, do any valid grounds for any bona fide claims exist
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted or as
proposed to be conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the
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Company; or (iv) challenging the Company's license or legally enforceable right
to use of the Third Party Intellectual Rights. Except as set forth in Section
3.19(b) of the Company Disclosure Schedule, to the Company's knowledge, there is
no material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property by any third party. Except as set forth in Section
3.19(b) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries (i) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, maskworks or copyrights
and which has not been finally terminated prior to the date hereof or been
informed or notified by any third party that the Company may be engaged in such
infringement or (ii) has knowledge of any infringement liability with respect
to, or infringement by, the Company or any of its subsidiaries of any trade
secret, patent, trademark, service mark, maskwork or copyright of another.
(c) Substantially all employees of the Company have executed a
confidentiality and invention agreement containing terms substantially similar
to the form previously delivered to Parent.
SECTION 3.20. VOTE REQUIRED. The affirmative vote of the holders of at
least a majority of the outstanding shares of the Company Common Stock is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
SECTION 3.21. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Salomon Brothers Inc, that in its opinion, as of the
date hereof, the consideration to be received by holders of the Company Common
Stock in the Offer and the Merger is fair from a financial point of view to such
holders, and has delivered a written copy of such opinion to Parent.
SECTION 3.22. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its subsidiaries to
Parent or Merger Sub in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
SECTION 4.01. ORGANIZATION AND QUALIFICATION. Each of Parent and each of
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not have a Material Adverse Effect. Each of
Parent and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect.
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. The Boards of Directors of Parent and Merger Sub have determined
that it is advisable and in the best interest of their respective stockholders
for each to enter into a business
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combination with the Company upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Parent and Merger Sub.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Section
4.03(a) of the written disclosure schedule previously delivered by Parent and
Merger Sub to the Company (the "PARENT DISCLOSURE SCHEDULE") includes a list of
all contracts material to the business of Parent and its subsidiaries taken on a
whole ("PARENT MATERIAL CONTRACT").
(b) Except as set forth in Section 4.03(b) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub shall
not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of
Parent or the Articles of Incorporation or By-Laws of Merger Sub, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of it subsidiaries or by which its or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or impair Parent's or any of its subsidiaries' rights or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any Parent Material
Contract or result in the creation of a lien or encumbrance on any of the
properties or assets of Parent or any of it subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or any of
its subsidiaries is a party or by which Parent or any of its subsidiaries or its
or any of their respective properties are bound or affected, except in any such
case for any such breaches, defaults or other occurrences that would not have a
Material Adverse Effect.
(c) The execution and delivery of this Agreement by Parent and Merger Sub
will not require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, the Blue Sky Laws and the pre-merger notification requirements
of the HSR Act, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Parent or
Merger Sub from performing their respective obligations under this Agreement,
and would not have a Material Adverse Effect.
SECTION 4.04. CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company a complete and correct copy of its
Certificate of Incorporation and the By-Laws, as amended to date. Such
Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
SECTION 4.05. CAPITALIZATION. As of January 31, 1996, the authorized
capital stock of Parent consisted of (i) 500,000,000 shares of Parent Common
Stock of which: 162,025,947 shares were issued and outstanding, 342,489 shares
were held by subsidiaries of the Company or in its treasury, 38,459,745 shares
were reserved for issuance pursuant to option grants under Parent's stock option
plans, 1,774,574 were reserved for future issuance pursuant to option grants
under Parent's employee stock purchase plan, 589,266 were reserved for future
issue on exchange of shares issued by a subsidiary, 619,469 shares were reserved
for future issuance with respect to Parent's outstanding Series A Convertible
Preferred Stock, 7,402,395 shares were reserved for issuance with respect to
Zero Coupon Convertible Subordinated Debentures due 2013 and 49,659 shares were
reserved for issuance with respect to a convertible debenture due November 11,
1997; and (ii) 2,000,000 shares of Preferred Stock, no par value ("PARENT
PREFERRED STOCK"), of which: 17,500 shares of Series A Convertible Preferred
Stock and one share of Series E Preferred Stock were issued and outstanding. No
material change in such capitalization has occurred between January 31, 1996 and
the date hereof. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, no par value, 100
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shares of which, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Parent's and Merger Sub's respective capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The issuance of shares of Parent Common Stock in connection with the Merger,
upon exercise of Options assumed and upon conversion of the Convertible
Debentures have been duly authorized, and, when issued in connection with the
Merger or upon such exercise or conversion, will be validly issued, fully paid
and nonassessable.
SECTION 4.06. COMPLIANCE; PERMITS. (a) Neither Parent, nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or is or any of their respective properties is bound or affected,
except for any such conflicts, defaults or violations which would not have a
Material Adverse Effect.
(b) Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
the Company and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "PARENT PERMITS"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to so
comply would not have a Material Adverse Effect.
SECTION 4.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) Parent has filed all
forms, reports and documents required to be filed with the SEC since June 30,
1993, and has heretofore delivered to the Company, in the form filed with the
SEC, (i) its Annual Report on Form 10-K for the fiscal year ended June 30, 1995
and its Quarterly Reports on Form 10-Q for the fiscal quarters ended September
30, 1995 and December 31, 1995, (ii) all proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since June 30, 1995,
(iii) all other reports or registration statements (other than Reports on Form
10-Q and Reports on Form 3, 4 or 5 filed on behalf of affiliates of the Parent)
filed by Parent with the SEC since June 30, 1995 and (iv) all amendments and
supplements to all such reports and registration statements filed by Parent with
the SEC (collectively, the "PARENT SEC REPORTS"). The Parent SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of Parent's subsidiaries is required
to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
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SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Section 4.08 of the Parent Disclosure Schedule or the Parent SEC Reports, since
June 30, 1995, Parent has conducted its business in the ordinary course and
there has not occurred: (i) any Material Adverse Effect; (ii) any amendments or
changes in the Certificate of Incorporation or By-Laws of Parent; (iii) any
damage to, destruction or loss of any assets of the Parent (whether or not
covered by insurance) that could have a Material Adverse Effect; (iv) any
revaluation by Parent of any of its assets, including, without limitation,
writing down the value of capitalized software or inventory or writing off notes
or accounts receivable other than in the ordinary course of business; (v) except
as disclosed in Section 4.08 of the Parent Disclosure Schedule, any other action
or event that would have required the consent of the Company pursuant to Section
5.03 had such action or event occurred after the date of this Agreement; or (vi)
any sale of a material amount of assets of Parent, except in the ordinary course
of business.
SECTION 4.09. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of property by
Parent or any of its subsidiaries or the conduct of business by Parent or any of
its subsidiaries as currently conducted or as proposed to be conducted by
Parent.
SECTION 4.10. TITLE TO PROPERTY. Except as is disclosed in the Parent SEC
Reports, Parent and each of its subsidiaries have good, marketable and
defensible title to all of their properties and assets, free and clear of all
liens, charges and encumbrances except liens for taxes not yet due and payable
and such liens or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby or which would not have a Material Adverse Effect. Except as is
disclosed in the Parent SEC Reports, Parent owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights and any applications therefor, technology,
know-how, computer software programs or applications (in both source code and
object code form) and tangible or intangible proprietary information or material
that are used or proposed to be used in the business of Parent, each of which,
where applicable, is to Parent's knowledge valid and subsisting.
SECTION 4.11. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
Section 4.11 of the Parent Disclosure Schedule or the Parent SEC Reports,
neither Parent nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of Parent and its subsidiaries taken
as a whole, except liabilities (a) adequately provided for in Parent's balance
sheet (including any related notes thereto) as of June 30, 1995 included in the
Parent SEC Reports (the "JUNE 30 BALANCE SHEET"), (b) incurred in the ordinary
course of business and not required under GAAP to be reflected on the June 30
Balance Sheet, or (c) incurred since June 30, 1995 in the ordinary course of
business and consistent with past practice, and liabilities incurred in
connection with this Agreement.
SECTION 4.12. ABSENCE OF LITIGATION. Except as set forth in Section 4.12
of the Parent Disclosure Schedule or as reflected in the Parent SEC Reports,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of Parent, threatened against Parent or any of its
subsidiaries, or any properties or rights of Parent or any of its subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, that could have a Material Adverse
Effect.
SECTION 4.13. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject
to the accuracy of the representations of the Company in Section 3.13, neither
(i) the Offer Documents, at the time the Offer Documents are filed with the SEC
or are first published, sent or given to stockholders of the Company, as the
case may be, nor (ii) the Registration Statement pursuant to which the Parent
Common Shares to be issued in the Merger will be registered with the SEC, at the
time the Registration Statement (including any amendments or supplements
thereto) is declared effective by the SEC, shall contain any untrue statement of
a material fact or omit to state any material fact necessary in
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order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. Subject to the accuracy of the
representations of the Company in Section 3.13, the information supplied by
Parent for inclusion in the Proxy Statement/Prospectus will not, on the date the
Proxy Statement/Prospectus is first mailed to stockholders, at the time of the
Company Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or will omit to
state any material fact necessary in order to make the statements therein not
false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by the Company which is contained in, or
furnished in connection with the preparation of, any of the foregoing. The Offer
Documents and the Registration Statement shall comply in all material respects
as to form with the requirements of the Exchange Act and the Securities Act,
respectively, and the rules and regulations thereunder.
SECTION 4.14. BROKERS. No broker, finder or investment banker (other than
Unterberg Harris L.P.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.
SECTION 4.15. NO STOCKHOLDER VOTE. No vote of the stockholders of Parent
is necessary to approve the Offer or the Merger or the issuance of Parent Common
Shares therein.
SECTION 4.16. FINANCING. Parent has, or will have, sufficient funds to
permit Merger Sub to acquire Shares pursuant to the Offer and the Merger.
SECTION 4.17. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by Parent or Merger Sub to the Company
in, or pursuant to the provisions of, this Agreement contains or will contain
any untrue statement of a material fact or omits or shall omit to state any
material fact necessary, in the light of the circumstances under which it was
made, to make the statements herein or therein not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. Except as may be otherwise expressly indicated as permitted in Section
5.01 of the Company Disclosure Schedule, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, the Company covenants and agrees that, unless Parent
shall otherwise agree in writing, the Company shall conduct its business and
shall cause the businesses of its subsidiaries to be conducted only in, and the
Company and its subsidiaries shall not take any action except in the ordinary
course of business and in a manner consistent with past practice; and the
Company shall use reasonable commercial efforts to preserve substantially intact
the business organization of the Company and its subsidiaries, to keep available
the services of the present officers, employees and consultants of the Company
and its subsidiaries, to take all reasonable action necessary to prevent the
loss, cancellation, abandonment, forfeiture or expiration of any Company
Intellectual Property, Third Party Intellectual Property Rights, and Material
Contracts and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement and
Section 5.01 of the Company Disclosure Schedule, neither the Company nor any of
its subsidiaries shall, during the
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period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose to do, any of the following without the prior written consent of
Parent:
(a) amend or otherwise change the Company's Certificate of Incorporation
or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) of the Company, any of its subsidiaries or affiliates (except for
the issuance of shares of the Company Common Stock issuable pursuant to the
exercise of Options under the Stock Option Plans (as defined in Section
2.06(c)) or pursuant to rights to purchase such shares under the Company
Stock Purchase Plan (as defined in Section 2.06(c)), which Options or
rights, as the case may be, are outstanding on the date hereof or with
respect to the Convertible Debentures);
(c) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary
course of business and in a manner consistent with past practice on which
individually and in the aggregate do not exceed $1,000,000 and (ii)
dispositions of obsolete or worthless assets);
(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of Options or restricted stock granted under the
Stock Option Plans or authorize cash payments in exchange for any such
Options or restricted stock;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, or propose to do any of the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
Company Intellectual Property (other than in the ordinary course of
business, consistent with past practice, in connection with systems sales
and software developer programs), or amend or modify any existing agreements
with respect to any Company Intellectual Property or Third Party
Intellectual Property Rights;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make
any loans or advances except to employees in the ordinary course consistent
with past practice; (iii) enter into or amend any contract or agreement
other than in the ordinary course of business; (iv) authorize or make any
capital expenditures or purchase of fixed assets which are, in the
aggregate, in excess of the amount specified in Section 3.08(g) of the
Company Disclosure Schedule for the Company and its subsidiaries, taken as a
whole; PROVIDED, HOWEVER, that no more than one half of such amount shall be
made or firmly committed prior to June 30, 1996, and, PROVIDED, FURTHER that
the Company will give Parent prior notice of the making or the firm
commitment of more than $5 million of capital expenditure in any calendar
quarter; (v) terminate any Material Contract or amend any of its material
terms (other than amendments to existing credit arrangements designed to
remedy defaults thereunder); or (vi) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited
by this Section 5.01(g);
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(h) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with any director, officer
or other employee of the Company or any of its subsidiaries except in
accordance with the policies and procedures described in ANNEX B, or
establish, adopt, enter into or amend any Employee Plan (other than
amendments required pursuant to Section 6.06);
(i) take any action, other than as required by GAAP, to change
accounting policies or procedures or cash maintenance policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, capitalization of development costs, payments of accounts
payable and collection of accounts receivable);
(j) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of federal income tax or material state corporate income or
franchise tax, except to the extent the amount of any such settlement has
been reserved for on the Company's most recent SEC Report;
(k) pay, discharge, settle, or satisfy any lawsuits, claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in the financial statements of the Company or
incurred in the ordinary course of business and consistent with past
practice;
(l) except as may be required by law, take any action to terminate or
amend any Employee Plan (other than amendments required pursuant to Section
6.06);
(m) permit any increase in the number of employees of the Company
employed by the Company on the date hereof other than pursuant to an
employee plan to be agreed to by the Company and Parent as promptly as
practicable after the date hereof acting reasonably and in good faith; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.01(a) through (m) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder or result in any of
the conditions to the Merger set forth herein not being satisfied.
SECTION 5.02. NO SOLICITATION. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company or any of its subsidiaries, solicit or encourage (including by way
of furnishing information) the initiation of any inquiries or proposals
regarding any merger, take-over bid, sale of substantial assets, sale of shares
of capital stock (including without limitation by way of a tender or exchange
offer) or similar transactions involving the Company or any subsidiaries of the
Company (any of the foregoing inquiries or proposals being referred to herein as
an "ACQUISITION PROPOSAL"); PROVIDED, HOWEVER, that nothing contained in this
Agreement shall prevent the Board from referring any third party that contacts
the Company on an unsolicited basis after the date hereof concerning an
Alternative Transaction (as defined in Section 8.03(c)) to this Section 5.02(a)
(provided that Parent is concurrently notified of such contact and referral).
