UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantþ
Filed by a Party other than the Registranto¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| Confidential, for Use of the Commission Only (as permitted by Rule |
| þ | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
Cray Inc.
(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):
| þ | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: | ||
| (2) | Aggregate number of securities to which transaction applies: | ||
| (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): | ||
| (4) | Proposed maximum aggregate value of transaction: | ||
| (5) | Total fee paid: | ||
| ¨ | 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 paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: | ||
| (2) | Form, Schedule or Registration Statement No.: | ||
| (3) | Filing Party: | ||
| (4) | Date Filed: | ||
Dear Cray Inc. Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders, which will be held in the Fifth Avenue Conference Room at our principal executive offices located at 901 Fifth Avenue, Seattle, Washington 98164 on Wednesday,Thursday, June 9, 2010,16, 2011, at 3:00 p.m. Pacific Time.
1. To vote on the following matters:
2. To vote, on an advisory or non-binding basis, on the compensation of our Named Executive Officers;
3. To vote, on an advisory or non-binding basis, on the frequency of holding future advisory votes on the compensation of our Named Executive Officers;
4. To vote to approve our amended and
5. To ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
The shareholders will also act on any other business that may properly come before the Annual Meeting, including any adjournments or postponements of the Annual Meeting.
Any action on the items of business described above may be considered at the Annual Meeting at the scheduled time and date specified above or at any time and date to which the Annual Meeting may be properly adjourned or postponed. Your Board of Directors recommends a voteFORthe election of the nominees for directordirector;FOR the approval of the compensation of our Named Executive Officers;FOR the option of every year as the frequency with which our shareholders are provided an advisory vote on the compensation of our Named Executive Officers;FOR the amendments to our 2001 Employee Stock Purchase Plan; andFORratification of the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2010.
Only shareholders of record on April 5, 2010,11, 2011, the record date for the Annual Meeting, are entitled to vote on these matters.
At the Annual Meeting, we will review our performance during the past year. You will have an opportunity to ask questions about Cray Inc. and our operations.
As we did last year, we are furnishing proxy materials via the Internet. The approximate date of availability for the Proxy Statement and accompanying proxy materials is April 26, 2010.isApril 28, 2011. Please read the Proxy Statement for more information on this alternative for distributing our proxy materials, which we believe will allow us to provide shareholders with the information they need, while lowering the costs of delivering the Proxy Statement and related materials and reducing the environmental impact of the Annual Meeting.
Your vote is important regardless of the number of shares you own or whether you plan to attend the Annual Meeting in person. You may vote through several different ways, and instructions on the various voting methods are contained in the accompanying Proxy Statement. Even if you plan to attend the Annual Meeting, we urge you to vote at your earliest convenience so we avoid further solicitation costs. Any shareholder attending the Annual Meeting may vote in person even if he or she has voted previously.
Details of the business to be conducted at the Annual Meeting 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 Cray Inc.
Sincerely,
PeterPETER J. Ungaro
UNGARO
President and Chief Executive Officer
Seattle, Washington
April 26, 2010
28, 2011
TABLE OF CONTENTS
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Proposal 4: To Approve the Cray Inc. Amended and Restated 2001 Employee Stock Purchase Plan | 62 | |||
IMPORTANT
Whether or not you expect to attend the Annual Meeting in person, we urge you to vote at your earliest convenience. You may vote via theInternetor bytelephoneor, if this Proxy Statement was mailed to you, sign, date and return the enclosedproxy card.
If you wish to return the proxy card by mail, an addressed envelope, for which no postage is required if mailed in the United States, is enclosed for that purpose. Voting via the Internet or by telephone or by sending in your proxy card will not prevent you from voting your shares at the Annual Meeting, if you desire to do so, as you may revoke your earlier vote.
