<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CRAY INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[CRAY LOGO]
NOTICE OF 2000 ANNUAL MEETING
Dear Cray Inc. Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Cray Inc. (formerly named Tera Computer Company) which will be held on the
7th floor of our corporate headquarter offices, located at Merrill Place, 411
First Avenue South, Seattle, Washington 98104-2860, on May 31, 2000 at 2:00 p.m.
At this year's meeting, shareholders will have the opportunity to vote
on the following matters:
- Election of three directors to serve three-year terms;
- Approval of an amendment to our Restated Articles of Incorporation to
increase the number of authorized shares of common stock from 50 million
to 100 million shares;
- Approval of an amendment to our 1999 Stock Option Plan to increase the
number of shares reserved for issuance from 3 million to 6 million; and
- Any other business that may properly come before the meeting.
If you were a shareholder of record on April 3, 2000, you will be
entitled to vote on these matters.
At the meeting, management will review our performance during the past
year, including our recent acquisition of the Cray Research business unit, and
comment on the Company's outlook on a combined basis. You will have an
opportunity to ask questions about Cray Inc. and its operations.
Regardless of the number of shares you own, your vote is important.
Please sign and return the proxy card in the enclosed envelope at your earliest
convenience.
Details of the business to be conducted are more fully described in the
accompanying Proxy Statement.
We look forward to seeing you. Thank you for your ongoing support of and
interest in the new Cray Inc.
Sincerely,
James E. Rottsolk
Chief Executive Officer
and President
Seattle, Washington
April 24, 2000
<PAGE> 3
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING 1
INFORMATION ABOUT OUR COMMON STOCK OWNERSHIP 4
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS 6
The Board of Directors 6
The Committees of the Board 7
How We Compensate Directors 8
The Executive Officers 8
How We Compensate Executive Officers 8
STOCK PERFORMANCE GRAPH 15
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD 16
Proposal 1: Election of Three Directors 16
Proposal 2: Approve an Amendment to our Restated
Articles of Incorporation 19
Proposal 3: Approve an Amendment to our 1999 Stock Option Plan 21
Other Business 24
INFORMATION ABOUT SHAREHOLDER PROPOSALS AND
NOMINATING DIRECTOR CANDIDATES 24
Shareholder Proposals 24
Director Candidates 25
</TABLE>
- --------------------------------------------------------------------------------
IMPORTANT
Whether or not you expect to attend in person, we urge you to sign, date, and
return the enclosed Proxy at your earliest convenience. This will ensure the
presence of a quorum at the meeting. Promptly signing, dating, and returning the
Proxy will save the Company the expenses and extra work of additional
solicitation. An addressed envelope for which no postage is required if mailed
in the United States is enclosed for that purpose. Sending in your Proxy will
not prevent you from voting your stock at the meeting if you desire to do so, as
your Proxy is revocable at your option.
- --------------------------------------------------------------------------------
i
<PAGE> 4
CRAY INC.
411 FIRST AVENUE SOUTH, SUITE 600
SEATTLE, WASHINGTON 98104-2860
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
MAY 31, 2000
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: Why did you send me this proxy statement?
A: We sent you this Proxy Statement and the enclosed proxy card because our
Board of Directors is soliciting your proxy to vote at the 2000 Annual Meeting
of Shareholders.
This Proxy Statement summarizes the information regarding the matters to be
voted upon at the Annual Meeting. You do not need to attend the Annual Meeting,
however, to vote your shares. You may simply complete, sign and return the
enclosed proxy card.
We began sending this Proxy Statement out on or about April 24, 2000 to all
shareholders entitled to vote. If you owned shares of our common stock at the
close of business on April 3, 2000, our record date, you are entitled to vote
those shares. On the record date, there were 33,569,836 shares of our common
stock outstanding, our only class of voting stock.
Q: How many votes do I have?
A: You have one vote for each share of our common stock that you owned on the
record date. The proxy card will indicate the number.
Q: How do I vote by proxy?
A: If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the Board as
follows:
- "FOR" electing the three nominees for Director,
- "FOR" approving the amendment to our Restated Articles of Incorporation
increasing the number of authorized shares of common stock, and
<PAGE> 5
- "FOR" approving the amendment to our 1999 Stock Option Plan increasing
the number of shares of common stock reserved for issuance.
If any other matter is presented, your proxy will vote in accordance with his
best judgment. At the time we printed this Proxy Statement, we knew of no
matters, which needed to be acted on at the Annual Meeting, other than those
discussed in this Proxy Statement.
Q: May I revoke my proxy?
A: Yes. You may change your mind after you send in your proxy card by following
these procedures. To revoke your proxy:
1. Send in another signed proxy with a later date;
2. Send a letter revoking your proxy to our Secretary at our offices in Seattle,
Washington; or
3. Attend the Annual Meeting and vote in person.
Q: What is the quorum requirement for the meeting?
A: The quorum requirement for holding the meeting and transacting business is a
majority of the outstanding shares entitled to be voted. The shares may be
present in person or represented by proxy at the meeting. Both abstentions and
broker non-votes are counted as present for the purpose of determining the
presence of a quorum. Generally, broker non-votes occur when shares held by a
broker for a beneficial owner are not voted with respect to a particular
proposal because (1) the broker has not received voting instructions from the
beneficial owner, or (2) the broker lacks discretionary voting power to vote
such shares.
Q: How do I vote in person?
A: If you plan to attend the Annual Meeting and vote in person, we will give you
a ballot when you arrive. If your shares are held in the name of your broker,
bank or other nominee, you must bring an account statement or letter from the
nominee. The account statement or letter must show that you were the direct or
indirect (beneficial) owner of the shares on April 3, 2000, the record date for
voting.
Q: What vote is required to approve each proposal?
PROPOSAL 1: ELECTION OF THREE DIRECTORS
2
<PAGE> 6
The three nominees for Director who receive the most votes will be
elected. Accordingly, if you do not vote for a nominee, or you indicate
"withhold authority to vote" for a nominee on your proxy card, your vote
will not count either "for" or "against" the nominee.
PROPOSAL 2: APPROVE AN AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION
The affirmative vote of a majority of the outstanding shares of our
common stock entitled to vote is required to approve the amendment to
our Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 50 million to 100 million shares.
If you do not vote, or if you abstain from voting, it has the same
effect as if you voted against the proposal.