Nothing contained in this Section 5.02(a) or any other provision of this
Agreement shall prevent the Board, after receiving an opinion of outside counsel
to the effect that the Board is required to do so in order to discharge properly
its fiduciary duties, from considering, negotiating, approving and recommending
to the stockholders of the Company an unsolicited bona fide written Acquisition
Proposal which the Board of Directors of the Company determines in good faith
(after consultation with its financial advisors) (i) would result in a
transaction more favorable to the Company's stockholders than the transaction
contemplated by this Agreement and (ii) is made by a person financially capable
of consummating such Acquisition Proposal (any such Acquisition Proposal being
referred to herein as a "SUPERIOR PROPOSAL").
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(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any subsidiary
by any person or entity that informs the Board that it is considering making, or
has made, an Acquisition Proposal. Such notice to Parent shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
(c) If the Board receives a request for material nonpublic information by a
party who makes a bone fide Acquisition Proposal and the Board determines that
such proposal, if consummated pursuant to its terms is a Superior Proposal,
then, and only in such case, the Company may, subject to the execution of a
confidentiality agreement substantially similar to that then in effect between
the Company and Parent, provide such party with access to information regarding
the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section; and shall be responsible for any breach of this Section 5.02 by
such bankers, advisors and representatives (PROVIDED, HOWEVER, that the Company
shall not be liable for any consequential damages with respect to such
breaches).
SECTION 5.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business and consistent with past practice, other than
actions taken by Parent or its subsidiaries in contemplation of the Merger, and
shall not directly or indirectly do, or propose to do, any of the following
without the prior written consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation
(other than with respect to immaterial changes thereto), or amend the terms
of the Parent Common Stock;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, which, in each case, would
materially delay or prevent the consummation of the transactions
contemplated by this Agreement;
(c) sell, transfer, license, sublicense or otherwise dispose of any
material assets; or
(d) take, or agree in writing or otherwise to take, any of the actions
described in Section 5.03(a) through (c) above, or any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder or would result in any of the
conditions to the Merger to be satisfied by Parent not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company and the
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prospectus of Parent with respect to the Parent Common Stock to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and Parent
of all information required to be contained therein, the Company and Parent
shall file with the SEC a combined proxy and registration statement on Form S-4
(or on such other form as shall be appropriate) relating to the approval of the
Merger by the stockholders of the Company and shall use all reasonable efforts
to cause the Registration Statement to become effective as soon thereafter as
practicable. The Proxy Statement shall include the recommendation of the Board
in favor of the Merger, subject to the second sentence of Section 5.02(a).
SECTION 6.02. STOCKHOLDERS' MEETING. The Company shall in accordance with
Delaware Law and the Company's Certificate of Incorporation and Bylaws call and
hold the Company Stockholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger, PROVIDED that the Company
shall not be required to call or hold a stockholders meeting while the Offer
remains outstanding. The Company shall use its reasonable best efforts to hold
the Company Stockholders' Meeting as soon as practicable after the date on which
the Registration Statement becomes effective. Subject to the second sentence of
Section 5.02(a), the Company shall use its reasonable best efforts to solicit
from its stockholders proxies in favor of the approval of the Merger, and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders required by Delaware Law to obtain such approvals.
SECTION 6.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either party may reasonably request. Each party shall keep such information
confidential in accordance with the terms of the confidentiality agreement dated
December 15, 1996 (the "CONFIDENTIALITY AGREEMENT") between Parent and the
Company.
SECTION 6.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
SECTION 6.05. STOCK OPTIONS. At the Effective Time, the Company's
obligations with respect to each outstanding Option, whether vested or unvested,
shall, by virtue of this Agreement and without any further action of the
Company, Parent or the holder of any Option, be assumed by Parent. Unless
otherwise elected by Parent prior to the Effective Time, Parent shall make such
assumption in such manner that Parent (i) is a corporation "assuming a stock
option in a transaction to which Section 424(a) applies" within the meaning of
Section 424 of the Code or (ii) to the extent that Section 424 of the Code does
not apply to such Option, would be such a corporation were Section 424 of the
Code applicable to such Option; and, if not so otherwise elected, after the
Effective Time, all references to the Company in the Stock Option Plans and the
applicable stock option agreements shall be deemed to refer to Parent, which
shall have assumed the Stock Option Plans as of the Effective Time by virtue of
this Agreement and without any further action. Each Option so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the applicable Stock Option Plan and the applicable
stock option agreement as in effect immediately prior to the Effective Time,
except that (i) such Option will be exercisable for that number of shares of
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Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were purchasable under such Option immediately prior to the
Effective Time multiplied by 1.0, subject to adjustment in the manner provided
for in Section 2.06(e), rounded up to the nearest whole number of shares of
Parent Common Stock, and (ii) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Option will be equal
to the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Option was exercisable immediately prior to the
Effective Time by 1.0, subject to adjustment in the manner provided for in
Section 2.06(e), and rounding the resulting exercise price up to the nearest
whole cent. Parent shall use its best efforts to ensure, that Options intended
to qualify as incentive stock options under Section 422 of the Code prior to the
Effective Time continue to so qualify after the Effective Time.
SECTION 6.06. COMPANY STOCK PURCHASE PLAN. (a) The Company shall take such
actions as are necessary to cause the "exercise date" (referred to as the last
day of the "Purchase Period", as such term is used in the Company Stock Purchase
Plan) applicable to the then current Purchase Period to be the last trading day
on which the Company Common Stock is traded on the New York Stock Exchange
immediately prior to the Effective Time (the "FINAL COMPANY PURCHASE DATE");
PROVIDED, THAT, such change in the "exercise date" shall be conditioned upon the
consummation of the Merger. On the Final Company Purchase Date, the Company
shall apply the funds credited as of such date under the Company Stock Purchase
Plan within each participant's payroll withholdings account to the purchase of
whole shares of Company Common Stock in accordance with the terms of the Company
Stock Purchase Plan. The cost to each participant in the Company Stock Purchase
Plan for shares of Company Common Stock shall be the lower of 85% of the closing
sale price of Company Common Stock, as reported on the New York Stock Exchange
composite tape (as published in THE WALL STREET JOURNAL) on (i) the first day of
the then current Purchase Period or (ii) the last trading day on or prior to the
Final Company Purchase Date.
(b) Employees of the Company as of the Effective Time shall be permitted to
participate in Parent's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with the Company).
SECTION 6.07. EMPLOYMENT MATTERS. (a) The Surviving Corporation and Parent
shall honor the terms and provisions in the Employment Agreement, dated May 27,
1995, between J. Phillip Samper and the Company.
(b) As contemplated by Section 3.04(d), the Parachute Plans shall not be
applicable to the Surviving Corporation or Parent after consummation of the
transactions contemplated hereby. Parent currently intends to employ,
immediately after the Offer, a substantial portion of the employees of the
Company. Parent, Merger Sub and the Company agree that the policies and
procedures specified on Annex B shall apply for the twelve-month period
following the closing of the Offer.
SECTION 6.08. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "AFFILIATE LETTER") identifying all persons who
are, or may be deemed to be, at the time of the Company Stockholders' Meetings,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified as
an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "AFFILIATE AGREEMENT") in substantially
the form of Annex C hereto.
SECTION 6.09. INDEMNIFICATION. (a) The Certificate of Incorporation of the
Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Certificate of Incorporation and By-Laws of the
Company, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors or officers of the Company, unless such modification is required
by law.
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(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Certificate of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Corporation and Parent shall, to the fullest
extent permitted under applicable law or under the Surviving Corporation's and
Parent's, as the case may be, Certificate of Incorporation or By-Laws, indemnify
and hold harmless, each director and officer of the Company or any of its
subsidiaries (collectively, the "INDEMNIFIED PARTIES") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission by such
director or officer by virtue of their holding the office of director or officer
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) for a period of six years after the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving Corporation and Parent
and (ii) neither the Surviving Corporation nor Parent shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
SECTION 6.10. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and PROVIDED, FURTHER that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 7.02(a) and 7.03(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 6.11. FURTHER ACTION. Upon the terms and subject to the conditions
hereof, each of the parties hereto in good faith shall use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to
otherwise satisfy or cause to be satisfied all conditions precedent to its
obligations under this Agreement.
SECTION 6.12. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which shall not be unreasonably withheld; PROVIDED, HOWEVER,
that a party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the NYSE if it has used all reasonable efforts to consult
with the other party.
SECTION 6.13. LISTING OF PARENT COMMON SHARES. Parent shall use its
reasonable best efforts to cause the shares of Parent Common Stock to be issued
in the Merger, upon exercise of the Options and upon conversion of the
Convertible Debentures,to be approved for listing on the NYSE.
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ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that
purpose and no similar proceeding in respect of the Proxy Statement shall
have been initiated or threatened by the SEC;
(b) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company;
(c) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other similar binding legal restraint or
prohibition (an "INJUNCTION") preventing the consummation of the Merger
shall be in effect, nor shall any proceeding brought by any administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending; and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal;
(e) NYSE LISTING. The Parent Common Shares to be issued in the Merger,
upon exercise of the Options and upon conversion of the Convertible
Debentures shall have been approved for listing, subject to notice of
issuance, on the NYSE; and
(f) OFFER. Parent shall have made, or caused to be made, the Offer and
shall have purchased, or caused to be purchased, Shares pursuant to the
Offer.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall remain true
and correct as of such date) and (iii) where the failure to be true and
correct would not have a Material Adverse Effect on the Company, with the
same force and effect as if made on and as of the Effective Time;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;
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(d) GOVERNMENTAL ACTIONS. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, nor
shall there be in effect any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction, in
either case, seeking to prohibit or limit Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a material portion of the business or assets of
Parent or any of its subsidiaries, or seeking to compel Parent or any of its
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Parent or any of its subsidiaries, as a result of
the Merger or the transactions contemplated by this Agreement;
(e) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business,
results of operations or financial condition of the Company or any
subsidiary of the Company having or reasonably likely to have a Material
Adverse Effect; and
(f) AFFILIATE AGREEMENTS. Parent shall have received from each officer
and director person who is identified in the Affiliate Letter as an
"affiliate" of the Company an Affiliate Agreement, and each such Affiliate
Agreement shall be in full force and effect.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i)
changes contemplated by this Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date) and (iii) failures to be true and
correct that would not have a Material Adverse Effect on the Company, with
the same force and effect as if made on and as of the Effective Time;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub; and
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no change, occurrence or circumstance in the business,
results of operations or financial condition of Parent or any subsidiary of
Parent having or reasonably likely to have a Material Adverse Effect.
ARTICLE VIII
TERMINATION
SECTION 8.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the boards of directors
of Parent and the Company; or
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(b) by either Parent or the Company if the Merger shall not have been
consummated by September 30, 1996 (PROVIDED that the right to terminate this
Agreement under this Section 8.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a non-appealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by Parent, if the Offer shall not have been consummated prior to
June 30, 1996 (PROVIDED that Parent is not then in material breach hereof);
or
(e) by Parent, if (i) the Board shall withdraw, modify or change its
recommendation of this Agreement, the Offer or the Merger in a manner
adverse to Parent or shall have resolved to do so; or (ii) the Board shall
have taken a "neutral" position with respect to an Alternative Transaction
(as defined in Section 8.03(c)); or (iii) any person or "group" (other than
Parent or an affiliate of Parent) becomes the owner of 20% or more of the
outstanding shares of Company Common Stock; or
(f) by Parent or the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent and
Merger Sub, respectively, set forth in this Agreement or if any
representation or warranty of the Company or Parent and Merger Sub,
respectively, shall have become untrue, in either case, such that the
conditions set forth in Section 7.02(a) or 7.02(b), or Section 7.03(a) or
7.03(b), would not be satisfied (a "TERMINATING BREACH"), PROVIDED that, if
such Terminating Breach is curable prior to the expiration of 30 days from
its occurrence (but in no event later than September 30, 1996) by Parent or
the Company, as the case may be, through the exercise of its reasonable best
efforts and for so long as Parent or the Company, as the case may be,
continues to exercise such reasonable best efforts, neither the Company nor
Parent, respectively, may terminate this Agreement under this Section
8.01(f) until the expiration of such period without such Terminating Breach
having been cured; or
(g) by the Company or Parent, if the Board shall have resolved to
accept, or accepted, a Superior Proposal.
SECTION 8.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 8.03 and Section 9.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof.
SECTION 8.03. FEES AND EXPENSES. (a) Except as set forth in this Section
8.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
(b) The Company shall pay Parent a fee of $25,000,000 (the "FEE"), plus
actual, documented and reasonable out-of-pocket expenses of Parent, not in
excess of $2,500,000, relating to the transactions contemplated by this
Agreement (including, but not limited to, fees and expenses of Parent's
counsel), upon the earliest to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
8.01(e), or by Parent or the Company pursuant to Section 8.01(g); or
(ii) the termination of this Agreement by Parent pursuant to Section
8.01(f) after a willful breach by the Company of this Agreement; or
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(iii) the termination of this Agreement by Parent pursuant to Section
8.01(d), if, at the time of termination there has been publicly announced
and not withdrawn an Alternative Transaction (as defined in Section
8.03(c));
(iv) the consummation of an Alternative Transaction on or prior to
December 31, 1996.
PROVIDED, HOWEVER, that no Fee or expense reimbursement shall be payable
pursuant to this Section 8.03(b) if Parent or Merger Sub shall then be in
intentional material breach of its obligations hereunder.
(c) As used herein, "ALTERNATIVE TRANSACTION" means (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "THIRD PARTY") acquires more than 20% of the outstanding Shares,
whether from the Company or pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving the Company
pursuant to which any Third Party acquires more than 20% of the outstanding
equity securities of the Company or the entity surviving such merger or business
combination or (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company, and the entity surviving any merger
or business combination including any of them) of the Company and its
subsidiaries having a fair market value equal to more than 20% of the fair
market value of all the assets of the Company and its subsidiaries, taken as a
whole, immediately prior to such transaction; PROVIDED, HOWEVER, that the term
Alternative Transaction shall not include any acquisition of securities by a
broker dealer in connection with a bona fide public offering of such securities.