Important Notice Regarding the Availability of Proxy Materials for the Company’s
Annual
Meeting of Shareholders on June 9, 201016, 2011
The Cray Inc. Notice and Proxy Statement for the 20102011 Annual Meeting of Shareholders
and the 20092010 Annual Report to Shareholders are available online
atwww.proxydocs.com/crayhttps://materials.proxyvote.com/225223 andhttp://investors.cray.com
901 Fifth Avenue, Suite 1000
Seattle, WA 98164
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held At:
901 Fifth Avenue, Fifth Avenue Conference Room
Seattle, WA 98164
June 16, 2011
3:00 p.m. Pacific TimeJune 9, 2010
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
| Q: | ||
| Why am I receiving these materials? | ||
| A: | The Board of Directors of Cray Inc. (“Cray”) has made these materials available to you via the Internet, or has delivered printed versions of these materials to you by mail, in connection with its solicitation of proxies for use at our |
| Q: | What is included in these materials? | |
| A: | These materials include: |
Our Notice of the 2011 Annual Meeting and our Proxy Statement, which summarize the information regarding the matters to be voted on at the Annual Meeting;
Our 2010 Annual Report to Shareholders, which includes our Annual Report on Form 10-K and audited consolidated financial statements for the year ended December 31, 2010; and
The proxy card, if you requested printed versions of these materials by mail, or an electronic voting form, if you are viewing these materials via the Internet.
| Q: | ||
| What items will be voted on at the | ||
| A: | There are |
The election of eight directors to the Board, each to serve a one-year term;
The advisory vote on the compensation of our Named Executive Officers;
The advisory vote on the frequency of holding future advisory votes on the compensation of our Named Executive Officers;
The approval of our amended and restated 2001 Employee Stock Purchase Plan; and
The ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011.
It is possible that other business may come before the Annual Meeting, although we currently are not aware of any such matters.
| Q: | ||
| What are the voting recommendations of our Board? | ||
| A: | Our Board recommends that you vote your shares “FOR” each of the named nominees to the |
every year as the frequency with which our shareholders are provided an advisory vote on the compensation of our Named Executive Officers; “FOR” the amendments to our 2001 Employee Stock Purchase Plan; and “FOR” the ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, |
| Q: | Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? | |
| A: | As permitted by the U.S. Securities and Exchange Commission(the“ |
| and certain beneficial owners. We also then posted this Proxy Statement and the Annual Report on the Internet at |
| Q: | Why did I receive a full set of proxy materials rather than the Notice? | |
| A: | We are providing shareholders who have previously requested to receive paper copies of the proxy materials and our shareholders who are participants in the Cray 401(k) Savings Plan (the “Cray 401(k) Plan”) |
| Q: | Who may vote at the Annual Meeting? | |
| A: | If you owned shares of our common stock at the close of business on April |
| Q: | What is the difference between holding shares as a shareholder of record or as a beneficial owner of shares held in street name? | |
| A: | Shareholder of Record. If you have shares registered directly in your name with our stock transfer agent, BNY Mellon Shareowner Services, then you are considered the shareholder of record with respect to those shares and we sent the Notice or proxy materials directly to you. |
Beneficial Owner of Shares Held in Street Name. If you have shares held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and the Notice was forwarded to you by that organization. The organization holding the shares in your account is considered the shareholder of record with respect to those shares for the purpose of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares it holds in your account.
| Q: | ||
| How can I vote? | ||
| A: | You may vote via the Internet, by telephone, by returning an enclosed proxy card if one was sent to you, or by voting in person at the Annual Meeting. |
| Q: | How do I vote via the Internet or by telephone? | |
| A: | If You Are the Shareholder of Record: | |
2If your shares are registered directly in your name, you may vote via the Internet or by telephone through services offered by Broadridge Financial Solutions, Inc.(“Broadridge”). If you received the Notice, then go to the website referred to on the Notice. If you received a full set of proxy materials in the mail, then go to the website or call the telephone number referred to on the proxy card. Please have the Notice or proxy card in hand when going online or calling, and follow the instructions on the form you are using.
You may vote via the Internet or by telephone 24 hours a day, 7 days a week until 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time, on Wednesday, June 15, 2011, the day before the Annual Meeting.
If you requested printed copies of the proxy materials, you may also vote by completing and signing the enclosed proxy card and mailing it to us in the enclosed self-addressed envelope (postage-free in the United States). We need to receive the signed proxy card by the time of the Annual Meeting.
