<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SILICON GRAPHICS, INC.
(Exact name of the Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3573 94-2789662
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
2011 NORTH SHORELINE BOULEVARD
MOUNTAIN VIEW, CALIFORNIA 94043-1389
(415) 960-1980
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
WILLIAM M. KELLY
VICE PRESIDENT, BUSINESS DEVELOPMENT, GENERAL COUNSEL AND SECRETARY
SILICON GRAPHICS, INC.
2011 NORTH SHORELINE BOULEVARD
MOUNTAIN VIEW, CALIFORNIA 94043-1389
(415) 960-1980
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. KENNEDY DANIEL R. KAPLAN
Shearman & Sterling Proskauer Rose Goetz & Mendelsohn, LLP
555 California Street 1585 Broadway
San Francisco, California 94104 New York, New York 10036
(415) 616-1100 (212) 969-3200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and certain other
conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED (1) BE REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
(including associated Preferred 11,245,000
Share Purchase Rights).............. Shares(2) $27.44(3) $308,562,800(3) $73,398(3)
</TABLE>
(1) This Registration Statement relates to securities of the Registrant issuable
to holders of Common Stock of Cray Research, Inc., a Delaware corporation
("Cray"), in the proposed merger of Cray with a wholly owned subsidiary of
the Registrant.
(2) Represents the maximum number of shares of the Common Stock of the
Registrant which may be issued to shareholders of Cray pursuant to the
Merger described herein.
(3) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the average of the high and low prices of Cray Common Stock on the New York
Stock Exchange on May 8, 1996. $33,003 was paid under Section 14(g) of the
Securities Exchange Act of 1934 in connection with the filing of preliminary
proxy materials on April 5, 1996. Therefore, the registration fee payable
upon the filing of this Registration Statement is $73,398.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus;..................... Facing Page; Cross Reference Sheet; Outside Front
Cover Page of Proxy Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Table of Contents; Available Information;
Incorporation of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Selected Historical and Pro Forma Financial
Data; Comparative per Share Data; Market Price and
Dividend Information; Pro Forma Combined Condensed
Financial Information; Risk Factors; The Merger; The
Merger Agreement and Related Agreements
4. Terms of the Transaction............................. Summary; The Merger; The Merger Agreement and Related
Agreements; Comparison of Stockholders' Rights
5. Pro Forma Financial Information...................... Selected Historical and Pro Forma Financial Data; Pro
Forma Combined Condensed Financial Information
6. Material Contacts with the Company Being Acquired.... Summary; The Merger; The Merger Agreement and Related
Agreements
7. Additional Information Required for Re-Offering by
Persons and Parties Deemed to be Underwriters....... *
8. Interests of Named Experts and Counsel............... *
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.......... Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger; The
Merger Agreement and Related Agreements; Market
Price and Dividend Information; Selected Historical
and Pro Forma Financial Data; Pro Forma Combined
Condensed Financial Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
11. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Information by Reference.... *
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants.............................. *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............ Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger; The
Merger Agreement and Related Agreements; Market
Price and Dividend Information; Selected Historical
and Pro Forma Financial Data; Pro Forma Combined
Condensed Financial Information
16. Information with Respect to S-2 or S-3 Companies..... *
17. Information with Respect to Companies Other Than S-2
or S-3 Companies.................................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Facing Page; Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The Special Meeting;
The Merger; The Merger Agreement and Related
Agreements; Comparison of Stockholders' Rights;
Stockholder Proposals
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer..... *
</TABLE>
- ------------------------
*Omitted because inapplicable or answer is negative.
<PAGE>
CRAY RESEARCH, INC.
655A LONE OAK DRIVE
EAGAN, MINNESOTA 55121
May 14, 1996
TO: THE STOCKHOLDERS OF CRAY RESEARCH, INC.
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
Cray Research, Inc. ("Cray") to be held at 10:00 a.m. local time, on Wednesday,
June 26, 1996, at Cray's headquarters, 655 Lone Oak Drive, Eagan, Minnesota
55121 (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote on the
following proposals:
1. To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of February 25, 1996, by and among Silicon Graphics,
Inc. ("Silicon Graphics"), C Acquisition Corporation ("Merger Sub") and
Cray, and to approve the merger (the "Merger") of Merger Sub with and into
Cray pursuant to the Merger Agreement. As a result of the Merger, Cray will
become a wholly owned subsidiary of Silicon Graphics.
2. To approve and ratify amendments to and a restatement of Cray's 1989
Employee Benefit Stock Plan (the "Plan Amendment").
3. To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
CRAY'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND THE PLAN
AMENDMENT. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF THE MERGER AND THE PLAN AMENDMENT.
As you know, the Merger is the second and final step in the acquisition of
Cray by Silicon Graphics pursuant to the terms of the Merger Agreement. The
first step was the tender offer (the "Offer") by Merger Sub pursuant to which
Merger Sub acquired 19,218,735 shares of Cray common stock for $30.00 per share
in cash on April 2, 1996.
Upon consummation of the Merger, each of the shares of Cray common stock not
owned by Cray, Silicon Graphics, or its affiliates, will be converted into the
right to receive one share of common stock of Silicon Graphics.
AS A RESULT OF THE COMPLETION OF THE OFFER AND PURCHASE OF SHARES OF CRAY
COMMON STOCK PURSUANT THERETO, MERGER SUB OWNS AND HAS THE RIGHT TO VOTE AT THE
CRAY SPECIAL MEETING SUFFICIENT SHARES TO APPROVE THE MERGER AGREEMENT AND THE
PLAN AMENDMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER THEREBY
INSURING APPROVAL OF THE MERGER AGREEMENT AND THE PLAN AMENDMENT.
Details of the proposed Merger, the Plan Amendment and other important
information concerning Silicon Graphics and Cray are more fully described in the
accompanying Proxy Statement/ Prospectus. Please give this material your careful
attention.
<PAGE>
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. You may revoke your proxy in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it has been voted at the Special
Meeting. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
Robert H. Ewald
PRESIDENT AND
CHIEF OPERATING OFFICER
2
<PAGE>
CRAY RESEARCH, INC.
655A LONE OAK DRIVE
EAGAN, MINNESOTA 55121
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1996
TO: THE STOCKHOLDERS OF CRAY RESEARCH, INC.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of CRAY
RESEARCH, INC., a Delaware corporation ("Cray"), will be held at 10:00 a.m.,
local time, on Wednesday, June 26, 1996, at Cray's headquarters, 655 Lone Oak
Drive, Eagan, Minnesota 55121 (the "Special Meeting"), to consider and vote upon
the following proposals:
1. To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of February 25, 1996, by and among Silicon Graphics,
Inc. ("Silicon Graphics"), C Acquisition Corporation ("Merger Sub") and
Cray, and to approve the merger (the "Merger") of Merger Sub with and into
Cray pursuant to the Merger Agreement. As a result of the Merger, Cray will
become a wholly owned subsidiary of Silicon Graphics and each share of
common stock of Cray, par value $1.00 per share ("Cray Common Stock"), will
be converted at a one to one ratio into common stock of Silicon Graphics,
par value $0.001 per share ("Silicon Graphics Common Stock"). At the
effective time of the Merger (the "Effective Time"), each share of Cray
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Cray Common Stock held in the treasury of Cray or
owned by Merger Sub, Silicon Graphics or any directly or indirectly wholly
owned subsidiary of Silicon Graphics or of Cray) will be cancelled and
converted automatically into the right to receive one fully paid and
non-assessable share of Silicon Graphics Common Stock. A copy of the Merger
Agreement is attached as Annex A to the Proxy Statement/Prospectus
accompanying this Notice.
2. To approve and ratify amendments to and a restatement of Cray's 1989
Employee Benefit Stock Plan (the "Plan Amendment").
3. To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on May 8, 1996 as the
record date for the determination of the holders of Cray Common Stock entitled
to notice of, and to vote at, the Special Meeting. Accordingly, only
stockholders of record at the close of business on such date are entitled to
notice of and to vote at the Special Meeting and any adjournment or postponement
thereof. The affirmative vote of a majority of the outstanding shares of Cray
common stock entitled to vote thereon is necessary for approval and adoption of
the Merger Agreement and approval of the Merger. The affirmative vote of a
majority of the votes cast thereon is necessary for approval and ratification of
the Plan Amendment.
BECAUSE MERGER SUB HAS ACQUIRED MORE THAN A MAJORITY OF THE OUTSTANDING
SHARES OF CRAY COMMON STOCK, MERGER SUB HAS SUFFICIENT VOTING POWER TO APPROVE
THE MERGER AND THE PLAN AMENDMENT, EVEN IF NO OTHER STOCKHOLDER OF CRAY VOTES IN
FAVOR OF THE MERGER. ACCORDINGLY, APPROVAL AND ADOPTION OF THE MERGER AGREEMENT,
APPROVAL OF THE MERGER AND APPROVAL AND RATIFICATION OF THE PLAN AMENDMENT AT
THE SPECIAL MEETING IS ASSURED.
Details of the proposed Merger, the Plan Amendment and other important
information concerning Silicon Graphics and Cray are more fully described in the
accompanying Proxy Statement/ Prospectus. Please give this material your careful
attention.
All stockholders are cordially invited to attend the Special Meeting in
person; however, to ensure your representation at the Special Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose.
<PAGE>
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF HE OR SHE HAS RETURNED A PROXY.
Sincerely,
Robert H. Ewald
PRESIDENT AND
CHIEF OPERATING OFFICER
Eagan, Minnesota
May 14, 1996
2
<PAGE>
[Silicon Graphics Logo]
[LOGO]
CRAY RESEARCH, INC.
PROXY STATEMENT
------------------
SILICON GRAPHICS, INC.
PROSPECTUS
------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, par value $1.00 per share ("Cray Common Stock"), of Cray Research, Inc.,
a Delaware corporation ("Cray"), in connection with the solicitation of proxies
by the board of directors of Cray for use at a special meeting of Cray
stockholders (the "Special Meeting") to be held at 10:00 a.m. local time, on
Wednesday, June 26, 1996, at Cray's headquarters, 655 Lone Oak Drive, Eagan,
Minnesota 55121, and at any adjournment or postponement thereof for the purposes
set forth herein and in the accompanying Notice of Special Meeting of Cray
Stockholders.
This Proxy Statement/Prospectus constitutes a prospectus of Silicon
Graphics, Inc., a Delaware corporation ("Silicon Graphics"), with respect to the
issuance and delivery of shares of common stock, par value $.001 per share, of
Silicon Graphics ("Silicon Graphics Common Stock") in connection with the merger
of C Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of Silicon Graphics ("Merger Sub"), with and into Cray (the "Merger"), pursuant
to the Agreement and Plan of Merger, dated as of February 25, 1996, by and among
Silicon Graphics, Cray and Merger Sub (the "Merger Agreement"), a copy of which
is attached hereto as Annex A. As a result of the Merger, Cray will become a
wholly owned subsidiary of Silicon Graphics.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SECURITIES REFERRED TO HEREIN.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Cray on or about May 14, 1996.
The date of this Proxy Statement/Prospectus is May 14, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION.......................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 2
TRADEMARKS..................................... 3
SUMMARY........................................ 4
Business of Silicon Graphics................. 4
Business of Cray............................. 4
Date and Place of the Cray Special Meeting... 5
The Merger; The Plan Amendment; Purpose of
the Special Meeting......................... 5
Stockholders Entitled to Vote................ 6
Vote Required................................ 6
Absence of Appraisal Rights.................. 6
Recommendation; Fairness Opinion............. 6
Effective Time of the Merger................. 6
Conditions to the Merger..................... 6
Termination.................................. 7
Surrender of Certificates.................... 7
Accounting Treatment......................... 7
Certain Federal Income Tax Consequences...... 7
Regulatory Matters........................... 7
Interests of Certain Persons in the Merger... 7
Operations Following the Merger.............. 7
MARKET PRICE AND DIVIDEND INFORMATION.......... 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
DATA.......................................... 9
COMPARATIVE PER SHARE DATA..................... 11
RISK FACTORS................................... 12
Risks Relating to the Merger................. 12
Risks Relating to Silicon Graphics........... 12
THE SPECIAL MEETING............................ 16
General...................................... 16
Matters to Be Considered at the Special
Meeting..................................... 16
Record Date; Voting at the Special Meeting;
Vote Required............................... 16
Proxies...................................... 16
THE MERGER..................................... 17
General...................................... 17
Background of the Merger..................... 18
Cray's Reasons for the Merger; Recommendation
of the Cray Board........................... 20
Silicon Graphics' Reasons for the Merger..... 21
Operations Following the Merger.............. 21
Opinion of Cray's Financial Advisor.......... 21
Certain Federal Income Tax Consequences...... 27
Accounting Treatment......................... 28
Interests of Certain Persons in the Merger... 28
<CAPTION>
PAGE
-----
<S> <C>
Regulatory Matters........................... 29
Litigation................................... 30
Absence of Appraisal Rights.................. 30
THE MERGER AGREEMENT AND RELATED AGREEMENTS.... 30
The Merger................................... 30
Conversion of Shares......................... 30
Treatment of Cray Common Stock Options, Stock
Purchase Plan, and Convertible Debentures... 31
Business of Cray Pending the Merger.......... 32
Solicitation of Alternative Transactions..... 33
Business of Silicon Graphics Pending the
Merger...................................... 34
Corporate Structure and Related Matters After
the Merger.................................. 35
Certain Covenants............................ 35
Representations and Warranties............... 36
Conditions to the Merger..................... 36
Termination; Amendment....................... 38
Fees and Expenses............................ 38
Confidentiality Agreement.................... 39
Agreements of Cray Affiliates................ 39
SILICON GRAPHICS AND CRAY PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION (Unaudited)... 40
COMPARISON OF STOCKHOLDERS' RIGHTS............. 45
Cumulative Voting............................ 45
Classification of Board of Directors......... 45
Amendment to Governing Documents............. 45
Rights Plan.................................. 45
COMPENSATION OF CRAY EXECUTIVES................ 46
Compensation of Non-employee Directors....... 46
Executive Compensation....................... 47
PROPOSAL TO AMEND AND RESTATE THE CRAY
RESEARCH, INC. 1989 EMPLOYEE BENEFIT STOCK
PLAN.......................................... 50
EXPERTS........................................ 52
LEGAL MATTERS.................................. 52
OTHER MATTERS.................................. 52
STOCKHOLDER PROPOSALS.......................... 52
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B OPINION OF SALOMON BROTHERS INC
ANNEX C AMENDED AND RESTATED CRAY RESEARCH,
INC. 1989 EMPLOYEE BENEFIT STOCK PLAN
</TABLE>
i
<PAGE>
AVAILABLE INFORMATION
Silicon Graphics and Cray are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
Such reports, proxy statements and other information filed by Silicon Graphics
and Cray can also be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
Silicon Graphics has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued by Silicon Graphics to holders of
Cray Common Stock. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Silicon Graphics with the Commission are
incorporated by reference in this Proxy Statement/Prospectus:
1. Silicon Graphics' Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
2. Silicon Graphics' Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995.
3. Silicon Graphics' Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1995.
4. Silicon Graphics' Current Report on Form 8-K, dated April 2, 1996.
5. The description of Silicon Graphics' capital stock contained in
Silicon Graphics' Registration Statement on Form 8-B filed on March 16,
1990.
6. The description of Silicon Graphics' Preferred Share Purchase Rights
contained in Silicon Graphics' Registration Statement on Form 8-A, as
amended by Silicon Graphics' Form 8-A/A, filed November 1, 1995.
The following documents filed by Cray with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:
1. Cray's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
2. Cray's Current Report on Form 8-K, dated February 29, 1996.
3. Cray's Current Report on Form 8-K, dated April 2, 1996.
4. The description of Cray's capital stock contained in Cray's
Registration Statement on Form 8-A, filed on October 7, 1980.
2
<PAGE>
5. The description of Cray's Common Share Purchase Rights contained in
Cray's Form 8-A, filed May 26, 1989.
All documents filed by Silicon Graphics and Cray pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT
EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED
TO SILICON GRAPHICS, INC., 2011 NORTH SHORELINE BOULEVARD, MOUNTAIN VIEW,
CALIFORNIA 94043-1389, ATTENTION: INVESTOR RELATIONS, MAIL STOP 645 (TELEPHONE:
(415) 933-2607). REQUESTS FOR CRAY DOCUMENTS SHOULD BE DIRECTED TO CRAY
RESEARCH, INC., 655A LONE OAK DRIVE, EAGAN, MINNESOTA 55121; (TELEPHONE: (612)
683-5681), ATTENTION: CORPORATE SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO
JUNE 21, 1996.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN SO
AUTHORIZED BY SILICON GRAPHICS OR BY CRAY. THIS PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS SHALL
NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TRADEMARKS
Silicon Graphics and the Silicon Graphics logo are registered trademarks of
Silicon Graphics, Inc., and Alias/Wavefront, Silicon Studio and WebFORCE are
trademarks of Silicon Graphics, Inc. MIPS is a registered trademark of MIPS
Technologies, Inc. CRAY is a registered trademark of Cray Research, Inc., and
CRAY T90, CRAY J90, CRAY T3D, CRAY T3E and CRAY Superserver 6400 are
unregistered trademarks of Cray Research, Inc. This Proxy Statement/Prospectus
also contains trademarks of companies other than Silicon Graphics, MIPS
Technologies, Inc. and Cray.
3
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION ABOUT SILICON GRAPHICS,
CRAY, THE MERGER AGREEMENT AND THE MERGER AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THIS PROXY STATEMENT/PROSPECTUS, THE EXHIBITS
HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. STOCKHOLDERS ARE
URGED TO READ THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING EXHIBITS IN
THEIR ENTIRETY. SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY THE STOCKHOLDERS OF CRAY.
THIS PROXY STATEMENT/PROSPECTUS, AND DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED
TO STATEMENTS REGARDING EXPECTED BENEFITS OF THE MERGER AND THE BUSINESS AND
OPERATIONS OF CRAY FOLLOWING THE MERGER. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER THE
CAPTION "RISK FACTORS" AND OTHER FACTORS INCLUDED OR INCORPORATED BY REFERENCE
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS.
BUSINESS OF SILICON GRAPHICS
Silicon Graphics is a leading supplier of visual computing systems, which
provide users with the ability to interact with their work in real-time, color,
three-dimensions ("3D"), motion, sound and video. Through its family of
workstations, servers and supercomputers, Silicon Graphics delivers interactive
3D graphics, digital media and multiprocessing supercomputing technologies to
technical, scientific, corporate and creative professionals. Since its founding
in 1982, Silicon Graphics has been committed to defining new classes of visual
computing and transforming these computing processes into cost-effective
solutions for a variety of industries.
Silicon Graphics' subsidiary, MIPS Technologies, Inc. designs and licenses
for MIPS-Registered Trademark- RISC microprocessor family, used in Silicon
Graphics-Registered Trademark- products and those of other companies for
computer, consumer and embedded control applications. Silicon Graphics is also
actively engaged in the development of advanced tools and applications for
digital content creation and distribution, including its Alias/Wavefront-TM-,
Silicon Studio-TM- and WebFORCE-TM- products lines.
Silicon Graphics is a Delaware corporation. Its principal executive offices
are located at 2011 North Shoreline Boulevard, Mountain View, California
94043-1389, and its telephone number is (415) 960-1980.
BUSINESS OF CRAY
Cray is a leading supplier of supercomputing tools and services. The
computational tools created by Cray consist of high-performance computing
systems and related software and are used primarily by scientists and engineers
to perform computational research. Computational research, the mathematical
modeling and simulation of physical and other quantifiable phenomena, allows
researchers to investigate areas that are physically impossible or too
time-consuming, dangerous, or expensive to study in any other way. Cray's
computational tools are used by scientists and engineers in many commercial
industries including aerospace, automotive, chemical/pharmaceutical and
petroleum, as well as in many public and private research centers, such as
government and environmental science organizations and universities.
Cray's products consist primarily of the following: (i) the CRAY T90 series
of high-end parallel vector processor ("PVP") supercomputer systems, offered in
configurations ranging from one to thirty-two central processing units ("CPUs")
ranging in price from $2.5 million up to $35 million per system; (ii) the CRAY
J90 series of lower-priced PVP supercomputer systems, offered in configurations
of four to thirty-two CPUs ranging in price from $415,000 to $2.7 million; (iii)
the CRAY T3D series of massively parallel processor supercomputer systems, and
the follow-on CRAY T3E series which is a stand-alone system offered in
configurations ranging from 16 to 2,048 processors at prices ranging from under
$1 million to more than $100 million; (iv) the CRAY Superserver 6400 series of
4
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symmetric multiprocessor systems, which provides the basis for Cray's focus on
the high-performance commercial computing market and (v) associated software
(including operating systems, compilers and application software), peripherals
and support.
Cray Research, Inc. was incorporated in 1972 as a Delaware corporation. Its
principal corporate and administrative offices are located at 655A Lone Oak
Drive, Eagan, Minnesota 55121, and its telephone number is (612) 452-6650.
DATE AND PLACE OF THE CRAY SPECIAL MEETING
The Special Meeting will be held on Wednesday, June 26, 1996 at 10:00 a.m.
local time, at Cray's headquarters, 655 Lone Oak Drive, Eagan, Minnesota 55121.
THE MERGER; THE PLAN AMENDMENT; PURPOSE OF THE SPECIAL MEETING
GENERAL. Silicon Graphics, Merger Sub and Cray have entered into the Merger
Agreement, providing for, among other things, a tender offer by Merger Sub (the
"Offer") and the Merger (together, the "Transaction"). Pursuant to the Offer, on
April 2, 1996, Merger Sub purchased 19,218,735 shares of Cray Common Stock at a
price of $30.00 per share in cash. Accordingly, approval and adoption of the
Merger Agreement and approval of the Merger is assured. Pursuant to the Merger
Agreement, Merger Sub and Cray will, as soon as practicable following the
consummation of the Offer, consummate the Merger.
THE MERGER. As a result of the Merger, each share of Cray Common Stock
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time") (other than shares of Cray Common Stock held in the
treasury of Cray or owned by Merger Sub, Silicon Graphics or any directly or
indirectly wholly owned subsidiary of Silicon Graphics or of Cray collectively,
"Ineligible Shares") will be cancelled and converted automatically into the
right to receive one fully paid and non-assessable share of Silicon Graphics
Common Stock (the "Exchange Ratio").
Upon consummation of the Merger, each then-outstanding option to purchase
Cray Common Stock (an "Option") will be assumed by Silicon Graphics and will
automatically be converted into an option to purchase that number of shares of
Silicon Graphics Common Stock equal to the number of shares of Cray Common Stock
such option was exercisable for at the time of the Merger at an exercise price
equal to the per share exercise price of the Option at the time of the Merger.
Subject to the consummation of the Merger on the last trading day prior to the
Effective Time (the "Final Purchase Date"), Cray will apply any funds then
credited to each Cray Qualified Stock Purchase Investment Plan ("Purchase Plan")
participant's payroll withholding account to the purchase of whole shares of
Cray Common Stock. Under the Merger Agreement, the 6% Convertible Subordinated
Debentures due 2011 of Cray (the "Convertible Debentures") shall, pursuant to
the terms of the Indenture, dated as of February 1, 1986, between Cray and
Manufacturers Hanover Trust Company, as Trustee (the "Indenture"), become
thereafter convertible only into that number of shares of Silicon Graphics
Common Stock that the holder of any such Convertible Debentures would have
received if such holder had converted such Convertible Debentures into Cray
Common Stock immediately prior to the Effective Time. See "The Merger Agreement
and Related Agreements -- Conversion of Shares" and "-- Treatment of Cray Common
Stock Options and Cray Stock Purchase Plan, and Convertible Debentures."
THE PLAN AMENDMENT. Effective May 3, 1996, the Board of Directors of Cray
(the "Cray Board") amended and restated Cray's 1989 Employee Benefit Stock Plan
(the "Employee Stock Option Plan"), subject to ratification of the stockholders
of Cray at the Special Meeting, to conform certain provisions of the Employee
Stock Option Plan to the analogous provisions of the Silicon Graphics' employee
stock option plans.