(d) The Fee payable pursuant to Section 8.03(b) shall be paid within one
business day after the first to occur of the events described in Section
8.03(b)(i), (ii), (iii) and (iv).
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except as otherwise provided in this Section 9.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Section 6.08 shall survive the Effective Time indefinitely and those
set forth in Section 8.03 shall survive termination indefinitely. The
Confidentiality Agreement shall survive termination of this Agreement as
provided therein.
SECTION 9.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address shall be effective upon receipt)
or sent by electronic transmission, with confirmation received, to the telecopy
number specified below:
(a) If to Parent or Merger Sub:
Silicon Graphics, Inc.
2011 North Shoreline Boulevard
Mail Stop 710
Mountain View, California 94043-1389
Telecopier No.: (415) 965-1586
Attention: Legal Services
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With a copy to:
Shearman & Sterling
555 California Street, Suite 2000
San Francisco, CA 94104
Telecopier No.: (415) 616-1199
Attention: Michael J. Kennedy, Esq.
(b) If to the Company:
Cray Research, Inc.
Cray Research Park
665A Lone Oak Drive
Eagan, Minnesota 55121
Telecopier No.: (612) 683-7199
Attention: General Counsel
With a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 969-2900
Attention: Daniel R. Kaplan, Esq.
SECTION 9.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATES" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the first mentioned person (either
alone, or through or together with any other subsidiary) has, directly or
indirectly, an interest of 10 percent or more;
(b) "BENEFICIAL OWNER" with respect to any shares of Company Common
Stock, means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares;
(c) "BUSINESS DAY" means any day other than a day on which banks in San
Francisco are required or authorized to be closed;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) when used in connection with the Company or any of its
subsidiaries, or Parent or any of its subsidiaries, as the case may be, the
term "MATERIAL ADVERSE EFFECT" means any change or effect that, individually
or when taken together with all other such changes or effects that have
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occurred prior to the date of determination of the occurrence of the
Material Adverse Effect, is or is reasonably likely to be materially adverse
to the business, operations, condition (financial or otherwise), assets
(including intangible assets) or liabilities (including, without limitation,
contingent liabilities) or prospects of the Company and its subsidiaries or
Parent and its subsidiaries, as the case may be, in each case taken as a
whole;
(f) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(g) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 9.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective boards of directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 9.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 9.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 9.09. ASSIGNMENT, MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
SECTION 9.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (including, without limitation, Section 6.07
hereof), is intended to or shall confer upon any other person any right, benefit
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or remedy of any nature whatsoever under or by reason of this Agreement, other
than Section 6.08 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
SECTION 9.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SILICON GRAPHICS, INC.
By /s/ Thomas A. Jermoluk
-----------------------------------
Name: Thomas A. Jermoluk
Title: President and Chief
Operating Officer
C ACQUISITION CORPORATION
By /s/ Thomas A. Jermoluk
-----------------------------------
Name: Thomas A. Jermoluk
Title: President
CRAY RESEARCH, INC.
By /s/ J. Phillip Samper
-----------------------------------
Name: J. Phillip Samper
Title: Chairman and Chief
Executive Officer
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ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the terms of
the Merger Agreement, Merger Sub shall not be required to accept for payment or
pay for any Shares tendered pursuant to the Offer, and may terminate or amend
the Offer and may postpone the acceptance for payment of and payment for Shares
tendered, if (i) the Minimum Condition shall not have been satisfied, (ii) any
applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the expiration of the Offer, or (iii) at any time on or
after the date of this Agreement, and prior to the acceptance for payment of
Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending or threatened any
action or proceeding by any governmental or quasi-governmental authority or
agency, domestic or foreign, before any court or governmental,
administrative or regulatory authority or agency, of competent jurisdiction,
domestic or foreign, (i) challenging or seeking to make illegal, materially
delay or otherwise directly or indirectly restrain or prohibit or make
materially more costly the making of the Offer, the acceptance for payment
of, or payment for, any Shares by Parent, Merger Sub or any other affiliate
of Parent, or the consummation of any other Transaction, or seeking to
obtain material damages in connection with any Transaction; (ii) seeking to
prohibit or limit materially the ownership or operation by the Company,
Parent or any of their subsidiaries of all or any material portion of the
business or assets of the Company, Parent or any of their subsidiaries, or
to compel the Company, Parent or any of their subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of the
Company, Parent or any of their subsidiaries, as a result of the
Transactions; (iii) seeking to impose or confirm material limitations on the
ability of Parent, Merger Sub or any other affiliate of Parent to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Merger Sub pursuant to
the Offer or otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption of
this Agreement and the transactions contemplated hereby; (iv) seeking to
require divestiture by Parent, Merger Sub or any other affiliate of Parent
of any Shares; or (v) which otherwise has a Material Adverse Effect or which
is reasonably likely to materially adversely affect the business,
operations, properties, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) or
prospects of the Company or Parent;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, the Company or any subsidiary or affiliate of
Parent or the Company or (ii) any Transaction, by any legislative body,
court, government or governmental, administrative or regulatory authority or
agency, domestic or foreign, other than the routine application of the
waiting period provisions of the HSR Act to the Offer or the Merger, which
is reasonably likely in the good faith judgment of the Parent to result,
directly or indirectly, in any of the consequences referred to in clauses
(i) through (v) of paragraph (a) above;
(c) after February 25, 1996, there shall have occurred any change,
condition, event or development that has a Material Adverse Effect on the
Company;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE, (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) a commencement of a war or armed
hostilities or other national or international crisis directly or indirectly
involving the United States or (iv) in the case of any of the foregoing
existing on the date hereof, in the good faith judgment of the Parent a
material acceleration or worsening thereof;
A-1
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(e) (i) it shall have been publicly disclosed or Merger Sub shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of the then outstanding Shares has been acquired by any
person, other than Parent or any of its affiliates or (ii) (A) the Board or
any committee thereof shall have withdrawn or modified in a manner adverse
to Parent or Merger Sub the approval or recommendation of the Offer, the
Merger or the Merger Agreement, or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the
Merger or (B) the Board or any committee thereof shall have resolved to do
any of the foregoing;
(f) any representation or warranty of the Company in the Merger
Agreement which is qualified as to materiality shall not be true and correct
or any such representation or warranty that is not so qualified shall not be
true and correct in any material respect, in each case as if such
representation or warranty was made as of such time on or after the date of
the Merger Agreement, except for (i) changes contemplated by the Merger
Agreement, (ii) those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date) and (iii) where the failure to be true and correct would not have a
Material Adverse Effect on the Company;
(g) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
(h) the Merger Agreement shall have been terminated; or
(i) Merger Sub and the Company shall have agreed that Merger Sub shall
terminate the Offer or postpone the acceptance for payment of or payment for
Shares thereunder;
which, in the reasonable good faith judgment of Merger Sub in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
any of its affiliates) giving rise to any such condition, makes it inadvisable
to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Merger Sub and Parent
and may be asserted by Merger Sub or Parent regardless of the circumstances
giving rise to any such condition or may be waived by Merger Sub or Parent in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or Merger Sub at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
A-2
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ANNEX B
CERTAIN EMPLOYEE MATTERS
POLICIES AND PROCEDURES
<TABLE>
<S> <C> <C>
I. GENERAL: In general, the Surviving Corporation shall offer severance
benefits as provided in the Cray Research, Inc. 1995 Amended
and Restated Severance Pay Plan for Cray Research, Inc. (the
"EXISTING PLAN").
II. BASE PAYMENTS: Employees whose employment is terminated for one of the
reasons described in Section III (ii) below shall be entitled
to the following payments:
(i) EXECUTIVE OFFICERS (defined as Robert H. Ewald, Laurence
L. Betterley, Irene M. Qualters and Michael R. Dungworth)
shall be entitled to a lump sum cash payment equal to two
times such Executive Officer's Base Pay;
(ii) OFFICERS AND OFFICER EQUIVALENTS (defined consistent
with the Company's existing internal designation consisting of
approximately 50 people) shall be entitled to a lump sum
cash payment equal to one times such Officer's and
Officer Equivalent's Base Pay; and
(iii) ALL OTHER EMPLOYEES (including part-time employees)
shall be entitled to a lump sum cash payment calculated and
payable pursuant to Section C of the Existing Plan
plus, to the extent consistent with the Company's most
recent reduction in force, an additional per individual
payment not to exceed two months' Base Pay agreed upon
by Parent and the Company acting reasonably and in good
faith.
III. OTHER BENEFITS: Other severance benefits shall be offered as provided in the
Existing Plan (including, without limitation, payment for
accrued and unused personal time), subject to the following:
(i) in all cases where relevant, the provision of health,
life, disability and COBRA benefits (provided that, for the
purposes of COBRA, Parent shall pay for three months of
the employee's portion of the cost of such terminated
employee's medical insurance prior to the date of such
employee's termination) as offered by Parent to its
employees shall be deemed to satisfy the requirements of
the Existing Plan; and
(ii) termination shall mean elimination of a person's job,
termination without cause and resignation for "good
reason," which shall include only the following: (i) 15%
or more reduction in a person's Base Pay or (ii)
relocation more than 35 miles from a person's then
current work location.
IV. PERFORMANCE These policies and procedures shall not apply to terminations
EVALUATIONS: in connection with normal cause performance evaluations.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C>
V. BASE PAY: Means all regular straight time earnings, exclusive of payment
for overtime, shift premiums, incentive compensation,
incentive payments, bonuses, commissions or other
compensation.
VI. COMMUNICATIONS: Between the date hereof and consummation of the Offer, Parent
and Company shall co-ordinate communications regarding these
policies and procedures to Company employees
</TABLE>
B-2
<PAGE>
ANNEX C
FORM OF AFFILIATE AGREEMENT
, 1996
Silicon Graphics, Inc.
2011 N. Shoreline Blvd.
Mail Stop 710
Mountain View, CA 94043-1389
Attention: Legal Services
Ladies and Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger dated as of
February 25, 1996 (the "AGREEMENT"), among Silicon Graphics, Inc., a Delaware
corporation ("PARENT"), C Acquisition Corporation, a Delaware corporation and
wholly owned subsidiary of Parent ("MERGER SUB"), and Cray Research, Inc., a
Delaware corporation (the "COMPANY"), Parent will acquire the Company through
the merger of Merger Sub with and into the Company (the "MERGER"). Subject to
the terms and conditions of the Agreement, at the Effective Time (as defined in
the Agreement), outstanding shares of the common stock, par value $1.00 per
share, of the Company ("COMPANY COMMON STOCK") will be converted into the right
to receive shares of the common stock, par value $0.001 per share, of Parent
("PARENT COMMON STOCK"), and, in certain events, cash on the basis described in
the Agreement.
The undersigned has been advised that as of the date hereof he, she or it
may be deemed to be an "affiliate" of the Company, as the term "affiliate" is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "RULES AND REGULATIONS") of the Securities and Exchange
Commission (the "COMMISSION") under the Securities Act of 1933, as amended (the
"ACT").
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company, other stockholders of the Company and their respective
counsel and accountants.
The undersigned represents and warrants to and agrees with Parent that:
1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to perform
its obligations hereunder.
2. The undersigned has carefully read this letter and the Agreement and
discussed its requirements and other applicable limitations upon his, her or its
ability to sell, transfer or otherwise dispose of Parent Common Stock to the
extent the undersigned felt necessary, with his, her or its counsel or counsel
for the Company.
3. The undersigned shall not make any sale, transfer or other disposition
of Parent Common Stock in violation of the Act or the Rules and Regulations.
4. The undersigned has been advised that the issuance of shares of Parent
Common Stock to the undersigned in connection with the Merger has been or will
be registered with the Commission under the Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Merger was or will be submitted for a vote of the stockholders of the
Company the undersigned may be deemed to have been an affiliate of the Company
and the distribution by the undersigned of any Parent Common Stock has not been
registered under the Act, the undersigned may not sell, transfer or otherwise
dispose of Parent Common Stock issued to the undersigned in the Merger unless
(i) such sale, transfer or other disposition has been registered under the Act,
(ii) such sale, transfer or other disposition is made in conformity with the
requirements of Rule 145 promulgated by the Commission under the Act, or (iii)
in the opinion of counsel reasonably acceptable to Parent, such sale, transfer
or other disposition is otherwise exempt from registration under the Act.
C-1
<PAGE>
5. Parent is under no obligation to register the sale, transfer or other
disposition of Parent Common Stock by the undersigned or on his, her or its
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
6. Stop transfer instructions will be given to Parent's transfer agent with
respect to the Parent Common Stock and that there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED FEBRUARY 25, 1996 BETWEEN THE
REGISTERED HOLDER HEREOF AND SILICON GRAPHICS, INC., A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF SILICON GRAPHICS, INC."
7. Unless the transfer by the undersigned of his, her or its Parent Common
Stock has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend on
the certificates issued to any transferee of the undersigned:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
8. The legends set forth in paragraphs 6 and 7 above shall be removed by
delivery of substitute certificates without such legend if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the Commission, or
an opinion of counsel in form and substance reasonably satisfactory to Parent,
to the effect that such legend is not required for purposes of the Act.
9. The undersigned is the beneficial owner of (i.e., has sole or shared
voting or investment power with respect to) all the shares of Company Common
Stock and options to purchase Company Common Stock indicated on the last page
hereof (the "Company Securities"). Except for the Company Securities, the
undersigned does not beneficially own any shares of Company Common Stock or any
other equity securities of the Company or any options, warrants or other rights
to acquire any equity securities of the Company.
10. The undersigned intends to vote all Company Common Stock held by him or
her on the record date for the stockholders' meeting to be held to consider the
Merger in favor of the Merger.
11. The undersigned will not exercise dissenters' rights in connection with
the Merger.
C-2
<PAGE>
NUMBER OF SHARES OF COMPANY COMMON STOCK
BENEFICIALLY OWNED BY THE UNDERSIGNED:
------------------------
NUMBER OF SHARES OF COMPANY COMMON STOCK
SUBJECT TO OPTIONS, OR ISSUABLE UPON CONVERSION OF
CONVERTIBLE DEBENTURES, BENEFICIALLY OWNED BY THE UNDERSIGNED:
------------------------
Very truly yours,
--------------------------------------
(print name of stockholder)
By:
--------------------------------------
Name:
Title:
(if applicable)
Accepted this day of
, 1996, by
SILICON GRAPHICS, INC.