A number of brokerage firms, banks and other organizations participate in a program for shares held in “street name” that offers Internet and telephone voting options. This program is different from the program for shares registered directly in the name of the shareholder. If your shares are held in an account at an organization participating in this program, then you may vote those shares by using the website or calling the telephone number referenced on the instructions provided by that organization. Similarly, if you received printed copies of the proxy materials through your broker, bank or other nominee organization, then you may vote by completing and signing the voting form and mailing it to that organization in the self-addressed envelope it provided.
| Q: | ||
| May I change my vote or revoke my proxy? | ||
| A: | Yes. If you change your mind after you have voted by Internet or by telephone or sent in your proxy card and wish to revote, you may do so by following these procedures: |
Vote again via the Internet or by telephone;
Send in another signed proxy card with a later date;
Send a letter revoking your vote or proxy to our Corporate Secretary at our offices in Seattle, Washington; or
Attend the Annual Meeting and vote in person.
We will tabulate the latest valid vote or instruction that we receive from you.
| Q: | ||
| How do I vote if I hold shares in my Cray 401(k) Plan account? | ||
| A: | Shares of Cray common stock held in the Cray 401(k) Plan are registered in the name of the Trustee of the Cray 401(k) Plan, Fidelity Management Trust Company. |
The shares allocated under the Cray 401(k) Plan can be voted by submitting voting instructions via the Internet, by telephone or by mailing your proxy card. Voting of shares held in the Cray 401(k) Plan must be completed by 11:59 p.m. Eastern Time/8:59 p.m. Pacific Time on Monday, June 13, 2011. These shares cannot be voted at the Annual Meeting and prior voting instructions cannot be revoked at the Annual Meeting. Otherwise, participants can vote these shares in the same manner as described above for shares held directly in the name of the shareholder.
The Trustee will cast votes for shares in the Cray 401(k) Plan according to each participant’s instructions. If the Trustee does not receive instructions from a participant in time for the Annual Meeting, the Trustee will vote the participant’s allocated shares in the same manner and proportion as the shares with respect to which voting instructions were received.
| 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 “street name” of your brokerage firm, bank or other organization, you must obtain a “legal proxy” from the organization that holds your shares. You should contact your account executive about obtaining a legal proxy. |
| Q: | What happens if I do not give specific voting instructions? | |
| A: | Shareholders of Record. If you are a shareholder of record and you: | |
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Indicate when voting via the Internet or by telephone that you wish to vote as recommended by our Board; or
Sign and return a proxy card without giving specific voting instructions,
then the proxy holders will vote your shares in the manner recommended by our Board on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion with respect to all other matters properly presented for a vote at the Annual Meeting, including without limitation whether to postpone or adjourn the Annual Meeting.
If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-discretionary matter, then the organization will inform our Inspector of Elections that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.”
| Q: | ||
| Which ballot measures are considered “discretionary” or “non-discretionary?” | ||
| A: |
| Q: | ||
| How are abstentions treated? | ||
| A: | Abstentions are counted for purposes of determining whether a quorum is present. For Proposal 1 (election of eight directors), if you elect to abstain, the |
For the purpose of determining whether the shareholders have approved Proposal 2 (advisory vote on the compensation of our Named Executive Officers), Proposal 4 (approval of our amended and restated 2001 Employee Stock Purchase Plan) or Proposal 5 (ratification of independent registered public accounting firm), each proposal will be adopted if the number of votes cast in favor of the proposal exceeds the number of votes cast against the proposal and abstentions are not treated as votes cast affirmatively or negatively, and therefore will have no effect on the outcome of Proposal 2, Proposal 4 or Proposal 5.
| Q: | What is the quorum requirement for the Annual Meeting? | |
| A: | The quorum requirement for holding the Annual 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 Annual Meeting. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum. |
| Q: | What vote is required to approve each proposal: | |
| A. | Proposal 1: To Elect Eight Directors for One-Year Terms. |
The eight nominees for director who receive the most votes will be elected, assuming the presence of a quorum. Accordingly, if you do not vote for a nominee, do not instruct your broker how to vote for a nominee or if you indicate “withhold authority to vote” for a nominee, your vote will not count either “for” or “against” the nominee.
Proposal 2: Advisory Vote on the Compensation of Our Named Executive Officers.
To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting, it will have no effect on this proposal, assuming the presence of a quorum.
Proposal 3: Advisory Vote on the Frequency of Holding Future Advisory Votes on the Compensation of Our Named Executive Officers.