THE SPECIAL MEETING. At the Special Meeting, the stockholders of Cray will
consider and vote upon proposals (i) to approve and adopt the Merger Agreement
and to approve the Merger, (ii) to approve and ratify amendments to and a
restatement of the Plan Amendment and (iii) to transact such other business as
may properly come before the Special Meeting or any postponements or
adjournments thereof. See "The Special Meeting -- Matters to Be Considered at
the Special Meeting."
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STOCKHOLDERS ENTITLED TO VOTE
The close of business on May 8, 1996 is the record date for determination of
holders of Cray Common Stock entitled to vote at the Special Meeting. At that
date, 26,152,736 shares of Cray Common Stock were outstanding, held by
approximately 4,317 holders of record. As of such date, directors and executive
officers of Cray and their affiliates (including Merger Sub) may be deemed to be
the beneficial owners of shares of Cray Common Stock representing approximately
76% of the outstanding voting power of Cray. See "The Special Meeting -- Record
Date; Voting at the Special Meeting; Vote Required."
Merger Sub and the directors and executive officers of Cray have indicated
that they intend to vote the shares of Cray Common Stock held by them for
approval and adoption of the Merger Agreement and approval of the Merger.
VOTE REQUIRED
Approval and adoption of the Merger Agreement and approval of the Merger
will require the affirmative vote of the holders of a majority of the
outstanding shares of Cray Common Stock entitled to vote thereon. Approval 1 and
ratification of the Plan Amendment will require the affirmative vote of a
majority of the votes cast thereon. MERGER SUB HAS SUFFICIENT VOTING POWER TO
CAUSE THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE APPROVAL OF THE
MERGER AND THE APPROVAL AND RATIFICATION OF THE PLAN AMENDMENT, WITHOUT THE
AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER.
ABSENCE OF APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), Cray stockholders
will not be entitled to appraisal rights as a result of the Merger.
RECOMMENDATION; FAIRNESS OPINION
THE CRAY BOARD APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT ON
FEBRUARY 25, 1996 AND RECOMMENDS THAT HOLDERS OF CRAY COMMON STOCK VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
SALOMON BROTHERS INC ("SALOMON BROTHERS") HAS DELIVERED TO THE CRAY BOARD ITS
WRITTEN OPINION DATED AS OF FEBRUARY 25, 1996 THAT, BASED UPON AND SUBJECT TO
THE VARIOUS CONSIDERATIONS SET FORTH IN SUCH OPINION, AS OF THE DATE OF SUCH
OPINION, THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF CRAY COMMON STOCK IN THE
TRANSACTION IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO SUCH HOLDERS.
A copy of the opinion of Salomon Brothers, which sets forth the assumptions
made, procedures followed, matters considered and scope of review, is attached
to this Proxy Statement/Prospectus as Annex B and should be read carefully in
its entirety. See "The Merger -- Opinion of Cray's Financial Advisor," which
contains a discussion of the fees to be paid to Salomon Brothers and the
conditions under which such fees are payable. Salomon Brothers assisted in
negotiating the consideration, but the consideration was established by Silicon
Graphics and Cray. Certain portions of the fees to be paid to Salomon Brothers
are contingent upon consummation of the Merger. See "The Merger -- Opinion of
Cray's Financial Advisor."
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file a
certified agreement of merger with the Secretary of State of Delaware. The
Merger will become effective upon such filing (the "Effective Time"), which,
assuming all conditions are met, is anticipated to occur shortly after the
Special Meeting. See "The Merger Agreement and Related Agreements -- Effective
Time of the Merger."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to, (i) the approval and adoption of the
Merger Agreement by the requisite vote of the stockholders of Cray; (ii) the
absence of any restrictive court orders or any other legal restraints or
prohibitions, preventing or making illegal the consummation of the Merger; and
(iii) the continuing accuracy in all material respects of the representations
and warranties made by each of Cray and Silicon Graphics in the Merger Agreement
on and as of the Effective Time. See "The Merger Agreement and Related
Agreements -- Conditions to the Merger."
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TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the stockholders of Cray under
the circumstances specified in the Merger Agreement, including, without
limitation, by mutual written agreement of Silicon Graphics and Cray and by
either party if the Merger is not consummated by September 30, 1996.
Under certain circumstances Cray may be required to pay Silicon Graphics a
termination fee if the Merger Agreement is terminated. See "The Merger Agreement
and Related Agreements -- Fees and Expenses."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Silicon Graphics will mail a letter of
transmittal with instructions to all holders of record of Cray Common Stock as
of the Effective Time for use in surrendering their stock certificates in
exchange for certificates representing Silicon Graphics Common Stock and a cash
payment in lieu of fractional shares. CERTIFICATES SHOULD NOT BE SURRENDERED
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of Silicon Graphics Common Stock or a combination of Silicon
Graphics Common Stock and cash pursuant to the Merger will be a taxable
transaction for federal income tax purposes. See "Certain Federal Income Tax
Consequences."
REGULATORY MATTERS
The waiting period applicable to the Merger under the Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), expired at 11:59 p.m. on March 26,
1996. See "The Merger -- Regulatory Matters."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Cray Board with respect to the
Merger, stockholders should be aware that certain directors and officers of Cray
have interests in the Merger that present them with potential conflicts of
interest. See "The Merger -- Interests of Certain Persons in the Merger."
OPERATIONS FOLLOWING THE MERGER
It is expected that, initially following the Merger, the business and
operations of Cray will, except as set forth in this Proxy Statement/Prospectus,
be continued by Cray substantially as they are currently being conducted.
Silicon Graphics will continue to evaluate the business and operations of Cray
after the consummation of the Merger and will take such actions as it deems
appropriate under the circumstances then existing.
Except as indicated in this Proxy Statement/Prospectus and except for
changes normally associated with the conversion to the status of a wholly-owned
subsidiary, Silicon Graphics does not have any present plans or proposals which
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving Cray or any of its
subsidiaries, a sale or transfer of a material amount of assets of Cray or any
of its subsidiaries or any material change in Cray's capitalization or dividend
policy or any other material changes in Cray's corporate structure or business.
Silicon Graphics expects that the Merger will change its current financial
target model in several respects, including a decline in gross margin. In
addition, for the fourth quarter of fiscal 1996 and for fiscal 1997 as a whole,
Silicon Graphics' results will be adversely affected by several short-term
purchase accounting impacts and other Merger related expenses. These matters are
discussed in detail in Silicon Graphics' Form 10-Q for the quarter ended March
31, 1996, which is incorporated by reference in this Proxy Statement/Prospectus.
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MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of high
and low sale prices for Silicon Graphics Common Stock in the New York Stock
Exchange Composite Transactions Tape (as reported in published financial
sources). The closing price for Silicon Graphics Common Stock on the New York
Stock Exchange (the "NYSE") on February 23, 1996, the last full trading day
prior to the public announcement of the Merger Agreement and of Merger Sub's
intention to commence the Offer, was $27.50 and on May 9, 1996 the latest
practicable trading day before the printing of this Proxy Statement/Prospectus,
was $27.50.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30 HIGH LOW
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1994
First Quarter............................................................ $ 22.50 $ 16.06
Second Quarter........................................................... 24.75 19.81
Third Quarter............................................................ 26.88 21.50
Fourth Quarter........................................................... 25.88 18.75
1995
First Quarter............................................................ $ 26.88 $ 21.25
Second Quarter........................................................... 33.13 24.13
Third Quarter............................................................ 38.00 29.13
Fourth Quarter........................................................... 42.00 33.75
1996
First Quarter............................................................ $ 45.63 $ 33.00
Second Quarter........................................................... 38.75 26.88
Third Quarter............................................................ 30.38 21.13
Fourth Quarter (through May 9, 1996)..................................... 30.13 24.50
</TABLE>
Cray Common Stock is listed and principally traded on the NYSE. The
following table sets forth the range of high and low sale prices reported on the
NYSE as reported by the Dow Jones News Service for Cray Common Stock for the
fiscal periods indicated. The closing price for Cray Common Stock on the NYSE on
February 23, 1996, the last trading day prior to the public announcement of the
Merger Agreement and of Merger Sub's intention to commence the Offer, was $25.25
and on May 9, 1996, the latest practicable trading day before the printing of
this Proxy Statement/Prospectus, was $27.38. The equivalent market price per
share of Cray Common Stock, based upon the Exchange Ratio, would have been
$27.50 and $27.50, respectively.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31 HIGH LOW
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1994
First Quarter............................................................ $ 33.75 $ 25.38
Second Quarter........................................................... 29.75 19.13
Third Quarter............................................................ 24.00 20.25
Fourth Quarter........................................................... 21.50 14.63
1995
First Quarter............................................................ $ 18.63 $ 14.63
Second Quarter........................................................... 26.00 18.13
Third Quarter............................................................ 29.25 21.75
Fourth Quarter........................................................... 24.88 20.25
1996
First Quarter............................................................ $ 29.13 $ 24.00
Second Quarter (through May 9, 1996)..................................... 29.75 24.25
</TABLE>
As of May 8, 1996, Silicon Graphics and Cray had approximately 6,469 and
4,317 holders of record, respectively. Neither Silicon Graphics nor Cray has
paid any dividends on their common stock during the periods set forth above.
Each of Silicon Graphics and Cray currently intends to retain earnings for use
in their respective businesses and does not anticipate paying cash dividends on
their common stock in the foreseeable future. In addition, the Merger Agreement
prohibits the payment of any dividends by Cray prior to the Effective Time.
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<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Silicon Graphics
and Cray has been derived from their respective historical consolidated
financial statements, and should be read in conjunction with such consolidated
financial statements and the notes thereto, which are incorporated by reference
in this Proxy Statement/Prospectus. The Silicon Graphics historical financial
statement information as of and for the six months ended December 31, 1995 and
1994 has been prepared on the same basis as the historical information derived
from the audited financial statements and, in the opinion of management,
contains all adjustments, consisting only of normal recurring accruals,
necessary for the fair presentation of the results of operations for such
periods.
The unaudited selected pro forma financial information of Silicon Graphics
and Cray is derived from the unaudited pro forma combined condensed financial
statements of Silicon Graphics and Cray and should be read in conjunction with
such pro forma statements and notes thereto which are included in this Proxy
Statement/Prospectus. For Silicon Graphics and Cray pro forma purposes, Silicon
Graphics' historical condensed consolidated statement of operations for the year
ended June 30, 1995 and Silicon Graphics' unaudited condensed consolidated
statement of operations for the six months ended December 31, 1995 have been
combined with the unaudited condensed consolidated statement of operations of
Cray for the twelve-month period ended June 30, 1995 and the unaudited condensed
consolidated statement of operations of Cray for the six months ended December
31, 1995, respectively.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been in effect during the periods
presented, nor is it necessarily indicative of future operating results or
financial position. In particular, the actual adjustments to the valuation of
Cray assets and liabilities in connection with the acquisition may vary
significantly from the preliminary estimates reflected in the pro forma
financial information.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED DECEMBER 31,
-------------------------------------------------------- ----------------------
1995 1994 1993 1992 1991 1995 1994
---------- ---------- ---------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SILICON GRAPHICS
Statement of Operations
Data:
Net revenue.............. $2,228,268 $1,537,766 $1,132,869 $ 906,713 $ 735,954 $1,267,012 $ 998,074
Income (loss) from
continuing operations... 224,856 141,414 82,803 (101,318) 39,810 110,710 109,139
Net income (loss)........ 224,856 141,814 73,540 (101,183) 39,810 110,710 104,139
Income (loss) from
continuing operations
per share............... $1.28 $0.86 $0.53 $(0.89) $0.32 $0.62 $0.60
Net income (loss) per
share................... $1.28 $0.86 $0.47 $(0.89) $0.32 $0.62 $0.60
Shares used to compute
per share data.......... 175,435 165,149 154,887 119,233 124,260 178,268 173,155
Balance Sheet Data:
Cash, cash equivalents
and marketable
investments............. $ 780,012 $ 604,444 $ 208,538 $ 195,088 $ 311,061 $ 694,573 $ 765,640
Total assets............. 2,206,619 1,567,052 1,048,294 892,673 887,212 2,265,487 1,905,523
Long-term obligations.... 287,267 252,645 56,832 71,900 52,049 277,575 280,623
Stockholders' equity..... 1,346,170 937,169 696,649 562,230 676,690 1,443,284 1,130,228
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CRAY
Statement of Operations Data:
Net revenue...................................... $ 676,244 $ 921,609 $ 894,857 $ 797,578 $ 862,457
Net income (loss)................................ (226,364) 55,696 60,855 (14,875) 113,047
Net income (loss) per share...................... $ (8.95) $ 2.16 $ 2.33 $ (0.56) $ 4.15
Shares used to compute per share data............ 25,282 25,845 26,118 26,493 28,160
Balance Sheet Data:
Cash, cash equivalents and marketable
investments..................................... $ 254,425 $ 255,543 $ 228,373 $ 154,953 $ 106,963
Total assets..................................... 978,054 1,181,879 1,169,768 1,021,264 1,079,046
Long-term obligations............................ 103,454 115,030 118,464 113,891 113,494
Stockholders' equity............................. 602,428 828,910 779,341 723,061 758,672
</TABLE>
SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
----------------------------------------------
PRO FORMA PRO FORMA
SGI CRAY ADJUSTMENT COMBINED
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
SILICON GRAPHICS AND CRAY
Statement of Operations Data:
Net revenue................................................... $2,228,268 $ 727,723 $ -- $2,955,991
Net income (loss)............................................. 224,856 (161,659) $ (65,100) (1,903)
Net income (loss) per share................................... $ 1.28 $ (6.33) $ (0.01)
Shares used to compute per share data......................... 175,435 25,539 162,800
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1995
----------------------------------------------
PRO FORMA PRO FORMA
SGI CRAY ADJUSTMENT COMBINED
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
SILICON GRAPHICS AND CRAY
Statement of Operations Data:
Net revenue................................................... $1,267,012 $ 405,447 $ -- $1,672,459
Net income (loss)............................................. 110,710 (39,165) $ (34,720) 36,825
Net income (loss) per share................................... $ 0.62 $ (1.55) $ 0.20
Shares used to compute per share data......................... 178,268 25,281 184,700
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------------------
PRO FORMA PRO FORMA
SGI CRAY ADJUSTMENT COMBINED
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
SILICON GRAPHICS AND CRAY
Balance Sheet Data:
Cash, cash equivalents and marketable investments............. $ 694,573 $ 254,425 $(348,000) $ 600,998
Total assets.................................................. 2,265,487 978,054 (205,000) 3,038,541
Long-term obligations......................................... 277,575 103,454 (18,000) 363,029
Stockholders' equity.......................................... 1,443,284 602,428 (511,000) 1,534,712
</TABLE>
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COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Silicon
Graphics and Cray and combined per share data on an unaudited pro forma basis
after giving effect to the Merger. This data should be read in conjunction with
the selected financial data, the pro forma combined condensed financial
statements and the separate historical financial statements of Silicon Graphics
and Cray and the notes thereto, included or incorporated by reference in the
Proxy Statement/Prospectus. The unaudited pro forma combined financial data are
not necessarily indicative of the operating results that would have been
achieved had the Merger been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations or
book values. In particular, the actual adjustments to the valuation of Cray
assets and liabilities in connection with the acquisition may vary significantly
from the estimates reflected in the pro forma financial information.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -------------------
<S> <C> <C>
HISTORICAL -- SILICON GRAPHICS
Net income...................................................................... $ 1.28 $ 0.62
Book value...................................................................... $ 8.28 $ 8.78
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
HISTORICAL -- CRAY
Net loss....................................................................................... $ (8.95)
Book value..................................................................................... $ 23.60
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -------------------
<S> <C> <C>
SILICON GRAPHICS AND CRAY
Pro Forma Combined -- Per Silicon Graphics Share:
Net income (loss)............................................................. $ (0.01) $ 0.20
Book value.................................................................... -- $ 9.09
Equivalent Pro Forma Combined -- Per Cray Share:
Net income (loss)............................................................. $ (0.01) $ 0.20
Book value.................................................................... -- $ 9.09
</TABLE>
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RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF CRAY COMMON
STOCK IN CONNECTION WITH THE RECEIPT OF SILICON GRAPHICS COMMON STOCK IN THE
MERGER. CERTAIN OF THESE FACTORS RELATE DIRECTLY TO THE MERGER AND THE
OPERATIONS OF THE COMBINED BUSINESS FOLLOWING THE MERGER, WHILE OTHERS ARE
PRESENT IN SILICON GRAPHICS' GENERAL BUSINESS ENVIRONMENT INDEPENDENT OF THE
MERGER. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS.
THIS PROXY STATEMENT/PROSPECTUS, AND DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED
TO STATEMENTS REGARDING EXPECTED BENEFITS OF THE MERGER AND THE BUSINESS AND
OPERATIONS OF CRAY FOLLOWING THE MERGER. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THE RISK FACTORS DISCUSSED BELOW
AND OTHER FACTORS INCLUDED OR INCORPORATED BY REFERENCE ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
RISKS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. The combination of Cray and Silicon Graphics
will require, among other things, integration of the companies' respective
product offerings and coordination of their respective sales and marketing and
research and development efforts. The challenges posed by this combination
include the management of a business with a different approach to product
design, manufacturing and sales and service, the development of a consolidated
product road map from a number of incompatible products and the integration of a
number of geographically separated research and development centers. The success
of this process will be significantly influenced by the ability of the combined
business to retain key management, sales and research and development personnel.
There is no assurance that this integration will be accomplished smoothly or
successfully. The integration of operations following the Merger will require
the dedication of management resources, which may temporarily distract attention
from the day-to-day business of the combined business. The inability of
management to successfully integrate the operations of Cray and Silicon Graphics
could have an adverse effect on the business and results of operations of the
combined business.
CUSTOMERS AND BACKLOG. Sales to U.S. government agencies and commercial
customers primarily serving the U.S. government constitute a significant portion
of Cray's business. The contract value of Cray's backlog at March 31, 1996 was
$438 million (not all of which is expected to be installed in 1996), including
approximately $172 million in orders from U.S. government agencies or related
commercial customers. In general, these customers place orders that include
standard termination for convenience clauses used in most U.S. government
contracts. Perceived uncertainties relating to the Merger or the status of or
plans for Cray following the Merger could disrupt the marketing and sales of
Cray systems and might result in the cancellation of backlog orders. The loss,
delay or cancellation of business from major Cray customers could materially
affect the results of operations of the combined company.
RISKS RELATING TO SILICON GRAPHICS
As is true for technology companies generally, Silicon Graphics operates in
a rapidly changing environment that involves a number of risks, some of which
are beyond its control. The following discussion highlights some of these risks.
PERIOD TO PERIOD FLUCTUATIONS. Silicon Graphics' operating results may
fluctuate for a number of reasons. Other than in Cray's business, Silicon
Graphics has short delivery cycles and as a result does not have a large order
backlog, which makes the forecasting of revenue inherently uncertain. This
uncertainty is compounded because each quarter's revenue results predominantly
from orders booked and shipped during the third month, and disproportionately in
the latter half of that month. Because Silicon Graphics plans its operating
expenses, many of which are relatively fixed in the short term, on the basis
that its revenues will continue to grow, even a relatively small revenue
shortfall may cause a
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period's results to be substantially below expectations. Such a revenue
shortfall could arise from any number of factors including lower than expected
demand, supply constraints, delays in the availability of new products, transit
interruptions, overall economic conditions or natural disasters. The timing of
customer acceptance of large Cray systems may also have a significant effect on
periodic operating results. Margins are heavily influenced by mix
considerations, including geographical mix, the mix of service and non-recurring
engineering revenues, the mix of high-end and desktop products and application
software and the mix of configurations within these product categories.
Silicon Graphics' results have followed a seasonal pattern, with stronger
sequential growth in the second and fourth fiscal quarters, reflecting the
buying patterns of Silicon Graphics' customers. Sales of Cray systems generally
reflect sequential growth from quarter-to-quarter through the calendar year.
Silicon Graphics' stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on Silicon Graphics' stock price. The stock price may also be affected by
broader market trends unrelated to Silicon Graphics' performance.
PRODUCT DEVELOPMENT AND INTRODUCTION. Silicon Graphics' continued success
depends on its ability to develop and rapidly bring to volume production highly
differentiated, technologically complex and innovative products. Silicon
Graphics recently introduced a number of significant new products and plans to
introduce more in the first half of fiscal 1997, including products that replace
current products. A number of risks are inherent in this process.
The development of new technology and products is increasingly complex and
uncertain, which increases the risk of delays. The introduction of a new
computer system requires close collaboration and continued technological
advancement involving multiple hardware and software design and manufacturing
teams within Silicon Graphics as well as teams at outside suppliers of key
components such as semiconductor and storage products. The failure of any one of
these elements could cause Silicon Graphics' new products to fail to meet
specifications or to miss the aggressive timetables that Silicon Graphics
establishes. As the variety and complexity of Silicon Graphics' product families
increase, the process of planning production and inventory levels also becomes
more difficult.
Short product life cycles place a premium on Silicon Graphics' ability to
manage the transition from current products to new products. In order to
minimize product transition issues, Silicon Graphics generally announces new
products in the early part of a quarter, while the product is in the final
stages of development, and seeks to manufacture and ship the product in volume
in the same quarter. In the case of the Cray product line, new products are
generally announced well in advance of availability, due to the longer sales
cycle for these systems. Silicon Graphics' results could be adversely affected
by such factors as development or manufacturing delays, variations in product
costs, and delays in customer purchases of existing products in anticipation of
the introduction of new products.
ACQUISITION OF CRAY. The acquisition of Cray will require, among other
things, integration of the Cray organization, business infrastructure and
product offerings with those of Silicon Graphics in a way that enhances the
performance of the combined business. The challenges posed by the acquisition
include the management of a business with a different approach to product
design, manufacturing and sales and service, the development of a consolidated
product road map from a number of incompatible products and the integration of
several geographically separated research and development centers. The success
of this process will be significantly influenced by Silicon Graphics' ability to
retain key management, sales, and research and development personnel. The
integration process will also require the dedication of management resources,
which may temporarily distract attention from the day-to-day business of Silicon
Graphics.
There are several other aspects of Cray's business that are different from
Silicon Graphics' current business and may affect the operations of the combined
business:
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- Government agencies and research institutions represent a major customer
group for Cray products. Following the acquisition, a greater percentage
of Silicon Graphics' revenues will be derived from sales to such
customers, whose purchasing decisions may be adversely affected by
reductions or changes in government spending.
- International sales of Cray's products are more likely to be subject to
export licensing constraints than international sales of Silicon Graphics'
current products.
- Cray derives a significant portion of its revenues from the sale of a
small number of large systems, which generally have a longer sales cycle.
Cray's periodic operating results are significantly influenced by the
number of Cray systems accepted by customers in that period, the
configuration of the systems accepted and whether a system is sold or
leased. Changes affecting even a small number of systems can have
significant financial implications.
- At March 31, 1995, the contract value of Cray's backlog was $438 million
(not all of which is expected to be installed in calendar 1996) including
approximately $172 million in orders from U.S. government agencies or
related commercial customers. In general, these customers place orders
that include standard termination for convenience clauses used in most
U.S. government contracts.
REVENUE GROWTH. In late fiscal 1995 and early fiscal 1996, Silicon Graphics
made substantial investments in its sales and marketing organizations, in new
research and development programs and increased funding of existing programs,
and investments in corporate infrastructure required to support significant
growth. This plan involved a number of risks, including a higher level of
operating expenses, the difficulty of attracting and assimilating a large number
of new employees, and the complexities associated with managing a larger and
faster growing organization.