By:
- - - ------------------------------------------
Name:
Title:
C-3
<PAGE>
EXHIBIT 2
COMPENSATION OF DIRECTORS
The company paid each director during the year ended December 31, 1994,
other than Messrs. Carlson, Davis, Ewald, and Scott, 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.
Under a retirement income plan established for non-employee directors, after
retirement from the Board, each director will receive a retirement benefit equal
to the final annual retainer times the number of years served on the Board of
Directors or 15 years, whichever is less. The amount is payable annually for a
period not to exceed 15 years, or in a lump sum equivalent, at the director's
option. In 1994, the company accrued $142,061 of expense and made payments
totalling $147,786 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.
6
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND DEVELOPMENT COMMITTEE REPORT
Composed entirely of outside directors, the Compensation and Development
Committee of the Board of Directors (the "Committee") is responsible for
reviewing and approving remuneration for the company's executive officers
including those named in the Summary Compensation Table below "named executive
officers") and the administration of compensation and stock option and award
plans in which these individuals and other key employees participate. In
addition, the Committee reviews and provides direction for the development of
future leadership to meet the long-term organization and growth requirements of
the company.
The company's executive compensation philosophy is to pay for individual and
company results in a manner that is competitive with companies of similar
revenue size in the computer industry. Standard industry compensation surveys,
which include companies in the S&P 500 Computer Systems Index and other computer
companies, are used. Competitiveness is measured taking into consideration base
salary, annual bonus, and long-term incentive compensation plans. An executive
officer's total cash compensation (salary and bonus) is targeted at the average
of the comparison group.
BASE SALARY: Salaries for individual positions are evaluated to assure
competitiveness of total cash compensation in relation to the comparison group.
Executive officers receive merit increases based principally on individual
performance, overall company financial performance, and general market
conditions. During 1994, executive officers received merit increases ranging
from 4% to 13.8%. In 1993 executive officers received no merit increases,
although some received increases upon promotion to new positions. Compensation
for the majority of the named executive officers was below market.
SHORT-TERM INCENTIVES: In 1994, executive officers were eligible for cash
bonuses under the company's Annual Incentive Plan, a broad-based incentive plan
covering mid- and upper-level management and technical employees. Target
incentive levels are set between 45% and 65% of salary for executive officers.
Payouts to the executive officers with respect to 1994 were based on company
performance, and in some cases on supercomputer operations business unit
performance as well, and on individual performance against objectives which
directly supported the achievement of these goals. Company performance for 1994
was measured on the basis of annual revenue, return on capital employed
(calculated by dividing operating income by noncash assets) and earnings per
share growth. The business unit performance in 1994 for supercomputer operations
was measured on the basis of financial goals including revenue growth, return on
capital employed and operating income, and on a set of operational goals
including sales, technical development and reliability objectives.
The company's revenue growth target was an increase of 11% over 1993, the
return on capital employed target was 11%, and the earnings per share growth
target was a 10% increase over 1993 earnings per share of $2.33. In determining
company performance, the revenue growth goal was weighted 25%, the earnings per
share growth goal was weighted 50% and the return on capital employed goal was
weighted 25%. If a measure was below a minimum level established, no credit was
given that measure in the determination of company performance.
7
<PAGE>
In 1994, the company's revenue growth goal was below target but above the
minimum; however, performance on the earnings per share growth and the return on
capital employed goals were below the minimum. Company performance against these
measures resulted in a lower than target level payout, expressed as a Company
Performance Ratio of approximately 6.9%. In 1994, plan participants' individual
performances against their own objectives were evaluated and individual award
percentages were determined. Actual payouts (as a percentage of salary) to most
executive officers including four of the named executive officers were
calculated by multiplying each officer's individual award percentage by the
Company Performance Ratio. Payouts to some executive officers were calculated by
multiplying a portion of their individual award percentage by the Company
Performance Ratio and the balance by the performance ratio calculated for
supercomputer operations business unit.
In addition, executive officers participate in the Incentive Cash Profit
Sharing Plan, a company-wide plan which generates cash awards to employees based
on achievement of preestablished levels of financial performance for the company
and its business units. For 1994, the plan performance measure was operating
income. Executive officers received a payout under this Plan equal to slightly
less than 1% of base salary.
Executive officers may elect to defer payment of a portion of their annual
compensation under a Deferred Compensation Plan adopted by the company for
certain highly compensated employees. Compensation generally must be deferred
for five years or longer.
Finally, executive officers participate in a deferred profit sharing program
under the Retirement Savings Plus Plan, which generates the only
company-sponsored retirement benefits. For 1994 contributions of four percent of
eligible wages were made by the company to deferred profit sharing, and the
company 401(k) match was fifty cents per dollar of employee contribution, up to
a maximum of $1,000.
LONG-TERM INCENTIVES: The company grants stock options to a broad base of
employees under the 1989 Employee Benefit Stock Plan. The level of stock option
grants for executive officers is intended to be competitive with those of the
comparison group. Options are granted at fair market value on the date of grant.
The plan also permits the company to make grants of restricted and nonrestricted
stock. The purpose of the plan is to align the interests of employees and the
company.
In 1994, some executive officers, including two of the named executive
officers, were granted stock options. These options have value only as the
company stock price increases.
Four of the named executive officers received grants of restricted stock in
1994. Vesting of the stock was dependent on achieving a minimum growth in
earnings per share in each year of a three year period. All of the shares of
restricted stock were forfeited because earnings per share growth in 1994 was
less than the 10% minimum.
Section 162(m) of the Internal Revenue Code generally limits the corporate
tax deduction for compensation paid to an executive officer named in the Summary
Compensation Table to $1 million, unless certain requirements are met. While the
company's compensation plans are
8
<PAGE>
performance based plan, they do not presently meet all the requirements set
forth in current proposed regulations. There is some uncertainty as to what the
final interpretation of the law will be. The proposed regulations do contain a
"grandfather" provision for certain compensation paid under existing plans.
The Committee has determined that, based on information available, it is not
necessary to modify the company's compensation plans at this time since the
compensation paid to executive officers is likely to either be less than the $1
million limit or would be exempted under the "grandfather" provision of the
regulations and, therefore, would be deductible. The committee will continue to
monitor and assess various alternatives concerning this issue in order to
maximize corporate tax deductions without limiting the company's flexibility to
attract and retain qualified executives.
CEO REMUNERATION: As Chairman of the Board and Chief Executive Officer, Mr.
Carlson's 1994 compensation was tied directly to company performance. His 1994
base salary was $410,042. He received a 13.8% increase over his 1993 base salary
in January 1994. Based on comparison group data, Mr. Carlson's 1994 base salary
after the increase was below the market average by more than 18%. Mr. Carlson's
individual objectives under the Annual Incentive Plan for 1994 wee substantially
the same as the company's objectives of revenue, return on capital employed and
earnings per share growth. Company performance was substantially below target
and Mr. Carlson received a bonus of 4.5% of his eligible wages for the year, a
total bonus of $18,452. In January, 1994, the committee also awarded him a stock
option covering 25,000 shares, granted at the fair market value of $26.50 on the
date of grant, and made a grant of 15,000 shares of restricted stock in March,
1994. The shares of restricted stock have been forfeited to the company because
the required 10% minimum earnings per share growth was not achieved.
Compensation and Development Committee
Robert G. Potter
Lawrence E. Eaton
Catherine M. Hapka
Jan H. Suwinski
In connection with the retirement of John F. Carlson as Chief Executive
Officer effective December 31, 1994, and as a director effective May 16, 1995,
in addition to accrued vacation of $39,652, the company has agreed to pay Mr.
Carlson $679,478 in installments from May, 1995 through December, 1996. The
company will also reimburse Mr. Carlson for certain tax preparation and
financial planning fees up to $25,000 and for certain membership dues, and will
pay $61,800 for outplacement services to be provided to Mr. Carlson. In
consideration of these payments Mr. Carlson has accepted certain restrictions on
his business activities, including a one year noncompete agreement.
In January, 1995, the Company paid Lester T. Davis, who retired at the end
of 1994, a special bonus of $159,352 in recognition of Mr. Davis' 22 years of
service to the company.
9
<PAGE>
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below includes individual compensation
information for the Chief Executive Officer and the four other most highly paid
executive officers for services rendered in all capacities during the fiscal
years ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
NUMBER OF
SHARES
ANNUAL COMPENSATION UNDERLYING
------------------------------------------ RESTRICTED STOCK
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS ALL OTHER
POSITION (1) YEAR SALARY BONUS (2) COMPENSATION (3) AWARDED (4) GRANTED COMPENSATION (5)
- - - ----------------------------- --------- ----------- ----------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Carlson 1994 $ 410,042 $ 22,395 $ 14,865 $ 493,125 25,000 $ 7,348
Chairman and Chief 1993 357,442 267,092 17,190 -0- 60,000 10,749
Executive Officer 1992 314,766 -0- 3,695 -0- -0- 10,664
Lester T. Davis 1994 $ 335,902 $ 11,342 -0- $ 493,125 -0- $ 7,324
Chief Operating 1993 301,662 178,352 -0- -0- 48,000 10,736
Officer 1992 301,662 -0- -0- -0- -0- 10,643
Robert H. Ewald 1994 $ 334,497 $ 15,910 $ 6,756 $ 493,125 -0- $ 7,326
President and Chief 1993 296,317 159,782 3,800 -0- 40,000 10,731
Operating Officer 1992 287,548 -0- 446 -0- -0- 10,619
Michael J. Lindseth 1994 $ 230,367 $ 9,368 $ 8,245 $ 493,125 -0- $ 7,223
Executive Vice 1993 200,387 102,845 5,200 -0- 29,500 9,208
President, Sales 1992 200,387 -0- 1,722 -0- -0- 9,341
Don F. Whiting 1994 $ 194,171 $ 51,575 $ 3,835 -0- 7,500 $ 7,188
Senior Vice 1993 168,750 99,770 4,113 -0- 29,500 7,912
President, 1992 168,750 14,766 8,315 -0- -0- 8,024
Operations
</TABLE>
- - - ------------------------
(1) Principal position represents the capacity in which the executive served as
of December 31, 1994.
(2) Consists of cash compensation accrued during the fiscal year pursuant to the
Annual Incentive Plan and the cash bonus under the Incentive Cash Profit
Sharing Plan.
(3) Amounts in this column represent compensation related to professional income
tax 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) Grants of 15,000 shares of restricted stock were made to each of four named
executive officers. The price per share on the date of grant was $32.875 for
a market value on the date of grant of $493,125 for the shares held by each
officer. On December 31, 1994, the price per share was $15.75, resulting in
a valuation of $236,250 for the shares held by each officer as of such date.
The shares were subject to vesting conditions based on growth in earnings
per share over a three year period. A minimum of 10% earnings per share
growth was required in each year of the three year period. The 10% minimum
was not met in 1994, 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.
(5) Represents contributions to the Company's Retirement Savings Plus Plan and
term life insurance premiums (less than $348 in any one year for each
executive officer) paid by the company for the benefit of the executive
officer.
Non-cash personal benefits paid to executive officers during each year in
the three-year period ended December 31, 1994 did not exceed in the aggregate
the lesser of 10% of cash compensation or $50,000 for any individual executive
officer.
10
<PAGE>
Other than as noted in this Proxy Statement, the company is not party to any
employment agreement with any of its executive officers, and during 1994 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.
STOCK OPTIONS
The following table presents, for each of the executive officers named in
the "Summary Compensation Table" above, the number of shares of Common Stock
purchased upon exercise of stock options during fiscal year 1994, 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 executive
officers as of December 31, 1994, distinguishing between options that are
exercisable as of December 31, 1994 and those that will become exercisable at
various times in the future.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND F-Y-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FY-END IN-THE-MONEY OPTIONS
SHARES ------------------------------------------ AT FY-END (1)
ACQUIRED ON VALUE ----------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ------------------------------------- ------------- ------------- ------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John F. Carlson...................... -0- -0- 58,412 73,750 -0- -0-
Lester T. Davis...................... -0- -0- 64,760(2) -0- -0- -0-
Robert H. Ewald...................... -0- -0- 46,049 33,750 -0- -0-
Michael J. Lindseth.................. -0- -0- 31,684 24,625 -0- -0-
Don F. Whiting....................... -0- -0- 24,069 30,005 -0- -0-
</TABLE>
- - - ------------------------
(1) The exercise prices of all options held by the executive officers named in
the table as of December 31, 1994 were greater than the market value of the
company's Common Stock at that date at $15.75 per share.
(2) Mr. Davis retired on December 31, 1994, and upon retirement all outstanding
options became exercisable in accordance with the terms of the 1989
Employment Benefit Stock Plan.
The following table presents, for each executive officer named in the
"Summary Compensation Table" above, the number of shares underlying options
granted during 1994, the exercise price for such options, their expiration date
and their potential realizable value.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED RATES OF STOCK
SHARES % OF TOTAL EXERCISE OR PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED BASE PRICE OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PER SHARE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR (1) DATE 5% ($) 10% ($)
- - - ----------------------------------- ----------- ----------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Carlson.................... 25,000 3.2% $ 26.50 1/24/04 $ 416,643 $ 1,055,854
Lester T. Davis.................... -- -- -- -- -- --
Robert H. Ewald.................... -- -- -- -- -- --
Michael J. Lindseth................ -- -- -- -- -- --
Don F. Whiting..................... 7,500 1.0% $ 26.50 1/24/04 $ 124,993 $ 316,756
</TABLE>
- - - ------------------------
(1) All options were granted with the exercise price equal to the market price
on the date of grant and become exercisable in 25% annual installments
commencing one year from the date of grant.
(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 value reflected in the table will be realized.