The option of one year, two years or three years that receives the highest number of votes cast will be the frequency of the vote on the compensation of our Named Executive Officers that has been approved by shareholders on an advisory basis. Accordingly, if you do not vote for any option, do not instruct your broker how to vote or you abstain from voting, your vote will not have any effect on the outcome of the advisory vote.
Proposal 4: To Approve the Amendments to our 2001 Employee Stock Purchase Plan.
To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting, it will have no effect on this proposal, assuming the presence of a quorum.
Proposal 5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2011.
To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote or if you abstain from voting, it will have no effect on this proposal, assuming the presence of a quorum.
| Q: | ||
| Who will count the vote? | ||
| A: | Representatives of |
| Q: | Is voting confidential? | |
| A: | We keep all the proxies, ballots and voting tabulations private as a matter of practice. We let only our Inspector of Elections examine these documents. Our Inspector of Elections will not disclose your vote to our management unless it is necessary to meet legal requirements. Our Inspector of Elections will forward to our management, however, any written comments that you make on the proxy card or elsewhere. |
| Q: | Who pays the costs of soliciting proxies for the Annual Meeting? | |
| A: | We will pay all the costs of soliciting these proxies. In addition to soliciting proxies by distributing these proxy materials, our officers and employees may also solicit proxies by telephone, by fax, by mail, via the |
Internet or other electronic means of communication, or in person. No additional compensation will be paid to officers or employees for their assistance in soliciting proxies. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you. |
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| Q: | ||
| Can I view future proxy statements, annual reports and other documents via the Internet, and not receive any paper copies through the mail? | ||
| A: | Yes. If you wish to elect to view future proxy statements, annual reports and other documents only via the Internet, and you are a: |
Shareholder of Record: Please visit the Broadridge Investor E-Connect proxy delivery preferences web-page,www.proxyvote.com, enter your voter control number found on your Notice, and follow the instructions for obtaining your documents electronically, or telephone: 1-800-579-1639, or send an email to: sendmaterial@proxyvote.com.
Beneficial Owner of Shares Held in Street Name: Please visit the Broadridge Investor E-Connect web-page,www.proxyvote.com, and follow the instructions at that site, or telephone Broadridge at 1-800-579-1639, or send an email to: sendmaterial@proxyvote.com.
Please have the Notice in hand when accessing these sites or telephoning. Your election to view these documents via the Internet will remain in effect until you revoke it. If you so elect, then next year you would receive an email with instructions containing links to those materials and to the proxy voting site. Please be aware that if you choose to access these materials via the Internet, then you may incur costs such as telephone and Internet access charges for which you will be responsible.
| Q: | ||
| How do I receive paper copies of the proxy materials, if I so wish? | ||
| A: | The Notice contains instructions about how to elect to obtain paper copies of the proxy materials. Your election will remain in effect until you revoke it. All shareholders who do not receive the Notice will receive a paper copy of the proxy materials by mail. |
| Q: | I receive multiple copies of the Notice and/or Proxy Materials. What does that mean, and can I reduce the number of copies that I receive? | |
| A: | This generally means your shares are registered differently or are held in more than one account. Please provide voting instructions for all proxy cards and Notices that you receive. | |
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Unfortunately, householding is only possible for shares held through the same brokerage firm, bank or other nominee. Thus you cannot apply householding to reduce the number of sets of proxy materials you receive in the mail if you have accounts at different brokers, for example. In those circumstances, one way to reduce the number of sets of proxy materials you receive in the mail is to sign up to review the materials via the Internet. See “Can I view future proxy statements, annual reports and other documents via the Internet, and not receive any paper copies through the mail?” above.
| Q: | ||
| What if I have lost or cannot find my stock certificates, need to change my account name, have moved and need to change my mailing address, or have other questions about my Cray stock? | ||
| A: | You may contact our transfer agent, BNY Mellon Shareowner Services by calling: 1-877-522-7762 (for foreign investors, 1-201-680-6578),1-800-231-5469 (TDD for hearing-impaired in the United States) or1-201-680-6610 (TDD for foreign investors), visit its website at:www.bnymellon.com/shareowner/isd, or write to: BNY Mellon Shareowner Services, Shareholder Relations, P.O. Box 358015, Pittsburgh, PA15252-8015. |
| Q: | How can I find the voting results of the Annual Meeting? | |
| A: | We will report the voting results in aForm 8-K within four business days after the end of the Annual Meeting. |
| Q: | Whom should I call if I have any questions? | |
| A: | If you have any questions about the Annual Meeting or voting, or about your ownership of our common stock, please contact |
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The following table shows, as of April 5, 2010,4, 2011, the number of shares of our common stock beneficially owned by the following persons:
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” on page 39; and
all current directors and executive officers as a group.