In the first nine months of fiscal 1996, Silicon Graphics' revenue growth
rate decreased to 23% over the prior year period, and operating margins moved
below Silicon Graphics' target model. Silicon Graphics' operating expenses in
the current quarter are expected to be somewhat higher than in the third quarter
of fiscal 1996. As a consequence, whether operating margin will return to
Silicon Graphics' target model in the fourth quarter will depend on the quarter
to quarter growth in revenues.
INTERNATIONAL OPERATIONS. Because more than half of Silicon Graphics'
revenues are from sales outside the United States, and many key components are
produced outside the United States, Silicon Graphics' results could be
negatively affected by such factors as changes in foreign currency exchange
rates (international sales are generally denominated in foreign currencies,
while Silicon Graphics' accounts are in U.S. dollars), trade protection
measures, longer accounts receivable collection patterns, changes in regional or
worldwide economic or political conditions, or natural disasters. For example, a
marked short-term appreciation in the value of the U.S. dollar relative to the
Japanese yen or German mark could adversely affect Silicon Graphics' results.
Silicon Graphics' sales to foreign customers also are subject to export
regulations, with sales of some of Silicon Graphics' high-end products requiring
clearance and export licenses from the U.S. Department of Commerce. Silicon
Graphics' export sales would be adversely affected if such regulations were
tightened, or if they are not modified over time to reflect the increasing
performance of Silicon Graphics' products.
Sales in foreign countries are generally priced in local currencies and are
thus subject to the effects of currency exchange fluctuations. Silicon Graphics
attempts to reduce the impact (positive or negative) of currency fluctuations on
net income primarily through the use of forward exchange contracts and foreign
currency options that hedge foreign currency denominated receivables between the
parent and its international subsidiaries. Silicon Graphics has generally not
hedged capital expenditures, investments in subsidiaries, inventory purchases or
most future international revenues, although it periodically evaluates its
hedging practices.
MANAGEMENT INFORMATION SYSTEM. Silicon Graphics replaced its United States
information management system in the third quarter of fiscal 1996 with a
comprehensive system used to manage the
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entire revenue cycle, including order administration, billing and collection, as
well as manufacturing and finance. Silicon Graphics expects that the system will
provide operational efficiencies and support future growth. However, as the
system has been in operation for a relatively short period, there remains a risk
of functional or performance difficulties, particularly in light of the higher
volume of transactions normally experienced in the fourth fiscal quarter.
DEVELOPMENT AND ACCEPTANCE OF MIPS-REGISTERED TRADEMARK- RISC
ARCHITECTURE. Most of Silicon Graphics' system products incorporate
microprocessors based upon Silicon Graphics' MIPS RISC microprocessor
architecture. Silicon Graphics licenses the manufacturing and distribution
rights to these microprocessors to selected semiconductor manufacturing
companies. Silicon Graphics believes that the continued development and broad
acceptance of the MIPS architecture are critical to its future success.
INTELLECTUAL PROPERTY. Silicon Graphics routinely receives communications
from third parties asserting patent or other rights covering Silicon Graphics'
products and technologies. Based upon Silicon Graphics' evaluation, it may take
no action or it may seek to obtain a license. In any given case there is a risk
that a license will not be available on terms that Silicon Graphics considers
reasonable, or that litigation will ensure. Silicon Graphics currently has
patent infringement lawsuits pending against it. Silicon Graphics expects that,
as the number of hardware and software patents issued continues to increase, and
as Silicon Graphics' business grows, the volume of these intellectual property
claims will also increase.
COMPETITION. The computer industry is highly competitive, with rapid
technological advances and constantly improving price/performance. As most of
the segments in which Silicon Graphics operates continue to grow faster than the
industry as a whole, Silicon Graphics is experiencing an increase in
competition, and it expects this trend to continue. This competition comes not
only from Silicon Graphics' traditional UNIX workstation rivals and Cray's
traditional supercomputing competitors, but also from new sources including the
personal computer industry. Many of Silicon Graphics' competitors have
substantially greater technical, marketing and financial resources and, in some
segments, a larger installed base of customers and a wider range of available
applications software. Competition can result in significant discounting and
lower gross margins.
EMPLOYEES. Silicon Graphics' future success depends in part on its ability
to continue to attract, retain and motivate highly qualified technical,
marketing and management personnel, who are in great demand.
BUSINESS DISRUPTION. Silicon Graphics' corporate headquarters, including
most of its research and development operations and manufacturing facilities,
are located in the Silicon Valley area of Northern California, a region known
for seismic activity. Operating results could be materially affected by a
significant earthquake. Silicon Graphics is predominantly self-insured for
losses and business interruptions of this kind.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Cray Common
Stock in connection with the solicitation of proxies by the Cray Board for use
at the Special Meeting to be held at Cray's headquarters, 655 Lone Oak Drive,
Eagan, Minnesota 55121 at 10:00 a.m., local time, on Wednesday, June 26, 1996,
or at any adjournments or postponements thereof, for the purposes set forth
herein and in the accompanying Notice of Special Meeting of Stockholders of
Cray.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders of record of Cray as of the close of
business on May 8, 1996 will be asked to consider and vote upon proposals (i) to
approve and adopt the Merger Agreement and to approve the Merger, (ii) to
approve and ratify the Plan Amendment and (iii) to transact such other business
as may properly come before the Special Meeting or any postponements or
adjournments thereof.
THE CRAY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND THE PLAN AMENDMENT,
AND RECOMMENDS A VOTE BY THE STOCKHOLDERS OF CRAY FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT, APPROVAL OF THE MERGER AND APPROVAL AND RATIFICATION OF
THE PLAN AMENDMENT.
RECORD DATE; VOTING AT THE SPECIAL MEETING; VOTE REQUIRED
The Cray Board has fixed May 8, 1996 as the record date for the
determination of the stockholders of Cray entitled to notice of and to vote at
the Special Meeting. Only holders of record of Cray Common Stock on the record
date will be entitled to notice of and to vote at the Special Meeting. As of May
8, 1996, there were 26,152,736 shares of Cray Common Stock outstanding and
entitled to vote, which were held by approximately 4,317 holders of record. Each
record holder of Cray Common Stock on the record date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the stockholders of Cray at the
Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Cray Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of at least a majority of the outstanding shares of Cray
Common Stock entitled to vote thereon. Abstentions and broker non-votes will not
be counted, but will have the practical effect of a vote against the Merger
Agreement and the Merger since they represent one less vote for approval. The
approval of the Plan Amendment will require the affirmative vote of at least a
majority of the votes cast thereon.
As of May 8, 1996, directors, executive officers and affiliates of Cray
(including Merger Sub) may be deemed to be the beneficial owners of
approximately 76% of the outstanding shares of Cray Common Stock. The directors
and executive officers of Cray and Merger Sub have indicated that they plan to
vote or direct the vote of all shares of Cray Common Stock over which they have
voting control in favor of the Merger Agreement, the Merger and the Plan
Amendment.
BECAUSE MERGER SUB HAS ACQUIRED MORE THAN A MAJORITY OF THE OUTSTANDING
SHARES OF CRAY COMMON STOCK, MERGER SUB HAS SUFFICIENT VOTING POWER TO
CONSTITUTE A QUORUM AT THE SPECIAL MEETING AND TO APPROVE AND ADOPT THE MERGER
AGREEMENT, APPROVE THE MERGER AND APPROVE AND RATIFY THE PLAN AMENDMENT, EVEN IF
NO OTHER STOCKHOLDER OF CRAY VOTES IN FAVOR OF THESE PROPOSALS. ACCORDINGLY,
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, APPROVAL OF THE MERGER AND
APPROVAL AND RATIFICATION OF THE PLAN AMENDMENT AT THE SPECIAL MEETING IS
ASSURED.
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of Cray Common
Stock in connection with the solicitation of proxies by and on behalf of the
Cray Board for use at the Special Meeting.
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All shares of Cray Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly and timely revoked, will be voted at
the Special Meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted FOR
approval and adoption of the Merger Agreement, approval of the Merger and
approval and ratification of the Plan Amendment.
If any other matters are properly presented for consideration at the Special
Meeting (or any adjournments or postponements thereof), including, among other
things, consideration of a motion to adjourn or postpone the Special Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Cray at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Cray before taking the vote at the Special
Meeting or (iii) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Cray Research, Inc., 655A Lone Oak
Drive, Eagan, Minnesota 55121, Attention: John L. Sullivan, Esq., General
Counsel and Secretary, or hand-delivered to the Secretary of Cray at or before
taking the vote at the Special Meeting.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Cray in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Cray will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
THE MERGER
GENERAL
Under the Merger Agreement, Merger Sub will merge with and into Cray, which
will continue as the surviving corporation. At the Effective Time of the Merger,
(i) each outstanding share of Cray Common Stock (other than Ineligible Shares)
will be converted into the right to receive one share of Silicon Graphics Common
Stock, (ii) each treasury share of Cray and each share of Cray Common Stock
owned by Merger Sub, Silicon Graphics or any wholly owned subsidiary of Silicon
Graphics or Cray will be cancelled and (iii) each outstanding share of common
stock of Merger Sub will be converted into one share of Cray Common Stock. No
fractional shares of Silicon Graphics Common Stock will be issued in the Merger.
Cray will become a wholly owned subsidiary of Silicon Graphics, and the
stockholders of Cray will become stockholders of Silicon Graphics. See "The
Merger Agreement and Related Agreements -- Conversion of Shares."
Upon consummation of the Merger, each then-outstanding Cray Option will be
assumed by Silicon Graphics and will automatically be converted into an option
to purchase that number of shares of Silicon Graphics Common Stock that the
holder of such Cray Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Cray Option in full immediately prior to
the Effective Time. The per share exercise price for the Silicon Graphics Common
Stock issuable upon exercise of such assumed Cray Option will be equal to the
per share exercise price of such Cray Option at the Effective Time. Silicon
Graphics will file a Registration Statement on Form S-8 with the
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Commission with respect to the issuance of Silicon Graphics Common Stock to be
issued upon exercise of the assumed Cray Options. See "The Merger Agreement and
Related Agreements--Treatment of Cray Common Stock Options; Employee Stock
Purchase Plan and Convertible Debentures."
Subject to the consummation of the Merger, on the Final Purchase Date, Cray
will apply any funds then credited to each Purchase Plan participant's payroll
withholding account to the purchase of whole shares of Cray Common Stock. See
"The Merger Agreement and Related Agreements-- Treatment of Cray Common Stock
Options and Employee Stock Purchase Plan."
Under the Merger Agreement, the Convertible Debentures shall, pursuant to
the terms of the Indenture become thereafter convertible only into that number
of shares of Silicon Graphics Common Stock (plus cash in lieu of fractional
shares) that the holder of any such Convertible Debentures would have received
if such holder had converted such Convertible Debentures into Cray Common Stock
immediately prior to the Effective Time.
BACKGROUND OF THE MERGER
Based upon past and anticipated conditions within the technology industry
and Cray's operations, the Cray Board 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
Cray 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 Cray Board determined
that it would be in the best interests of Cray and its stockholders for Cray to
take an active approach in pursuing opportunities with other companies. The Cray
Board also authorized the executive officers of Cray to engage an investment
banking firm to assist Cray with these efforts.
On October 9, 1995, Cray retained Salomon Brothers on an exclusive basis to
render financial advisory and investment banking services to Cray in connection
with a possible combination with, or sale of a controlling interest in Cray to,
another corporation or other business entity. Cray's efforts were not limited to
acquisition discussions.
On November 21, 1995, members of management met with representatives of
Salomon Brothers and analyzed and discussed potential strategic alliances. In
December, Cray communicated to representatives of several companies that Cray
was interested in exploring opportunities for collaboration, strategic alliance
or some form of business combination. Discussions with certain of these
companies followed.
In late 1995, senior executives at Cray approached their counterparts at
Silicon Graphics to suggest the possibility of a business combination involving
the two companies. A confidentiality agreement with respect to these discussions
was entered into in December 1995, and shortly thereafter a meeting of
representatives of the two companies was held at Cray's headquarters in Eagan,
Minnesota. At that 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 January 22, 1996.
On February 3, 1996 representatives of Cray had a discussion with
representatives of Silicon Graphics in which Silicon Graphics expressed the
interest of Silicon Graphics' Board of Directors (the "Silicon Graphics Board")
in a business combination with Cray whereby Cray would be maintained as a
separate operating unit. Silicon Graphics and Cray discussed the timetable for a
due diligence evaluation of Cray in connection with the proposed business
combination.
On February 5, 1996, a regular meeting of the Cray Board was held to
discuss, among other things, Cray's strategic partnering efforts as well as the
recent communications between representatives of Cray and representatives of
Silicon Graphics. At this meeting, Cray's management reviewed
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communications with Silicon Graphics, the respective technological abilities of
Silicon Graphics and Cray as well as the potential synergies of a combination of
Cray with Silicon Graphics and other matters related thereto. At the conclusion
of the meeting, the Cray Board determined that it would be consistent with
Cray's objectives to continue to investigate a possible business combination
with Silicon Graphics as well as other possible strategic alternatives for Cray.
On February 13, 1996, at a special meeting of the Cray Board, management
reviewed the status of its continuing discussions. Representatives of Salomon
Brothers then reviewed the environment in which Cray 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 Silicon Graphics and Cray, valuations of Cray 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 of Cray Common Stock
in cash for 75% of the shares of Cray Common Stock and one share of Silicon
Graphics Common Stock for each remaining share of Cray Common Stock.
On February 18, 1996, a special meeting of the Cray Board was held. At the
meeting, the executive officers indicated that Silicon Graphics was interested
in acquiring Cray, subject to further due diligence, negotiation of a
satisfactory agreement, approval by the Silicon Graphics Board and certain other
conditions, pursuant to a cash tender offer to acquire 75% of the outstanding
shares of Cray Common Stock for $30 per share, net to the seller in cash, and
followed by a merger in which each share of Cray Common Stock remaining
outstanding would be converted into the right to receive one share of Silicon
Graphics Common Stock. At the conclusion of the meeting, the Cray Board
determined that Cray should continue to negotiate the terms of a business
combination with Silicon Graphics, including but not limited to the terms and
provisions of a merger agreement, which would be subject to final review and
approval by the Cray Board.
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 Cray to discuss the
potential transaction.
On February 20, 1996, the Silicon Graphics Board met by telephone conference
with Silicon Graphics' management and financial and legal representatives to
review the results of the negotiations held on February 14, 1996 and to discuss
a preliminary draft of the Merger Agreement.
On February 25, 1996, the Silicon Graphics Board met by telephone conference
with Silicon Graphics' management and financial and legal representatives to
review the results of Silicon Graphics' due diligence investigation of Cray and
the terms of the proposed Merger Agreement, which was unanimously approved at
this meeting.
On February 25, 1996, a special meeting of the Cray Board was held. At such
meeting, the Cray Board reviewed with certain of its executive officers, legal
counsel and financial advisors the discussions and negotiations between Cray and
Silicon Graphics. Following such discussions, the Cray 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. Representatives of Salomon Brothers then discussed matters related
to the proposed transaction with Silicon Graphics. At the conclusion of their
presentation, Salomon Brothers delivered its oral opinion to the Cray Board
(subsequently confirmed by a written opinion) that, as of such date, the
consideration to be received by the holders of shares of Cray Common Stock in
the Transaction is fair, from a financial point of view, to the stockholders of
Cray. Thereafter, the Cray Board authorized the Offer, the Merger
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and the execution and delivery of the Merger Agreement substantially in the form
presented to it; and recommended that the stockholders of Cray accept the Offer
and tender their shares to Silicon Graphics and approve and adopt the Merger
Agreement.
The Merger Agreement was executed that evening and announced before the
opening of trading on the NYSE on the following morning.
On February 29, 1996, Merger Sub commenced the Offer.
On April 2, 1996, Merger Sub accepted for payment, and thereby purchased,
19,218,735 Shares pursuant to the Offer. The aggregate purchase price for the
19,218,735 shares of Cray Common Stock purchased pursuant to the Offer was
$576,562,050. Merger Sub obtained the funds to acquire the Cray Common Stock
through a capital contribution from Silicon Graphics and Silicon Graphics
obtained the necessary funds for such capital contribution from cash on hand and
from its existing Credit Agreement, dated as of December 31, 1994, as amended,
between Silicon Graphics and Bank of America, National Trust and Savings
Association.
On April 3, 1996, four members of the Cray Board were replaced by four new
directors nominated by Merger Sub. The directors elected to the Cray Board are
Edward R. McCracken, Thomas A. Jermoluk, Stanley J. Meresman and William M.
Kelly. The directors who were replaced are J. Phillip Samper, Philip G. Heasley,
Robert G. Potter and Jan H. Suwinski.
CRAY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CRAY BOARD
On February 25, 1996, the Cray Board unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger. The Cray Board unanimously recommends to Cray stockholders that they
vote for the approval of the Merger and the approval and adoption of the Merger
Agreement. The Board of Directors based its approval of the Merger upon a number
of factors, including:
1. the financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement;
2. the presentation of Salomon Brothers at the February 25, 1996 Cray
Board's meeting and the opinion of Salomon Brothers (the "Opinion") 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 Cray stockholders 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 Annex B and is
incorporated herein by reference. Stockholders are urged to read the Opinion
carefully in its entirety;
3. the possible alternatives to the Transaction, including, without
limitation, continuing to operate Cray as an independent entity and the
risks associated therewith;
4. the familiarity of the Cray Board with the business, results of
operations, properties and financial condition of Cray and the nature of the
industry in which it operates;
5. the compatibility of the business and operating strategies of
Silicon Graphics and Cray;
6. the fact that the Merger Agreement, which prohibits Cray, 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 Cray 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 Merger Agreement,
if the Cray Board, after consultation with its financial advisors and based
upon an opinion of counsel, determines that it is necessary to do so in the
exercise of its fiduciary duties;
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7. the fact that in the event that the Cray Board decided to accept a
Superior Proposal (as defined in the Merger Agreement) of a third party, the
Cray Board could terminate the Merger Agreement and pay Silicon Graphics a
termination fee of $25 million plus actual documented expenses and
reasonable out-of-pocket expenses of Silicon Graphics, not in excess of
$2.5, million relating to the transactions contemplated by the Merger
Agreement (including, but not limited to, fees and expenses of Silicon
Graphics' counsel) (or approximately $1.00 per outstanding share of Cray
Common Stock). The Cray 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 Cray;
8. the fact that the terms of the Merger Agreement should not have
unduly discouraged other third parties from making bona fide proposals
subsequent to the execution of the Merger Agreement and, if any such
proposals were made, Cray, 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 Cray Board did not assign relative weights to the factors or determine
that any factor was of particular importance. Rather, the Cray Board viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
SILICON GRAPHICS' REASONS FOR THE MERGER
Silicon Graphics is engaging in the Merger in order to acquire all shares of
Cray Common Stock not purchased by Merger Sub in the Offer.
OPERATIONS FOLLOWING THE MERGER
It is expected that, initially following the Merger, the business and
operations of Cray will, except as set forth in this Proxy Statement/Prospectus,
be continued by Cray substantially as they are currently being conducted.
Silicon Graphics will continue to evaluate the business and operations of Cray
after the consummation of the Merger and will take such actions as it deems
appropriate under the circumstances then existing.
Except as indicated in this Proxy Statement/Prospectus and except for
changes normally associated with the conversion to the status of a wholly-owned
subsidiary, Silicon Graphics does not have any present plans or proposals which
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving Cray or any of its
subsidiaries, a sale or transfer of a material amount of assets of Cray or any
of its subsidiaries or any material change in Cray's capitalization or dividend
policy or any other material changes in Cray's corporate structure or business.
Silicon Graphics expects that the Merger will change its current financial
target model in several respects, including a decline in gross margin. In
addition, for the fourth quarter of fiscal 1996 and for fiscal 1997 as a whole,
Silicon Graphics' results will be adversely affected by several short-term
purchase accounting impacts and other Merger related expenses. These matters are
discussed in detail in Silicon Graphics' Form 10-Q for the quarter ended March
31, 1996, which is incorporated by reference in this Proxy Statement/Prospectus.
OPINION OF CRAY'S FINANCIAL ADVISOR
Cray retained Salomon Brothers pursuant to a letter agreement dated October
9, 1995 (the "Engagement Letter") to act as its financial advisor in connection
with a possible combination transaction involving Cray. Pursuant to the
Engagement Letter, Salomon Brothers rendered financial advisory services
relating to the Transaction. Salomon Brothers rendered an opinion to Cray's
Board on February 25, 1996 that the consideration to be received by the holders
of Cray Common Stock in the Transaction is fair to such holders from a financial
point of view.
The full text of Salomon Brothers' fairness opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is attached as
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Annex B to this Proxy Statement/Prospectus. Salomon Brothers' opinion is
directed only to the fairness, from a financial point of view, to the holders of
Cray Common Stock of the consideration to be received by such holders in the
Transaction and does not address Cray's underlying business decision to effect
the Transaction or constitute a recommendation to any holder of Cray Common
Stock as to how such stockholder should vote with respect to the Merger. The
summary of Salomon Brothers' opinion set forth below is qualified in its
entirety by reference to the full text of such opinion attached as Annex B.
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, Salomon Brothers reviewed and
analyzed, among other things, the following: (i) the final draft of the Merger
Agreement; (ii) certain publicly available information concerning Cray,
including the Annual Reports on Form 10-K of Cray for each of the years in the
three year period ended December 31, 1994 and the Quarterly Reports on Form 10-Q
of Cray 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 Cray
furnished to Salomon Brothers by Cray for purposes of its analysis; (iv) certain
publicly available information concerning the trading of, and the trading market
for, Cray Common Stock; (v) certain publicly available information concerning
Silicon Graphics, including the Annual Reports on Form 10-K of Silicon Graphics
for each of the years in the three year period ended June 30, 1995 and the
Quarterly Reports on Form 10-Q of Silicon Graphics 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 Silicon Graphics furnished to Salomon Brothers by
Silicon Graphics for purposes of its analysis; (vii) certain publicly available
information concerning the trading of, and the trading market for, Silicon
Graphics Common Stock; (viii) certain publicly available information with
respect to certain other companies that Salomon Brothers believed to be
comparable to Cray or Silicon Graphics 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
Salomon Brothers considered relevant to its inquiry. Salomon Brothers also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria that it deemed relevant. Salomon
Brothers also met with certain officers and employees of Cray and Silicon
Graphics to discuss the foregoing as well as other matters Salomon Brothers
believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available and neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. Salomon Brothers did not conduct a physical inspection of any of
the properties or facilities of Cray or Silicon Graphics, nor did it make or
obtain or assume any responsibility for making or obtaining any independent
evaluations or appraisals of any of such properties or facilities. With respect
to projections, Salomon Brothers assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of Cray and Silicon Graphics as to the future financial performance
of Cray and Silicon Graphics, respectively. Salomon Brothers expressed no view
with respect to such projections or the assumptions on which they were based.
In conducting its analysis and arriving at its opinion, Salomon Brothers
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial position and results of operations of Cray and Silicon
Graphics; (ii) the business prospects of Cray and Silicon Graphics; (iii) the
historical and current market for Cray Common Stock, for Silicon Graphics Common
Stock and for the equity securities of certain other companies that Salomon
Brothers believes to be comparable to Cray or Silicon Graphics; and (iv) the
nature and terms of certain other acquisition transactions that Salomon Brothers
believes to be relevant. Salomon Brothers also took into account its assessment
of general economic, market and financial conditions as well as its experience
in connection with similar transactions and securities valuation generally.
Salomon Brothers also considered the process that resulted in the negotiation
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of the Transaction, including discussions with other potential acquirors.
Salomon Brothers' opinion was necessarily based on conditions as they existed
and could be evaluated on the date thereof and Salomon Brothers assumed no
responsibility to update or revise its opinion based upon circumstances or
events occurring after such date. Salomon Brothers' opinion did not constitute
an opinion or imply any conclusion as to the likely trading range for Silicon
Graphics Common Stock following consummation of the Transaction. Salomon
Brothers' opinion was, in any event, limited to the fairness, from a financial
point of view, of the consideration to be received by the holders of Cray Common
Stock in the Transaction and did not address Cray's underlying business decision
to effect the Transaction or constitute a recommendation to any holder of Cray
Common Stock as to whether such holder should tender shares of Cray Common Stock
in the Offer or as to how such holder should vote with respect to the Merger.