PROPOSAL 3: APPROVE AN AMENDMENT TO OUR 1999 STOCK OPTION PLAN
A majority of the shares of our common stock voting at the Annual
Meeting is required to approve the amendment to our 1999 Stock Option
Plan increasing the number of shares of our Common Stock which may be
issued pursuant to options under the Plan from 3,000,000 shares to
6,000,000 shares. If you do not vote, or if you abstain from voting, it
has no effect on this vote.
THE EFFECT OF BROKER NON-VOTES
Under the rules of the National Association of Securities Dealers, if
your broker holds your shares in its "street" name, the broker may vote
your shares on Proposals 1 and 2 even if it does not receive
instructions from you. Your broker may not vote on Proposal 3 unless it
receives instructions from you.
A broker non-vote would have no effect on the outcome of Proposal 1,
because only a plurality of votes cast is required to elect a director.
A broker non-vote for Proposal 2 would have the same effect as a vote
for this proposal. Broker non-votes will not be voted for or against
Proposal 3 and have no effect on the outcome of this proposal.
Broker non-votes will be counted for the purpose of determining the
presence of a quorum.
Q: Who will count the vote?
A: Representatives of ChaseMellon Shareholder Services, our transfer agent, will
serve as the inspector of elections and count the votes.
Q: Is voting confidential?
3
<PAGE> 7
A: We keep all the proxies, ballots and voting tabulations private as a matter
of practice. We only let our Inspectors of Election (ChaseMellon Shareholder
Services) examine these documents. We will not disclose your vote to management
unless it is necessary to meet legal requirements. We will forward to
management, however, any written comments that you make on the proxy card or
elsewhere.
Q: Who pays the costs of soliciting these proxies?
A: We will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our officers and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or in
person. We will reimburse banks, brokers, nominees and other fiduciaries for the
expenses they incur in forwarding the proxy materials to you. W. F. Doring & Co.
may help solicit proxies for an approximate cost of $3,000.00 plus reasonable
expenses.
Q: Who will be the Company's independent auditors for 2000?
A: The Board of Directors has appointed the firm of Deloitte & Touche LLP,
certified public accountants, to serve as the Company's auditors for 2000.
Deloitte & Touche LLP has served as the Company's auditors since 1987.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting, and will have an opportunity to make a statement and to respond
to appropriate questions.
Q: Who should I call if I have any questions?
A: If you have any questions about the Annual Meeting or voting, or your
ownership of our common stock, please contact Kenneth W. Johnson, our Secretary,
at (206) 701-2000. Mr. Johnson's email is [email protected].
INFORMATION ABOUT OUR COMMON STOCK OWNERSHIP
Q: How much stock is owned by 5% shareholders, directors and executive officers?
A: The following table shows, as of April 3, 2000, the number of shares of our
common stock beneficially owned by all persons we know to be beneficial owners
of at least 5% of our common stock, our directors, the executive officers named
in the Summary Compensation Table and all directors and executive officers as a
group.
4
<PAGE> 8
<TABLE>
<CAPTION>
UNEXERCISED TOTAL
COMMON OPTIONS AND SHARES & OPTIONS
NAME AND ADDRESS* SHARES CONVERTIBLE BENEFICIALLY
5% SHAREHOLDERS OWNED SECURITIES OWNED(1)(2) PERCENTAGE
- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
William T. Frantz 1,822,007 301,519 2,123,526 6.27%
P. O. Box 3965
Bellevue, WA 98009
INDEPENDENT DIRECTORS
David N. Cutler 26,927 49,663 76,590 **
Daniel J. Evans 31,143 31,818 62,961 **
Kenneth W. Kennedy 9,192 26,000 35,192 **
Stephen C. Kiely - 16,000 16,000 **
Terren S. Peizer - - - **
Dean D. Thornton - 16,000 16,000 **
John W. Titcomb, Jr. 221,562 60,856 282,418 **
NAMED EXECUTIVES
Burton J. Smith 271,295 276,456 547,751 1.62%
James E. Rottsolk 275,196 277,044 552,240 1.63%
Kenneth W. Johnson 39,579 109,967 149,546 **
Gerald E. Loe 25,445 111,294 136,739 **
Brian D. Koblenz 19,867 94,306 114,173 **
All Directors and
Executive officers
as a group (16 persons) 928,292 1,152,065 2,080,357 5.98%
- --------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated, all addresses are c/o Cray Inc., 411 First
Avenue South, Suite 600, Seattle, WA 98104-2860
** Less than 1%
- -----------------
(1) This table is based upon information supplied by the named executive
officers, directors and principal shareholders. Unless otherwise indicated
in these notes and subject to community property laws where applicable,
each of the listed shareholders has sole voting and investment power with
respect to the shares shown as beneficially owned by such shareholder. The
number of shares and percentage of beneficial ownership includes shares of
common stock issuable pursuant to stock options, warrants and convertible
notes held by the person or group in question which may be exercised or
converted on April 3, 2000, or within 60 days thereafter.
(2) The following persons disclaim beneficial ownership of the following
shares:
- Mr. Titcomb disclaims beneficial ownership of 39,272 shares as to which
he has voting and dispositive powers as a trustee of a trust for his
children under the Washington Uniform Gifts to Minors Act.
5
<PAGE> 9
- Mr. Rottsolk disclaims beneficial ownership of 7,196 shares as to which
he has voting and dispositive powers as custodian for six nieces and
nephews under the Washington Uniform Gifts to Minors Act.
- Mr. Johnson disclaims beneficial ownership of 2,600 shares as to which
he has voting and dispositive powers as a trustee of trusts for his
children and 100 shares owned by his spouse.
- Mr. Koblenz disclaims beneficial ownership of 851 shares as to which he
has voting and dispositive powers as a trustee of a trust for the
benefit of four nieces and nephews and of 425 shares as which his wife
has voting and dispositive powers as a trustee of a trust for the
benefit of two nieces.
Q: Did directors, executive officers and greater-than-10% shareholders comply
with Section 16(a) beneficial ownership reporting in 1999?
A: Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors, executive officers and greater-than-10% shareholders file reports
with the SEC on their initial beneficial ownership of our common stock and any
subsequent changes. They must also provide us with copies of the reports.
We are required to tell you in the Proxy Statement if we know about any failure
to report as required. We reviewed copies of all reports furnished to us and
obtained written representations that no other reports were required. Based on
this, we believe that all of these reporting persons complied with their filing
requirements for 1999, except that Mr. Cutler, Mr. Kennedy, Mr. Peizer and Ms.