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the company for the last five years with the cumulative total
return on the S&P 500 Index and the S&P 500 Computer Systems Index over the same
period (assuming the investment of $100 in the company's Common Stock, the S&P
500 Index and the S&P 500 Computer Systems Index on December 31, 1989, with
reinvestment of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CRAY RESEARCH,
INC. S&P 500 INDEX S&P 500 COMPUTER SYSTEMS INDEX
------------------ -------------- -------------------------------
<S> <C> <C> <C>
1989......................................... 100 100 100
1990......................................... 76.92 96.9 112.06
1991......................................... 99.58 126.42 99.58
1992......................................... 59.65 136.05 73.1
1993......................................... 65.71 149.76 75.87
1994......................................... 40.06 151.74 97.98
</TABLE>
12
<PAGE>
EXECUTIVES' SEVERANCE COMPENSATION PLAN
The company has adopted an Executives' Severance Compensation Plan (the
"Severance Plan") covering certain of its employees, including the persons named
in the "Summary Compensation Table" above. The Severance Plan covers employees
who have been elected by the Board of Directors of the company to a position of
Vice President or higher. The Severance Plan provides for a severance payment if
a covered employee's employment with the company is terminated within 15 months
after a "change of control" (as defined in the Severance Plan). The company will
not be required to make such payment if the termination is due to the employee's
death, voluntary retirement at or after age 65, or disability, or by the company
for "just cause" (as defined in the Severance Plan). If the employee is entitled
to a severance payment, he or she will receive a lump sum cash payment equal to
two times his or her annual compensation. The Severance Plan provides for a pro
rata adjustment for employees with less than six months of employment. For
purposes of the Severance Plan, annual compensation includes any wages, salary,
bonus or incentive compensation, including amounts deferred. It does not include
income attributable to options granted under an option plan. The company may
amend or terminate the Severance Plan at any time. However, if a change of
control occurs, the Severance Plan may not be amended or terminated.
13
<PAGE>
EXHIBIT 3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("this Agreement") is made this 17th day of May,
1995, by and between CRAY RESEARCH, INC., a Delaware corporation ("the
Company"), and J. PHILLIP SAMPER, a resident of Maryland ("the Executive").
WHEREAS, the Executive is experienced in managing significant business
enterprises; and
WHEREAS, the Company wishes to secure the Executive's services as Chairman
and Chief Executive Officer of the Company under the terms hereof; and
WHEREAS, the Executive wishes to provide such services to the Company;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and undertakings stated herein, the Executive and the Company hereby agree as
follows:
1. PERIOD OF EMPLOYMENT
Subject to all terms and conditions hereof, the Company shall employ the
Executive as, and the Executive shall serve the Company as, Chairman and Chief
Executive Officer of the Company, during the period commencing on the date
hereof and ending on December 31, 1999 ("the Employment Period"), unless the
Executive's employment hereunder terminates earlier in accordance with SECTION 5
hereof.
2. DUTIES AND POWERS OF THE EXECUTIVE
Subject to all terms and conditions hereof, the Company shall employ the
Executive as Chairman and Chief Executive Officer of the Company. The Board of
Directors of the Company has, effective as of the Executive's first day of
actual employment with the Company, appointed the Executive as, and the
Executive shall serve as, Chairman and Chief Executive Officer of the Company.
As Chairman and Chief Executive Officer of the Company, the Executive shall have
all duties customarily associated with the offices of chairman and chief
executive officer of a significant business enterprise, shall have primary
management responsibility for the Company, shall chair the governing board of
the Company, and shall perform such other duties consistent with the offices of
Chairman and Chief Executive Officer as may be specified by the Board of
Directors of the Company, to whom the Executive shall report. During the
Employment Period, the Executive shall devote full time to the Executive's
duties hereunder, except that the Executive may continue to serve on the boards
of directors of business corporations and charitable organizations on which he
currently serves for reasonable amounts of time and make reasonable personal
investments, and shall not accept other employment or engage in other material
business or charitable activities, except as approved in writing in advance by
the Chair of the Executive Committee of the Board of Directors of the Company.
3. COMPENSATION
(a) While the Executive is employed by the Company hereunder, the Company
shall pay to the Executive a base salary ("Base Salary") to be established by
the Board of Directors of the Company from time to time but no less than
$600,000 per year, and which has been established by the Board of Directors,
effective as of the Executive's first day of actual employment with the Company,
at a rate of $600,000.00 per year. The Company shall pay the Executive's Base
Salary to him in accordance with the Company's standard payroll practices as in
effect from time to time.
(b) While the Executive is employed by the Company hereunder, the Executive
shall participate in the Company's Performance Incentive Plan ("the Incentive
Plan"). For each plan year during which the Executive participates in the
Incentive Plan, the Company shall pay to the Executive an amount that is based
on a minimum performance target of 80 percent of the Executive's eligible wages
and a maximum performance target of 120 percent of his eligible wages, which
amount, subject to the Guaranteed Incentive Award (as defined below), shall be
prorated for plan year 1995 to reflect the actual amount of eligible wages paid
to the Executive by the Company during the 1995. For the first 12 months while
the Executive is employed by the Company hereunder, the Company shall pay to the
Executive under the Incentive Plan an amount equal to the greater of the amount
to which he otherwise would be entitled under the Incentive Plan or an amount
("the Guaranteed Incentive
<PAGE>
Award") no less than he would have received if his minimum performance target of
80 percent of eligible wages had been achieved, which eligible wages shall be
prorated for plan year 1995 as provided above and shall be prorated for plan
year 1996 based on an amount equal to $600,000.00 minus the Executive's eligible
wages under the Incentive Plan for 1995, regardless of the Company's actual
annual business performance, and regardless of whether the Executive's
employment hereunder has terminated in accordance with SECTION 5 hereof before
the end of either plan year 1995 or plan year 1996, as the case may be, provided
that the total of the Guaranteed Incentive Award paid to the Executive by the
Company for the first 12 months of this employment hereunder for plan years 1995
and 1996 does not exceed $480,000.00. Except as modified by the provisions of
this SECTION 3(B), payments of Incentive Plan awards to the Executive by the
Company shall be governed by the terms of the Company's Incentive Plan as it is
in effect from time to time.
(c) Pursuant to the Company's 1989 Employee Stock Benefit Plan, as amended
("the Stock Plan"), the Compensation Committee of the Company has, effective as
of the Executive's first day of actual employment with the Company, granted to
the Executive: (i) an option, granted pursuant to a stock option agreement in
the form of Exhibit A hereto, to purchase 300,000 shares of common stock of the
Company at a price per share equal to the closing price for a share of common
stock of the Company on the New York Stock Exchange on the last trading day
immediately preceding the public announcement of the Executive's agreement to be
employed by the Company; and (ii) 200,000 shares of restricted common stock of
the Company, granted pursuant to a restricted stock agreement in the form of
Exhibit B hereto. The Executive and the Company agree that they will execute and
deliver a stock option agreement and restricted stock agreement in the form of
Exhibit A and Exhibit B hereto, respectively, on the first day of the
Executive's actual employment with the Company.
4. FRINGE BENEFITS
(a) While the Executive is employed by the Company hereunder, the Company
shall provide to the Executive such health insurance, life insurance, disability
insurance, retirement savings, and other fringe benefits as are provided from
time to time by the Company to its senior executives, in accordance with the
Company's general benefits practices then in effect, and as are not provided for
expressly in this Agreement. A listing of such fringe benefits as they are in
effect on the date hereof appears on Attachment 1 hereto.
(b) In addition to the fringe benefits provided to the Executive by the
Company in accordance with Section 4(a) hereof, while the Executive is employed
by the Company hereunder, the Executive shall be entitled to five weeks of paid
vacation per year (prorated for calendar year 1995), which shall include any
personal time benefit to which he is otherwise entitled under the Company's
general benefits practices, and, if the Executive elects to join a country club
located in the Twin Cities metropolitan area, then the Company shall reimburse
the Executive for the membership fees and monthly dues charged by such country
club.
(c) While the Executive is employed by the Company hereunder, the Company
shall reimburse the Executive for his reasonable and necessary business and
travel expenses in accordance with the Company's general expense reimbursement
practices in effect from time to time for its senior executives.
(d) After the Executive is employed by the Company hereunder, the Company
shall pay directly to the Executive's legal counsel a reasonable amount for the
attorneys' fees and costs that the Executive has incurred in connection with the
negotiation and preparation of this Agreement.
(e) Promptly after the execution of this Agreement by the Company and the
Executive hereunder, the Company shall pay to the Executive a one-time signing
bonus in the amount of $100,000.00.
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(f) After the Executive is employed by the Company hereunder, the Company
shall reimburse the Executive for the following expenses associated with his
search for a residence in and his move to the Twin Cities metropolitan area:
(i) transportation costs incurred by the Executive and his wife for
travel between Maryland and the Twin Cities for a period of up to six
months;
(ii) long-distance telephone charges incurred by the Executive and his
wife in connection with the search for a residence in the Twin Cities
metropolitan area for a period of up to six months;
(iii) the cost of temporary housing for the Executive and his wife in the
Twin Cities metropolitan area for a period of up to six months;
(iv) all real estate brokerage and related fees, closing costs, and legal
expenses incurred by the Executive and his wife in connection with the
purchase of a residence in the Twin Cities metropolitan area; and
(v) the actual cost of moving the household goods and personal effects
of the Executive and his wife from Maryland to the Twin Cities metropolitan
area.
5. TERMINATION
The Executive's employment by the Company hereunder shall end immediately
upon:
(a) receipt by the Company of the Executive's resignation from the
Company (whether written or oral),
(b) the Executive's receipt of written notice from the Company of
termination of the Executive's employment,
(c) the Executive's death or disability, or
(d) expiration of the Employment Period,
and the date on which Termination occurs shall be "the Termination Date"
hereunder.
6. PAYMENTS UPON TERMINATION
(a) If the Executive's employment hereunder ends by reason of:
(i) resignation by the Executive without Good Reason (as defined below)
or abandonment by the Executive of his employment,
(ii) termination by the Company For Cause (as defined below), or
(iii) the Executive's disability,
then the Company shall pay the Executive's Base Salary and the Guaranteed
Incentive Award, if any, only through the Termination Date.
(b) If the Executive's employment hereunder ends by reason of:
(i) termination by the Company without cause,
(ii) resignation by the Executive for Good Reason, or
(iii) expiration of the Employment Period,
then the Company (A) shall continue to pay the Executive's Base Salary
throughout the Employment Period or for two years, whichever is less, (B)
shall pay to the executive (i) the difference between $480,000.00 and the
amount of the Guaranteed Incentive Award already paid to him, if any, and
(ii) any other amount which he is entitled to receive under the Incentive
Plan, and (C) shall pay to the Executive an additional amount that is equal
to (i) two years of Base Salary,
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(ii) minus the amount, if any, of the Executive's vested retirement benefits
under the Company's Retirement Savings Plus Plan as it is then in effect,
which amount the Company shall pay to the Executive in equal monthly
installments.
(c) If the Executives's employment hereunder ends by reason of the
Executive's death, then the Company shall pay to the Executive's wife an amount
equal to the total of (i) six months of Base Salary, plus (ii) the Guaranteed
Incentive Award, if any.
(d) If the Executive's employment hereunder ends by reason of:
(i) resignation by the Executive for Good Reason,
(ii) termination by the Company without cause,
(iii) the Executive's death or disability, or
(iv) expiration of the Employment Period,
then the Company shall pay to the Executive (or to his estate) an amount equal
to the total of (i) the difference, if any, between the actual cost of his
residence in the Twin Cities metropolitan area and the actual price at which the
Executive (or his estate) sells such residence, assuming that the actual selling
price is at least equal to the appraised fair market value of such residence,
and (ii) the actual cost of moving the household goods and personal effects of
the Executive and his wife from Maryland to the Twin Cities metropolitan area
previously paid to the Executive pursuant to SECTION 4(F)(V) hereof, adjusted
for inflation, if any, since the time of such payment according to a standard
cost-of-living index.
(e) "Termination by the Company For Cause" shall mean termination for:
(i) an act or acts of dishonesty undertaken by the Executive and
intended to result in substantial gain or personal enrichment of the
Executive at the expense of the Company,
(ii) persistent failure to perform the duties and obligations of the
Executive's employment which are demonstrably willful and deliberate on the
Executive's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Company, or
(iii) the conviction of the Executive of a felony.
(f) "Good Reason" for resignation by the Executive shall mean resignation
because of:
(i) the removal of the Executive as Chairman or Chief Executive Officer
of the Company by action of the Company's Board of Directors;
(ii) a "Change of Control" as defined in the Cray Research, Inc.
Executives Severance Compensation Plan (the "Severance Plan") that results
either in removal of the Executive as Chairman or Chief Executive Officer of
the Company;
(iii) any reason that would constitute "good reason" for termination
under the Severance Plan regardless of whether or not there has been a
Change of Control; or
(iv) a lapse of coverage under or determination by the Audit Committee of
the Board of Directors of the Company pursuant to SECTION 7 hereof of that
the Company has failed to maintain and is unable to obtain within 60 days
after such determination directors' and officers' liability insurance
satisfactory to the Audit Committee.
(g) In the event of termination of the Executive's employment, the sole
obligation of the Company shall be its obligation to make the payments called
for by SECTION 6(A), SECTION 6(B), SECTION 6(C), or SECTION 6(D) hereof, as the
case may be, and the Company shall have no other obligation to the Executive or
to his wife or his estate, except as otherwise provided by law, under the Stock
Option Agreement or the Restricted Stock Option Agreement or, in the event of
termination by reason of the Executive's death or disability, under insurance
policies then in effect. Without limiting the generality
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of the foregoing, the Company shall not be required to make any payments under
the Incentive Plan except to the extent provided in the Incentive Plan (as
modified by SECTION 3(B) hereof) with respect to plan years completed as of the
Termination Date.
(h) "Disability" means the inability of the Executive to perform the
Executive's duties hereunder by reason of illness or other physical or mental
impairment or condition, if such inability continues for an uninterrupted period
of 90 days or more. A period of inability shall be "uninterrupted" unless and
until the Executive returns to full-time work for a continuous period of at
least 30 days.
(i) Notwithstanding the foregoing provisions of this SECTION 6, if the
Executive's employment with the Company terminates after a "Change of Control"
as defined in the Severance Plan, then the Executive shall be entitled to
receive from the Company as a result of such employment termination the greater
of the amount provided under SECTION 6(B) hereof or under such Severance Plan.