In connection with a presentation to Cray's Board on February 25, 1996,
Salomon Brothers advised Cray's Board that, in evaluating the consideration to
be received in the Transaction by the holders of Cray Common Stock, Salomon
Brothers had performed a variety of financial analyses with respect to Cray and
Silicon Graphics, all as summarized below.
OVERVIEW OF CRAY AND HISTORICAL TRADING ANALYSIS. Salomon Brothers reviewed
certain aspects of the financial performance of Cray, including, among other
things, revenue, gross profit, operating income, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), net income, revenue growth,
operating income growth, net income growth, gross margin, operating margin and
net income margin for fiscal years 1984 through 1995 and 1996 management
estimates. Salomon Brothers also reviewed certain financial information of Cray
broken down by business unit and product line for fiscal years 1993 through 1995
and 1996 management estimates. Salomon Brothers observed that Cray's gross
profit, operating profit and net income margins have declined steadily over the
past ten years due to, among other things, decreasing demand, heightened price
competition and Cray's lack of a sufficient sales and marketing infrastructure
to enable it to gain quick access to high growth commercial markets. Salomon
Brothers also noted that 1995 was a year of transition for Cray with revenues
and net income (loss before restructuring charges) declining to $676 million and
($34) million from $922 million and $56 million in 1994, respectively, and that
1996 is a year in which Cray expects to benefit from new product introductions.
In addition, Salomon Brothers reviewed with Cray's Board certain information
concerning the trading prices of Cray Common Stock through February 16, 1996.
Salomon Brothers noted that Cray Common Stock was trading near an eighteen month
high on February 16, 1996, but had underperformed the overall high-performance
computer industry and the S&P Industrial Average over the prior two years.
Salomon Brothers calculated the implied Transaction value per share of Cray
Common Stock (based on a 75% cash component equal to $30.00 per share and a 25%
stock component equal to $27.00 per share (reflecting the closing price of
Silicon Graphics Common Stock on February 21, 1996)) at $29.25 per share.
Salomon Brothers observed that this value represented a 17% premium over the
closing price of Cray Common Stock on February 21, 1996. Salomon Brothers
calculated multiples of the implied Transaction value per share to Cray's
projected earnings per share for calendar year 1996 and to its projected
earnings per share adjusted for excess cash for calendar year 1996, and the
multiple of Cray's Firm Value (market capitalization (based on a $29.25 per
share price) plus debt less cash and cash equivalents) to its revenues for
calendar year 1995. The results of the calculations were as follows: implied
Transaction value per share to projected 1996 earnings per share of 20.8x and to
projected 1996 earnings per share adjusted for excess cash flow of 19.2x, and
Firm Value to revenues of 0.87x.
OVERVIEW OF SILICON GRAPHICS AND HISTORICAL TRADING ANALYSIS. Salomon
Brothers also reviewed certain aspects of the financial performance of Silicon
Graphics, including, among other things, revenue, gross profit, operating
income, net income, revenue growth, operating income growth, net income growth,
gross margin, operating margin and net income margin for fiscal years 1991
through 1995, and 1996, 1997 and 1998 management estimates. Salomon Brothers
also reviewed with the
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Board certain information concerning the trading prices of Silicon Graphics
Common Stock through February 16, 1996. Salomon Brothers observed that Silicon
Graphics' revenues and earnings had been growing at a rate of 30% during the
years 1987 through 1995 due to, among other things, Silicon Graphics' leadership
position in the visual computing market and its expanding presence in the fast
growing advanced technical server and workstation markets. Salomon Brothers
noted that the trading price of Silicon Graphics Common Stock had fallen during
the several months immediately prior to February 16, 1996, but remained well
above the levels seen prior to November 1994. Salomon Brothers also noted that
Silicon Graphics Common Stock had significantly underperformed the overall
high-performance computer industry and the S&P Industrial Average since
September 1995, and that Wall Street analysts believe that Silicon Graphics
Common Stock is undervalued.
ANALYSIS OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES. Salomon Brothers
reviewed certain publicly available financial, operating and stock market
information for Cray, Silicon Graphics and eight other publicly-traded computer
companies (Hewlett Packard, Sequent, Sun Microsystems, Stratus Computer, Tandem
Computer, International Business Machines, Digital Equipment Corporation and
Amdahl (excluding Cray and Silicon Graphics, each of which is a "Comparable
Company" and collectively referred to as "Comparable Companies")). Salomon
Brothers considered the Comparable Companies to be reasonably similar to Cray
and Silicon Graphics, respectively, but none of these companies is identical to
Cray or Silicon Graphics. Accordingly, the analysis described below is not
purely mathematical. Rather it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of Cray, Silicon Graphics and the Comparable Companies and other
factors that could affect public trading value.
VALUATION OF CRAY. For Cray, Silicon Graphics and each of the Comparable
Companies, Salomon Brothers reviewed its three year historical revenue growth,
three year historical earnings before interest and taxes ("EBIT") growth, one
year projected earnings per share ("EPS") growth, and five year projected EPS
growth. (Projected EPS and net income was based upon First Call Corporation and
Institutional Brokers Estimate Systems reports.) Salomon Brothers observed that
the three year historical EBIT growth and one year projected EPS growth were not
meaningful for Cray, and that Cray had underperformed relative to the median of
the Comparable Companies and Silicon Graphics in each of the three year
historical revenue growth and five year projected EPS growth.
For Cray, Silicon Graphics and each of the Comparable Companies, Salomon
Brothers reviewed its latest twelve months ("LTM") revenues, LTM gross margin,
LTM EBIT margin, and LTM net income margin. Salomon Brothers observed that Cray
underperformed relative to the median of the Comparable Companies and Silicon
Graphics in each such category.
For Cray, Silicon Graphics and each of the Comparable Companies, Salomon
Brothers calculated, among other things, multiples of price to calendar 1995
earnings, estimated calendar 1996 earnings and estimated calendar 1997 earnings,
ratio of Firm Value to LTM Revenues, and multiples of Firm Value to LTM EBIT and
LTM EBITDA. An analysis of the multiples of price to 1995 earnings was not
meaningful for Cray as a result of Cray's current operating losses and yielded
multiples ranging from 10.9x to 36.7x, with a median of 20.6x, for the
Comparable Companies and Silicon Graphics. An analysis of the multiples of price
to estimated 1996 earnings yielded a multiple of 20.5x for Cray and yielded
multiples ranging from 9.7x to 22.6x, with a median of 16.8x, for the Comparable
Companies and Silicon Graphics. An analysis of the multiples of price to
estimated 1997 earnings yielded a multiple of 13.3x for Cray and yielded
multiples ranging from 6.9x to 14.7x, with a median of 8.7x, for the Comparable
Companies and Silicon Graphics. An analysis of the ratio of Firm Value to LTM
revenues yielded 72.6% for Cray and yielded ratios ranging from 23.0% to 171.9%,
with a median of 100.5%, for the Comparable Companies and Silicon Graphics. An
analysis of the multiples of Firm Value to LTM EBIT was not meaningful for Cray
as a result of Cray's current operating losses and yielded multiples ranging
from 3.9x to 15.4x, with a median of 11.9x, for the Comparable Companies and
Silicon Graphics. An analysis of the multiples of Firm Value to LTM EBITDA
yielded a multiple of 5.5x for Cray and yielded multiples ranging from 1.8x to
11.0x, with a median of 6.3x for the Comparable Companies and Silicon Graphics.
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Salomon Brothers derived from these calculations a range of multiples of
Firm Value to LTM revenue, Firm Value to LTM EBIT, Firm Value to LTM EBITDA and
price to estimated 1996 net income. These ranges were narrower than the ranges
based solely on calculations from the public data based on certain subjective
and qualitative judgments applied by Salomon Brothers to such calculations to
more accurately reflect the valuation sensitivity provided by this analysis.
Using such derived range of multiples, Salomon Brothers derived a valuation
range for the Implied Equity Value of Cray of $570 million to $725 million,
which translated into an implied equity value per share of $22.00 to $28.00.
Salomon noted that the valuation multiples based on LTM EBIT were not meaningful
as a result of Cray's current operating losses.
Salomon Brothers also reviewed three scenarios involving the distribution by
Cray of excess cash in the form of a special dividend to its shareholders. In
the first case ("Case 1"), Salomon Brothers assumed Cray would retain a cash
balance of approximately $180 million and would distribute $110 million. In the
second case ("Case 2"), Salomon Brothers assumed Cray would retain approximately
$80 million and would distribute $210 million. In the third case ("Case 3"),
Salomon Brothers assumed Cray would retain approximately $80 million, would
distribute $210 million and would shut down the Business Systems Division.
Salomon Brothers performed a series of calculations for each such case,
including the calculation of adjusted estimated 1996 net income. Applying the
range of multiples of price to these adjusted estimates of 1996 net income,
Salomon Brothers derived valuation ranges for the implied equity value of Cray
of $438 million to $570 million, $500 million to $616 million and $614 million
to $774 million, and implied equity value per share of $16.90 to $22.00, $19.30
to $23.80 and $23.70 to $29.90, for Case 1, Case 2 and Case 3, respectively.
VALUATION OF SILICON GRAPHICS. Salomon Brothers did a similar analysis for
the purpose of valuing Silicon Graphics. For Cray, Silicon Graphics and each of
the Comparable Companies, Salomon Brothers reviewed its three year historical
revenue growth, three year historical EBIT growth, one year projected EPS
growth, and five year projected EPS growth. Salomon Brothers observed that
Silicon Graphics outperformed Cray in each such category, outperformed each
Comparable Company with respect to three year revenue growth, three year
historical EBIT growth and five year projected EPS growth, and underperformed
relative to the median of the Comparable Companies with respect to one year
projected EPS growth.
For Silicon Graphics and each of the Comparable Companies, Salomon Brothers
reviewed its LTM revenues, LTM gross margin, LTM EBIT margin, and LTM net income
margin. Salomon Brothers observed that Silicon Graphics outperformed Cray in
each such category, outperformed each Comparable Company with respect to LTM
gross margin, LTM EBIT margin and LTM net income margin and had outperformed
relative to the median of the Comparable Companies with respect to LTM revenues.
For Silicon Graphics and each of the Comparable Companies, Salomon Brothers
calculated, among other things, multiples of price to 1995 earnings, estimated
1996 earnings and estimated 1997 earnings, ratio of Firm Value to LTM Revenues,
and multiples of Firm Value to LTM EBIT and LTM EBITDA. An analysis of the
multiples of price to 1995 earnings yielded a multiple of 20.6x for Silicon
Graphics and yielded multiples ranging from 10.9x to 36.7x, with a median of
20.7x, for the Comparable Companies and Cray. An analysis of the multiples of
price to estimated 1996 earnings yielded a multiple of 16.8x for Silicon
Graphics and yielded multiples ranging from 9.7x to 22.6x, with a median of
16.9x, for the Comparable Companies and Cray. An analysis of the multiples of
price to estimated 1997 earnings yielded a multiple of 11.4x for Silicon
Graphics and yielded multiples ranging from 6.9x to 14.7x, with a median of
8.7x, for the Comparable Companies and Cray. An analysis of the ratio of Firm
Value to LTM revenues yielded 171.9% for Silicon Graphics and yielded ratios
ranging from 23.0% to 164.0%, with a median of 72.6%, for the Comparable
Companies and Cray. An analysis of the multiples of Firm Value to LTM EBIT
yielded a multiple of 10.1x for Silicon Graphics and yielded multiples ranging
from 3.9x to 15.4x, with a median of 12.5x, for the Comparable Companies and
Cray.
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An analysis of the multiples of Firm Value to LTM EBITDA yielded a multiple of
7.9x for Silicon Graphics and yielded multiples ranging from 1.8x to 11.0x, with
a median of 5.5x for the Comparable Companies.
Based on these calculations and certain subjective and qualitative
judgments, Salomon Brothers derived a range of multiples of Firm Value to LTM
revenue, Firm Value to LTM EBIT, Firm Value to LTM EBITDA and price to estimated
1996 and 1997 net income. These ranges did not directly track the ranges based
solely on calculations from the public data because the subjective and
qualitative judgments applied by Salomon Brothers to such calculations were
believed to more accurately reflect the valuation sensitivity provided by this
analysis. Using such derived range of multiples, Salomon Brothers derived a
valuation range for the implied equity value of Silicon Graphics of $5,319
million to $6,206 million, which translated into an implied equity value per
share of $30.00 to $35.00.
ANALYSIS OF SELECTED MERGERS/ACQUISITION TRANSACTIONS. Salomon Brothers
also analyzed certain publicly available financial, operating and stock market
information for eleven selected merger or acquisition transactions in the
computer hardware industry over the past five years. Salomon Brothers considered
the precedent mergers and acquisition transactions to be reasonably similar to
the Transaction, but none of these precedents is identical to the Transaction,
particularly in light of the somewhat unique nature of Cray. Accordingly, the
analysis described below is not purely mathematical. Rather it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of Cray, Silicon Graphics and the
companies involved in the precedent merger and acquisition transactions and
other factors that could affect the private market valuation. For each such
transaction, Salomon Brothers calculated the multiples of, among other things,
Firm Value to LTM revenue, Firm Value to LTM EBITDA, Firm Value to LTM EBIT,
offer price to LTM EPS, and offer price to forward twelve month EPS estimates
("FWD EPS"). An analysis of the multiples of Firm Value to LTM revenue yielded
multiples ranging from .5x to 2.0x, with a median of 1.1x. An analysis of the
multiples of Firm Value to LTM EBITDA yielded multiples ranging from 4.4x to
23.0x, with a median of 8.5x. An analysis of the multiples of Firm Value to LTM
EBIT yielded multiples ranging from 5.0x to 37.4x, with a median of 13.4x. An
analysis of the multiples of Offer Price to LTM EPS yielded multiples ranging
from 11.9x to 36.3x, with a median of 20.4x. An analysis of the multiples of
Offer Price to FWD EPS yielded multiples ranging from 11.8x to 34.0x, with a
median of 18.9x.
Salomon Brothers derived from these calculations a range of multiples of
Firm Value to LTM revenue, Firm Value to EBITDA, Firm Value to EBIT, offer price
to estimated 1996 net income and offer price to adjusted estimated 1996 net
income under Case 2. This range was narrower than the range based solely on
calculations from the public data based on certain subjective and qualitative
judgments applied by Salomon Brothers to such calculations to more accurately
reflect the valuation sensitivity provided by this analysis. Using such derived
range of multiples, Salomon Brothers derived a valuation range for the implied
equity value of Cray of $648.0 million to $777.0 million, which translated into
an implied equity value per share of $25.00 to $30.00. Salomon Brothers noted
that the valuation multiples based on LTM EBIT were not meaningful as a result
of Cray's current operating losses.
EPS GROWTH RATE ANALYSIS. Salomon Brothers performed a five year growth
rate analysis of Cray on a stand alone basis, using Cray's then current stock
price of $25, a required return on equity of 14% and price to earnings multiples
in the range of 10x to 14x. Based upon these assumptions, Salomon Brothers
discussed with the Cray Board its view that in order to maintain the stock price
of Cray Common Stock at a level reflecting the current price plus the required
return on equity in five years, EPS growth during that period would need to
exceed 20%. Salomon Brothers also noted that Cray's five year projected EPS
growth was estimated at 10%.
PRO FORMA COMBINATION ANALYSIS. Salomon Brothers performed an analysis of
the historical ratio of the market price of Cray Common Stock to the market
price of Silicon Graphics Common Stock during the period from January 1, 1994
through February 20, 1996. Salomon Brothers noted
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that the ratio ranged from a low of 0.44 to a high of 1.33, with an average of
0.77. The ratio as of February 20, 1996 was 0.91. Salomon Brothers also noted
that the 1.00 exchange ratio for the Merger (assuming a fully subscribed Offer)
represents a 58% premium to the average ratio calculated in this analysis for
the period from January 1, 1995 through February 20, 1996.
Salomon Brothers also analyzed the contribution of each of Cray and Silicon
Graphics to the pro forma calendar 1996 income statement based on management's
projections. The projections took into account, among other things, the
amortization of goodwill associated with the Transaction and an interest expense
adjustment associated with the assumed new debt. Salomon Brothers utilized this
analysis to assess whether the Transaction was anticipated to be accretive or
dilutive to Silicon Graphics' post-Transaction 1996 EPS. Based on the $29.25
implied Transaction value, Salomon Brothers noted that the Transaction should
result in a 1.2% accretion to Silicon Graphics' post-Transaction 1996 EPS.
The foregoing summary does not purport to be a complete description of the
analyses performed by Salomon Brothers or of its presentations to the Cray
Board. The preparation of financial analyses and fairness opinions is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Salomon Brothers believes that its analyses (and the summary set
forth above) must be considered as a whole, and that selecting portions of such
analyses and of the factors considered by Salomon Brothers, without considering
all of such analyses and factors, could create an incomplete view of the
processes underlying the analyses conducted by Salomon Brothers and its opinion.
Salomon Brothers made no attempt to assign specific weights to particular
analyses. Any estimates contained in Salomon Brothers' analyses are not
necessarily indicative of actual values, which may be significantly more or less
favorable than as set forth therein. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at which companies
may actually be sold. Because such estimates are inherently subject to
uncertainty, Salomon Brothers does not assume responsibility for their accuracy.
Salomon Brothers is an internationally recognized investment banking firm
engaged, among other things, in the valuation of businesses and their securities
in connection with mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. In addition, in the ordinary course of its
business, Salomon Brothers may actively trade the debt and equity securities of
both Cray and Silicon Graphics for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to the Engagement Letter, Cray will pay Salomon Brothers the
following fees: (a) $75,000, paid upon Cray's execution of the Engagement Letter
(which has been paid); plus (b) an additional fee of $425,000, which became
payable upon execution of the Merger Agreement (which has not yet been paid);
plus (c) an additional fee contingent upon the consummation of the Transaction
and payable at the closing thereof equal to $2,500,000. Cray has also agreed to
reimburse Salomon Brothers for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement (including the reasonable
fees and disbursements of its counsel) and to indemnify Salomon Brothers against
certain liabilities and expenses relating to or arising out of its engagement,
including certain liabilities under the Federal securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of Silicon Graphics Common Stock pursuant to the Merger will be
a taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. A stockholder who
receives Silicon Graphics Common Stock in exchange for Cray Common Stock
pursuant to the Merger will recognize gain or loss at the time of the exchange
in an amount equal to the difference between (i) the fair market value of the
Silicon Graphics Common
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Stock received by the stockholder and (ii) such stockholders' tax basis in the
Cray Common Stock surrendered. The fair market value of the Silicon Graphics
Common Stock likely will equal the trading value per share of Silicon Graphics
Common Stock on the date on which the Merger occurs.
Gain or loss will be calculated separately for each block of Cray Common
Stock (i.e., Cray Common Stock purchased at the same time and price) surrendered
by a stockholder. Such gain or loss will be capital gain or loss if the Cray
Common Stock was a capital asset in the hands of the stockholder, and will be
long-term capital gain or loss if, at the time of the exchange, the Cray Common
Stock were held by the stockholder for more than one year. Under present law,
long-term capital gains are generally taxable at a maximum rate of 28% for
individuals and 35% for corporations.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING STOCKHOLDERS WHO ACQUIRED CRAY COMMON STOCK PURSUANT TO
THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS
WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, AND FOREIGN
CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method. Several
merger-related accounting factors will affect Silicon Graphics' reported
financial results in fiscal 1996 and 1997. These matters are discussed in detail
in Silicon Graphics' Form 10-Q for the quarter ended March 31, 1996, which is
incorporated by reference in this Proxy Statement/Prospectus.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Cray Board with respect to the
Merger, stockholders of Cray should be aware that certain officers and directors
of Cray had interests in the Merger, including those referred to below, that
presented them with potential conflicts of interests. The Cray Board was aware
of these potential conflicts and considered them along with the other matters
described in "-- Cray's Reasons for the Merger; Recommendation of the Cray
Board."
Pursuant to the terms of the Merger Agreement, executive officers Robert H.
Ewald, Laurence L. Betterley, Irene M. Qualters and Michael R. Dungworth, are
entitled to a lump sum cash payment equal to two times his or her annual base
compensation if they are terminated without cause or resign with "good reason"
within twelve months of the consummation of the Offer. Prior to the execution of
the Merger Agreement, each such executive officer would have been entitled to a
lump sum cash payment equal to two times his or her annual total compensation
for the prior calendar year and twenty-four months of executive officer health
insurance if the executive officer was terminated without cause or resigned with
good reason within fifteen months of a "change of control."
Pursuant to certain "change of control" provisions contained in the Employee
Stock Option Plan that were triggered by the consummation of the Offer, options
held by Cray employees and granted under such plan before the date of the Merger
Agreement, automatically vested and the restrictions on restricted stock held by
Cray employees and granted under such plan before the date of the Merger
Agreement automatically lapsed. There are currently an aggregate of 4,857,145
shares subject to outstanding options under the Employee Stock Option Plan, all
of which vested as a result of consummation of the Offer. Based upon the closing
price of Silicon Graphics Common Stock on May 8, 1996, and assuming exercise of
outstanding in-the-money options to purchase Cray Common Stock issued pursuant
to the Employee Stock Option Plan, the aggregate dollar value of the Silicon
Graphics Common Stock to be received by officers of Cray and their affiliates
upon exercise of such options is approximately $9,779,000, including $8,332,000
associated with such options which accelerated to full vesting at the
consummation of the Offer.
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Cray has offered to the holders of options with an exercise price greater
than $29.125 per share ("Out-of-the-Money Options") the opportunity to exchange
Out-of-the-Money Options for unvested options with an exercise price of $29.125
per share ("Exchange Options") at the rate of three Out-of-the-Money Option for
each Exchange Option. The Exchange Options will vest at the rate of 2% per
month. In addition, the terms of the Exchange Options will, subject to
stockholder approval of the Plan Amendment, differ in certain respects from
those of the Out-of-the-Money Options. See "Proposal to Amend and Restate the
Cray Research, Inc. 1989 Employee Benefit Stock Plan -- General Description" for
a discussion of these differences. As of May 8, 1996, officers of Cray and their
affiliates held 72,107 Out-of-the-Money Options.
Pursuant to the Merger Agreement, the surviving corporation and Silicon
Graphics agreed to honor the employment agreement with J. Phillip Samper (the
Chairman and Chief Executive Officer of Cray until April 3, 1996), which has a
term beginning on May 17, 1995 and extending until December 31, 1999. Mr. Samper
resigned with good reason on April 3, 1996, and therefore, pursuant to his
employment agreement became entitled to (i) the continued payment of his then
current base salary for the lesser of two years or the remainder of the term of
the employment agreement, (ii) the current payment of any amounts owed to him
under Cray's Performance Incentive Plan, an award ranging from 80% to 120% of
his annual base salary, including any part of the yet unpaid guaranteed bonus of
$480,000 for the first year of employment, and (iii) the payment of an amount
equal to two years of his then current salary minus his vested balance in Cray's
Retirement Savings Plus Plan, paid in equal monthly installments. In addition,
Cray will pay to Mr. Samper an amount equal to the sum of (a) any loss incurred
by the Samper family on the sale of their Minnesota residence and (b) relocation
costs equal to the original cost of moving Mr. Samper's principal residence from
Maryland to Minnesota, adjusted for inflation.
Pursuant to a deferred compensation agreement entered into between Cray and
Mr. Samper, Cray agreed to pay Mr. Samper $431,000 per annum over an eight year
period in equal monthly installments in lieu of the payments described in (i)
through (iii) above. In the event of Mr. Samper's death prior to receipt of the
foregoing amounts, Cray will pay the remaining unpaid amounts to his spouse, or,
if he is not married on the date of death, to his estate.