Sargin each filed one report late.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The Board of Directors oversees our business and affairs and monitors
the performance of management. In accordance with corporate governance
principles, the Board does not involve itself in day-to-day operations. The
directors keep themselves informed through discussions with the President, other
key executives and our principal external advisers (legal counsel and outside
auditors), by reading the reports and other materials that we send them
regularly and by participating in Board and committee meetings.
6
<PAGE> 10
The Board met seven times during 1999. Each director attended at least
75% of the meetings of the Board and committees on which they serve, except Mr.
Kennedy.
THE COMMITTEES OF THE BOARD
The Board has an Audit Committee and a Compensation Committee. None of
the Directors who serve as members of these committees is, or has ever been, one
of our employees. In addition, the Board has established an Executive Committee.
There is no standing nominating or other committee that recommends
qualified candidates to the Board for election as directors. The entire Board
performs these duties. In addition, our By-laws provide a procedure for you to
recommend candidates for director at an Annual Meeting. For more information,
see below at page 24 under "Information about Shareholder Proposals and
Nominating Director Candidates."
AUDIT COMMITTEE. The Audit Committee meets with financial management and the
independent auditors, and recommends the selection of the independent auditors
to the Board, approves the scope of the annual audit by the independent
auditors, and reviews audit findings and accounting policies and financial
controls and procedures. Messrs. Evans and Titcomb currently serve on the Audit
Committee, with Mr. Evans serving as Chairman. The Audit Committee met five
times during 1999.
COMPENSATION COMMITTEE. The Compensation Committee reviews the compensation of
the President and Chief Scientist and approves the elements of compensation for
the other executive officers. The Compensation Committee administers our stock
option plans and grants options to the executive officers. The Compensation
Committee evaluates existing and proposed employee benefit plans and may propose
plan changes to the Board.
Each year, as the SEC requires, the Compensation Committee reports to you on our
executive compensation. The Compensation Committee's Report on Executive
Compensation for 1999 is set forth below beginning on page 12. Messrs. Cutler,
Evans and Kennedy currently serve as members of the Compensation Committee, with
Mr. Cutler serving as Chairman. The Compensation Committee met one time during
1999.
EXECUTIVE COMMITTEE. The Executive Committee meets or takes written action when
the Board is not otherwise meeting. The Executive Committee has the same level
of authority as the full Board, except that it cannot amend our By-laws,
recommend any action that requires the approval of the shareholders or take any
other action not permitted to be delegated to a committee under Washington law.
Messrs. Smith and Rottsolk serve on the Executive Committee, with Mr. Smith
serving as Chairman. The Executive Committee met two times in 1999.
7
<PAGE> 11
HOW WE COMPENSATE DIRECTORS
We do not provide cash compensation to directors for serving on the Board or
committees. We reimburse the directors for travel and related expense incurred
in attending Shareholder, Board and committee meetings and providing services on
our behalf.
STOCK OPTION AWARDS. The Board's current policy is to grant to each independent
director, upon election, options for 18,000 shares under our 1999 Stock Option
Plan, vesting over three years and with an exercise price equal to market value
of the common stock on the date on which the director is elected.
THE EXECUTIVE OFFICERS
HOW WE COMPENSATE EXECUTIVE OFFICERS
The tables on pages 9 through 11 show salaries, bonuses and other
compensation paid during the last three years, options granted in 1999, and
option values as of year-end 1999 for our President and Chief Executive Officer
and our next four most highly compensated executive officers.
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<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
-------------------------------------- Compensation
Name and Principal Position Year Salary Bonus(1) Options Other(2)
- ----------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Burton J. Smith 1999 195,683 19,620 100,000 5,686
Chief Scientist 1998 188,750 - 100,000 3,220
1997 177,500 22,077 - 4,733
James E. Rottsolk 1999 195,683 19,620 100,000 5,686
President and 1998 188,750 - 100,000 2,970
Chief Executive Officer 1997 177,500 22,077 - 3,078
Kenneth W. Johnson 1999 163,250 16,400 40,000 5,629
Vice President - Finance 1998 154,375 - 30,000 3,220
and Chief Financial Officer 1997(3) 43,750 - 90,000 -
Brian D. Koblenz 1999 149,167 15,000 50,000 2,980
Vice President - Software 1998 138,125 - 40,000 3,220
1997 123,333 15,331 - 2,192
Gerald E. Loe 1999 141,417 14,200 30,000 2,502
Vice President - Hardware 1998 138,550 - 30,000 1,620
1997 124,667 15,331 - 1,044
</TABLE>
- ---------------
(1) Bonuses are shown when accrued. The 1997 bonuses were paid in 1998 and the
1999 bonuses were paid in 2000. No executive bonuses were declared for 1998.
(2) Includes premiums for group term life insurance policies payable for each of
the executive officers and the Company's contributions to a 401(k) savings plan.
(3) Mr. Johnson joined the Company in September 1997.
OPTION GRANTS IN 1999
The following table provides information on option grants in fiscal 1999
to each of the executive officers named in the Summary Compensation Table.
9
<PAGE> 13
<TABLE>
<CAPTION>
Number Of % of Total
Securities Options Grant
Underlying Granted to Exercise Date
Options Employees in Price Expiration Present
Name Granted(1) Fiscal Year(2) Per Share Date Value(3)
- ------------------ -------- -------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Burton J. Smith 100,000 7.57% $ 6.125 2/3/09 $524,255
James E. Rottsolk 100,000 7.57% 6.125 2/3/09 524,255
Kenneth W. Johnson 40,000 3.03% 6.125 2/3/09 209,574
Gerald E. Loe 30,000 2.27% 6.125 2/3/09 157,127
Brian D. Koblenz 50,000 3.79% 6.125 2/3/09 262,021
</TABLE>
- -----------------
(1) The options granted in 1999 are exercisable 25% after the first year, and
thereafter become exercisable ratably per month over the next 36 months.
Vesting is accelerated upon death or permanent disability and under certain
circumstances following a change of control. Generally, all of the
executive officers' options will expire ten years from the date of grant or
earlier if employment terminates.
(2) We granted options for 1,320,439 shares to employees in 1999.
(3) We used a modified Black-Scholes model of option valuation to determine
grant date present value. We do not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option.
Calculations for the named executive officers are based on an expected 8.4-year
option term. Other assumptions used for the valuations are:
- interest rate of 6.6%;
- annual dividend yield of 0%; and
- volatility of 85%.
We did not adjust the model for non-transferability, risk of forfeiture or
vesting restrictions. The actual value, if any, a named executive officer
receives from a stock option will depend upon the amount by which the market
value of our common stock exceeds the exercise price of the option on the date
of exercise. There can be no assurance that the amount stated as "Grant Date
Present Value" will be realized.