As of April 5, 2010,4, 2011, there were 35,440,00636,176,189 shares of our common stock outstanding.
| Options | ||||||||||||||||
| Common | Exercisable | Total | ||||||||||||||
| Shares | Within | Beneficial | ||||||||||||||
Name and Address(1) | Owned | 60 Days | Ownership(2) | Percentage | ||||||||||||
5% Shareholders | ||||||||||||||||
| Wells Fargo & Company(3) | 4,061,921 | — | 4,061,921 | 11.46 | % | |||||||||||
| 420 Montgomery Street San Francisco, CA 94104 | ||||||||||||||||
| Paradigm Capital Management, Inc.(3) | 2,355,300 | — | 2,355,300 | 6.65 | % | |||||||||||
| Nine Elk Street Albany, NY 12207 | ||||||||||||||||
| BlackRock, Inc.(3) | 1,961,075 | — | 1,961,075 | 5.53 | % | |||||||||||
| 40 East 52nd Street New York, NY 10022 | ||||||||||||||||
Independent Directors | ||||||||||||||||
| William C. Blake(4) | 17,977 | 5,000 | 22,977 | * | ||||||||||||
| John B. Jones, Jr.(4) | 38,964 | — | 38,964 | * | ||||||||||||
| Stephen C. Kiely(4) | 46,234 | — | 46,234 | * | ||||||||||||
| Frank L. Lederman(4) | 48,726 | — | 48,726 | * | ||||||||||||
| Sally G. Narodick(4) | 38,245 | — | 38,245 | * | ||||||||||||
| Daniel C. Regis(4) | 50,819 | — | 50,819 | * | ||||||||||||
| Stephen C. Richards(4) | 44,027 | — | 44,027 | * | ||||||||||||
Named Executives | ||||||||||||||||
| Peter J. Ungaro(5) | 406,339 | 43,464 | 449,803 | 1.27 | % | |||||||||||
| Brian C. Henry(5) | 348,756 | 23,322 | 372,078 | 1.05 | % | |||||||||||
| Margaret A. Williams(5) | 209,309 | 21,781 | 231,090 | * | ||||||||||||
| Steven L. Scott(5) | 121,735 | 17,419 | 139,154 | * | ||||||||||||
| Ian W. Miller(5) | 121,187 | 13,333 | 134,520 | * | ||||||||||||
| All current directors and executive officers as a group (15 persons)(4)(5) | 1,620,422 | 145,057 | 1,765,479 | 4.96 | % | |||||||||||
Name and Address(1) | Common Shares Owned | Options Exercisable Within 60 Days | Total Beneficial Ownership(2) | Percentage | ||||||||||||
5% Shareholders | ||||||||||||||||
Wells Fargo & Company(3) 420 Montgomery Street | 5,243,878 | — | 5,243,878 | 14.50 | % | |||||||||||
Joseph L. Harrosh(3) P.O. BOX 6009 | 3,557,380 | — | 3,557,380 | 9.83 | % | |||||||||||
Paradigm Capital Management, Inc.(3) Nine Elk Street | 2,631,057 | — | 2,631,057 | 7.27 | % | |||||||||||
BlackRock, Inc.(3) 40 East 52nd Street | 2,093,261 | — | 2,093,261 | 5.79 | % | |||||||||||
Royce & Associates, LLC(3) 745 Fifth Avenue | 1,957,131 | — | 1,957,131 | 5.41 | % | |||||||||||
Independent Directors | ||||||||||||||||
William C. Blake(4) | 25,000 | 5,000 | 30,000 | * | ||||||||||||
John B. Jones, Jr.(4) | 39,694 | — | 39,694 | * | ||||||||||||
Stephen C. Kiely(4) | 54,402 | — | 54,402 | * | ||||||||||||
Frank L. Lederman(4) | 54,559 | — | 54,559 | * | ||||||||||||
Sally G. Narodick(4) | 46,097 | — | 46,097 | * | ||||||||||||
Daniel C. Regis(4) | 58,068 | — | 58,068 | * | ||||||||||||
Stephen C. Richards(4) | 49,879 | — | 49,879 | * | ||||||||||||
Named Executive Officers | ||||||||||||||||
Peter J. Ungaro(5) | 494,752 | 34,583 | 529,335 | 1.46 | % | |||||||||||
Brian C. Henry(5) | 399,094 | 17,707 | 416,801 | 1.15 | % | |||||||||||
Margaret A. Williams(5) | 247,025 | 14,708 | 261,733 | * | ||||||||||||
Steven L. Scott(5) | 144,027 | 12,749 | 156,776 | * | ||||||||||||
Wayne J. Kugel(5) | 74,151 | 7,291 | 81,442 | * | ||||||||||||
Ian W. Miller(5)(6) | 45,107 | — | 45,107 | * | ||||||||||||
All current directors and executives as a group (17 persons)(4)(5) | 1,903,774 | 120,495 | 2,024,269 | 5.60 | % | |||||||||||
| * | Less than 1% of the outstanding common stock. | |
| (1) | Unless otherwise indicated, all addresses arec/o Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164. | |
| (2) | Unless otherwise indicated in these footnotes 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 held by the person or group in question that may be exercised on April | |