The Merger Agreement provides that Cray will, and after the Effective Time,
the surviving corporation and Silicon Graphics will, to the fullest extent
permitted under applicable law or under the relevant Certificate of
Incorporation or Bylaws, indemnify and hold harmless each director or officer of
Cray or any of its subsidiaries against any costs or expenses, judgments, fines,
losses, claims, damages, liability and amounts paid in settlement in connection
with any claim, action, suit, proceeding or investigation 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 for a period of six years after the Effective Time.
In addition, the Certificate of Incorporation of the surviving corporation
will contain the indemnification provisions currently set forth in the
Certificate of Incorporation and Bylaws of Cray, which 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 Cray, unless such
modification is required by law.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder, the Merger may not
be consummated unless notification has been given and certain information has
been furnished to the Antitrust Division and the FTC and specified waiting
period requirements have been satisfied. The required waiting period under the
HSR Act with respect to the Merger expired at 11:59 p.m. on March 26, 1996. At
any time before or after the Effective Time, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the Merger or
seeking the divestiture of Cray by Silicon Graphics, in whole or in part,
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or the divestiture or compulsory licensing of substantial assets of Silicon
Graphics, Cray or their respective subsidiaries. State attorneys general and
private parties may also bring legal actions under the federal or state
antitrust laws under certain circumstances.
LITIGATION
On March 1, 1996, a putative class action was filed in the Court of Chancery
in the State of Delaware on behalf of the stockholders of Cray alleging causes
of action arising out of the Offer and the proposed Merger, SHADELINE V. CRAY
RESEARCH, INC., ET AL., Civ. Action No. 14868. The defendants in this action are
Cray, its directors, Silicon Graphics and Merger Sub. The action alleges that
Cray and the Cray Board breached their fiduciary duties and that Silicon
Graphics aided and abetted the breach of fiduciary duties and specifically
alleges that the Cray Board breached its fiduciary duties by failing to
undertake an adequate evaluation of Cray as a potential acquisition candidate
and to take adequate steps to enhance Cray's value as an acquisition candidate.
The action seeks INTER ALIA to enjoin the defendants from taking steps to
accomplish the Merger under its present terms. Silicon Graphics, Merger Sub and
Cray believe that the putative class action suit is without merit and intend to
defend it vigorously.
ABSENCE OF APPRAISAL RIGHTS
Neither the holders of Cray Common Stock nor the holders of Silicon Graphics
Common Stock have appraisal rights in connection with the Merger.
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following description of the Merger Agreement does not purport to be
complete, omits provisions that have been rendered inapplicable as a result of
the consummation of the Offer and is qualified in its entirety by reference to
the Merger Agreement a copy of which is attached hereto as Annex A and
incorporated by reference herein. Stockholders of Cray are urged to read the
Merger Agreement in its entirety for a more complete description of the Merger.
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,
Merger Sub shall be merged with and into Cray. As a result of the Merger, the
separate corporate existence of Merger Sub will cease and Cray will continue as
the surviving corporation and will become a wholly owned subsidiary of Silicon
Graphics. Upon consummation of the Merger, each share of Cray Common Stock held
in the treasury of Cray and each Ineligible Share shall be cancelled and retired
without payment of any consideration thereof and cease to exist.
CONVERSION OF SHARES
As a result of the Merger, each share of Cray Common Stock will be converted
at a one-to-one ratio into Silicon Graphics Common Stock. Subject to adjustment
to remove fractional shares, each remaining outstanding share of Cray Common
Stock (other than Ineligible Shares) shall be converted into the right to
receive one fully paid and non-assessable share of Silicon Graphics Common Stock
(the "Exchange Ratio").
As promptly as practicable after the Effective Time, Silicon Graphics will
cause to be sent to each stockholder of record of Cray as of the Effective Time
(other than Ineligible Shares) transmittal materials for use in exchanging
certificates of Cray Common Stock for certificates of Silicon Graphics Common
Stock. The transmittal materials will contain information and instructions with
respect to the surrender of Cray Common Stock certificates in exchange for new
certificates representing Silicon Graphics Common Stock and cash in payment for
any fractional shares resulting from the exchange. CERTIFICATES SHOULD NOT BE
SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. Pending delivery to
Silicon Graphics of Cray Common Stock certificates, any dividends on the Silicon
Graphics Common Stock to be issued as a result of the Merger that are payable
prior to the
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delivery of such certificates will be held by Silicon Graphics. Such dividends
will be paid, without interest, to the persons entitled thereto upon delivery of
such Cray Common Stock certificates to Silicon Graphics.
Fractional shares of Silicon Graphics Common Stock will not be issued in the
Merger. Instead, each stockholder of Cray who would otherwise be entitled to a
fractional share will receive cash in lieu thereof, calculated on the basis of
the average closing price of Silicon Graphics Common Stock for the 30 most
recent trading days prior to the Effective Time, as quoted in THE WALL STREET
JOURNAL or other reliable financial newspaper or publication.
TREATMENT OF CRAY COMMON STOCK OPTIONS, STOCK PURCHASE PLAN, AND CONVERTIBLE
DEBENTURES
STOCK OPTION PLANS. Under the Merger Agreement, all options to purchase
Cray Common Stock granted under the Cray Research, Inc. 1985 Incentive Stock
Option and Nonstatutory Option Plan (the "1985 Plan"), the Employee Stock Option
Plan and the Cray Research, Inc. 1989 Non-Employee Directors' Stock Option Plan
(the "Directors' Plan" and, together with the Employee Stock Option Plan and the
1985 Plan, the "Stock Option Plans") or pursuant to any other arrangement
adopted by the Board to provide options to directors, officers or employees of
Cray (in any such case, an "Option") then outstanding shall be assumed by
Silicon Graphics 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, Cray'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 Cray, Silicon Graphics or the holder of any
Option, be assumed by Silicon Graphics. Each Option so assumed by Silicon
Graphics 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 Silicon Graphics Common Stock equal to the number of shares of Cray
Common Stock that were purchasable under such Option immediately prior to the
Effective Time, subject to adjustment to reflect the effect of any stock split,
reverse split, stock dividend, reorganization or recapitalization, rounded up to
the nearest whole number of shares of Silicon Graphics Common Stock, and (ii)
the per share exercise price for the shares of Silicon Graphics Common Stock
issuable upon exercise of such assumed Option will be equal to the exercise
price per share of Cray Common Stock at which such Option was exercisable
immediately prior to the Effective Time, subject to adjustment to reflect the
effect of any stock split, reverse split, stock dividend, reorganization or
recapitalization, and rounding the resulting exercise price up to the nearest
whole cent. After the Effective Time, if not otherwise elected by Silicon
Graphics, all references to Cray in the Stock Option Plans and the applicable
stock option agreements shall be deemed to refer to Silicon Graphics, which
shall have assumed the Stock Option Plans. Stockholder approval of the Merger
Agreement shall constitute approval of Silicon Graphics' assumption of the Stock
Option Plans and the issuance of new awards thereunder.
It is the intention of Silicon Graphics and Cray that the Options assumed by
Silicon Graphics qualify following the Effective Time as incentive stock options
as defined in Section 422 of the Code to the extent (and only to the extent)
such Options qualified as incentive stock options prior to the Effective Time.
CRAY EMPLOYEE STOCK PURCHASE PLAN. Subject to the consummation of the
Merger, on the Final Purchase Date, Cray will apply any funds then credited to
each Purchase Plan participant's payroll withholding account to the purchase of
whole shares of Cray Common Stock. The cost to each participant in the Purchase
Plan for the shares of Cray Common Stock purchased shall be the lower of 85% of
the closing sale price of Cray Common Stock on the NYSE on (i) the first day of
the then current Purchase Period (as defined in the Purchase Plan) or (ii) the
last trading day on or prior to the Final Purchase Date. Shares of Cray Common
Stock purchased on the Final Purchase Date will be converted to Silicon Graphics
Common Stock in the same manner as described above under "-- Conversion of
Shares." Employees of Cray as of the Effective Time will be permitted to
participate in
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Silicon Graphics' Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility requirements of Silicon Graphics' Employee Stock Purchase Plan (with
Cray employees receiving credit, for purposes of such eligibility, for service
with Cray).
CONVERTIBLE DEBENTURES. Under the Merger Agreement, the Convertible
Debentures shall, pursuant to the terms of the Indenture, become thereafter
convertible only into that number of shares of Silicon Graphics 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.
Silicon Graphics shall execute and deliver a supplemental indenture (the
"Supplemental Indenture"), which shall evidence Silicon Graphics' 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.
BUSINESS OF CRAY PENDING THE MERGER
Pursuant to the Merger Agreement, Cray has covenanted and agreed that,
subject to certain exceptions, between the date of the Merger Agreement and
continuing until the earlier of the termination of the Merger Agreement or the
Effective Time, unless Silicon Graphics shall otherwise agree in writing, Cray
shall conduct its business and shall cause the business of its subsidiaries to
be conducted only in, and Cray and its subsidiaries shall not take any action
except in the ordinary course of business and in a manner consistent with past
practice; and Cray shall use reasonable commercial efforts to preserve
substantially intact the business organization of Cray and its subsidiaries, to
keep available the services of the present officers, employees and consultants
of Cray and its subsidiaries, to take all reasonable action necessary to prevent
the loss, cancellation, abandonment, forfeiture or expiration of all current
patents, registered and material unregistered trademarks and service marks,
registered and material unregistered copyrights, trade names and any
applications therefor owned by Cray (the "Company Intellectual Property
Rights"), all material third-party patents, trademarks or copyrights which are
incorporated in, are, or form a part of any Company product (the "Third Party
Intellectual Property Rights"), and material contracts of Cray and to preserve
the present relationships of Cray and its subsidiaries with customers, suppliers
and other persons with which Cray or any of its subsidiaries has significant
business relations. The Merger Agreement provides that, except as contemplated
therein, neither Cray nor any of its subsidiaries shall, between the date of the
Merger Agreement and continuing until the earlier of the termination of the
Merger Agreement or the Effective Time, directly or indirectly do, or propose to
do, any of the following, without the prior written consent of Silicon Graphics:
(a) amend or otherwise change its Certificate of Incorporation or Bylaws; (b)
issue, sell, pledge, dispose of, 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 Cray, any of its subsidiaries or
affiliates (except for the issuance of shares of Cray Common Stock issuable
pursuant to the exercise of Options under the Stock Option Plans or pursuant to
rights to purchase such shares under the Purchase Plan, which Options or rights,
as the case may be, are outstanding on the date of the Merger Agreement or with
respect to the Convertible Debentures); (c) sell, pledge, dispose of or encumber
any assets of Cray 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 or
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 Cray 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
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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 Rights (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 Rights 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 any capital expenditures or purchase
of fixed assets which are, in the aggregate, in excess of Cray's budgeted
capital expenditures for 1996; 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 Cray will give Silicon Graphics prior notice of the
making or the firm commitment of more than $5 million of capital expenditures 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
(i) through (v); (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 Cray or any of its subsidiaries except in accordance with
Cray's existing severance policy or establish, adopt, enter into or amend any
Employee Plan (other than amendments required in order to effect the Merger
Agreement); (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 Cray's most recent report filed with the Commission; (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 Cray 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 in order to effect the Merger Agreement); (m) permit any increase in
the number of employees of Cray employed by Cray on the date of the Merger
Agreement other than pursuant to an employee plan to be agreed to by Cray and
Silicon Graphics as promptly as practicable after the date of the Merger
Agreement, acting reasonably and in good faith; or (n) take, or agree in writing
or otherwise to take, any of the actions described in sections (a) through (m)
above, or any action which would make any of the representations or warranties
of Cray contained in the Merger Agreement untrue or incorrect or prevent Cray
from performing or cause Cray not to perform its covenants under the Merger
Agreement or result in any of the conditions to the Merger set forth in the
Merger Agreement not being satisfied.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
Pursuant to the Merger Agreement, Cray has agreed that it shall not,
directly or indirectly, through any officer, director, employee, representative
or agent of Cray 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
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(including without limitation by way of a tender or exchange offer) or similar
transactions involving Cray or any subsidiaries of Cray (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 Cray Board from referring any third party that contacts Cray on an
unsolicited basis after the date of the Merger Agreement concerning an
Alternative Transaction (as defined below) to Section 5.02(a) of the Merger
Agreement (provided that Silicon Graphics is concurrently notified of such
contact and referral). The parties have agreed that nothing contained in the
Merger Agreement shall prevent the Cray Board, after receiving an opinion of
outside counsel to the effect that the Cray Board is required to do so in order
to discharge properly its fiduciary duties, from considering, negotiating,
approving and recommending to the stockholders of Cray an unsolicited bona fide
written Acquisition Proposal which the Cray Board determines in good faith
(after consultation with its financial advisors) (i) would result in a
transaction more favorable to Cray'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"). Cray shall immediately
notify Silicon Graphics after receipt of any Acquisition Proposal or any request
for nonpublic information relating to Cray or any of its subsidiaries in
connection with an Acquisition Proposal or for access to the properties, books
or records of Cray or any subsidiary by any person or entity that informs the
Cray Board that it is considering making, or has made, an Acquisition Proposal.
Such notice to Silicon Graphics 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 Cray Board receives a
request for material nonpublic information by a party who makes a bona fide
Acquisition Proposal and the Cray Board determines that such proposal, if
consummated pursuant to its terms, is a Superior Proposal, then, and only in
such case, Cray may, subject to the execution of a confidentiality agreement
substantially similar to that then in effect between Cray and Silicon Graphics,
provide such party with access to information regarding Cray. The Merger
Agreement also provides that Cray shall immediately cease and cause to be
terminated any existing discussions or negotiations with any parties (other than
Silicon Graphics and Merger Sub) conducted heretofore with respect to any of the
foregoing. Cray agrees not to release any third party from any confidentiality
or standstill agreement to which Cray is a party. Cray shall ensure that the
officers, directors and employees of Cray and its subsidiaries and any
investment banker or other advisor or representative retained by Cray 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 Cray 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
Silicon Graphics or its affiliates (a "Third Party") acquires more than 20% of
the outstanding shares of Cray Common Stock, whether from Cray or pursuant to a
tender offer or exchange offer or otherwise, (ii) a merger or other business
combination involving Cray pursuant to which any Third Party acquires more than
20% of the outstanding equity securities of Cray 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 Cray, and the entity surviving
any merger or business combination including any of them) of Cray and its
subsidiaries having a fair market value equal to more than 20% of the fair
market value of all the assets of Cray 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.
BUSINESS OF SILICON GRAPHICS PENDING THE MERGER
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, Silicon Graphics has covenanted and
agreed that, unless Cray shall otherwise agree in writing, Silicon
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Graphics 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 Silicon Graphics 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 Cray: (a) amend or otherwise change Silicon Graphics' Certificate of
Incorporation (other than with respect to immaterial changes thereto), or amend
the terms of the Silicon Graphics 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
warranties of Silicon Graphics contained in the Merger Agreement untrue or
incorrect or prevent Silicon Graphics from performing or cause Silicon Graphics
not to perform its covenants thereunder or would result in any of the conditions
to the merger to be satisfied by Silicon Graphics not being satisfied.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into Cray, which
will be the surviving corporation and will thereby become a wholly owned
subsidiary of Silicon Graphics. Each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the surviving corporation.
Unless otherwise determined by Silicon Graphics 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, will be the Certificate of
Incorporation of the surviving corporation, until thereafter amended. The Bylaws
of Merger Sub, as in effect immediately prior to the Effective Time, will be the
Bylaws of the surviving corporation, until thereafter amended.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, the surviving corporation and Silicon
Graphics shall honor the terms and provisions in the Employment Agreement, dated
May 17, 1995, between Cray's chief executive officer, J. Phillip Samper, and
Cray. See "The Merger -- Interests of Certain Persons in the Merger." The Merger
Agreement also provides that the surviving corporation shall, subject to certain
exceptions set forth in the Merger Agreement, offer severance benefits to Cray's
employees generally consistent with those given in Cray'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 Bylaws of
Cray, 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 Cray, unless such modification is required by law.
The Merger Agreement also provides that Cray shall, to the fullest extent
permitted under applicable law or under Cray's Certificate of Incorporation or
Bylaws and regardless of whether the Merger becomes effective, indemnify and
hold harmless, and after the Effective Time, the surviving corporation and
Silicon Graphics shall, to the fullest extent permitted under applicable law or
under the surviving corporation's and Silicon Graphics', as the case may be,
Certificate of Incorporation or Bylaws, indemnify and hold harmless, each
director and officer of Cray 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
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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 Silicon Graphics and (ii) neither the surviving corporation nor Silicon
Graphics shall be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld).
Pursuant to the Merger Agreement, Silicon Graphics shall use its reasonable
best efforts to cause the shares of Silicon Graphics 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.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties thereto including representations by Cray as to the
absence of certain changes or events concerning Cray's business, capitalization,
compliance with law, material contracts, litigation, employee benefit plans,
labor matters, Commission filings, title to property, taxes, intellectual
property and environmental matters. In addition to the foregoing, the Merger
Agreement also contains the representations of Cray described below.
Cray has represented that the Cray Board has taken all necessary action to
amend the Common Stock Rights Agreement among Cray and Norwest Bank Minnesota,
N.A., as Rights Agent, dated May 15, 1989 (the "Cray 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 issued pursuant to the Cray Rights Agreement
(the "Cray Rights") to become exercisable under the Cray Rights Agreement, (ii)
Silicon Graphics or Merger Sub or any of their affiliates to be deemed an
"Acquiring Person" (as defined in the Cray Rights Agreement) or (iii) the "Share
Acquisition Date" (as defined in the Cray Rights Agreement) to occur upon any
such event, (B) none of the acceptance for payment or payment for shares of Cray
Common Stock by Merger Sub pursuant to the Offer or the consummation of the
Merger will cause (i) the Cray Rights to become exercisable under the Cray
Rights Agreement or (ii) Silicon Graphics or Merger Sub or any of their
affiliates to be deemed an Acquiring Person or (iii) the Share Acquisition Date
to occur upon any such event, and (C) the "Expiration Date" (as defined in the
Cray Rights Agreement) shall occur no later than immediately prior to the
purchase of shares pursuant to the Offer. Cray has also represented that the
"Distribution Date" (as defined in the Cray Rights Agreement) has not occurred.
Cray has represented that the Cray Board has taken all necessary action to
amend the 1989 Cray Research, Inc. Executives Severance Compensation Plan (the
"Executive Severance Plan"), the Cray Research, Inc. Key Management/Professional
Severance Compensation Plan and the Cray Research, Inc. General Employee
Severance Compensation Plan (collectively, the "Severance 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 Severance 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 Commission under the Securities Act; 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 Cray; (c)
the waiting period applicable to the consummation of the Merger under the HSR
Act shall
36
<PAGE>
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 Silicon Graphics Common Stock 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)
Silicon Graphics shall have made, or caused to be made, the Offer and shall have
purchased, or caused to be purchased, shares of Cray Common Stock pursuant to
the Offer.
In addition to the foregoing, the obligations of Silicon Graphics and Merger
Sub to effect the Merger are also subject to the following conditions: (a) the
representations and warranties of Cray 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 Cray, with the same
force and effect as if made on and as of the Effective Time; (b) Cray 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 Cray 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 Cray; (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 Silicon Graphics from exercising all material
rights and privileges pertaining to its ownership of the surviving corporation
or the ownership or operation by Silicon Graphics or any of its subsidiaries of
all or a material portion of the business or assets of Silicon Graphics or any
of its subsidiaries, or seeking to compel Silicon Graphics or any of its
subsidiaries to dispose of or hold separate all or any material portion of the
business or assets of Silicon Graphics 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 Cray or any subsidiary of Cray having or reasonably likely to have
a Material Adverse Effect (as defined in the Merger Agreement); and (f) Silicon
Graphics shall have received from each officer and director who is identified as
an "affiliate" of Cray an affiliate agreement, and each such affiliate agreement
shall be in full force and effect.
Finally the obligation of Cray to effect the Merger is also subject to the
following conditions: (a) the representations and warranties of Silicon Graphics
and Merger Sub 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 Cray, with the same force and effect as if
made on and as of the Effective Time; (b) Silicon Graphics and Merger Sub 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 Silicon Graphics and Merger Sub for the authorization,
execution and delivery of the Merger Agreement and the consummation by them of
the transactions contemplated thereby
37
<PAGE>
shall have been obtained and made by Silicon Graphics and Merger Sub; 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 Silicon Graphics or any subsidiary of Silicon Graphics having or
reasonably likely to have a Material Adverse Effect.
TERMINATION; AMENDMENT
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time, notwithstanding approval thereof by the stockholders of
Cray: (a) by mutual written consent duly authorized by the boards of directors
of Silicon Graphics and Cray; or (b) by either Silicon Graphics or Cray 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 Silicon Graphics or Cray 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 Silicon Graphics, if
the Offer shall not have been consummated prior to June 30, 1996 (PROVIDED that
Silicon Graphics is not then in material breach of the Merger Agreement); or (e)
by Silicon Graphics, if (i) the Cray Board shall withdraw, modify or change its
recommendation of the Merger Agreement, the Offer or the Merger in a manner
adverse to Silicon Graphics or shall have resolved to do so; or (ii) the Cray
Board shall have taken a "neutral" position with respect to an Alternative
Transaction (as defined in the Merger Agreement); or (iii) any person or "group"
(other than Silicon Graphics or an affiliate of Silicon Graphics) becomes the
owner of 20% or more of the outstanding shares of Cray Common Stock; or (f) by
Silicon Graphics or Cray, upon a breach of any representation, warranty,
covenant or agreement on the part of Cray or Silicon Graphics and Merger Sub,
respectively, set forth in the Merger Agreement or in certain events where the
representations or warranties of Cray or Silicon Graphics and Merger Sub,
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 Silicon
Graphics or Cray, as the case may be, through the exercise of its reasonable
best efforts and for so long as Silicon Graphics or Cray, as the case may be,
continues to exercise such reasonable best efforts, neither Cray nor Silicon
Graphics, 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 Cray or Silicon Graphics, if the Cray 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.
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however,
that, after approval of the Merger by the stockholders of Cray, no amendment may
be made which by law requires further approval of such stockholders, without
such further approval.
FEES AND EXPENSES
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.
Cray has agreed to pay Silicon Graphics a fee of $25,000,000 (the "Fee"),
plus actual, documented and reasonable out-of-pocket expenses of Silicon
Graphics, 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
Silicon Graphics' counsel), if the Merger Agreement is terminated because (i)
the Cray Board has
38
<PAGE>
withdrawn or changed its recommendation of the Merger Agreement or the Merger in
a manner adverse to Silicon Graphics or taken a "neutral" position with respect
to an Alternative Transaction or any person or group (other than Silicon
Graphics or an affiliate of Silicon Graphics) becomes the owner of 20% or more
of the outstanding shares of Cray Common Stock, or if the Cray Board shall have
resolved to accept, or accepted, a Superior Proposal, (ii) Cray has willfully
committed a Terminating Breach and has failed to cure such breach in the manner
set forth above, (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, HOWEVER, that no fee shall be payable if Silicon Graphics or Merger
Sub in each case is in intentional material breach of its obligations under the
Merger Agreement.
CONFIDENTIALITY AGREEMENT
Silicon Graphics and Cray each has agreed to keep confidential, pursuant to
the confidentiality agreement dated December 15, 1995 (the "Confidentiality
Agreement"), information provided to the other party with respect to the
business, properties and personnel of the party furnishing such information. The
Confidentiality Agreement contains terms restricting the disclosure and use of
confidential information exchanged between the two parties in evaluating the
Merger and otherwise.