AGGREGATED OPTION VALUES AS OF YEAR-END 1999
The following table provides information concerning the value of
unexercised options held by the executive officers named in the Summary
Compensation Table at December 31, 1999. None of these officers exercised any
stock options in 1999.
10
<PAGE> 14
<TABLE>
<CAPTION>
Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Name December 31, 1999 December 31, 1999(1)
- -------------------------- ------------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Burton J. Smith 211,876 241,672 $ 6,244 $ --
James E. Rottsolk 212,444 241,672 6,244 --
Kenneth W. Johnson 62,498 97,502 -- --
Gerald E. Loe 94,837 62,002 100,037 --
Brian D. Koblenz 70,142 88,668 750 --
</TABLE>
- ------------------
(1) This value represents the difference between $4.50, the closing price of our
common stock on the Nasdaq National Market System on December 31, 1999, and the
exercise price of stock options that were then "in-the-money." "In-the-money"
stock options are options for which the exercise price is less than the market
price of the underlying stock on a particular date.
MANAGEMENT CONTINUATION AGREEMENTS
We have entered into Management Continuation Agreements with certain of
our employees, including the executive officers named in the Summary
Compensation Table.
Pursuant to these agreements, each such officer or employee is eligible
to receive, in the event that his or her employment is terminated within three
years following a change-of-control of the Company, other than for just cause,
death, disability, retirement or resignation other than for good reason, as such
terms are defined in the agreement, an amount equal to two times his or her
annual compensation, continuation of health benefits and group term life
insurance for twenty-four months thereafter and the acceleration of vesting for
all options held. If these severance payments were to constitute "excess
parachute payments" for federal income tax purposes, we have agreed to pay any
excise taxes due with respect to those "excess parachute payments," and any
further excise taxes and federal and state income taxes due with respect to
these additional payments, so that the employee receives the same after-tax
compensation the employee would have received had the tax provisions regarding
such parachute payments not been enacted.
Under the agreements, "annual compensation" means the wages, salary and
incentive compensation the employee received in the calendar year immediately
prior to the termination. A "change of control" includes a 50% or greater change
in voting power of the Company immediately following a merger or acquisition and
certain changes in the composition of the Board of Directors during a thirty-six
month.
11
<PAGE> 15
CERTAIN TRANSACTIONS
In connection with exercises of stock options by Mr. Loe in 1997, we
loaned Mr. Loe $147,273. Mr. Loe gave us a promissory note currently bearing
interest at a rate of 5.74% per year. The note is due in December 2000 and is
secured by a pledge of shares of our common stock. Our right regarding payment
of the note is not limited to that pledge.
In February and March 1999, the Company raised funds in a private
financing through the sale of 8% convertible notes due March 31, 2001. Each
investor also received warrants to purchase our common stock. In June 1999, in
connection with another private placement, these notes and warrants were
exchanged for shares of common stock at the rate of $4.72 per share and three
year warrants to purchase an equal number of shares of common stock also at
$4.72 per share. Certain of our 5% shareholders, directors and executive
officers invested in this placement, on the same terms as other investors in the
June 1999 private placement, as follows: Mr. Frantz - 217,344 shares and
warrants; Mr. Cutler - 21,567 shares and warrants; Mr. Evans - 10,818 shares and
warrants; Mr. Titcomb - 21,623 shares and warrants; and Mr. Johnson - 21,637
shares and warrants.
As part of the June 21, 1999, private financing we paid fees of $648,200
to Intellect Capital Corporation, whose Chairman and CEO and principal
shareholder is Terren S. Peizer, our chairman. We also issued a warrant to Mr.
Peizer, in exchange for cash of $200,000, for a minimum of 1,591,723 shares of
common stock. The warrant becomes exercisable for one-half of the shares covered
thereby on June 21, 2000 and thereafter becomes exercisable ratably per month
over the next twelve months so that the warrant is exercisable in full on June
21, 2002. On June 21, 2000, and in certain circumstances prior to that date,
such as if we were involved in a merger or similar transaction or if we
terminated our relationship with Mr. Peizer, this warrant becomes exercisable
for 10% of our issued and outstanding shares, on a fully diluted basis, with
certain limited exceptions.
REPORT ON EXECUTIVE COMPENSATION FOR 1999 BY THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
setting and administering the policies governing annual compensation of the
executive officers, including the annual management bonus plan and our stock
option plans. The Committee is composed exclusively of directors who are neither
our employees nor our former employees nor eligible to participate in any of our
executive compensation programs other than our 1999 Stock Option Plan.
12
<PAGE> 16
PHILOSOPHY. The Committee's compensation philosophy is to provide
salary, bonus and equity incentives to our officers and other employees through
programs designed to attract and retain the best personnel to allow us to
achieve our goals and maintain our competitive posture. We seek to foster an
environment that rewards superior performance and aligns the interests of our
employees to those of our shareholders through equity incentives.
ANNUAL SALARY AND BONUS PLAN. At the beginning of every year, the
Committee reviews with the Chief Executive Officer and Chief Scientist and
approves, with modifications it deems appropriate, an annual compensation plan
for our executive officers. In making individual base salary decisions, the
Committee considers each officer's duties, the quality of the individual's
performance, the individual's potential, market compensation practices, the
contribution the officer has made to our overall performance, and our financial
status. The Committee also compares the salary of each officer with other
officers' salaries, taking into account the number of years employed by us, the
possibility of future promotions and the extent and frequency of prior salary
adjustments.
Our management bonus plan is a material element of the annual
compensation program for our executive officers and other key employees. The
1999 Plan proposed bonuses as a percentage of salary based upon us achieving
certain specified goals regarding revenues, bookings and stock market
performance of our common stock, with a discretionary element depending upon how
each officer met certain individual performance goals. For 1999, the Committee
granted each executive officer and corporate scientist a bonus of 10% of 1999
salary. The Committee has not yet structured the 2000 plan, pending completion
of the Cray business unit acquisition.
EQUITY. In determining the amount of equity compensation to be awarded
to executive officers in any fiscal year, the Committee considers the current
stock ownership of the officer, relevant industry experience, the impact of the
officer's contribution, the number of years each officer has been employed by
us, the possibility of future promotions, and the extent and frequency of prior
option grants. Options have been granted subject to four and five-year vesting
periods to encourage the officers and key employees to remain in the employ of
the Company.