| (3) | The information under the column “Common Shares Owned” with respect to Wells Fargo & Company is based on a Schedule 13G filed with the SEC on January |
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The information under the column “Common Shares Owned” with respect to Joseph L. Harrosh (“Harrosh”) is based on a Schedule 13G filed with the SEC on January 10, 2011, regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, Harrosh reported sole voting power and sole dispositive power over 3,557,380 shares.
The information under the column “Common Shares Owned” with respect to Paradigm Capital Management, Inc. (“Paradigm”) is based on a Schedule 13G filed with the SEC on February 14, 2011 regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, Paradigm reported sole voting power and sole dispositive power over 2,631,057 shares.
The information under the column “Common Shares Owned” with respect to BlackRock, Inc. (“BlackRock”) is based on a Schedule 13G filed with the SEC on February 3, 2011, regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, BlackRock reported sole voting power and sole dispositive power over 2,093,261 shares.
The information under the column “Common Shares Owned” with respect to Royce & Associates, LLC (“Royce”) is based on a Schedule 13G filed with the SEC on January 12, 2011, regarding beneficial ownership as of December 31, 2010. In that Schedule 13G, Royce reported sole voting power and sole dispositive power over 1,957,131 shares.
| (4) | The number of shares of common stock shown for the indicated directors includes restricted shares that vest on the dates indicated, and that are forfeitable in certain circumstances, as follows: |
| Restricted | May 8, | May 8, | ||||||||||
Director | Shares-Total | 2010 | 2011 | |||||||||
| William C. Blake | 12,347 | 7,487 | 4,860 | |||||||||
| John B. Jones, Jr. | 14,744 | 9,085 | 5,659 | |||||||||
| Stephen C. Kiely | 16,495 | 10,304 | 6,191 | |||||||||
| Frank L. Lederman | 19,462 | 11,939 | 7,523 | |||||||||
| Sally G. Narodick | 17,331 | 10,607 | 6,724 | |||||||||
| Daniel C. Regis | 22,963 | 14,109 | 8,854 | |||||||||
| Stephen C. Richards | 19,843 | 12,320 | 7,523 | |||||||||
Directors | Restricted Shares-Total | May 8, 2011 | June 9, 2011 | June 9, 2012 | ||||||||||||
William C. Blake | 11,883 | 4,860 | 3,512 | 3,511 | ||||||||||||
John B. Jones, Jr. | 14,389 | 5,659 | 4,365 | 4,365 | ||||||||||||
Stephen C. Kiely | 17,359 | 6,191 | 5,584 | 5,584 | ||||||||||||
Frank L. Lederman | 20,106 | 7,523 | 6,292 | 6,291 | ||||||||||||
Sally G. Narodick | 14,576 | 6,724 | 3,926 | 3,926 | ||||||||||||
Daniel C. Regis | 20,803 | 8,854 | 5,975 | 5,974 | ||||||||||||
Stephen C. Richards | 17,375 | 7,523 | 4,926 | 4,926 | ||||||||||||
| (5) | The number of shares of common stock shown for the indicated executive officers includes restricted shares that vest on the dates indicated, and are forfeitable in certain circumstances, as follows: |
| Restricted | May 15, | November 15, | May 15, | February 28, | May 15, | May 15, | ||||||||||||||||||||||
Executive Officer | Shares-Total | 2010 | 2010 | 2011 | 2012 | 2012 | 2013 | |||||||||||||||||||||
| Peter J. Ungaro | 271,575 | 45,000 | 31,575 | 75,000 | — | 45,000 | 75,000 | |||||||||||||||||||||
| Brian C. Henry | 142,375 | 22,500 | 17,375 | 40,000 | — | 22,500 | 40,000 | |||||||||||||||||||||
| Margaret A. Williams | 130,375 | 19,000 | 17,375 | 37,500 | — | 19,000 | 37,500 | |||||||||||||||||||||
| Steven L. Scott | 107,050 | 18,000 | 11,050 | 30,000 | — | 18,000 | 30,000 | |||||||||||||||||||||
| Ian W. Miller | 70,000 | — | — | 22,500 | 25,000 | — | 22,500 | |||||||||||||||||||||
| Other executive officers | 116,350 | 17,500 | 6,350 | 37,500 | — | 17,500 | 37,500 | |||||||||||||||||||||
Executive Officers | Restricted Shares-Total | May 15, 2011 | May 12, 2012 | May 15, 2012 | May 17, 2012 | May 15, 2013 | May 12, 2014 | May 17, 2014 | ||||||||||||||||||||||||