AGREEMENTS OF CRAY AFFILIATES
Rule 145 promulgated under the Securities Act regulates the disposition of
securities of "affiliates" of Cray in connection with the Merger. Cray has
delivered to Silicon Graphics a letter (the "Affiliate Letter") identifying all
persons who are or may be deemed to be, at the time of the Special Meeting,
"affiliates" of Cray for purposes of Rule 145 under the Securities Act. Such
Affiliate Letter may be further updated prior to the Effective Time. Cray has
also agreed to use its best efforts to cause each person (an "Affiliate") who is
identified as an Affiliate in the Affiliate Letter to deliver to Silicon
Graphics, prior to the Effective Time, a written agreement (an "Affiliate
Agreement"). Under such Affiliate Agreements, every Affiliate will represent
that he or she has been advised that the Affiliate may not sell, transfer or
otherwise dispose of Silicon Graphics Common Stock issued to the Affiliate in
the Merger unless such sale, transfer or other disposition (i) has been
registered under the Securities Act, (ii) is made in compliance with the
requirements of Rule 145 under the Securities Act, or (iii) in the opinion of
counsel reasonably acceptable to Silicon Graphics, is otherwise exempt from
registration under the Securities Act.
In addition, all executive officers and directors of Cray have confirmed
that they intend to vote their respective shares of Cray Common Stock in favor
of the Merger.
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<PAGE>
SILICON GRAPHICS AND CRAY
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined condensed financial statements
give effect to the Merger under the purchase method of accounting. The pro forma
combined condensed balance sheet assumes the Merger took place on December 31,
1995 and combines Silicon Graphics' unaudited condensed consolidated balance
sheet with Cray's historical condensed consolidated balance sheet at that date.
The pro forma combined condensed statements of operations assume that the Merger
took place as of the beginning of each of the periods presented and combine
Silicon Graphics' historical condensed consolidated statement of operations for
the year ended June 30, 1995 and Silicon Graphics' unaudited condensed
consolidated statement of operations for the six months ended December 31, 1995
with the unaudited condensed consolidated statement of operations of Cray for
the twelve-month period ended June 30, 1995 and the unaudited condensed
consolidated statement of operations of Cray for the six months ended December
31, 1995, respectively.
The charge of $87 million resulting from purchased research and development
costs has been reflected in stockholders' equity in the pro forma combined
condensed balance sheet at December 31, 1995. This same charge has been excluded
from the pro forma combined condensed statements of operations for the year
ended June 30, 1995 and the six months ended December 31, 1995.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of operating results or financial position that would
have occurred if the Merger had been consummated as of the dates indicated, nor
is it necessarily indicative of future operating results or financial position.
In particular, the actual adjustments to the valuation of Cray assets and
liabilities in connection with the acquisition may vary significantly from the
estimates reflected in the pro forma financial information.
These pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of Silicon Graphics and Cray which are incorporated by reference in this
Proxy Statement/Prospectus.
40
<PAGE>
SILICON GRAPHICS AND CRAY PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
SGI CRAY ADJUSTMENTS COMBINED
------------- ----------- ------------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents......................... $ 258,380 $ 104,425 $ (103,807)(a) $ 258,998
Short-term marketable investments................. 153,438 -- (153,438)(a) --
Accounts receivable, net.......................... 655,884 156,039 -- 811,923
Inventories....................................... 342,823 177,359 62,000(c) 582,182
Prepaid expenses and other current assets......... 86,755 60,082 173,000(c) 319,837
------------- ----------- ---------- -------------
Total current assets.......................... 1,497,280 497,905 22,245 1,972,940
Other marketable investments...................... 282,755 150,000 (90,755)(a) 342,000
Property, plant and equipment, net................ 301,113 200,875 (131,000)(c) 370,988
Purchased intangible assets....................... -- -- 76,000(c) 76,000
Other assets...................................... 184,339 129,274 (37,000)(c) 276,613
------------- ----------- ---------- -------------
$ 2,265,487 $ 978,054 $ (205,000) $ 3,038,541
------------- ----------- ---------- -------------
------------- ----------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts and notes payable........................ $ 162,745 $ 42,924 $ 238,000(a) $ 443,669
Other current liabilities......................... 381,883 229,248 86,000 (c)(d 697,131
------------- ----------- ---------- -------------
Total current liabilities..................... 544,628 272,172 324,000 1,140,800
Long-term debt and other.......................... 277,575 103,454 (18,000)(c) 363,029
Stockholders' equity.............................. 1,443,284 602,428 (511,000)(b)(c) 1,534,712
------------- ----------- ---------- -------------
$ 2,265,487 $ 978,054 $ (205,000) $ 3,038,541
------------- ----------- ---------- -------------
------------- ----------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
41
<PAGE>
SILICON GRAPHICS AND CRAY PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
SGI CRAY (m) COMBINED
------------- ------------ ---------------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES................................. $ 2,228,268 $ 727,723 $ -- $ 2,955,991
COSTS AND EXPENSES:
Cost of revenues............................. 1,032,059 440,715 71,000 (e)(g)(i 1,543,774
Research and development..................... 247,678 131,262 -- (g) 378,940
Selling, general and administrative.......... 619,259 171,521 3,000 (g)(i 793,780
Restructuring/merger related costs........... 22,000 150,109 -- 172,109
------------- ------------ ----------- -------------
Total costs and expenses................. 1,920,996 893,607 74,000 2,888,603
------------- ------------ ----------- -------------
Operating income (loss)...................... 307,272 (165,884) (74,000) 67,388
Interest and other income (expense), net..... 9,447 5,526 (31,000)(k) (16,027)
------------- ------------ ----------- -------------
Income (loss) before taxes................... 316,719 (160,358) (105,000) 51,361
Provision (benefit) for income taxes......... 91,863 1,301 (39,900)(l) 53,264
------------- ------------ ----------- -------------
Net income (loss)............................ 224,856 (161,659) (65,100) (1,903)
Preferred stock dividend requirement......... 54 -- -- 54
------------- ------------ ----------- -------------
Net income (loss) available to common
stockholders................................ $ 224,802 $ (161,659) $ (65,100) $ (1,957)
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Net income (loss) per share.................. $ 1.28 $ (6.33) $ (0.01)
------------- ------------ -------------
------------- ------------ -------------
Shares used to compute per share data........ 175,435 25,539 162,800
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
42
<PAGE>
SILICON GRAPHICS AND CRAY PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
SGI CRAY ADJUSTMENTS (m) COMBINED
------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES....................................... $ 1,267,012 $ 405,447 $ -- $ 1,672,459
COSTS AND EXPENSES:
Cost of revenues................................... 603,967 255,696 38,000 (f)(h)(j 897,663
Research and development........................... 153,540 58,158 --(h) 211,698
Selling, general and administrative................ 365,340 85,469 2,000 (h)(j 452,809
Restructuring costs................................ 1,275 45,857 -- 47,132
------------- ----------- -------- -------------
Total costs and expenses....................... 1,124,122 445,180 40,000 1,609,302
------------- ----------- -------- -------------
Operating income (loss)............................ 142,890 (39,733) (40,000) 63,157
Interest and other income (expense), net........... 13,040 (1,003) (16,000)(k) (3,963)
------------- ----------- -------- -------------
Income (loss) before taxes......................... 155,930 (40,736) (56,000) 59,194
Provision (benefit) for income taxes............... 45,220 (1,571) (21,280)(l) 22,369
------------- ----------- -------- -------------
Net income (loss).................................. 110,710 (39,165) (34,720) 36,825
Preferred stock dividend requirement............... -- -- -- --
------------- ----------- -------- -------------
Net income (loss) available to common
stockholders...................................... $ 110,710 $ (39,165) $ (34,720) $ 36,825
------------- ----------- -------- -------------
------------- ----------- -------- -------------
Net income (loss) per share........................ $ 0.62 $ (1.55) $ 0.20
------------- ----------- -------------
------------- ----------- -------------
Shares used to compute per share data.............. 178,268 25,281 184,700
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
43
<PAGE>
SILICON GRAPHICS AND CRAY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(a) Represents borrowings, the liquidation of marketable investments and
cash used to finance the acquisition of 19,218,735 shares of Cray Common Stock
pursuant to the Offer.
(b) Represents issuance of one share of Silicon Graphics Common Stock in
exchange for each remaining outstanding share of Cray Common Stock at a per
share value of $26.15 (average of Silicon Graphics Common Stock closing prices
for the five trading days immediately preceding and following the February 26,
1996 announcement of the merger) plus the value of Cray stock options assumed by
Silicon Graphics.
(c) Estimated valuation adjustments of Cray assets and liabilities resulting
from the preliminary allocation of the purchase price, elimination of
stockholders' equity and the estimated $87 million charge taken at the time of
acquisition for purchased research and development costs. The aggregate purchase
price (including acquisition costs) is estimated to be approximately $764
million in cash, common stock and the value of Cray stock options assumed by
Silicon Graphics.
(d) Accrued expenses associated with preliminary cost estimates, including
severance costs, termination of leases and other reserves.
(e) Recognition of additional cost of sales assuming a $75 million purchase
price adjustment to record inventory at fair value, amortized over nine months
assuming acquisition had taken place on July 1, 1994.
(f) Recognition of additional cost of sales assuming a $60 million purchase
price adjustment to record inventory at fair value, amortized over nine months
assuming acquisition had taken place on July 1, 1995.
(g) Reduction of depreciation and amortization related to valuation
adjustments of property, plant and equipment and leased systems and spares
assuming the acquisition had taken place on July 1, 1994.
(h) Reduction of depreciation and amortization related to valuation
adjustments of property, plant and equipment and leased systems and spares
assuming the acquisition had taken place on July 1, 1995.
(i) Amortization of purchased intangible assets (customer list, Cray trade
name, purchased technology and workforce in place) assuming acquisition had
taken place on July 1, 1994. Amortization of purchased intangible assets is
based on lives ranging from 4-15 years.
(j) Amortization of purchased intangible assets (customer list, Cray trade
name, purchased technology and workforce in place) assuming acquisition had
taken place on July 1, 1995. Amortization of purchased intangible assets is
based on lives ranging from 4-15 years.
(k) Adjustment to interest income associated with purchase consideration.
(l) Income tax effects of pro forma adjustments computed using the combined
federal and state statutory rate of 38%.
(m) The statement of operations presentation excludes the effect of an
estimated $87 million charge to operations taken at the time of acquisition for
purchased research and development costs related to acquired technology that has
not reached technological feasibility and that has no alternative future use.
44
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
In the event that the Merger is consummated, former holders of shares of
Cray Common Stock will, at the Effective Time, receive in exchange therefor
shares of Silicon Graphics Common Stock.
The following is a summary of the material differences between the rights of
holders of Silicon Graphics Common Stock and the rights of holders of Cray
Common Stock at the date hereof. As each of Silicon Graphics and Cray is
organized under the DGCL, these differences arise from the various provisions of
Silicon Graphics' Restated Certificate of Incorporation (the "Silicon Graphics
Restated Certificate"), Silicon Graphics' Bylaws (the "Silicon Graphics
Bylaws"), Cray's Certificate of Incorporation (the "Cray Certificate"), Cray's
Bylaws (the "Cray Bylaws") and the Silicon Graphics Rights Agreement (as defined
below) and the Cray Rights Agreement.
CUMULATIVE VOTING
The Silicon Graphics Restated Certificate and the Silicon Graphics Bylaws
provide for cumulative voting in director elections. The Cray Certificate and
Cray Bylaws do not provide for cumulative voting in director elections.
CLASSIFICATION OF BOARD OF DIRECTORS
The Silicon Graphics Restated Certificate and the Silicon Graphics Bylaws
provide for a classified board of directors consisting of three classes. The
Cray Certificate and Cray Bylaws do not provide for the classification of the
Cray Board.
AMENDMENT TO GOVERNING DOCUMENTS
The DGCL requires a vote of the corporation's board of directors followed by
the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless a
greater level of approval is required by the certificate of incorporation. The
Silicon Graphics Restated Certificate and the Cray Certificate do not require a
greater level of approval for an amendment thereto. If an amendment would alter
the powers, preferences or special rights of a particular class or series of
stock so as to affect them adversely, the class or series shall be given the
power to vote as a class notwithstanding the absence of any specifically
enumerated power in the certificate of incorporation. The DGCL also states that
the power to adopt, amend or repeal the by-laws of a corporation shall be in the
stockholders entitled to vote, provided that the corporation in its certificate
of incorporation may confer such power on the board of directors in addition to
the stockholders. The Silicon Graphics Restated Certificate expressly authorizes
each of the board of directors and the stockholders to adopt, amend or repeal
the Silicon Graphics Bylaws. The Cray Certificate expressly authorizes the Cray
Board to adopt, amend or repeal the Cray Bylaws.
RIGHTS PLAN
SILICON GRAPHICS RIGHTS PLAN. Effective February 1, 1991, the Silicon
Graphics Board declared a dividend of one preferred share purchase right (a
"Silicon Graphics Right") for each outstanding share of Silicon Graphics Common
Stock, to stockholders of record as of the close of business on March 1, 1991
and for each share of Silicon Graphics Common Stock issued thereafter pursuant
to a Preferred Shares Rights Agreement (as amended, the "Silicon Graphics Rights
Agreement"). One Silicon Graphics Right will be issued for each share of Silicon
Graphics Common Stock issued in connection with the Merger. Each Silicon
Graphics Right entitles the registered holder to purchase from Silicon Graphics
one-thousandth of a share of Series B Participating Preferred Stock (the
"Silicon Graphics Series B Preferred"), at a price of $200.00, subject to
adjustment under certain circumstances set forth in the Silicon Graphics Rights
Agreement. Upon the occurrence of certain events generally associated with an
unsolicited attempt to take over Silicon Graphics, the Silicon Graphics Rights
(except for Silicon Graphics Rights held by an Acquiring Person (as defined in
the Silicon Graphics Rights Agreement)) will become exercisable and will cease
to trade with the Silicon Graphics Common Stock. Upon the acquisition without
the consent of the Silicon Graphics Board of 15% or more of the outstanding
shares of Silicon Graphics Common Stock or announcement of a tender offer or
exchange offer for shares in excess of 15% or more of the outstanding shares of
Silicon
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<PAGE>
Graphics Common Stock (the "Flip-In Threshold"), each Silicon Graphics Right
(except for Silicon Graphics Rights held by an Acquiring Person) will be
converted into a right to purchase at the then-current exercise price of the
Silicon Graphics Right that number of shares of Silicon Graphics Common Stock
having a market value of two times the exercise price of the Silicon Graphics
Right or, in the event of a merger of Silicon Graphics into an Acquiring Person,
securities of the Acquiring Person having a market value of two times the
exercise price of the Silicon Graphics Right. Under certain conditions, Silicon
Graphics may elect to redeem the Silicon Graphics Rights for a nominal amount or
to exchange the Silicon Graphics Rights not held by an Acquiring Person for
Silicon Graphics Common Stock on a one-for-one basis.
The Silicon Graphics Rights are designed to protect and maximize the value
of the outstanding equity interests of Silicon Graphics in the event of an
unsolicited attempt by an acquiror to take over Silicon Graphics in a manner or
on terms not approved by the Silicon Graphics Board. Takeover attempts
frequently include coercive tactics to deprive a corporation's board of
directors and its stockholders of any real opportunity to determine the destiny
of the corporation. The Silicon Graphics Rights have been declared by the
Silicon Graphics Board in order to deter such tactics, including a gradual
accumulation of shares in the open market of a 15% or greater position to be
followed by a merger or a partial or two-tier tender offer that does not treat
all stockholders equally. These tactics could unfairly pressure stockholders,
squeeze them out of their investment without giving them an real choice or
deprive them of the full value of their shares.
The Silicon Graphics Rights are not intended to prevent a takeover of
Silicon Graphics and will not do so. Nevertheless, the Silicon Graphics Rights
may have the effect of rendering more difficult or discouraging an acquisition
of Silicon Graphics deemed undesirable by the Silicon Graphics Board. The
Silicon Graphics Rights may cause substantial dilution to a person or group that
attempts to acquire Silicon Graphics on terms or in a manner not approved by the
Silicon Graphics Board, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Silicon Graphics Rights.
CRAY RIGHTS PLAN. The Cray Rights Agreement is substantially similar to the
Silicon Graphics Rights Agreement, with the exception of a Flip-In Threshold of
20% in contrast to the 15% Flip-In Threshold in the Silicon Graphics Rights
Agreement. On February 25, 1996 the Cray Board approved an amendment to the Cray
Rights Agreement providing that among other things the execution and delivery of
the Merger Agreement and the making of the Offer and the consummation of the
Merger and the Offer will not cause the Cray Rights to become exercisable. See
"The Merger Agreement and Related Agreements -- Representations and Warranties."
COMPENSATION OF CRAY EXECUTIVES
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Cray paid each director during the year ended December 31, 1995, other than
Messrs. Ewald and Samper, directors' fees of $20,000 plus $1,000 for each board
and committee meeting attended. The chairs of the Audit, Compensation and
Development and Finance Committees each received an additional $1,500 for
chairing those committees.
A retirement income plan established for non-employee directors provided for
payment upon retirement to each director of an amount equal to the final annual
retainer times the number of years served on the Cray Board or 15 years,
whichever is less. In February, 1996, the board terminated the plan, freezing
the benefits payable to current directors. No additional amounts will accrue
under the plan. In 1995, Cray accrued $71,330 of expense and made payments
totalling $20,000 under the plan.
The Directors' Plan provides for the issuance to non-employee directors of
Cray 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
46
<PAGE>
director at each subsequent annual stockholders' meeting. The directors
nominated to the Cray Board by Merger Sub are not entitled to participate in the
Directors' Plan. The options granted under the Directors' Plan are "nonstatutory
options" not qualifying under Section 422 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 NYSE on the
date of grant. The options granted are exercisable in four successive 25%
cumulative annual installments commencing one year after the date of grant and
expire ten years from the date of grant if unexercised. In February, 1996, the
Cray Board approved an amendment to the Directors' Plan increasing the annual
grant of options to 2,500.
In 1995, the Cray Board approved a Deferred Compensation Plan for
Non-Employee Directors pursuant to which directors may elect to defer directors'
fees which become payable.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The Summary Compensation Table below includes
individual compensation information for the "named executive officers" for
services rendered in all capacities during the fiscal years ended December 31,
1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- --------------------------------
OTHER ANNUAL RESTRICTED NUMBER OF SHARES ALL OTHER
NAME AND COMPENSATION STOCK AWARDED UNDERLYING STOCK COMPENSATION
PRINCIPAL POSITION (1) YEAR SALARY BONUS (2) (3) (4) OPTIONS GRANTED (5)
- ----------------------------- --------- --------- ----------- --------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Phillip Samper 1995 $ 364,626 $ 391,701 $ 9,078 $ 4,100,000 300,000 $ 4,513
Chairman and Chief 1994 -- -- -- -- -- --
Executive Officer 1993 -- -- -- -- -- --
Robert H. Ewald 1995 378,064 113,710 3,346 953,125 100,000 7,999
President and Chief 1994 334,497 15,910 6,756 493,125 -- 7,326
Operating Officer 1993 296,317 159,782 3,380 -- 40,000 10,731
Laurence L. Betterley 1995 155,627 -- 2,189 150,600 22,000 7,000
Chief Financial 1994 137,054 20,354 -- -- 5,000 7,134
Officer 1993 113,734 46,543 2,497 -- 10,000 5,633
Irene M. Qualters 1995 168,917 -- 2,756 157,680 40,000 7,035
Senior Vice President 1994 168,257 37,961 2,977 -- 7,500 7,414
Supercomputing Operations 1993 151,757 66,049 2,561 -- 10,000 7,278
Michael Dungworth 1995 145,529 83,819 -- 151,485 45,000 7,547
Vice President 1994 143,249 134,371 -- -- 5,000 13,964
Customer Service 1993 120,016 111,552 -- -- 10,000 8,624
Don F. Whiting 1995 195,187 -- 3,893 19,125 7,000 453,501
(former officer) 1994 194,171 51,575 3,835 -- 7,500 7,188
1993 168,750 99,770 4,113 -- 29,500 7,912
</TABLE>
- ------------------------------
(1) Principal position represents the capacity in which the executive served as
of December 31, 1995.
(2) For 1993 and 1994, the amounts shown consist of cash compensation accrued
during the fiscal year pursuant to the Annual Incentive Plan or Performance
Incentive Plan and the cash bonus under the Incentive Cash Profit Sharing
Plan. This column shows for Mr. Samper a $100,000 signing bonus for joining
Cray on May 18, 1995 and a guaranteed bonus of $291,701 provided for under
his employment agreement with Cray. For Mr. Ewald, this amount shown for
1995 includes a $113,710 bonus for taking on additional responsibilities
during Cray's search for a CEO from January 1, 1995 through May 18, 1995.
For Mr. Dungworth, the 1995 amount includes a $45,375 bonus for performing
the duties of acting Executive Vice President of Sales. In addition, Mr.
Dungworth received a $38,444 bonus for exceeding Customer Service operating
income goals.
(3) Amounts in this column represent compensation related to income tax and
financial planning services provided to the executive. All executive
officers of Cray 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 Cray
and are reflected in this column.
47
<PAGE>
(4) On January 31, 1995, on which date the price per share of Cray Common Stock
was $14.75, the following grants of restricted stock were made: Mr.
Dungworth -- 1,160 shares, resulting in a valuation of $17,110; Ms.
Qualters -- 1,580 shares, resulting in a valuation of $23,305; Mr.
Betterley -- 1,100 shares, resulting in a valuation of $16,225; Mr. Whiting
-- 1,300 shares resulting in a valuation of $19,175. The shares vest over a
two year period, 50% on December 31, 1995 and 50% on December 31, 1996;
however, on Mr. Whiting's retirement on December 31, 1995, all shares of
restricted stock granted to him vested. On February 27, 1995, Mr. Ewald
received a grant of 50,000 shares of restricted stock. The market price on
the date of grant was $16.375, resulting in a valuation of $818,750. The
shares vest 20% each year over a five year period.
In addition, Mr. Dungworth, Ms. Qualters, Mr. Betterley and Mr. Ewald
received grants of 5,000 shares of restricted stock each on July 25, 1995.
The price per share on the date of grant was $26.875, resulting in a
valuation of $134,375 for each grant. These shares were subject to vesting
conditions based on increasing stock price, with 50% vesting when the price
per share of Cray Common Stock reaches $31.875 and holds at that level for
20 consecutive trading days, and the balance vesting when the price per
share reaches $36.875 and holds for 20 consecutive trading days.
Mr. Samper received 200,000 shares of restricted stock in May, 1995. The
price per share on the date of grant was $20.50, resulting in a valuation
of $4,100,000. The shares are subject to vesting conditions based on
increasing the stock price, with 25% increments vesting when the price per
share reaches and holds for 20 consecutive trading days at the following
levels: $25.00, $30.00, $37.50, and $45.00.
The shares of restricted stock granted to Mr. Ewald in 1994 were subject to
vesting conditions based on growth in earnings per share over a three year
period. The minimum vesting requirements were not met, and all of these
shares were forfeited to Cray as of January 31, 1995. The shares are not
currently outstanding and no dividends were paid on such shares.
On December 31, 1995, the price per share for Cray Common Stock was
$24.625, resulting in the following valuations for the shares of restricted
stock held by the persons named: Mr. Samper -- $4,925,000; Mr. Ewald --
$1,354,375; Ms. Qualters -- $162,033; Mr. Betterley -- $150,213; Mr.
Dungworth -- $151,690; and Mr. Whiting -- $32,013. Dividends, if any are
declared, would be paid on the outstanding shares of restricted stock.
A change of control was deemed to have occurred upon completion of the
Offer with the result that all vesting restrictions on unforfeited
restricted stock lapsed and the unforfeited restricted stock grants
referred to above fully vested.
(5) Represents contributions to Cray's Retirement Savings Plus Plan and term
life insurance premiums paid by Cray for the benefit of the executive
officer. For Mr. Whiting the amounts also include payments to be made in
connection with his retirement.