CHIEF EXECUTIVE OFFICER AND CHIEF SCIENTIST. The Committee reviews and
sets the base salary of Mr. Rottsolk, the Chief Executive Officer, and Mr.
Smith, the Chief Scientist, using the same process as with other executive
officers as well as an assessment of their past performances, and its
expectations as to their future performances in leading us and our business.
Messrs. Rottsolk and Smith participate in the bonus and stock option plans on
the same basis as with the other executive officers. As they are our co-founders
and principal executive officers, we anticipate that their compensation will
remain equal in amount.
Section 162(m) of the Internal Revenue Code limits to $1 million per
person the amount that we may deduct for compensation paid to any of our most
highly
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<PAGE> 17
compensated officers in any year. The levels of salary and bonus paid by us do
not exceed this limit. Under IRS regulations, the $1 million limit on
deductibility does not apply to compensation received through the exercise of
stock options that meet certain requirements. It is our current policy generally
to grant options that meet those requirements.
The Compensation Committee
David N. Cutler
Daniel J. Evans
Kenneth W. Kennedy
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<PAGE> 18
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return to shareholders for
our common stock with the comparable return of the Nasdaq Stock Market (U.S.
companies) Index and the Nasdaq Computer Manufacturer Stock Index.
The graph assumes that you invested $100 in our common stock on
September 26, 1995, the date on which our common stock was first quoted, and
that all dividends were reinvested. We have never paid cash dividends on our
common stock. All return information is historical and is not necessarily
indicative of future performance.
Comparison of Cumulative Total Return Among Our Common Stock, the Nasdaq
Market (U.S.) Index and the Nasdaq Computer Manufacturer Stocks Index
Through December 31, 1999
<TABLE>
<CAPTION>
9/26/95 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company 100 73.47 63.27 248.98 102.04 73.47
Nasdaq Market (US) 100 101.22 124.47 152.70 215.16 398.18
NASDAQ Computer 100 102.14 136.94 165.66 359.13 764.88
Manufacturer Stocks
</TABLE>
15
<PAGE> 19
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECTION OF THREE DIRECTORS
Nine directors, divided into three classes, presently serve on our Board
of Directors for three-year terms. Six of these nine directors will continue to
serve according to their previous elections. The Board has nominated Messrs.
Kiely, Smith and Titcomb for reelection to the Board, each to hold office until
the Annual Meeting in 2002.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Board, or the Board may reduce the number of directors
to be elected. If any director resigns, dies or is otherwise unable to serve out
his term, or the Board increases the number of directors, the Board may fill the
vacancy until the next Annual Meeting.
NOMINEES FOR DIRECTORS FOR TERMS EXPIRING IN 2003
STEPHEN C. KIELY
Mr. Kiely, 54, joined our Board in December 1999. He is President and
Chief Executive Officer of Stratus Computer (DE), Inc., headquartered in
Maynard, Massachusetts. Mr. Kiely has served in his present position at Stratus
since February 1999 when Stratus was purchased from Ascend Communications. Mr.
Kiely joined Stratus in 1994 and held various executive positions with Stratus,
becoming President of the Stratus Enterprise Computer division in 1998. Prior to
joining Stratus, Mr. Kiely held a number of executive positions with several
information technology companies, including EON Corporation, Bull Information
Systems, Prisma, Inc., Prime Computer and IBM. Mr. Kiely is a past member of the
Advisory Council for the School of Engineering at Rice University; has served as
a board member of the Massachusetts Technology Park Corporation; and was a
member of an advisory board to the President of the State University of New York
at New Paltz. Mr. Kiely received his B.A. in Mathematics at Fairfield University
and his M.S. in Management at the Stanford University Graduate School of
Business.
BURTON J. SMITH
Mr. Smith, 59, is one of our co-founders and has been our Chief
Scientist since our inception. Until June 1999, he also served as Chairman of
the Board. Mr. Smith is a recognized authority on high performance computer
architecture and programming languages for parallel computers, and is the
principal architect of the MTA system. Prior to co-founding us, Mr. Smith was a
Fellow of the
16
<PAGE> 20
Supercomputing Research Center (now the Center for Computing Sciences), a
division of the Institute for Defense Analyses, from 1985 to 1988. He was
honored in 1990 with the Eckert-Mauchly Award given jointly by the Institute for
Electrical and Electronic Engineers and the Association for Computing Machinery,
and was elected a Fellow of both organizations in 1994. Mr. Smith received his
S.M., E.E. and Sc.D. degrees from the Massachusetts Institute of Technology.
JOHN W. TITCOMB, JR.
Mr. Titcomb, 49, joined our Board in 1991. During the last eight years
he has been a private investor and serves as a director of several privately
held companies involved in various technology, manufacturing and real estate
businesses. Mr. Titcomb received his A.B. and J.D. degrees from Harvard
University.
The Board of Directors recommends that you vote "FOR" the election of all three
nominees for director.
CONTINUING DIRECTORS
Information about each of our continuing directors is set forth below:
Directors Whose Terms Expire in 2001
DAVID N. CUTLER
Mr. Cutler, 58, joined our Board in 1993. Mr. Cutler joined Microsoft
Corporation in 1988 as Engineering Manager of Operating System Development and
has been responsible for Windows NT development. Prior to joining Microsoft, he
was Senior Corporate Consultant at Digital Equipment Corporation. During his
tenure at Digital, he managed DecWest in Bellevue, Washington, which produced
the VAXELN operating system and the first Microvax computer. He previously
managed the development of VMS and RSX 11 M, principal operating systems for
Digital computers.
DANIEL J. EVANS
Mr. Evans, 74, joined our Board in 1990. Since 1989, Mr. Evans has been
Chairman of Daniel J. Evans Associates, a consulting firm. He served as United
States Senator from the State of Washington from 1983 to 1989; Chairman of the
Pacific Northwest Power and Conservation Planning Council from 1981 to 1983;
President of the Evergreen State College in Olympia, Washington from 1977 to
1983; and for three terms as Governor of the State of Washington from 1965 to
1977. Mr. Evans is a director of Puget Sound Energy, Inc.; Flow International
Corporation;
17
<PAGE> 21
Western Wireless, Inc., VoiceStream Wireless Corp. and the National Information
Consortium, and a member of the Board of Regents of the University of
Washington. Mr. Evans received his M.S. degree in civil engineering from the
University of Washington.