Peter J. Ungaro | 295,000 | 75,000 | 50,000 | 45,000 | — | 75,000 | 50,000 | — | ||||||||||||||||||||||||
Brian C. Henry | 152,500 | 40,000 | 25,000 | 22,500 | — | 40,000 | 25,000 | — | ||||||||||||||||||||||||
Margaret A. Williams | 134,000 | 37,500 | 20,000 | 19,000 | — | 37,500 | 20,000 | — | ||||||||||||||||||||||||
Steven L. Scott | 113,000 | 30,000 | 17,500 | 18,000 | — | 30,000 | 17,500 | — | ||||||||||||||||||||||||
Wayne J. Kugel | 67,500 | 20,000 | 10,000 | 7,500 | — | 20,000 | 10,000 | — | ||||||||||||||||||||||||
Ian W. Miller | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Other executive officers | 175,500 | 42,500 | 31,500 | 12,500 | 7,500 | 42,500 | 31,500 | 7,500 | ||||||||||||||||||||||||
| (6) | Mr. Miller’s employment with us terminated effective August 14, 2010. |
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires that our directors, executive and other specified 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 this 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 solely on this review, we believe that all of these reporting persons complied with their filing requirements for Section 16(a) Beneficial Ownership Reporting Compliance2009.82010.
The Board of Directors oversees our business and affairs and monitors the performance of our management. In accordance with corporate governance principles, the Board does not involve itself inday-to-day operations. The directors keep themselves informed through discussions with the Chief Executive Officer, 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.
The goals of our Board are to build long-term value for our shareholders and to ensure our vitality for our customers, employees and others that depend on us. Our Board has adopted and follows corporate governance practices that our Board and our senior management believe promote these purposes, are sound and represent best practices. To this end we have established the following: A Code of Business Conduct that sets forth our ethical principles and applies to all of our directors, officers and employees; Corporate Governance Guidelines that set forth our corporate governance principles; A Related Person Transaction Policy that applies to all of our directors, officers and employees; Charters for our Audit, Compensation, Corporate Governance and Strategic Technology Assessment Committees; and A confidential, anonymous system for employees and others to report concerns about fraud, accounting matters, violations of our policies and other matters. Under our Corporate Governance Guidelines and the applicable Committee charters, each director has complete access to our management, and the Board and each Committee have the right to consult and retain independent legal counsel, accountants and other advisers at our expense. All of the foregoing documents are available via the Internet at our website atwww.cray.com under “Investors — Corporate Governance.” We will post on this website any amendments to the Code of Business Conduct or waivers of the Code for directors and executive officers. We periodically review our governance practices against requirements of the SEC, the listing standards of the Nasdaq Global Market(“Nasdaq”), the laws of the state of Washington and practices suggested by recognized corporate governance authorities.Corporate Governance Principles• A Code of Business Conduct that sets forth our ethical principles and applies to all of our directors, officers and employees;• Corporate Governance Guidelines that set forth our corporate governance principles;• A Related Person Transaction Policy that applies to all of our directors, officers and employees;• Charters for our Audit, Compensation, Corporate Governance and Strategic Technology Assessment Committees; and• A confidential, anonymous system for employees and others to report concerns about fraud, accounting matters, violations of our policies and other matters.