Notwithstanding the provisions of the Severance Plan, in the event that a Change
of Control occurs before the Executive has completed six months of continuous
employment with the Company, the amount to which the Executive shall be entitled
under the Severance Plan shall be determined, without reduction as otherwise
provided for under Section 4.3(b) of the Severance Plan, and "Cash Compensation"
as defined in the Severance Plan shall include the Guaranteed Incentive Award
provided in SECTION 3(B) hereof without regard to the actual date of the
Executive's employment termination.
7. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
While the Executive is employed by the Company hereunder, the Audit
Committee of the Board of Directors of the Company shall review at least once
per year the Company's directors' and officers' liability insurance coverage to
determine whether the coverage is satisfactory to the Audit Committee. If, as a
result of such review, the Audit Committee concludes that such coverage is not
satisfactory, then the Company will take such steps as may be reasonable to
obtain coverage satisfactory to the Audit Committee, and if the Company is
unable to do so at a reasonable cost and within 60 days after such conclusion,
then the Audit Committee shall promptly so advise the Executive in writing.
8. CERTAIN COVENANTS OF THE EXECUTIVE
(a) As used in this SECTION 8, "Company" shall include the Company and each
corporation, partnership, and other entity which controls the Company, is
controlled by the Company, or is under common control with the Company (in each
case "control" meaning the direct or indirect ownership of 50 percent or more of
all outstanding equity interests).
(b) The Executive hereby agrees that, while the Executive is employed by the
Company, until the first anniversary of the Employment Period if the Executive's
employment ends at that time, or until the first anniversary of the Termination
Date if the Executive's employment ends as a result of one of the reasons set
forth in SECTIONS 6(A) AND (B) hereof, the Executive shall not, directly or
indirectly:
(i) own, operate, invest in, lend money to, be employed by, consult
with, render services to, act as agent, officer, or director for, or acquire
or hold any interest in (A) any computer business or other business of any
nature which competes with any business owned or operated by the Company; or
(B) any corporation, partnership, association, or other entity of any nature
which owns, operates, or has an interest in any such computer or other
competing business (except that nothing herein shall prohibit the Executive
from owning not more than 1.0 percent of the outstanding shares of any class
of stock of a corporation if such class of stock is regularly traded on a
recognized national securities exchange);
(ii) employ or attempt to employ any director, officer, or employee of
the Company, or otherwise interfere with or disrupt any employment
relationship (contractual or other) of the Company;
(iii) solicit, request, advise, or induce any present or potential
customer, supplier, or other business contact of the Company to cancel,
curtail, or otherwise change its relationship with the Company; or
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<PAGE>
(iv) publicly criticize or disparage in any manner or by any means the
Company, or any aspect of its management, policies, operations, products,
services, practices, or personnel thereof.
(c) The Executive hereby acknowledges and agrees that all non-public
information and data of the Company, including without limitation that related
to product and service formulation, customers, pricing, sales, and financial
results (collectively "Trade Secrets") are of substantial value to the Company,
provide it with a substantial competitive advantage in its business, and are and
have been maintained in the strictest confidence as trade secrets. Except as
otherwise approved in writing in advance by the Chair of the Executive Committee
of the Board of Directors of the Company, the Executive shall not at any time
divulge, furnish, or make accessible to anyone (other than the Company and its
directors and officers) any Trade Secrets.
(d) The Executive hereby specifically acknowledges and agrees that this
SECTION 8 and each provision hereof are reasonable and necessary to ensure that
the Company receives the expected benefits of this Agreement and that violation
of this SECTION 8 will harm the Company to such an extent that monetary damages
alone would be an inadequate remedy. Therefore, in the event of any violation by
the Executive of any provision of this SECTION 8, the Company shall be entitled
to an injunction (in addition to all other remedies it may have) restraining the
Executive from committing or continuing such violation. If any provision or
application of this SECTION 8 is held unlawful or unenforceable in any respect,
then this SECTION 8 shall be revised or applied in a manner that renders it
lawful and enforceable to the fullest extent possible.
9. NO VIOLATION OF OTHER AGREEMENTS
The Executive hereby represents and agrees that neither (a) the Executive's
entering into this Agreement nor (b) the Executive's carrying out the provisions
of this Agreement, shall violate any other agreement (oral or written) to which
Executive is a party or by which Executive is bound.
10. SUCCESSORS AND ASSIGNS
This Agreement is binding on the Executive and on the Company and its
successors and assigns. The rights and obligations of the Company under this
Agreement may be assigned to a successor. No rights or obligations of the
Executive hereunder may be assigned by the Executive to any other person or
entity.
11. SEPARATE REPRESENTATION
The Executive hereby acknowledges that the Executive has sought and received
independent advice from counsel of the Executive's own selection in connection
with this Agreement and has not relied to any extent on any officer, director,
or shareholder of, or counsel to, the Company in deciding to enter into this
Agreement.
12. GOVERNING LAW
This Agreement shall be construed under and governed by the laws of the
State of Minnesota.
13. SEVERABILITY
Each section and provision of this Agreement shall be considered severable
and any invalidity of any provision shall not render invalid or impair to any
extent any other section or provision hereof.
14. WITHHOLDING OF TAXES, ETC.
All payments to the Executive hereunder are subject to withholding of income
and employment taxes and all other amounts required by law.
15. ARBITRATION
If any dispute arises between the parties with respect to the application,
interpretation, or termination of this Agreement (excluding any dispute that
gives the Company the right to seek injunctive relief against the Executive
pursuant to SECTION 8 hereof), then such dispute shall be submitted to
arbitration for resolution. The arbitrator shall be selected and the arbitration
shall be
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conducted pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association ("AAA") (effective January 1, 1993). Any request for
arbitration must me made in writing by the party seeking arbitration and must be
delivered by hand or sent by registered or certified mail, return receipt
requested, postage prepaid, to both the other party and the AAA within 90 days
after the date on which the dispute between the parties first arose. The
decision of the arbitrator regarding any such dispute shall be final and binding
on both parties, and any court of competent jurisdiction may enter judgment upon
the award. In the event any dispute is arbitrated or the Company seeks
injunctive relief, the prevailing party shall be reimbursed by the other party
for any costs of the proceeding charged to such party, including reasonable
attorneys' fees and costs.
16. NOTICES
All notices hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or send by registered or certified mail, return
receipt requested, postage prepaid, to the party to receive the same at the
address set forth with the signature of such party hereto or at such other
address as may have been furnished to the sender by notice hereunder. All
notices shall be deemed given on the date on which delivered or, if mailed, on
the date postmarked.
17. MISCELLANEOUS
This Agreement contains the entire understandings of the parties hereto with
respect to the employment of the Executive by the Company, and no provision
hereof may be altered, amended, modified, waived, or discharged in any way
whatsoever except by written agreement executed by both parties. No delay or
failure of either party to insist, in any one or more instances, upon
performance of any of the terms and conditions of this Agreement or to exercise
any rights or remedies hereunder shall constitute a waiver or a relinquishment
of such rights or remedies or any other rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date and year first above written.
<TABLE>
<S> <C>
J. PHILLIP SAMPER CRAY RESEARCH, INC.
804 Robin Hood Hill 655A Lone Oak Drive
Sherwood Forest, MD 21405 Eagan, MN 55121
/s/ J. PHILLIP SAMPER By: /s/ PHILIP G. HEASLEY
------------------------------------------- ----------------------------------------
J. Phillip Samper Philip G. Heasley
MEMBER OF THE BOARD OF DIRECTORS
CRAY RESEARCH, INC.
</TABLE>
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CRAY RESEARCH, INC.
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made this 17th day of May, 1995, by and between CRAY
RESEARCH, INC., a Delaware corporation (the "Company") and J. Phillip Samper
("Employee").
The Cray Research, Inc. 1989 Employee Benefit Stock Plan (the "Plan")
permits the Company to award shares of its Common Stock to the Employee on the
restricted basis set forth herein.
Accordingly, in consideration of the agreements hereinafter set forth, the
parties hereto hereby agree as follows:
1. AWARD OF RESTRICTED STOCK
The Company hereby awards to the Employee 200,000 shares of its Common
Stock, subject to the restrictions set forth in the Plan and herein (the
"Restricted Stock"). Upon satisfaction of the conditions for the termination of
the restrictions set forth in the Plan and herein, the restrictions shall lapse
and the Restricted Stock shall vest in the Employee free of any restrictions. In
the event the conditions for the termination of such restrictions are not
satisfied, the Restricted Stock shall be forfeited to the Company and shall be
surrendered to and canceled by the Company.
2. VESTING AND FORFEITURE
(a) The Restricted Stock shall vest in the Employee free of the restrictions
in the Plan and herein at the end of the applicable period (the "Restricted
Period") set forth in Section 3 hereof and upon satisfaction of the conditions
for release or lapse of other restrictions contained in the Plan or herein. In
the event that the conditions for release or lapse of the restrictions are not
satisfied with respect to any shares of Restricted stock, such shares shall be
forfeited, and all rights of the Employee in such shares of Restricted Stock
(and to other securities and other property, other than cash dividends,
distributed with respect to such shares) shall terminate.
(b) Upon satisfaction of the conditions for release of restrictions
applicable to any shares of Restricted Stock, the Company shall issue a
certificate representing such shares and deliver the certificate to the Employee
free of any restriction, subject to any applicable federal or state securities
laws or other laws.
3. RESTRICTIONS
The Restricted Stock shall be forfeited to the Company in the event and to
the extent that such Restricted Stock does not vest in accordance with Exhibit A
hereto.
4. GENERAL CONDITIONS APPLICABLE TO RESTRICTED STOCK
(a) Shares of Restricted Stock may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of until the shares vest and are
issued free of any restriction.
(b) A certificate or certificates evidencing the shares of Restricted Stock
awarded hereby shall be prepared and registered in the name of the Employee but
shall be held in the custody of the Company until the conditions for the
termination of restrictions thereon are satisfied. Prior to issuance of any
shares of the Restricted Stock, Employee shall deliver to the Company a stock
power or stock powers endorsed in blank relating to the Restricted Stock
sufficient to permit the Company to transfer the Restricted Stock to it or to
cancel the Restricted Stock. Certificates issued with respect to the Restricted
Stock shall bear a restrictive legend in substantially the following form:
The transferability of this certificate and the shares represented
hereby are subject to the terms and conditions (including forfeiture)
contained in the Cray Research, Inc. 1989 Employee Benefit Stock Plan
and a Restricted Stock Agreement entered into
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between the registered owner and Cray Research, Inc. Copies of such
Plan and Agreement are on file in the offices of Corporate Secretary
of Cray Research, Inc. The shares represented by this certificate may
not be sold, exchanged, transferred, pledged or otherwise disposed of
without the prior written consent of the Company.
When any shares of Restricted Stock vest and are to be issued free of any
restrictions, the Employee's certificate(s) being held by the Company evidencing
such shares shall be delivered to the Employee and the above restrictive legend
shall be removed therefrom subject only to such further restrictive legend, if
any, as may be required under the then applicable securities laws.
(c) Any additional shares of Common Stock or other securities or property
issued in respect of outstanding Restricted Stock shall be issued subject to the
same restrictions applicable to the Restricted Stock in respect of which they
are issued.
(d) In the event of forfeiture of any Restricted Stock, any additional
shares of Common Stock or other securities or property (other than cash
dividends) distributed with respect to such Restricted Stock shall be forfeited
as well and the Company shall be entitled to have any and all certificates and
other instruments evidencing such Restricted Stock and other securities and
property transferred to it or canceled.
(e) If, prior to vesting of Restricted Stock in accordance with the above
performance goals or forfeiture thereof, a Change of Control (as defined in the
Plan) of the Company occurs which, in the opinion of the Company's independent
certified public accountants may not be accounted for under generally accepted
accounting principles as a "pooling of interests", then, effective upon the
Change of Control Date (as so defined), all Restricted Stock shall vest
immediately. The committee of the Board of Directors of the Company that
administers the Plan may make such provision as it deems equitable respecting
the continuance of the restrictions contained herein on any Restricted Stock
held by the employee during an approved leave of absence.
5. RIGHTS OF A STOCKHOLDER
The Employee shall have all of the rights and privileges of a stockholder
and owner as of the date on which the Restricted Stock is awarded, including (i)
the right to vote the Restricted Stock and (ii) the right to receive all
dividends or other distributions paid or made with respect to the Restricted
Stock; provided, however, that all distributions with respect to Restricted
Stock (with the exception of cash dividends) shall be deposited with the Company
and shall be subject to forfeiture in accordance with the Plan and this
Agreement to the same extent as the Restricted Stock in respect of which such
distributions were made.
6. MISCELLANEOUS
(a) The Restricted Stock is awarded pursuant to the Plan and is subject to
its terms. A copy of the Plan is available to the Employee upon request.
(b) This Agreement shall not confer on the Employee any right with respect
to continuance of employment at any time.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first set forth above.
CRAY RESEARCH, INC.
By /s/ PHILIP G. HEASLEY
--------------------------------------
Its Director
--------------------------------------
EMPLOYEE
/s/ J. PHILLIP
SAMPER
--------------------------------------
Signature Date
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EXHIBIT A
VESTING OF RESTRICTED STOCK
(1) Subject to paragraph 2 below, the 200,000 shares of Restricted Stock
issued pursuant to the Restricted Stock Agreement between the Company and J.
Phillip Samper (the "Employee") shall vest as follows:
(a) At any time that the Fair Market Value (as hereinafter defined) of a
share of Common Stock of the Company (a "Share") equals or exceeds $25.00,
50,000 shares of Restricted Stock will vest.
(b) At any time that the Fair Market Value of a Share equals or exceeds
$30.00, an additional 50,000 shares of Restricted Stock will vest.
(c) At any time that the Fair Market Value of a Share equals or exceeds
$37.50, an additional 50,000 shares of Restricted Stock will vest.
(d) At any time that the Fair Market Value of a Share equals or exceeds
$45.00, the remaining 50,000 shares of Restricted Stock will vest.
If the Shares are affected by recapitalization, merger, consolidation,
reorganization, stock dividend, stock split or other change in
capitalization then the target Fair Market Values set forth above shall be
appropriately adjusted by the committee of the Board of Directors of the
Company that administers the Plan.