DEAN D. THORNTON
Mr. Thornton, 70, joined our Board in January 2000. He served as
President of Boeing Commercial Airplane Group from February 1985 until his
retirement in January 1994. He was also an executive vice president of The
Boeing Company and a member of its executive council. Mr. Thornton joined Boeing
in 1963 as an assistant treasurer and was elected treasurer in 1966. He
subsequently served in a variety of executive assignments, including vice
president-finance, contracts and international operations for Boeing Commercial
Airplane Group and vice president-general manager of the 767 Division. Mr.
Thornton currently serves on the Board of Directors of Flow International
Corporation and the Board of Trustees of the Seattle Art Museum. Mr. Thornton
received a B.S. in business from the University of Idaho.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
KENNETH W. KENNEDY
Mr. Kennedy, 54, joined our Board in 1989. Mr. Kennedy is the Ann and
John Doerr Professor of Computational Engineering. He also is currently Director
of the Center for High Performance Software at Rice University. He directed the
National Science Foundation Center for Research on Parallel Computation from
1989 to January 2000. From 1997 to 1999, Professor Kennedy served as Co-Chair of
the President's Information Technology Advisory Committee and currently remains
a member. He is a fellow of the Institute of Electrical and Electronics
Engineers, the Association for Computing Machinery, and the American Association
for the Advancement of Science and has been a member of the National Academy of
Engineering since 1990. In recognition of his contributions to software for high
performance computation, he received the 1995 W. Wallace McDowell Award, the
highest research award of the Institute for Electrical and Electronic Engineers
Computer Society. In 1999, he was named recipient of the ACM SIGPLAN Programming
Languages Achievement Award, the third time this award was given. He received
his M.S. and Ph.D. from New York University.
TERREN S. PEIZER
Mr. Peizer, 40, joined our Board and was elected Chairman in June 1999.
He is Chairman and CEO of Intellect Capital Corp., a consulting firm
specializing in emerging growth companies. From February 1997 to February 1999,
Mr. Peizer
18
<PAGE> 22
served as President and Vice Chairman of Hollis-Eden Pharmaceuticals. From 1993
to 1997, he served as Chairman and Chief Executive Officer of Beachwood
Financial Company, Inc., an investment holding company that specialized in
venture capital and developmental phase and small capitalization company
investing. From 1990 to 1993, Mr. Peizer served as Chairman and Chief Executive
Officer of Financial Group Holdings, Inc., an investment holding company. From
1985 to 1990, Mr. Peizer served as a senior member of the investment banking
firm of Drexel Burnham Lambert, Inc.'s High Yield Bond Department. Mr. Peizer
received his B.S.E. in Finance from The Wharton School of Finance and Commerce.
JAMES E. ROTTSOLK
Mr. Rottsolk, 55, is one of our co-founders and has served as our Chief
Executive Officer and President since our inception. Prior to co-founding the
Company in 1987, Mr. Rottsolk served as an executive officer with several high
technology companies. Mr. Rottsolk received his B.A. from St. Olaf College and
his A.M. and J.D. degrees from the University of Chicago.
PROPOSAL 2: APPROVE AN AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION.
The Board proposes that the shareholders approve an amendment to Article
II (A) of our Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 50 million to 100 million. If the
amendment is approved, the first sentence of Article II (A) will read as
follows:
ARTICLE II
Capital Stock
A. Authorized Capital. The Corporation is authorized to issue a total of
one hundred five million (105,000,000) shares, consisting of one hundred million
(100,000,000) shares of $.01 par value to be designated "Common Stock" and five
million (5,000,000) shares of $.01 par value to be designated "Preferred Stock."
As of the date of this Proxy Statement, we had approximately 33. 6
million shares issued and outstanding and had reserved nearly all of the
remaining 16.4 million shares for issuance under existing warrants, convertible
notes and employee benefit plans.
Our proposed amendment increases the number of authorized shares of
common stock from 50 million to 100 million. The rights of additional authorized
shares would be identical to shares now authorized. The authorization will not,
in itself, have any effect on your rights as a shareholder. If we were to issue
additional shares for other than a stock split or dividend, however, it could
have a dilutive effect on our earnings per share and on your voting power in the
Company.
19
<PAGE> 23
We believe that the proposed increase in the number of authorized shares
of common stock is in the best interests of our shareholders. It is important
for the Board to have the flexibility to act promptly to meet future business
needs as they arise. Sufficient shares should be readily available to maintain
our financing and capital raising flexibility, employee benefit plans such as
our stock option plans, acquisitions and mergers, stock splits and dividends and
other proper business purposes. Having almost no shares available for these
purposes severely limits our flexibility and adversely affects our ability to
raise capital and attract employees.
By having additional shares readily available for issuance, we will be
able to act expeditiously without spending the time and incurring the expense of
soliciting proxies and holding special meetings of shareholders.
We have no present plans, agreements, commitments or understandings for
the issuance or use of these proposed additional shares, other than with respect
to options under our 1999 Stock Option Plan and other stock option and incentive
plans and outstanding warrants. In particular, Mr. Peizer's warrant becomes
exercisable on June 21, 2000 for half of the shares covered by the warrant and
then exercisable ratably over the next twelve months.
We continue to evaluate financing alternatives, and we expect to raise
additional capital in 2000 to enhance our financial position and to assure
prospective customers, vendors, investors and others of our financial stability.
While we have no present commitments for any specific financing, we would be
required to issue a portion of the additional authorized shares in any new
financing that we complete in 2000.
In addition, the approval of this amendment is necessary for the
approval of the amendment to our 1999 Stock Option Plan to increase the number
of shares reserved for issuance under the plan from 3,000,000 to 6,000,000.
The future issuance of additional shares of Common stock also could be
used to block an unsolicited acquisition through the issuance of large blocks of
stock to persons or entities considered by our officers and directors to be
opposed to such acquisition, which might impede the completion of a merger,
tender offer or other takeover attempt. In fact, the mere existence of such a
block of authorized but unissued shares, and the Board's ability to issue such
shares without shareholder approval, might deter a bidder from seeking to
acquire shares of the Company on an unfriendly basis. While the authorization of
additional shares of Common stock might have such effect, the Board does not
intend or view the proposed increase in authorized Common stock as an
anti-takeover measure, nor are we aware of any proposed takeover transactions.
20
<PAGE> 24
The Board may only issue additional shares of common stock without
shareholder approval if it complies with Washington corporate law and the rules
of the Nasdaq National Market System on which our common stock is listed. For
example, approval by the shareholders would be required by Nasdaq rules if the
issuance of shares of common stock, or securities convertible into common stock,
would result in a change of control of the Company. Nasdaq would also generally
require shareholder approval before the issuance of shares in private
transactions equal to 20% or more of the voting power outstanding before the
issuance for less than the greater of the book value or market value of the
common stock.