STOCK OPTIONS. The following table presents, for each of the named
executive officers identified in the "Summary Compensation Table" above, the
number of shares of common stock purchased upon exercise of stock options during
fiscal year 1995, the aggregate dollar value realized upon exercise based on the
market price of the stock on the dates of exercise, and the number of stock
options held by such named executive officers as of December 31, 1995,
distinguishing between options that are exercisable as of December 31, 1995 and
those that will become exercisable at various times in the future.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT FY-END
SHARES FY-END (1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Phillip Samper................. 0 0 0 300,000 0 1,425,000
Robert H. Ewald................... 0 0 67,163 120,000 0 0
Laurence L. Betterley............. 0 0 19,183 29,000 17,281 51,844
Irene M. Qualters................. 0 0 36,560 55,875 17,281 51,844
Michael Dungworth................. 0 0 8,475 50,225 12,344 37,031
Don F. Whiting.................... 0 0 61,074 0 69,125(2) 0
</TABLE>
- ------------------------
(1) The fair market value of Cray Common Stock on December 31, 1995 was $24.625
per share.
(2) Mr. Whiting retired on December 31, 1995. Upon retirement all outstanding
options became exercisable in accordance with the terms of the Employee
Stock Option Plan.
48
<PAGE>
A change of control was deemed to have occurred upon completion of the Offer
with the result that all outstanding options, including those identified as
unexercisable at fiscal year end, became fully exercisable.
The following table presents, for each named executive officer identified in
the "Summary Compensation Table" above, the number of shares underlying options
granted during 1995, the exercise price for such options, their expiration date
and their potential realizable value. The exercise price for all options granted
was the fair market value of the shares of common stock of Cray on the date of
grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SHARES OPTIONS EXERCISE OR STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE OPTION TERM (2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR (1) DATE 5% 10%
- -------------------------------------- ----------- -------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Phillip Samper..................... 300,000 21.32% $ 19.875 5/17/05 $ 3,749,784 $ 9,502,689
Robert H. Ewald....................... 100,000 7.11% $ 26.875 7/25/05 $ 1,690,154 $ 4,283,183
Irene M. Qualters..................... 40,000 2.84% $ 26.875 7/25/05 $ 676,062 $ 1,713,273
Laurence L. Betterley................. 7,000 0.50% $ 14.750 1/31/05 $ 64,933 $ 164,554
15,000 1.07% $ 26.875 7/25/05 $ 253,523 $ 642,477
Michael Dungworth..................... 40,000 2.84% $ 26.875 7/25/05 $ 676,062 $ 1,713,273
5,000 0.36% $ 14.750 1/31/05 $ 46,381 $ 117,539
Don F. Whiting........................ 7,000 0.50% $ 14.750 1/31/05 $ 64,933 $ 164,554
</TABLE>
- ------------------------
(1) All options were granted with an exercise price equal to the market price on
the date of grant. All options to the named executive officers other than
Mr. Samper become exercisable in 25% annual installments commencing one year
from the date of grant. The options granted to Mr. Samper vest in 50%
installments commencing one year from the grant date. All options were
granted under the Employee Stock Option Plan. A change of control was deemed
to have occurred upon completion of the Offer with the result that all
outstanding options, including the options reflected in this table, became
fully exercisable.
(2) These values assume options are exercised at the end of their ten year term
and assume a prescribed rate of stock price appreciation. The actual value
of these options is dependent on future performance of Cray Common Stock,
and there is no assurance the values reflected in the table will be
realized.
Non-cash personal benefits paid to executive officers during each year in
the three-year period ended December 31, 1995 did not exceed in the aggregate
the lesser of 10% of cash compensation or $50,000 for any individual executive
officer.
Mr. Samper and Cray entered into an employment agreement in May, 1995, when
Mr. Samper joined Cray as Chairman and CEO. The term of the agreement ends
December 31, 1999. Under the agreement, his 1995 annualized salary was $600,000.
Mr. Samper's agreement provides for a guaranteed bonus during the first twelve
months of his employment, regardless of Company performance, equal to 80% of Mr.
Samper's wages up to a maximum guaranteed bonus of $480,000, and he received a
bonus of $291,701 with respect to 1995. The agreement also provided for payment
of a $100,000 one-time signing bonus, the grant of a stock option covering
300,000 shares, and a grant of 200,000 shares of restricted stock. The agreement
with Mr. Samper also provides for certain severance benefits. Unless termination
of Mr. Samper's employment was voluntary (and without justification as described
in the agreement) or for cause (as defined in the agreement), Mr. Samper would
continue to receive base salary through the balance of the agreement's term or
two years, whichever is less, plus any unpaid guaranteed bonus, plus an
additional two years of base salary less vested benefits under Cray's Retirement
Savings Plus Plan. In the event of death, Cray would pay an amount equal to six
49
<PAGE>
months base salary plus any unpaid guaranteed bonus. Cray would also provide
relocation benefits unless termination was for cause. See "The Merger --
Interests of Certain Persons in the Merger" for a more detailed discussion of
these severance benefits, as well as a deferred compensation agreement entered
into between Cray and Mr. Samper that modified certain of these benefits. Cray
will also reimburse Mr. Samper for certain tax preparation and financial
planning fees up to $15,000 and for certain membership dues.
Cray and Mr. Whiting have entered into an agreement providing for the
payment in 1996 of $195,187, together with tax preparation expenses up to $2,500
and certain outplacement expenses, in connection with Mr. Whiting's retirement
from Cray as of December 31, 1995. In addition, Cray and Mr. Whiting entered
into a consulting agreement providing for payment of $250,000 in March, 1996,
for services related to disposition of certain facilities of Cray.
In 1989, Cray adopted the Executive Severance Plan covering employees who
have been elected by the Cray Board to a position of Vice President or higher.
The Executive Severance Plan provides for a payment if a covered employee's
employment with Cray is terminated (other than voluntarily, by retirement, death
or disability or for "just cause" as defined in the Executive Severance Plan)
within 15 months after a "change of control" (as defined in the Executive
Severance Plan) equal to two times his or her annual compensation. Cray may
amend or terminate the Plan at any time prior to a change of control. In
February, 1996, the Executive Severance Plan was amended to exclude from the
definition of change of control any transactions approved by the Cray Board. See
"The Merger Agreement and Related Agreements -- Representations and Warranties."
Other than as described above, Cray is not party to any employment agreement
with any of its executive officers, and during 1995 it had no pension, profit
sharing, remuneration, incentive or other retirement, deferred compensation or
contingent compensation plans of any kind solely for the benefit of its
executive officers.
PROPOSAL TO AMEND AND RESTATE THE CRAY RESEARCH, INC.
1989 EMPLOYEE BENEFIT STOCK PLAN
The Employee Stock Option Plan was adopted by the Cray Board on September 7,
1988, and approved by Cray's stockholders on May 16, 1989. The Employee Stock
Option Plan provides for the grant to selected management and other key
employees of Cray and its subsidiaries, including executive officers, of stock
grants, grants of restricted stock and options to purchase authorized but
unissued or reacquired Cray Common Stock. The purpose of the Employee Stock
Option Plan is to attract and retain persons of ability and motivate them to
advance the interests of Cray. A maximum of 7,888,000 shares of Cray Common
Stock have been reserved for the grant of restricted stock and the issuance upon
the exercise of stock options which may be granted pursuant to the Employee
Stock Option Plan. The Employee Stock Option Plan provides for the grant of
incentive stock options and nonstatutory stock options. As currently drafted,
the Employee Stock Option Plan provides that the options become exercisable at
the rate of 25% per year, beginning one year from the date of grant. The
Employee Stock Option Plan also provides for a limited number of shares to be
issued to employees as stock grants, which may or may not have accompanying
restrictions.
Effective May 3, 1996, the Cray Board amended and restated the Employee
Stock Option Plan, subject to ratification by the stockholders of Cray at the
Special Meeting, in order to conform certain provisions of the Employee Stock
Option Plan to the analogous provisions of the Silicon Graphics, Inc. 1993
Long-Term Incentive Stock Plan (the "Plan Amendment"). The proposed Plan
Amendment will (i) eliminate the current vesting schedule for future grants of
options in favor of one determined by the Compensation and Development Committee
of the Cray Board (the "Committee") in its discretion at the time of an option's
grant, (ii) eliminate provisions of the Employee Stock Option Plan that cause an
optionee's unvested options to immediately vest upon an optionee's death,
disability or retirement after the age of 55, (iii) shorten certain
post-termination exercise periods by providing that after an optionee's
termination of employment due to death or disability, the optionee (or the
optionee's
50
<PAGE>
representative) will be able to exercise the options, to the extent that the
options were exercisable at the date of termination, for a period of 12 months,
and that after an optionee's retirement, the optionee will be able to exercise
the options for a period determined by the Committee (generally three months),
(iv) provide for the ability of an optionee to exercise options after an
optionee's employment terminates for any other reason for a limited period
(generally three months) that will be determined by the Committee in its
discretion, (v) eliminate the automatic acceleration of vesting of options that
occurs upon a change of control of Cray in favor of a limited right to
accelerated option vesting if an optionee's employment is terminated other than
for cause within 24 months of a change of control in Cray (other than the
Transaction) and (vi) add certain methods of option exercise to the Employee
Stock Option Plan. The following description of the Employee Stock Option Plan,
as amended, is qualified by reference to the full text of the Employee Stock
Option Plan, which is set forth as Annex C to this Proxy Statement/Prospectus.
The Employee Stock Option Plan is administered by the Committee, the members
of which are not eligible to participate in the Employee Stock Option Plan. The
Committee has full power to construe and interpret the Employee Stock Option
Plan and to establish rules and regulations for its administration. Only
employees of Cray and its subsidiaries are eligible to be granted options or to
receive stock and restricted stock grants under the Employee Stock Option Plan.
The Committee will determine the employees to whom, and the number of shares for
which, incentive stock options or nonstatutory options will be granted. Shares
subject to options which expire or terminate and shares of restricted stock
which are forfeited may be the subject of new grants of stock, restricted stock
and options under the Employee Stock Option Plan.
The exercise price of an option granted under the Employee Stock Option Plan
will be 100% of the fair market value of the shares of Cray stock subject to the
option at the time of grant of the option. The option exercise price may be paid
in cash, by delivery to Cray of shares already held by the optionee, through a
broker-assisted or cashless exercise, by delivery of a promissory note or by
such other means as is permitted by applicable law. The fair market value of a
share of Cray Common Stock was $29.19 as of April 30, 1996. The Employee Stock
Option Plan provides for equitable share and price adjustments in the event of a
stock dividend, stock split or similar change in capitalization. Options awarded
under the Employee Stock Option Plan are nontransferable, except by will or the
laws of descent and distribution. The Employee Stock Option Plan will terminate
on September 7, 1998, unless terminated earlier by the Cray Board. Options then
outstanding will remain in effect until exercise or expiration.
At the time an option is granted, no income is taxable to the optionee, and
Cray is not entitled to a compensation deduction.
The optionee generally does not recognize taxable income upon exercise of an
incentive stock option, and in such case Cray is not entitled to a compensation
deduction. Such exercise may, however, subject the optionee to the alternative
minimum tax. The optionee generally will recognize gain or loss on disposition
of Cray Common Stock acquired pursuant to an incentive stock option based on the
difference between the selling price and the option exercise price. If a sale
occurs more than one year from the date the Cray Common Stock was issued and
more than two years from the date the option was granted, such gain or loss will
be long-term capital gain or loss, and Cray will at no time be entitled to a
compensation deduction. Gain on a disqualifying disposition of Cray Common Stock
prior to the expiration of such holding periods generally is taxable to the
optionee as ordinary income to the extent that the market price at the time of
exercise exceeds the option price, and any excess is capital gain.
The optionee will recognize ordinary income at the time a non-qualified
option is exercised in the amount by which the market price at the time of
exercise exceeds the option exercise price. The optionee will realize capital
gain or loss at the time of a sale of Cray Common Stock acquired pursuant to the
exercise of a non-qualified stock option based on the difference between the
selling price and the fair market value at the time of exercise.
51
<PAGE>
Cray will be entitled to a compensation deduction upon a disqualifying
disposition of incentive stock option shares and upon the exercise of a
non-qualified stock option in the same amount and at the same time as the
optionee realizes ordinary income, subject to Section 162(m) of the Internal
Revenue Code of 1986, as amended.
The Employee Stock Option Plan provides that within 24 months of a "change
in control" of Cray (as determined by the Committee), all unvested options of an
optionee will immediately vest if the optionee's employment is terminated by
Cray without cause or if the optionee resigns for certain specified reasons
during such period. The Cray Board, without the approval of the stockholders of
Cray, may amend the Employee Stock Option Plan in any manner it deems to be in
the best interests of Cray. Stockholder approval is required, among other
things, to increase the maximum number of shares subject to the Employee Stock
Option Plan or restrict the class of management and other key employees eligible
to be granted awards under the Employee Stock Option Plan.
As a result of the Merger, Silicon Graphics will assume Cray's obligations
under the Employee Stock Option Plan, and all references to Cray in such plan,
and the agreements for options issued under such plan, will thereafter be deemed
to refer to Silicon Graphics.
Approval and ratification of the Plan Amendment requires the affirmative
vote of the holders of a majority of the votes cast at the Special Meeting.
MERGER SUB HAS SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND ADOPTION OF THE
PLAN AMENDMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER STOCKHOLDER.
THE CRAY BOARD RECOMMENDS VOTING FOR THE APPROVAL AND RATIFICATION OF THE
PLAN AMENDMENT.
EXPERTS
The consolidated financial statements of Silicon Graphics at June 30, 1995
and 1994, and for each of the three years in the period ended June 30, 1995,
which have been incorporated by reference in this Proxy Statement/Prospectus,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon incorporated by reference herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Cray at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, which
have been incorporated by reference in this Proxy Statement/Prospectus, have
been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
LEGAL MATTERS
The validity of the Silicon Graphics Common Stock issuable pursuant to the
Merger will be passed upon for Silicon Graphics by Shearman & Sterling, San
Francisco, California. Proskauer Rose Goetz & Mendelsohn LLP, New York, New York
is acting as counsel for Cray in connection with certain legal matters relating
to the Merger and the transactions contemplated thereby.
OTHER MATTERS
The Cray Board does not intend to bring any matters before the meeting other
than those specifically set forth in the notice of meeting and does not know of
any matters to be brought before the meeting by others. If any other matters
properly come before the meeting, it is the intention of the persons named in
the accompanying proxy to vote such proxy in accordance with the judgment of the
Cray Board.
STOCKHOLDER PROPOSALS
The date by which stockholder proposals must have been received by Cray for
inclusion in the proxy statement and the form of proxy for its 1996 Annual
Meeting of Stockholders, if the Merger has not been consummated prior to the
date the meeting is to be held, was November 10, 1995.
52
<PAGE>
ANNEX A
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>
PAGE
---------
<S> <C> <C>
ARTICLE I
THE OFFER
SECTION 1.01. The Offer.................................................................. A-1
SECTION 1.02. Company Action............................................................. A-2
SECTION 1.03. Directors.................................................................. A-3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger................................................................. A-3
SECTION 2.02. Effective Time............................................................. A-4
SECTION 2.03. Effect of the Merger....................................................... A-4
SECTION 2.04. Certificate of Incorporation; By-Laws...................................... A-4
SECTION 2.05. Directors and Officers..................................................... A-4
SECTION 2.06. Effect on Capital Stock.................................................... A-4
SECTION 2.07. Exchange of Certificates................................................... A-5
SECTION 2.08. Stock Transfer Books....................................................... A-7
SECTION 2.09. Dissenting Shares.......................................................... A-7
SECTION 2.10. No Further Ownership Rights in Company Common Stock........................ A-7
SECTION 2.11. Lost, Stolen or Destroyed Certificates..................................... A-7
SECTION 2.12. Taking of Necessary Action; Further Action................................. A-8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries............................... A-8
SECTION 3.02. Certificate of Incorporation and By-Laws................................... A-8
SECTION 3.03. Capitalization............................................................. A-8
SECTION 3.04. Authority Relative to this Agreement....................................... A-9
SECTION 3.05. No Conflict; Required Filings and Consents................................. A-10
SECTION 3.06. Compliance; Permits........................................................ A-11
SECTION 3.07. SEC Filings; Financial Statements.......................................... A-11
SECTION 3.08. Absence of Certain Changes or Events....................................... A-12
SECTION 3.09. No Undisclosed Liabilities................................................. A-12
SECTION 3.10. Absence of Litigation...................................................... A-12
SECTION 3.11. Employee Benefit Plans; Employment Agreements.............................. A-12
SECTION 3.12. Labor Matters.............................................................. A-14
SECTION 3.13. Registration Statement; Proxy Statement.................................... A-14
SECTION 3.14. Restrictions on Business Activities........................................ A-14
SECTION 3.15. Title to Property.......................................................... A-15
SECTION 3.16. Taxes...................................................................... A-15
SECTION 3.17. Environmental Matters...................................................... A-16
SECTION 3.18. Brokers.................................................................... A-17
SECTION 3.19. Intellectual Property...................................................... A-17
SECTION 3.20. Vote Required.............................................................. A-18
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SECTION 3.21. Opinion of Financial Advisor............................................... A-18
SECTION 3.22. Full Disclosure............................................................ A-18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. Organization and Qualification............................................. A-18
SECTION 4.02. Authority Relative to This Agreement....................................... A-18
SECTION 4.03. No Conflict; Required Filings and Consents................................. A-19
SECTION 4.04. Certificate of Incorporation and By-Laws................................... A-19
SECTION 4.05. Capitalization............................................................. A-19
SECTION 4.06. Compliance; Permits........................................................ A-20
SECTION 4.07. SEC Filings; Financial Statements.......................................... A-20
SECTION 4.08. Absence of Certain Changes or Events....................................... A-21
SECTION 4.09. Restrictions on Business Activities........................................ A-21
SECTION 4.10. Title to Property.......................................................... A-21
SECTION 4.11. No Undisclosed Liabilities................................................. A-21
SECTION 4.12. Absence of Litigation...................................................... A-21
SECTION 4.13. Registration Statement; Proxy Statement/Prospectus......................... A-21
SECTION 4.14. Brokers.................................................................... A-22
SECTION 4.15. No Stockholder Vote........................................................ A-22
SECTION 4.16. Financing.................................................................. A-22
SECTION 4.17. Full Disclosure............................................................ A-22
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger...................... A-22
SECTION 5.02. No Solicitation............................................................ A-24
SECTION 5.03. Conduct of Business by Parent Pending the Merger........................... A-25
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Proxy Statement/Prospectus; Registration Statement......................... A-25
SECTION 6.02. Stockholders' Meeting...................................................... A-26
SECTION 6.03. Access to Information; Confidentiality..................................... A-26
SECTION 6.04. Consents; Approvals........................................................ A-26
SECTION 6.05. Stock Options.............................................................. A-26
SECTION 6.06. Company Stock Purchase Plan................................................ A-27
SECTION 6.07. Employment Matters......................................................... A-27
SECTION 6.08. Agreements of Affiliates................................................... A-27
SECTION 6.09. Indemnification............................................................ A-27
SECTION 6.10. Notification of Certain Matters............................................ A-28
SECTION 6.11. Further Action............................................................. A-28
SECTION 6.12. Public Announcements....................................................... A-28
SECTION 6.13. Listing of Parent Common Shares............................................ A-28
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to Obligation of Each Party to Effect the Merger................ A-29
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SECTION 7.02. Additional Conditions to Obligations of Parent and Merger Sub.............. A-29
SECTION 7.03. Additional Conditions to Obligation of the Company......................... A-30
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination................................................................ A-30
SECTION 8.02. Effect of Termination...................................................... A-31
SECTION 8.03. Fees and Expenses.......................................................... A-31
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements................ A-32
SECTION 9.02. Notices.................................................................... A-32
SECTION 9.03. Certain Definitions........................................................ A-33
SECTION 9.04. Amendment.................................................................. A-34
SECTION 9.05. Waiver..................................................................... A-34
SECTION 9.06. Headings................................................................... A-34
SECTION 9.07. Severability............................................................... A-34
SECTION 9.08. Entire Agreement........................................................... A-34
SECTION 9.09. Assignment, Merger Sub..................................................... A-34
SECTION 9.10. Parties in Interest........................................................ A-34
SECTION 9.11. Failure or Indulgence Not Waiver; Remedies Cumulative...................... A-35
SECTION 9.12. GOVERNING LAW.............................................................. A-35
SECTION 9.13. Counterparts............................................................... A-35
SECTION 9.14. WAIVER OF JURY TRIAL....................................................... A-35
Annexes:
Annex A: Conditions to the Offer............................................................... A-36
Annex B: Certain Employee Matters.............................................................. A-38
Annex C: Form of Affiliate Agreement........................................................... A-40
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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,
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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 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.
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(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 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").
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(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.
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
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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.
(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
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"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 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
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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.
(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
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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 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
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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 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
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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 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
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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, 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
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number of shares of 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;
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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.
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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.
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.
</TABLE>
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<TABLE>
<S> <C> <C>
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>
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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
A-40
<PAGE>
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.
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.
A-41
<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:
A-42
<PAGE>
[SALOMON BROTHERS LETTERHEAD]
ANNEX B
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.
B-1
<PAGE>
[SALOMON BROTHERS LOGO]
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 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
B-2
<PAGE>
[SALOMON BROTHERS LOGO]
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/ Salomon Brothers Inc
[SALOMON BROTHERS SIGNATURE]
B-3
<PAGE>
ANNEX C
CRAY RESEARCH, INC.
AMENDED AND RESTATED
1989 EMPLOYEE BENEFIT STOCK PLAN
1. PURPOSE.
This Plan is intended to provide a means for Cray Research, Inc. (the
"Company"), by granting shares of Company stock in the form of stock grants
("Stock Grants"), grants of restricted stock ("Restricted Stock") and options to
purchase Company stock ("Options") to selected management and other key
employees, to attract and retain persons of ability and motivate them to advance
the interests of the Company. An employee eligible to participate under the Plan
is hereinafter referred to as an "Employee."
It is intended that the Plan be interpreted in accordance with Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It
is also intended that, except as otherwise limited by paragraph 2, some or all
of the Options granted to Employees under the Plan may constitute "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and some or all of the Options may constitute
"nonstatutory options", i.e., options not qualifying under Section 422 or other
similar provisions of the Code. Unless otherwise indicated, the terms and
conditions of the Plan shall apply equally to all Stock Grants, grants of
Restricted Stock and Options hereunder, regardless of whether Options be
incentive stock options or nonstatutory options.
2. ADDITIONAL DEFINITIONS.
As used herein, the following definitions apply:
(a) "Continuous Status as an Employee" means that the relationship as an
Employee is not interrupted or terminated by the Company. Continuous
Status as an Employee shall not be considered interrupted in the case of:
(i) any leave of absence approved by the Company, including sick leave,
military leave, or any other personal leave; provided, however, that for
purposes of qualifying an Option as an incentive stock option, in the
event any such leave exceeds ninety (90) days, the Employee's Continuous
Status as an Employee will be deemed to have terminated on the
ninety-first (91st) day after the commencement of such leave, unless
re-employment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers
between locations of the Company or between the Company and its
subsidiaries.
(b) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(c) "Fair Market Value" means, as of any date, the closing price for a share
of Common Stock as reported daily in THE WALL STREET JOURNAL or a similar
readily available public source (or if no sales of shares were made on
such date, the closing price of a share as reported for the preceding
day), unless the Committee shall determine that such method does not
reflect, due to circumstances prevailing at that time, the true fair
market value of the Company's Common Stock. In that event, the Committee
shall determine fair market value through such alternative method as it
may in good faith determine to be then appropriate.
3. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 11, a total of 7,888,000 shares
of authorized but unissued or reacquired Common Stock of the Company is
authorized and reserved for issuance to Employees under the Plan in the form of
Stock Grants or grants of Restricted Stock or upon the exercise of Options;
provided, however, that no more than 7,888,000 shares shall be cumulatively
available for the grant of incentive stock options under the Plan. If any Option
expires or terminates
C-1
<PAGE>
without having been exercised in full, the unacquired shares (including shares
forfeited on the termination of any grant of Restricted Stock) shall be
available for the grant of future Stock Grants, grants of Restricted Stock or
Options under the Plan.
4. ADMINISTRATION.
The Plan shall be administered by a Committee of the Board of Directors of
the Company, consisting of at least two (2) disinterested persons not eligible
to participate under this Plan or under any other stock or option plan of the
Company or its subsidiaries except as may be permitted in accordance with Rule
16b-3 under the Exchange Act (the "Committee").
5. ELIGIBILITY.
The Committee shall determine the Employees to whom, and the number of
shares for which, Stock Grants, grants of Restricted Stock and/or Options shall
be granted, taking into consideration such factors, including any
recommendations of the Chief Executive Officer of the Company, as it deems
relevant to select and motivate employees of ability to advance the interests of
the Company. Employees so selected shall be either management or other key
employees of the Company or its subsidiaries, who the Committee determines have
contributed materially to the success of the Company or are in a position to
contribute materially to the future success of the Company. Except as hereafter
limited, an Employee from time to time may be granted any combination of Stock
Grants, grants of Restricted Stock and Options (incentive or nonstatutory) as
the Committee shall determine.
An employee shall not be eligible to receive an incentive stock option if
immediately before the Option is to be granted the employee owns (directly and
through application of the constructive stock ownership attribution rules of
Section 424(d) of the Code) more than ten percent of the total combined voting
power of all classes of stock of the Company or any subsidiary. The aggregate
Fair Market Value (determined at the time an Option is granted) of shares with
respect to which incentive stock options are exercisable for the first time by
an Employee during any calendar year (under this Plan and all other plans of the
Company and its subsidiaries pursuant to Section 422 of the Code) shall not
exceed $100,000.
6. STOCK OPTIONS.
All Options granted hereunder shall be evidenced by an Option Agreement
executed as of the date of grant by the Company and the Employee, on such terms
as may be determined by the Committee, including the following:
(a) The Option Agreement shall specify whether the Option is an incentive
stock option or a nonstatutory option.
(b) The "date of grant" for any Option granted under the Plan shall be
specified in the Option Agreement.
(c) The Option exercise price per share shall be specified in the Option
Agreement and shall be equal to 100% of the Fair Market Value of a share
of Company Common Stock on the date of grant.
(d) The Option exercise price shall be paid at the time of exercise. The
consideration to be paid for the shares to be issued upon exercise of an
Option, including the method of payment, shall be determined by the
Committee (and, in the case of an incentive stock option, shall be
determined at the time of grant) and may consist entirely of: (1) cash;
(2) check; (3) promissory note; (4) other shares which (i) in the case of
shares acquired upon exercise of an option, have been owned by the
Employee for more than six months on the date of surrender and (ii) have
an aggregate Fair Market Value on the date of surrender not greater than
the aggregate exercise price of the shares as to which said Option shall
be exercised; (5) delivery of a properly executed exercise notice
together with such other documentation as the Committee and the broker,
if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price; (6) any
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<PAGE>
combination of the foregoing methods of payment; or (7) such other
consideration and method of payment for the issuance of shares as the
Committee determines are consistent with the Plan's purpose and
applicable law. Any fractional share not required for payment of the
Option exercise price shall be paid for by the Company in cash on the
basis of the same value utilized for such exercise.
(e) At the time an Option is granted, the Committee shall determine the
terms and conditions to be satisfied before shares may be purchased,
including the dates on which shares subject to the Option may first be
purchased. The Committee may specify that an Option may not be exercised
until the completion of a service period specified at the time of grant.
(Any such period is referred to herein as the "waiting period.") At the
time an Option is granted, the Committee shall fix the period within
which the Option may be exercised, which shall not be earlier than the
end of the waiting period, if any, nor, in the case of an Incentive Stock
Option, later than ten (10) years from the date of grant.
(f) An incentive stock option hereunder shall not contain terms pursuant to
which the exercise of the Option would affect the Employee's right to
exercise a nonstatutory option hereunder, or vice versa, such that the
incentive stock option would be deemed a prohibited "tandem stock option"
within the meaning of Section 422 of the Code and the regulations
thereunder.
(g) Unless the issuance of the shares upon the exercise of an Option
hereunder is registered or exempt under federal and state securities
laws, the Employee shall be required to give an investment representation
at the time of exercise, and transfer of the shares shall be
appropriately restricted.
(h) During the lifetime of an Employee, Options held by such Employee may be
exercised only by the Employee and only while an Employee of the Company
or of a parent or a subsidiary of the Company and only if such Employee
has maintained his or her Continuous Status as an Employee since the date
such Options were granted; provided, however, that:
(1) In the event an Employee's Continuous Status as an Employee
terminates (other than upon his or her death or Disability), the
Option holder may exercise his or her Option, but only within such
period of time from the date of such termination as is determined by
the Committee, not to exceed three (3) months in the case of an
Option that is intended to qualify as an incentive stock option, and,
unless determined otherwise by the Committee, only to the extent that
the Employee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). To the extent that
the Employee was not entitled to exercise an Option at the date of
such termination, and to the extent that he or she does not exercise
such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(2) In the event an Employee's Continuous Status as an Employee
terminates as a result of his or her Disability, the Option holder
may exercise his or her Option, but only within twelve (12) months
from the date of such termination, and, unless determined otherwise
by the Committee, only to the extent that the Employee was entitled
to exercise it at the date of such termination (but in no event later
than the expiration of the term of such Option as set forth in the
Option Agreement). To the extent that the Employee was not entitled
to exercise an Option at the date of such termination, and to the
extent that he or she does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option
shall terminate.
(3) In the event of an Employee's death, the Employee's estate or a
person who acquired the right to exercise the deceased Employee's
Option by bequest or inheritance may exercise the Option, but only
within twelve (12) months following the date of death, and, unless
determined otherwise by the Committee, only to the extent that the
Employee was
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<PAGE>
entitled to exercise it at the date of death (but in no event later
than the expiration of the term of such Option as set forth in the
Option Agreement). To the extent that the Employee was not entitled
to exercise an Option at the date of death, and to the extent that
the Employee's estate or a person who acquired the right to exercise
such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall
terminate.
(4) Except as otherwise provided, in no event shall any Option be
exercisable at any time after its expiration date.
(5) On a case-by-case basis, the Committee may, in its sole discretion,
accelerate the schedule of the time or times when an Option granted
under this Plan may be exercised or extend the period for exercise to
a time after the expiration date. Unless otherwise determined by the
Committee at the time of grant, each Option shall provide that in the
event of a change in control of the Company (as specified by the
Committee), any Employee's Options will become exercisable in full
if, within twenty-four (24) months after a change in control of the
Company (as specified by the Committee), the Employee's employment is
terminated without cause or the Employee resigns due to certain
involuntary relocations or reductions in compensation, as specified
by the Committee. Each Option granted under the Plan may contain such
other terms, provisions and conditions not inconsistent with the Plan
as may be determined by the Committee.
(i) The Options granted hereunder may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will
or by the laws of descent or distribution and may be exercised, during
the lifetime of the Employee, only by the Employee and only during such
person's continuous status as an Employee, except as provided in
subparagraph (h) above.
(j) If the Employee sells, exchanges or otherwise disposes of shares
acquired upon exercise of an incentive stock option within two (2) years
of the date of grant, or one (1) year after the date of exercise, the
Employee shall be required to notify the Company promptly in writing and
disclose the amount of gain or loss resulting from the sale, exchange or
other disposition of his or her stock.
7. STOCK GRANTS.
The Committee may, in its discretion, award a Stock Grant to an Employee in
furtherance of the Plan's purposes; provided, however, that no Employee shall be
eligible to receive a Stock Grant for more than fifty (50) shares of Company
Common Stock in any calendar year. An Employee receiving a Stock Grant shall be
entitled to all of the rights and privileges in the Common Stock awarded as of
the date on which the award is made. Unless the issuance of shares pursuant to a
Stock Grant is registered or exempt under federal or state securities laws, the
Employee shall be required to give an investment representation at the time of
grant, and transfer of the shares shall be appropriately restricted.
8. GRANTS OF RESTRICTED STOCK.
(a) The Committee may, in its discretion and in furtherance of the purposes
of the Plan, grant Restricted Stock to an Employee. With respect to
awards of Restricted Stock, the Committee shall:
(i) Select the Employees to whom grants will be made (the
"Participants");
(ii) Determine the number of shares to be awarded;
(iii) Determine the length of the restricted period, if any, and the
performance and employment conditions under which the Restricted
Stock may be forfeited to the Company, if any;
C-4
<PAGE>
(iv) Determine the purchase price, if any, to be paid by the Participant
for such Restricted Stock; and
(v) Determine any restrictions other than those set forth in this
Section 8.
(b) The terms of each award of Restricted Stock shall be set forth in a
written award agreement (the "Award Agreement") and a certificate
representing the number of shares of Common Stock granted shall be issued
to the Participant as the registered owner. The certificate representing
such shares shall be legended as to sale, transfer, assignment, pledge or
other encumbrances during the restricted period and shall be deposited by
the Participant, together with a stock power endorsed in blank, with the
Company. Such certificates shall be held in the custody of the Company
until the restricted period expires or until all restrictions thereon
otherwise lapse.
(c) Subject to the restrictions set forth in this Section 8 or in the Award
Agreement, each Participant who receives Restricted Stock shall have all
rights as a stockholder with respect to such shares, including the right
to vote the shares and receive dividends and other distributions.
(d) The Award Agreement may provide, or the Committee may subsequently
determine in its discretion, that, in the case of death, Disability or
other special circumstances, any or all restrictions then applicable to a
Participant's Restricted Stock be waived.
(e) The Committee may, in its sole discretion, declare the restrictions
applicable to shares of Restricted Stock to lapse in the event of a
change in control of the Company (as specified by the Committee), in
which case the Company shall remove all restrictive legends and stop-
transfer orders applicable to the Restricted Stock as of the date of said
change in control and certificates representing such shares shall be
delivered to the Participants.
(f) Except as otherwise provided in this Section 8 or in the Award
Agreement, no shares of Restricted Stock shall be sold, exchanged,
transferred, pledged or otherwise disposed of during the restricted
period.
(g) With respect to any number of shares of Restricted Stock as to which the
restrictions imposed hereunder shall have lapsed, the restrictive legend
shall be removed and a new certificate representing the shares shall be
delivered to the Participant. The Committee may, in its sole discretion,
modify or cancel the restrictions imposed on Restricted Stock or
otherwise accelerate the vesting of shares of Restricted Stock.
9. TERMINATION.
Unless sooner terminated by action of the Board of Directors of the Company,
the Plan shall terminate ten (10) years from its effective date. Options
outstanding under the Plan at the time of termination shall remain in effect
until exercise or expiration. Restricted Stock outstanding under the Plan at the
time of termination shall remain subject to the restrictions imposed at the time
of grant until the restricted period expires or until all conditions with
respect thereto otherwise lapse or are satisfied.
10. EFFECTIVE DATE; SHAREHOLDER APPROVAL.
The Plan became effective on September 7, 1988, the date of its adoption by
the Board of Directors of the Company, and was approved by the Company's
stockholders on May 16, 1989. The effective date of each amendment to the Plan
shall be the date of adoption of such amendment by the Board of Directors of the
Company; provided, however, that in the event the shareholders of the Company
shall not approve any amendment to the Plan which is determined by the Board of
Directors to require approval by the shareholders, such amendment shall be of no
effect and no Stock Grant, grant of Restricted Stock or Option previously
granted shall be effective if the authorization of the
C-5
<PAGE>
grant thereof was contingent on the effectiveness of such amendment or shall
otherwise be benefited or altered by such amendment. No Stock Grants or grants
of Restricted Stock shall be made under the Plan until shareholder approval of
the Plan amendments authorizing such grants is obtained.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and each outstanding grant of Restricted
Stock, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no awards have yet
to be granted or which have been returned to the Plan upon cancellation
or expiration of an award, as well as the exercise price per share of
Common Stock covered by each outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Company's Board of
Directors, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an Option has not been
previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Committee may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Committee and give each holder the
right to exercise his or her Option as to all or any part of the
underlying Common Stock prior to such expiration, including shares as to
which the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent
Option substituted by the successor corporation or a parent or subsidiary
of the successor corporation. In the event that the successor corporation
does not agree to assume the Option or to substitute an equivalent
option, the Committee may, in lieu of such assumption or substitution,
provide for the Option holder to have the right to exercise the Option as
to all or a portion of the underlying Common Stock, including shares as
to which it would not otherwise be exercisable. If the Committee makes an
Option exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Committee shall notify the holder that
the Option shall be exercisable for such period as the Committee may
designate, and the Option will terminate upon the expiration of such
period. For the purposes of this Section 11(c), the Option shall be
considered assumed if, immediately following the merger or sale of
assets, the Option confers the right to receive, for each share of Common
Stock subject to the Option immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common
Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of outstanding shares);
provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation
or its parent, the Committee may, with the consent of the successor
corporation and the Option holder, provide for the consideration to be
received upon the
C-6
<PAGE>
exercise of the Option, for each share of Common Stock subject to the
Option, to be solely common stock of the successor corporation or its
parent equal in Fair Market Value to the per share consideration received
by holders of Common Stock in the merger or sale of assets.
12. AMENDMENT.
The Board of Directors may amend the Plan at any time as determined to be in
the best interests of the Company. The Board of Directors shall not, however,
without shareholder approval, increase the maximum number of shares subject to
the Plan or restrict the class of management and other key employees eligible to
be awarded Stock Grants, Restricted Stock or Options under the Plan.
C-7
<PAGE>
CRAY RESEARCH, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS -- JUNE 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CRAY RESEARCH INC.
The undersigned hereby appoints Robert H. Ewald and John L. Sullivan, and
each of them, as proxy or proxies of the undersigned (the "Proxies"), each with
full power of substitution, to represent the undersigned and to vote all the
shares of common stock, par value $1.00 per share, of Cray Research Inc., a
corporation organized under the laws of the State of Delaware (the "Company"),
which the undersigned is entitled in any capacity to vote if personally present
at the special meeting (the "Special Meeting") of stockholders of the Company to
be held at the Company's headquarters, 655 Lone Oak Drive, Eagan, Minnesota
55121, at 10:00 a.m., local time, on Wednesday, June 26, 1996, and at any and
all adjournments or postponements thereof, with respect to all matters set forth
in the Proxy Statement dated May 14, 1996, and all supplements and amendments
thereto and, in their discretion, upon all matters incident to the conduct of
such Special Meeting and all matters presented at the Special Meeting but which
are not known to the board of directors of the Company (the "Board") at the time
of the solicitation of this proxy. The undersigned hereby revokes any proxy or
proxies heretofore given by the undersigned to vote at the Special Meeting or
any adjournment or postponement thereof.
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
February 25, 1996, among the Company, C Acquisition Corporation, a
corporation organized under the laws of the State of Delaware and a direct
wholly owned subsidiary of Silicon Graphics Inc., a corporation organized
under the laws of the State of Delaware ("Parent"), and Parent.
FOR / / ABSTAIN / / AGAINST / /
THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 2.
2. Proposal to approve and ratify amendments to and a restatement of the
Company's 1989 Employee Benefit Stock Plan.
FOR / / ABSTAIN / / AGAINST / /
[CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE]
<PAGE>
[CONTINUED FROM OTHER SIDE]
If properly executed, this proxy will be voted in accordance with
instructions appearing hereon and, at the discretion of the Proxies, as to any
other matter that may properly come before the Special Meeting. IN THE ABSENCE
OF SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 (THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT), FOR PROPOSAL 2 (THE APPROVAL AND
RATIFICATION OF THE AMENDMENTS TO AND RESTATEMENT OF THE COMPANY'S 1989 EMPLOYEE
BENEFIT STOCK PLAN) AND, AT THE DISCRETION OF THE PROXIES, AS TO ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and Proxy Statement (with all enclosures and attachments) dated
May 14, 1996, relating to the Special Meeting.
<TABLE>
<S> <C> <C> <C>
Name(s) of
Dated: ------------------------------------ Holder(s): ------------------------------------------------------
------------------------------------------------------
(Please Print)
------------------------------------------------------
(Signature(s))(1)
------------------------------------------------------
(By:) (Please Print)
(Name:) ----------------------------------------------
(Title:)
-----------------------------------------------
</TABLE>
(1)PLEASE SIGN THIS PROXY EXACTLY AS YOUR
NAME(S) APPEARS HEREON. JOINT OWNERS
SHOULD EACH SIGN PERSONALLY. AN
ATTORNEY, ADMINISTRATOR, TRUSTEE,
EXECUTOR, GUARDIAN OR OTHER PERSON
SIGNING IN A REPRESENTATIVE CAPACITY
SHOULD INDICATE SUCH CAPACITY. AN
AUTHORIZED OFFICER SIGNING ON BEHALF
OF A CORPORATION SHOULD INDICATE THE
NAME OF THE CORPORATION AND SUCH
OFFICER'S CAPACITY.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Registrant's Restated
Certificate of Incorporation and Amended and Restated Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant has entered into Indemnification Agreements with its executive
officers and directors. The Registrant has also purchased and maintains
insurance for its officers, directors, employees or agents against liabilities
which an officer, a director, an employee or an agent may incur in his capacity
as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 25, 1996, by and among the Registrant, C Acquisition
Corporation and Cray Research, Inc. (incorporated by reference to Annex A to the Proxy
Statement/Prospectus included as part of this Registration Statement).
5.1* Opinion of Shearman & Sterling as to the legality of the Registrant's Common Stock being registered
hereby.
23.1* Consent of Shearman & Sterling with respect to the legality of securities being registered (contained in
Exhibit 5.1).
23.2* Consent of Ernst & Young LLP, independent auditors, with respect to financial statements of the
Registrant.
23.3* Consent of KPMG Peat Marwick LLP, independent auditors, with respect to financial statements of Cray
Research, Inc.
23.4* Consent of Salomon Brothers Inc with respect to its fairness opinion.
24.1* Power of Attorney (included on pages II-4 and II-5).
</TABLE>
- ------------------------
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
The following schedule is incorporated by reference to Item 14 of Silicon
Graphics' Annual Report on Form 10-K for the fiscal year ended June 30, 1995:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- --------- --------------------------------------------------------------------------
<C> <S>
II Valuations and Qualifying Accounts
</TABLE>
Other financial statement schedules have been omitted since they are either
not required, not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
II-1
<PAGE>
(C) REPORTS, OPINIONS AND APPRAISALS
The opinion of Salomon Brothers Inc (attached as Annex B to the Proxy
Statement/Prospectus filed as a part of this Registration Statement).
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of the Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
II-2
<PAGE>
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MOUNTAIN VIEW, STATE OF
CALIFORNIA, ON THE 10TH DAY OF MAY, 1996.
SILICON GRAPHICS, INC.
By /s/ EDWARD R. MCCRACKEN
--------------------------------------
Edward R. McCracken
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward R. McCracken, Stanley J. Meresman and
William M. Kelly, jointly and severally, his or her attorneys-in-fact, each with
the power of substitution, for him or her in any and all capacities to sign any
amendments to the Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------------- ----------------
<C> <S> <C>
/s/ EDWARD R. MCCRACKEN
--------------------------------- Chairman of the Board, and Chief Executive Officer May 10, 1996
Edward R. McCracken (Principal Executive Officer)
/s/ THOMAS A. JERMOLUK
--------------------------------- President, Chief Operating Officer and Director May 10, 1996
Thomas A. Jermoluk
/s/ ROBERT R. BISHOP
--------------------------------- Chairman of the Board, Silicon Graphics World Trade May 10, 1996
Robert R. Bishop Corporation and Director
/s/ STANLEY J. MERESMAN
--------------------------------- Senior Vice President, Finance and Chief Financial May 10, 1996
Stanley J. Meresman Officer (Principal Financial Officer)
/s/ DENNIS P. MCBRIDE
--------------------------------- Vice President, Controller (Principal Accounting May 10, 1996
Dennis P. McBride Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------------- ----------------
<C> <S> <C>
/s/ ALLEN F. JACOBSON
--------------------------------- Director May 10, 1996
Allen F. Jacobson
/s/ C. RICHARD KRAMLICH
--------------------------------- Director May 10, 1996
C. Richard Kramlich
/s/ ROBERT A. LUTZ
--------------------------------- Director May 10, 1996
Robert A. Lutz
/s/ JAMES A. MCDIVITT
--------------------------------- Director May 10, 1996
James A. McDivitt
/s/ LUCILLE SHAPIRO
--------------------------------- Director May 10, 1996
Lucille Shapiro
--------------------------------- Director
Robert B. Shapiro
/s/ JAMES G. TREYBIG
--------------------------------- Director May 10, 1996
James G. Treybig
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
[SHEARMAN & STERLING LETTERHEAD]
May 9, 1996
SILICON GRAPHICS, INC.
2011 N. Shoreline Boulevard
Mountain View, California 94043-1389
Silicon Graphics, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
As counsel to Silicon Graphics, Inc., a Delaware corporation (the "Company"), we
are rendering this opinion in connection with the registration by the Company
pursuant to the above-referenced Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended, of the
shares of the Company's Common Stock, $.001 par value (the "Shares"), to be
issued in connection with the merger of C Acquisition Corporation, a Delaware
corporation ("Merger Sub"), with and into Cray Research, Inc., a Delaware
corporation ("Cray"), pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), among the Company, Merger Sub and Cray, dated as of February 25,
1996.
As such counsel and in connection with the opinion expressed below, we have
examined copies of the Registration Statement, the Company's Restated Articles
of Incorporation dated November 7, 1994, as amended, the Company's Amended and
Restated By-Laws, the Merger Agreement, certificates of public officials and
officers of the Company, and such other documents, instruments and records as we
have deemed necessary or appropriate as a basis for the opinion expressed below.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that the Shares have been
validly authorized and, when issued pursuant to the terms of the Merger
Agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
therein.
Very truly yours,
SHEARMAN & STERLING
MJK/SLC/LMM
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement of Cray Research, Inc. which is made part of the Registration
Statement (Form S-4) of Silicon Graphics, Inc. for the issuance of shares of its
common stock and to the use of our report dated July 19, 1995, with respect to
the consolidated financial statements of Silicon Graphics, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended June 30, 1995 and
the related financial statement schedule included therein filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Palo Alto, California
May 9, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cray Research, Inc.:
We consent to the use in this Registration Statement of Silicon Graphics,
Inc. on Form S-4 of the report of our firm dated January 24, 1996 relating to
the consolidated financial statements of Cray Research, Inc. and subsidiaries as
of December 31, 1995 and 1994, and for each of the years in the three year
period ended December 31, 1995, incorporated by reference in this Proxy
Statement/ Prospectus and to the reference to our firm under the heading
"Experts" in this Proxy Statement/ Prospectus, which is part of this
Registration Statement.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
May 9, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the inclusion of our opinion letter dated February 25,
1996 to the Board of Directors of Cray Research, Inc. ("Cray") as Annex B to the
Proxy Statement/Prospectus relating to the proposed merger of C Acquisition
Corporation, a wholly owned subsidiary of Silicon Graphics, Inc., with and into
Cray, and to the references to such opinion in such Proxy Statement/Prospectus
under the captions "Summary -- Recommendation; Fairness Opinion," "The Merger --
Background of the Merger," "The Merger -- Cray's Reasons for the Merger;
Recommendation of the Cray Board" and "The Merger -- Opinion of Cray's Financial
Advisor." In giving such consent, we do not admit and we disclaim that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in, or that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations issued by the Securities and Exchange
Commission thereunder.
SALOMON BROTHERS INC
By: /s/ MICHAEL CARR
--------------------------------------
Managing Director
Date: May 8, 1996
--------------------------------------