2. Notwithstanding the foregoing:
(a) if Employee's employment with the Company is terminated by reason of
Employee's death, disability or termination without cause or for good reason
(each as defined in the Employment Agreement), then any shares of Restricted
Stock that do not vest prior to the first anniversary of such termination of
employment will be forfeited to the Company; and
(b) if Employee's employment with the Company is terminated for any
reason other than Employee's death, disability or termination without cause
or for good reason (each as defined in the Employment Agreement), then any
shares of Restricted Stock that have not previously vested will be forfeited
to the Company.
3. For purposes hereof:
(a) "Fair Market Value" as of any date means: (i) the average closing
price of a Share on the composite tape for New York Stock Exchange ("NYSE")
listed shares, or, if the Shares are not quoted on the NYSE composite tape,
on the principle United States Securities Exchange on which the Shares are
listed, in either case during the twenty trading days preceding that date,
or (ii) if subparagraph (i) is not applicable, what the committee
administering the Plan determines in good faith to be 100% of the Fair
Market Value of a Share on that date.
(b) "Disability" has the meaning given it in Section 6(h) of the
Employment Agreement.
1
<PAGE>
CRAY RESEARCH, INC.
1989 NONSTATUTORY OPTION AGREEMENT
CRAY RESEARCH, INC., a Delaware corporation (the "Company"), pursuant to the
1989 Employee Benefit Stock Plan of the Company (the "Plan"), and in
consideration of services to be rendered to the Company or its subsidiaries by
J. Phillip Samper (the "Employee"), grants to the Employee a nonstatutory option
to purchase 300,000 shares of the Company's Common Stock (the "Shares") at a
price of $19.875 per share (the "Purchase Price"), all on the following terms
and conditions.
1. The Employee may exercise this nonstatutory option on a cumulative basis
at any time after May 16, 1996 (one year after the date of grant) and prior to
May 17, 2005 (ten years after the date of grant), subject to prior termination
or modification or acceleration of vesting as herein provided, in whole or in
part with respect to the following:
(a) 50% of the Shares one year after the date of grant; and
(b) the remaining 50% of the Shares two years after the date of grant.
2. This nonstatutory option shall not be transferable by the Employee,
except by will or the laws of descent and distribution and, during the
Employee's life, shall be exercisable only by the Employee and only while and if
the Employee is continuously employed by the Company or a subsidiary of the
Company, except as provided in Section 4 of this Agreement.
3. This nonstatutory option may be exercised in whole or in part, from time
to time, by delivery to the Company of a written notice specifying the number of
Shares desired to be purchased and accompanied by full payment to the Company of
the Purchase Price, at the election of the Employee, in cash and/or by deliver
of certificate(s) duly endorsed for transfer, in shares of the Company's Common
Stock already owned by the Employee, or by delivery of a notice of exercise of
the option and simultaneous sale of the shares of Common Stock thereby acquired
pursuant to a brokerage or similar arrangement approved by the Company, using
the proceeds from the sale as payment of the Purchase Price. Any shares endorsed
and delivered to the Company in payment of the Purchase Price shall be valued at
the closing price for the Common Stock on the New York Stock Exchange (or other
appropriate market price) on the last business day preceding such exercise date
on which there were sales. Any fractional share not required for payment of the
Purchase Price shall be paid for by the Company in cash on the basis of the same
value utilized for such exercise.
4. In the event that the Employee's employment with the Company and its
subsidiaries is terminated by reason of death, disability or retirement (as
defined below), this nonstatutory stock option, to the extent not previously
exercised, shall become immediately exercisable in full without regard to the
percentage limitations set forth in Section 1(a) through (d) above as follows:
(a) DEATH -- at any time by the Employee's estate prior to expiration of
the term of the option specified in Section 1;
(b) DISABILITY -- within one year after termination of employment
because of disability; provided, however, that the option must be exercised
prior to the expiration of the term of the option; and
(c) RETIREMENT -- within two years after termination of employment;
provided, however, that the option must be exercised prior to the expiration
of the term of the option.
If employment is terminated for any other reason, the unexercised portion of
this nonstatutory stock option shall expire. For purposes of this Agreement:
"retirement" shall mean termination of Employee's employment under that
certain Employment Agreement, dated May 17, 1995 (the "Employment
Agreement"), between the Company and Employee either (i) by the Company
without cause (cause being defined in Section 6(e) of the Employment
Agreement), (ii) by the
1
<PAGE>
Employee for good reason (good reason being defined in Section 6(f) of the
Employment Agreement), or (iii) by reason of the expiration of the
Employment Period (Employment Period being defined in Section 1 of the
Employment Agreement); and "disability" shall have the meaning given it in
Section 6(h) of the Employment Agreement.
5. Unless the issuance of the Shares purchased upon the exercise of this
nonstatutory option is registered with federal and state regulatory authorities,
or is determined by counsel for the Company to be exempt from such registration,
the Employee shall be required to give an investment representation in
connection with such exercise and purchase, and transfer of the Shares received
shall be appropriately restricted and requisite legends placed upon certificates
of the Shares.
6. If prior to the expiration of this nonstatutory option, the Shares then
subject to this nonstatutory option shall be affected by any recapitalization,
merger, consolidation, reorganization, stock dividend, stock split, or other
change in capitalization affecting the present Common Stock of the Company, then
the number and kind of shares covered by this Agreement, and the Purchase Price
per share, shall be appropriately adjusted by the Compensation Committee, as it
may deem necessary to prevent dilution or enlargement of rights which might
otherwise result.
7. If a Charge of Control of the Company occurs which, in the opinion of
the Company's independent certified public accountants may not be accounted for
under generally accepted accounting principles as a "pooling of interests", then
from and after the "Change of Control Date" all options outstanding hereunder
shall be immediately exercisable in full, notwithstanding the provisions of
paragraph 1. The terms "Change of Control" and "Change of Control Date" shall
have the meanings given to such terms in the Plan.
8. It is intended that the Plan and this nonstatutory option comply and be
interpreted in accordance with Rule 16b-3 under the Securities Exchange Act of
1934, as amended. The provisions of the Plan pertaining to nonstatutory options,
to the extent not set forth in this Agreement, are incorporated by reference.
IN WITNESS WHEREOF, this Nonstatutory Stock Option Agreement is hereby
executed as of May 17, 1995 (date of grant).
CRAY RESEARCH, INC.
By /s/ PHILIP G. HEASLEY
--------------------------------------
Company Representative Signature
/s/ J. PHILLIP SAMPER
--------------------------------------
Employee Signature
2
<PAGE>
EXHIBIT 4
Since December 31, 1995, the Compensation and Development Committee of the
Board of Directors granted nonqualified stock options and restricted stock to
its executive officers in the amounts set forth below. All such options were
granted pursuant to the Cray Research, Inc. 1989 Employee Benefit Stock Plan.
OPTIONS
<TABLE>
<CAPTION>
EXERCISE
PRICE PER DATE OF
NAME SHARE GRANT AMOUNT
- - - ------------------------------------- ------------- --------- ---------
<S> <C> <C> <C>
J. Phillip Samper.................... $ 25.50 2/6/96 100,000
Robert H. Ewald...................... $ 25.50 2/6/96 50,000
Irene M. Qualters.................... $ 25.50 2/6/96 30,000
Laurence L. Betterley................ $ 25.50 2/6/96 30,000
Michael R. Dungworth................. $ 25.50 2/6/96 30,000
Steven E. Snyder..................... $ 25.50 2/6/96 8,000
</TABLE>
RESTRICTED STOCK
<TABLE>
<CAPTION>
DATE OF
NAME GRANT AMOUNT
- - - ----------------------------------------------------- --------- ---------
<S> <C> <C>
Irene M. Qualters.................................... 1/2/96 23,420
Laurence L. Betterley................................ 1/8/96 8,900
Steven E. Snyder..................................... 2/6/96 5,000
</TABLE>
<PAGE>
EXHIBIT 5
CONFIDENTIALITY AGREEMENT
December 15, 1995
Cray Research, Inc.
655 Lone Oak Drive
Eagan, MN 55121
Ladies and Gentlemen:
In connection with our consideration of a possible transaction (the
"Proposed Transaction") between Cray Research, Inc. (the "Company") and Silicon
Graphics, Inc. ("SGI"), each of us expects to make available to the other
certain non-public information about its respective properties, employees,
finances, businesses and operations. As a condition to such information being
furnished by one of us (the "Disclosing Party") to the other (the "Receiving
Party") and its directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys and accountants)
or agents (collectively, "Representatives"), the Receiving Party agrees to treat
any non-public information (whether written or oral) concerning the Disclosing
Party (whether prepared by the Disclosing Party, its Representatives or
otherwise) furnished to it or to its Representatives now or in the future by or
on behalf of the Disclosing Party for the purpose of evaluating the Proposed
Transaction including, without limitation, all copies thereof and all documents
and other information prepared by the Receiving Party or its Representatives
which contain or reflect or are generated from this information (collectively
referred to as the "Information") in accordance with the provisions of this
letter agreement, and to take or abstain from taking certain other actions set
forth below.
The term Information does not include, however, information that (a) is or
becomes available to the public other than as a result of a disclosure by the
Receiving Party or its Representatives, (b) was available to the Receiving Party
on a non-confidential basis (other than from a person prohibited from disclosing
such information to the Receiving Party or its Representatives by a legal,
contractual or fiduciary obligation to the Disclosing Party with regard to such
information) prior to this information being furnished by or on behalf of the
Disclosing Party, (c) is or becomes available to the Receiving Party on a
non-confidential basis from a source other than the Disclosing Party or any of
its Representatives or from a source which is prohibited from disclosing such
information to the Receiving Party or its Representatives by a legal,
contractual or fiduciary obligation to the Disclosing Party or any other person
with respect to such information, (d) is disclosed by the Disclosing Party to a
third party without a duty of confidentially, (e) is developed independently by
the Receiving Party without use or benefit of the Information (the parties
acknowledging that each is actively engaged in research and development programs
in similar areas), (f) is disclosed under operation of law, or (g) is disclosed
by the Receiving Party or its Representatives with the Disclosing Party's prior
written permission.
By signing this letter, we and you mutually agree that:
1. Except as required by law, regulating or legal process, the Receiving
Party will keep the Information confidential, will not without the Disclosing
Party's prior written consent disclose or reveal any of the Disclosing Party's
Information to any person other than its Representatives who need to know that
specific portion of the Information for the purpose of evaluating or negotiating
the Proposed Transaction, and will cause those persons to observe the terms of
this letter agreement. The Receiving Party will be responsible for any breach of
this letter agreement by any of its Representatives. In the event that the
Receiving Party or any of its Representatives is requested pursuant to, or is
required by, applicable law, regulation or legal process to disclose any of the
Disclosing Party's Information, the party requested or required to make the
disclosure will notify the other party promptly to enable it to seek an
appropriate protective order or other remedy, and, in the event that no such
order or remedy is obtained, to consult about taking all responsible steps to
resist or narrow the scope of such request or legal process, or, in the sole
discretion of the Disclosing Party, to waive compliance, in whole or in part,
with the terms of this letter agreement, and in such circumstances, the
Receiving Party and its Representatives agree to furnish only that portion of
the Information which it is advised by legal counsel is legally required and to
exercise all reasonable efforts to obtain a
<PAGE>
reliable assurance that confidential treatment will be accorded the Information.
Without prejudice to the foregoing, the parties hereto agree to use all
reasonable efforts to agree on the content and timing of any such disclosure of
Information.
2. Each party agrees that it and its Representatives will not use the
other's Information for any purpose other than in connection with the evaluation
or consummation of the Proposed Transaction.
3. In addition, each party agrees that, without the prior written consent
of the other party, neither it nor its Representatives will disclose to any
person any information about the Proposed Transaction, including without
limitation, (a) that the Information exists or has been made available, (b) that
SGI and the Company are considering the Proposed Transaction, (c) that
discussions or negotiations are taking or have taken place concerning the
Proposed Transaction or involving the Company, or (d) any term, condition or
other fact relating to the Proposed Transaction or such discussions or
negotiations (including the status thereof): PROVIDED that a party may make such
disclosure if in the written opinion of outside legal counsel, such disclosure
is necessary to avoid committing a violation of law. In such event, the party
disclosing the information described in this paragraph 3 will use its best
efforts promptly to give advance notice to the other party and to follow the
procedures set forth in paragraph 1 above.
4. If either party determines that it does not wish to proceed with the
Proposed Transaction, it will promptly advise the other party of that decision.
In such case, or if requested by the Disclosing Party for any reason, each
Receiving Party will, at its own expense, promptly return to the Disclosing
Party or destroy all copies of the Disclosing Party's Information in its
possession or the possession of any of its Representatives and will not retain
any copies or other reproductions of all or part of such material, except that
(i) if a legal proceeding has been instituted to seek disclosure of the
Information, such material shall not be destroyed until the proceeding is
settled or a final judgement has been rendered, and (ii) one copy of any item of
written Information may be retained by legal counsel for record retention
purposes only. Each Receiving Party shall on request confirm to the Disclosing
Party such return or destruction of the Information in writing.
5. Each party agrees that, until the earlier of nine months from the date
of this letter or the public announcement of a proposed transaction to acquire
51% or more of the voting securities of the Company, it will not solicit for
employment any employee of the other party with whom it had direct contact in
the course of considering and negotiating the Proposed Transaction.
6. Each Party is aware, and will advise its Representatives who are
informed of the matters that are the subject of this letter agreement, of the
restrictions imposed by applicable securities laws on the purchase or sale of
securities by any person who has received material, non-public information from
the issuer of such securities and on the communication of such information to
any other person when it is reasonably foreseeable that such other person is
likely to purchase or sell such securities in reliance on such information.
7. Each party acknowledges that neither party nor any of its
Representatives makes any express or implied representation or warranty as to
the accuracy or completeness of the Information made available by it. Each party
agrees that neither party nor any of its Representatives will have any liability
to the other party or to any of its Representatives relating to or arising from
the use of or reliance on the Disclosing Party's Information or for any errors
therein or omissions therefrom. Only those representations and warranties
included in a definitive agreement with respect to the Proposed Transaction,
when, as and if executed, will have any legal effect, subject to the terms and
conditions of such agreement.
8. Without prejudice to the rights and remedies otherwise available to each
party to this letter agreement, each party will be entitled to equitable relief
by way of injunction or otherwise without proof of actual damages if the other
party or any of its Representatives breach or threatens to breach or threatens
to breach any of the provisions of this letter agreement. In the event of
litigation relating to this letter agreement, if a court of competent
jurisdiction determines in a final order from which
2
<PAGE>
there is no appeal that this letter agreement has been breached by a party or by
its Representatives, the breaching party will reimburse the non-breaching party
for its costs and expenses (including, without limitation, legal fees and
expenses) incurred in connection with such litigation.