The Board of Directors recommends that you vote "FOR" our amendment to the
Restated Articles of Incorporation to increase the number of authorized shares
of common stock from 50 million to 100 million.
PROPOSAL 3: APPROVE AN AMENDMENT TO OUR 1999 STOCK OPTION PLAN
On April 14, 2000, the Board of Directors approved an amendment to our
Company's 1999 Stock Option Plan (the "1999 Plan") to increase the number of
shares reserved for issuance from 3,000,000 to 6,000,000 shares, subject to
shareholder approval of the amendment and the amendment to our Restated Articles
of Incorporation increasing the number of authorized shares of common stock
from 50 million to 100 million.
The 1999 Plan was adopted by the Board in February 1999 and approved by
the shareholders at the 1999 Annual Meeting. Currently, approximately 763,000
shares remain available for grant under the 1999 Plan.
We believe the proposed increase in the number of shares of common stock
available for issuance pursuant to the 1999 Plan is in the best interest of our
shareholders. Stock options are a key factor in attracting, rewarding and
retaining employees and officers. Stock options serve to align the interest of
optionees with the interests of our shareholders. Having no options available
for grant will adversely affect our ability to attract and retain employees and
officers.
PURPOSES OF THE PLAN. The purposes of the 1999 Plan are to provide a means for
us to attract, reward and retain the services and advice of our employees,
officers, agents and consultants, and to provide them with added incentives by
encouraging ownership of our common stock.
MAXIMUM NUMBER OF SHARES. The 1999 Plan originally provided that up to 3,000,000
shares may be issued. This proposal would increase that number to 6,000,000
shares. These numbers would be adjusted for changes in our capital structure,
such as a stock split. Shares subject to options that have lapsed unexercised
may be granted again under the 1999 Plan.
21
<PAGE> 25
TYPES OF OPTIONS. The options granted may be either incentive stock options
("ISOs") or nonqualified stock options, although ISOs may be granted only to
employees. The Board determines the term of each option, and when options are
exercisable. Generally options granted under the 1999 Plan become exercisable
over a four-year period, with 25% becoming exercisable one year after grant and
then ratably monthly over the next 36 months. Options granted to directors
generally vest over a three-year period, one-third on each anniversary of the
grant. Options expire no later than ten years from the date of grant although
the Board may grant options, which expire earlier.
ELIGIBLE PARTICIPANTS. Eligible participants under the Plan include current or
future employees (including employees who are directors), officers, independent
directors, agents and consultants.
The Board has the authority to select the persons to whom awards are
given. In addition, the Executive Committee may make awards, subject to
ratification by the Board, to employees, agents and consultants but not to
officers and directors.
The Company's practice is to grant options to all of our employees upon
employment and to grant additional options to all employees as part of their
annual reviews. With the acquisition of the Cray Research business unit, we have
nearly 900 employees.
All current employees and officers and the seven independent directors
are eligible for participation in the 1999 Plan.
EXERCISE PRICES. The Board determines the exercise price of options. The
exercise price for an ISO may not be less than 100% of the fair market value on
the date of grant. For any grant of ISOs to employees who own more than 10% of
our voting stock, the exercise price must be not less than 110% of the fair
market value on the date of grant and the vesting period of the ISO cannot
exceed five years.
MAXIMUM SIZE OF GRANTS. No one optionee may receive options for more than
300,000 shares in any one year.
TRANSFERABILITY. Recent changes to the Internal Revenue Code and SEC rules now
permit non-qualified options to be transferable. While generally such options
remain non-transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order, the Board, in
its discretion and subject to such terms and conditions as it shall specify, may
permit the transfer of a non-qualified option to an optionee's family members or
to one or more trusts or partnerships established for the benefit of such family
members. ISOs remain non-transferable other than by will or the laws of descent
and distribution.
CHANGE IN CONTROL PROVISIONS. In order to maintain the rights of participants in
the event of a merger, consolidation or plan of exchange, other than in which
the holders of at least 50% of our voting
22
<PAGE> 26
securities hold at least 50% of the voting securities of the surviving
corporation, or a sale of all or substantially all of our assets, or a
liquidation or dissolution of the Company, then, unless the existing options are
continued or assumed by the successor entity, with appropriate adjustments, then
the 1999 Plan and existing options shall terminate upon the effective date of
the transaction. In such event, each optionee would have the opportunity to
exercise his or her options in full, including any portion not then vested,
prior to the effective date of the transaction.
AMENDMENTS. The Board is authorized to amend the 1999 Plan, except that
shareholder approval is required for any amendment that would:
- - increase the number of shares available,
- - permit the granting of stock options to a new class of persons not
presently covered by the 1999 Plan, or
- - be required by applicable law or regulation.
The Board, in its discretion, may include further provisions and
limitations in any option agreement as it deems equitable and in the best
interests of the Company.
TAX CONSEQUENCES OF THE PLAN. The grant of a stock option will not result in
taxable income at the time of the grant for the optionee or the Company. The
optionee will have no taxable income upon exercising an ISO (except that the
alternative minimum tax may apply), and we will receive no deduction when an ISO
is exercised. Upon exercising a nonqualified stock option, the optionee will
recognize ordinary income in the amount by which the fair market value of the
common stock at the time of exercise exceeds the option price; we will be
entitled to a deduction for the same amount. Such income is subject to
withholding tax as "wages".
The tax treatment of an optionee for a disposition of shares acquired
through the exercise of an option is dependent upon the length of time the
shares have been held and on whether such shares were acquired by exercising an
ISO or a nonqualified stock option. Generally upon the sale of shares obtained
by exercising a non-qualified option, the gain realized on the sale over the
market value of our common stock on the exercise will be treated by the optionee
as a capital gain. If an employee exercises an ISO and holds the shares for two
years from the date of grant and one year after exercise, then any gain or loss
realized based on the exercise price of the option will be treated as long-term
capital gain or loss. Shares obtained by an exercise of an ISO which are sold
without satisfying these holding periods will be treated as shares received from
the exercise of a non-qualified option.
Generally, there will be no tax consequence to the Company in connection
with the disposition of shares acquired under an option except that we may be
entitled to a deduction in the case of a disposition of shares acquired upon
exercise of an ISO before the applicable ISO holding periods have been
satisfied.