9. It is further agreed that no failure or delay by either party exercising
any right, power or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
10. This letter agreement will be governed by and construed in accordance
with the laws of the State of New York applicable to contracts executed in and
to be performed in that state.
11. This letter agreement contains the entire agreement between the Company
and SGI concerning the subject matter hereof, and no modification of this letter
agreement or waiver of the terms and conditions hereof will be binding upon
either party, unless approved in writing by each party.
Please confirm your agreement with the foregoing by signing and returning to
the undersigned the enclosed copy of this letter.
Sincerely,
SILICON GRAPHICS, INC.
/s/ WILLIAM M. KELLY
--------------------------------------
William M. Kelly
VICE PRESIDENT, BUSINESS
DEVELOPMENT AND GENERAL COUNSEL
Accepted and Agreed as of
the date first written above:
CRAY RESEARCH, INC.
/s/ ROBERT H. EWALD
- - - --------------------------------------
Name: Robert H. Ewald
Title: PRESIDENT & CEO
3
<PAGE>
EXHIBIT 6
[CRAY RESEARCH, INC. LETTERHEAD]
<TABLE>
<S> <C>
[LOGO] 655F Lone Oak Drive
Eagan, MN 55121
</TABLE>
February 29, 1996
Dear Stockholder:
On behalf of the Board of Directors of Cray Research, Inc. ("Cray"), I am
pleased to inform you that on February 25, 1996 Cray entered into an Agreement
and Plan of Merger with Silicon Graphics, Inc. ("Parent") and C Acquisition
Corporation, a wholly-owned subsidiary of Parent ("Purchaser"), pursuant to
which Purchaser has commenced today a tender offer to purchase 19,218,735 shares
of Cray's common stock at $30.00 per share in cash (the "Offer"). Following the
completion of the Offer, upon the terms and subject to the conditions of the
Merger Agreement, Purchaser will be merged into Cray and each of the shares not
owned by Parent or its affiliates or by any dissenting stockholders will be
converted into the right to receive one share of common stock of Parent (the
"Merger"). However, if fewer than 19,218,735 shares are tendered and purchased
for cash pursuant to the Offer, then each share of 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 Parent 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.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO CRAY'S STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES OF CRAY COMMON STOCK PURSUANT TO THE
OFFER.
In arriving at its decision, your Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9
that is being filed with the Securities and Exchange Commission. Among other
things, your Board considered the opinion of its financial advisor, Salomon
Brothers Inc, that the consideration to be received pursuant to the Offer and
Merger is fair, from a financial point of view, to the stockholders of Cray. The
enclosed Schedule 14D-9 describes the Board's decision and contains other
important financial information relating to that decision. We urge you to read
it carefully.
Accompanying this letter, in addition to the Schedule 14D-9 and the
financial advisor's fairness opinion, is the Offer to Purchase, together with
related materials including a letter of transmittal for use in tendering shares.
These documents set forth the terms and conditions of the Offer and provide
instructions as to how to tender your shares. We urge you to read the enclosed
materials carefully and consider all factors set forth therein before making
your decision with respect to the Offer.
I, personally, along with the entire Board of Directors, management and
employees of Cray thank you for your loyal support throughout the years.
Sincerely,
/s/ J. Phillip Samper
[LOGO]
J. Phillip Samper
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT (A)(8)
SILICON GRAPHICS AND CRAY
RESEARCH ANNOUNCE MERGER
AGREEMENT
UNION OF HIGH-END AND DEPLOYABLE SUPERCOMPUTING TECHNOLOGIES ALLOWS
INCREASED FOCUS ON INNOVATION FOR HIGH-VOLUME MARKET OPPORTUNITIES
NEW YORK, NY (Feb. 26, 1996) -- Silicon Graphics, Inc. (NYSE:SGI) and Cray
Research, Inc. (NYSE:CYR) today announced that they have entered into a merger
agreement, pursuant to which Silicon Graphics will acquire the outstanding
shares of Cray Research. The combined organizations will unite Silicon Graphics'
commitment to scalable, deployable supercomputing and 3D visualization with
Cray's global leadership in large-scale supercomputing. The two companies have a
combined revenue run rate of nearly $4 billion.
"The combination of Silicon Graphics and Cray Research will create the
world's leading high-performance computing company," said Edward R. McCracken,
chairman and CEO of Silicon Graphics, Inc. "The two companies share not only a
passion for innovation but also a remarkably similar architectural vision for
the future of high-performance computing. The acquisition of Cray will be
instrumental in expanding our scalable architecture from high-volume, low-cost
desktops to teraflops, while retaining the unequaled brand equity established by
Cray as the worldwide gold standard for supercomputing solutions."
Cray Research is a recognized leader for its technology, its people and its
strong customer base. With the introduction of a string of landmark systems, the
company has created the category of supercomputing, representing the ultimate in
performance for the scientific and engineering community.
Over the past 18 months, Cray Research has structured and refocused its
business on the most demanding segments of the high-performance computing
market. With the introduction of powerful new products like the CRAY T90
parallel vector system and the CRAY T3D and CRAY T3E highly scalable products,
Cray Research returned to profitability in the quarter ending December 31, 1995,
and closed that quarter with an all-time, high year-end backlog of $437 million.
Silicon Graphics is continuing to revolutionize high-performance computing
among systems priced at less than $1 million by leveraging its open CMOS-based
MIPS-Registered Trademark- RISC-Registered Trademark- microprocessor technology
into its POWER CHALLENGE family of shared memory multiprocessor supercomputing
systems.
"Cray's performance portfolio and reputation, combined with Silicon
Graphics' leadership in revolutionizing the entry-level supercomputing market
with deployable solutions, 3D graphics and desktop products, will position the
new organization as the premier supplier of information technology," said J.
Phillip Samper, chairman and CEO of Cray Research, Inc. "The combination of
these two companies will provide not only the world's most powerful computers,
but also the most aggressive price/performance solutions across a broad spectrum
of customer requirements."
The definitive merger agreement has been approved by the Boards of Directors
of Silicon Graphics and Cray Research. Under the terms of the agreement, Silicon
Graphics will make a first step cash tender offer of $30.00 a share for
19,218,735 shares, approximately 75 percent of the outstanding common stock of
Cray Research. The tender offer is expected to commence this week. The offer is
subject to the tender of at least 51 percent of Cray Research's shares on a
fully-diluted basis in the tender offer and to customary conditions, including
required government approvals.
Following completion of the offer, the remaining shares of Cray Research are
expected to be converted at a one to one ratio into Silicon Graphics' stock. If
fewer than 19,218,735 of the shares are purchased in the tender offer, the
remaining Cray Research shareholders will receive a fraction of Silicon Graphics
stock and cash for each share so that the aggregate cash and stock consideration
paid
<PAGE>
in the merger is the same as if the offer had been fully subscribed. The merger
will be accounted for on a purchase accounting basis. The transaction is
expected to be closed in Silicon Graphics' quarter ending in June 1996.
The closing prices for Silicon Graphics and Cray Research common stock on
Friday, February 23, 1996, the last trading day prior to the board meetings to
approve the transaction, were $27.50 and $25.25 respectively.
This news release contains forward looking statements that involve risks and
uncertainties, including the satisfaction of the conditions to the transaction
and the successful integration of Silicon Graphics and Cray Research, and other
risks detailed from time to time in the SEC reports filed by Silicon Graphics
and Cray Research, including the report on Form 10-Q filed by Silicon Graphics
for the quarter ending December 31, 1995, and the report on Form 10-Q filed by
Cray Research for the quarter ended September 30, 1995. Actual results may vary
materially.
Cray Research provides the leading supercomputing tools and services to help
solve customers' most challenging problems. Cray Research, Inc. is headquartered
in Eagan, Minnesota.
Silicon Graphics, Inc. is a leading manufacturer of high-performance and
commercial computing systems. The company delivers interactive three dimensional
graphics, digital media and symmetric multiprocessing supercomputing
technologies to technical and commercial environments through direct and
indirect sales channels. Its subsidiary, MIPS Technologies, Inc. designs and
licenses the industry's leading RISC processor technology for the computer
systems, interactive consumer and embedded control markets. Silicon Graphics,
Inc. has offices worldwide and headquarters in Mountain View, California.
Silicon Graphics and the Silicon Graphics logo are registered trademarks and
POWER CHALLENGE is a trademark of Silicon Graphics, Inc. MIPS and RISC are
registered trademarks of MIPS Technologies, Inc. Cray is a registered trademark
of Cray Research, Inc.
------------------------
Contact:
Jennifer Rothert Piercey (Silicon Graphics, Inc. - Media), 415-933-2019
Marilyn Lattin (Silicon Graphics, Inc. - Financial), 415-933-5070
Steve Conway (Cray Research, Inc. - Media), 612-683-7133
Brad Allen (Cray Research, Inc. - Financial), 612-683-7395
<PAGE>
EXHIBIT 8
[SOLOMON BROTHERS INC LETTERHEAD]
February 25, 1996
Board of Directors
Cray Research, Inc.
655A Lone Oak Drive
Eagan, MN 55121
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, par
value $1.00 per share (the "Company Common Stock"), of Cray Research, Inc. (the
"Company") of the consideration to be received by such holders in the proposed
acquisition of the Company by Silicon Graphics, Inc. ("Acquiror") pursuant to
the Agreement and Plan of Merger (the "Agreement") by and among the Company,
Acquiror and C Acquisition Corporation, a wholly owned subsidiary of Acquiror
("Subco").
As more specifically set forth in the Agreement, Subco will commence a
tender offer (the "Proposed Tender Offer") to purchase up to seventy-five
percent (75%) of the outstanding shares of Company Common Stock for $30.00 per
share in cash, subject to the condition that at least a majority of the
outstanding shares of Company Common Stock be tendered and purchased. Following
consummation of the Proposed Tender Offer, Subco will be merged with and into
the Company (the "Proposed Merger" and, together with the Proposed Tender Offer,
the "Proposed Transaction") and each then outstanding share of Company Common
Stock (other than shares held by Acquiror, Subco or any of their subsidiaries or
shares as to which appraisal rights have been properly exercised under
applicable law) will be converted in the Proposed Merger into the right to
receive one share of common stock of Acquiror (the "Acquiror Common Stock"),
subject to adjustment in the event less than 75% of the outstanding Company
Common Stock is purchased pursuant to the Proposed Tender Offer such that each
such share of Company Common Stock will be converted into the right to receive a
fraction of a share of Acquiror Common Stock plus cash, each in amounts
calculated so that the aggregate number of shares of Acquiror Common Stock and
the aggregate cash paid in the Proposed Tender Offer and the Proposed Merger
shall be the same as would have been paid had 75% of the outstanding Company
Common Stock been purchased in the Proposed Tender Offer.
As you are aware, Salomon Brothers Inc has acted as financial advisor to the
Company in connection with the Proposed Transaction and will receive a fee for
our services, a substantial portion of which is contingent upon consummation of
the Proposed Transaction. In addition, in the ordinary course of our business,
we may actively trade the debt and equity securities of both the Company and
Acquiror for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the final draft of the Agreement; (ii)
certain publicly available information concerning the Company, including the
Annual Reports on Form 10-K of the Company for each of the years in the three
year period ended December 31, 1994 and the Quarterly Reports on Form 10-Q of
the Company for the quarters ended September 30, June 30, and March 31, 1995,
respectively; (iii) certain other internal information, primarily financial in
nature, including projections, concerning the business and operations of the
Company furnished to us by the Company for purposes of our analysis; (iv)
certain publicly available information concerning the trading of, and the
trading market for, the Company Common Stock; (v) certain publicly available
information concerning Acquiror, including the Annual Reports on Form 10-K of
Acquiror for each of the years in the three year period ended June 30, 1995 and
the Quarterly Reports on Form 10-Q of Acquiror for the quarters ended December
31, and September 30, 1995, respectively; (vi) certain other internal
information, primarily financial in nature, including projections, concerning
the business and operations of Acquiror furnished to us by Acquiror for purposes
of our analysis; (vii) certain publicly available information concerning the
trading of, and the trading market for, the Acquiror Common Stock; (viii)
certain
<PAGE>
[LOGO]
publicly available information with respect to certain other companies that we
believe to be comparable to the Company or Acquiror and the trading markets for
certain of such other companies' securities; and (ix) certain publicly available
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant. We have also met with certain
officers and employees of the Company and Acquiror, to discuss the foregoing as
well as other matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. We have not conducted a physical inspection of any of the
properties or facilities of the Company or Acquiror, nor have we made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any such properties or facilities. With respect to
projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgements of the
managements of the Company and Acquiror as to the future financial performances
of the Company and Acquiror and we express no view with respect to such
projections or the assumptions on which they were based.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and Acquiror; (ii) the business prospects of the Company and Acquiror;
(iii) the historical and current market for the Company Common Stock, for the
Acquiror Common Stock and for the equity securities of certain other companies
that we believe to be comparable to the Company or Acquiror; and (iv) the nature
and terms of certain other acquisition transactions that we believe to be
relevant. We have also taken into account our assessment of general economic,
market and financial conditions as well as our experience in connection with
similar transactions and securities valuation generally. We have also considered
the process that resulted in the negotiation of the Proposed Transaction,
including discussions with other potential acquirors. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof and
we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion as
expressed below does not constitute an opinion or imply any conclusion as to the
likely trading range for the Acquiror Common Stock following consummation of the
Proposed Transaction. Our opinion is, in any event, limited to the fairness,
from a financial point of view, of the consideration to be received by the
holders of the Company Common Stock in the Proposed Transaction and does not
address the Company's underlying business decision to effect the Proposed
Transaction or constitute a recommendation to any holder of Company Common Stock
as to whether such holder should tender shares of the Company Common Stock in
the Proposed Tender Offer or as to how such holder should vote with respect to
the Proposed Merger.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that the consideration to be received by the holders of the Company
Common Stock in the Proposed Transaction is fair, from a financial point of
view, to such holders.
Sincerely,
/s/ Solomon Brothers Inc
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SALOMON BROTHERS INC
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