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<PAGE> 27
Section 162(m) of the Internal Revenue Code limits to $1 million per
person the amount we may deduct for compensation paid to any of its most highly
compensated employees. Compensation received through the exercise of stock
options is not subject to this $1 million limit if the option and plan meet
certain requirements, including granting options granted with an exercise price
at not less than fair market value. Our policy is to grant options meeting the
requirements of Section 162(m) and applicable regulations to its most highly
compensated employees.
STOCK PRICE INFORMATION. The closing price of our common stock as reported on
the Nasdaq National Market System on April 10, 2000, was $5.375.
The Board plans to grant options to each of Mr. Kiely and Mr. Titcomb,
upon their election to the Board at the Annual Meeting, for 18,000 shares under
the 1999 Plan, with an exercise price per share equal to the fair market value
of our common stock as of the date of the Annual Meeting.
The Board of Directors recommends that you vote "FOR" the approval of the
amendment to our 1999 Stock Option Plan.
OTHER BUSINESS
The Board knows of no other matters to be brought before the Annual
Meeting of Shareholders. If, however, other matters are properly presented at
the meeting, the individuals designated on the proxy card will vote your shares
according to their judgement on those matters.
INFORMATION ABOUT SHAREHOLDER PROPOSALS
AND NOMINATING DIRECTOR CANDIDATES
SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for inclusion in
our proxy statement for the year 2001 Annual Meeting, the written proposal must
be received by us no later than December 26, 2000. Such proposals also must
comply with Securities and Exchange Commission regulations regarding the
inclusion of shareholder proposals in company sponsored proxy materials.
In order for a shareholder proposal to be raised from the floor during
the year 2001 Annual Meeting, written notice of the proposal must be received by
us not less than 60 nor more than 90 days prior to the meeting or, if later, by
the 10th business day following the first public announcement of the meeting.
The proposal must
24
<PAGE> 28
also contain the information required in our Bylaws for shareholder proposals,
including:
- a brief description of the business you wish to bring before the
meeting, the reasons for conducting such business and the language of
the proposal,
- your name and address,
- the number of shares of our stock which you own and when you acquired
them,
- a representation that you intend to appear at the meeting, in person or
by proxy, and
- any material interest you have in the business to be brought before the
meeting.
The Chairman of the Board, if the facts so warrant, may direct that any
business was not properly brought before the meeting in accordance with our
Bylaws.
DIRECTOR CANDIDATES
You may propose director candidates for consideration by our Board by
simply writing us.
In addition, our Bylaws permit shareholders to nominate directors at a
shareholder meeting. In order to nominate a director at a shareholder meeting,
you must notify us not fewer than 60 nor more than 90 days in advance of the
meeting or, if later, by the 10th business day following the first public
announcement of the meeting. In addition, the proposal must contain the
information required in our Bylaws for director nominations, including:
- your name and address,
- the number of shares of our stock which you own and when you acquired
them,
- a representation that you intend to appear at the meeting, in person or
by proxy,
- each nominee's name, age, address, and principal occupation or
employment,
- all information concerning the nominee that must be disclosed about
nominees in proxy solicitations under the SEC proxy rules, and
- each nominee's executed consent to serve as a director if so elected.
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<PAGE> 29
The Chairman of the Board, in his discretion, may determine that a
proposed nomination was not made in accordance with the required procedures and,
if so, disregard the nomination.
If you wish to obtain a free copy of our Bylaws or make proposals or
nominate candidates for the Board, please contact Kenneth W. Johnson, Secretary,
Cray Inc., 411 First Avenue South, Suite 600, Seattle, WA 98104-2860.
Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, including financial statements and schedules, forms a part of our 1999
Annual Report that was mailed to shareholders with this Proxy Statement.
Additional copies of the 1999 Annual Report may be obtained without charge by
writing to Kenneth W. Johnson, Secretary, Cray, Inc., 411 First Avenue South,
Suite 600, Seattle, WA 98104-2860.
By order of the Board of Directors,
Kenneth W. Johnson
Vice President - Finance,
Chief Financial Officer
and Secretary
Seattle, Washington
April 24, 2000
26
<PAGE> 30
PROXY
CRAY INC.
ANNUAL MEETING MAY 31, 2000, 2:00 P.M.
411 FIRST AVENUE SOUTH, SEATTLE, WASHINGTON
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Burton J. Smith and James E. Rottsolk, and each
of them, proxies with power of substitution to vote on behalf of the undersigned
all shares that the undersigned may be entitled to vote at the Annual Meeting of
shareholders of Cray Inc. (the "Company") on May 31, 2000 and any adjournments
thereof, with all powers that the undersigned would possess if personally
present, with respect to the following:
The shares represented by this proxy will be voted as specified on the reverse
side, but if no specification is made, this proxy will be voted for the election
of director nominees and for the proposals to approve an amendment to the
Restated Articles of Incorporation and an amendment to our 1999 Stock Option
Plan. The proxies may vote in their discretion as to other matters that may come
before this meeting.
(THIS PROXY CARD CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
FOLD AND DETACH HERE
<PAGE> 31
Please mark
your votes as /x/
indicated in
this example.
DIRECTORS RECOMMEND THAT YOU VOTE FOR ELECTION OF THE NAMED DIRECTORS AND IN
FAVOR OF PROPOSALS 2 AND 3.
<TABLE>
<CAPTION>
FOR WITHHOLD
all nominees authority
listed (except to vote for
as withheld) nominees listed
<S> <C> <C> <C>
1. Election of Three Directors. / / / /
(Instructions: To withhold authority
to vote for any individual, strike a
line through the nominee's name below.)
Stephen C. Kelly
Burron S. Smith
John W. Tircomb, Jr.
2. Approve an amendment to our Restated FOR AGAINST ABSTAIN
Articles of Incorporation to increase / / / / / /
the number of authorized shares of common
stock from 50 million to 100 million.
3. Approve an amendment to our 1999 Stock FOR AGAINST ABSTAIN
Option Plan to increase the number of / / / / / /
shares reserved for issuance under this
Plan from 3,000,000 to 6,000,000.
4. Transaction of any business that properly FOR AGAINST ABSTAIN
comes before the meeting or any adjournments / / / / / /
thereof. A majority of the proxies or
substitutes at the meeting may exercise all
the powers granted hereby.
</TABLE>
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature(s)____________________________________________Date:_____________ 2000
Please date and sign exactly as name is imprinted hereon, including designation
as executor, trustee, administrator, guardian or attorney, if applicable. When
shares are held by joint tenants, both should sign. A corporation must sign its
name by the president or other authorized officer. If a partnership, please sign
in partnership name by an authorized person.
FOLD AND DETACH HERE