Currently, our Board has eight members. The Board has determined that all of our directors, except for Mr. Ungaro, our President and Chief Executive Officer, meet the Nasdaq and SEC standards for independence and that all the members of the Audit Committee meet the heightened independence standards required for Audit Committee members under Nasdaq and SEC standards. Only independent directors may serve on our Audit, Compensation and Corporate Governance Committees. As set forth in our Corporate Governance Guidelines, the Board believes that at least two-thirds of the Board should consist of independent directors and that, absent compelling circumstances, the Board should not contain more than two members from our management. Currently, seven of our eight directors are considered independent, and one member of our management, Mr. Ungaro, our President and Chief Executive Officer, is on the Board. In determining the independence of our directors, the Board affirmatively decides whether a non-management director has a relationship that would interfere with that director’s exercise of independent judgment in carrying out the responsibilities of being a director. In making that decision, the Board is informed of the Nasdaq and SEC rules that disqualify a person from being considered as independent, considers the responses from each director to an annual questionnaire and reviews the applicable standards with each Board member.Independence9
The Board met fivesix times and the Board’s standing committees held a total of 2724 meetings during 2009.2010. The rate of attendance in 20092010 for all directors at Board and standing committee meetings was 99%100%.
The non-management directors meet in executive sessions of the Board on a regular basis, generally at the beginning and at the end of each scheduled quarterly Board meeting and at other meetings as required. In addition, the Board committees meet periodically without members of our management present.
The Board has established an Audit Committee, a Compensation Committee, a Corporate Governance Committee and a Strategic Technology Assessment Committee as standing committees of the Board. None of the directors who serve as members of these committees is, or has ever been, one of our employees. Audit Committee. The current members of the Audit Committee are Daniel C. Regis (Chair), Sally G. Narodick and Stephen C. Richards. The Audit Committee and the Board have determined that each individual who currently is and who in The quality and integrity of our accounting and financial reporting processes and the audits of our consolidated financial statements; The qualifications and independence of the independent registered public accounting firm engaged to issue an audit report on our consolidated financial statements; The performance of our systems of internal controls, disclosure controls and internal audit functions; The review and approval or ratification of “related person transactions” under our Related Person Transaction Policy; and Our procedures for legal and regulatory compliance, risk assessment and business conduct standards. The Audit Committee reviews all reports submitted on our anonymous, confidential reporting system and is directly and solely responsible for appointing, determining the compensation payable to, overseeing, terminating and replacing any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us. See “Discussion of Proposals Recommended by the Board — Proposal The report of the Audit Committee regarding its review of the consolidated financial statements and other matters is set forth below beginning on page Compensation Committee. The current members of the Compensation Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards. The Compensation Committee and the Board have determined that each individual who currently is and who in The Committees of the Board20092010 was a member of the Audit Committee is “independent,” as that term is defined in SEC and Nasdaq rules and regulations, and that Mr. Regis is an “audit committee financial expert,” as that term is defined in SEC regulations. The Audit Committee met 1011 times during 2009.2010. As noted above, the Audit Committee’s charter is available atwww.cray.com under “Investors — Corporate Governance.” The Audit Committee assists the Board in fulfilling its responsibility for oversight of:• The quality and integrity of our accounting and financial reporting processes and the audits of our consolidated financial statements;• The qualifications and independence of the independent registered public accounting firm engaged to issue an audit report on our consolidated financial statements;• The performance of our systems of internal controls, disclosure controls and internal audit functions;• The review and approval or ratification of “related person transactions” under our Related Person Transaction Policy; and• Our procedures for legal and regulatory compliance, risk assessment and business conduct standards.2:5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 20102011 — Audit Committee Pre-Approval Policy” below.��46.54.20092010 was a member of the Compensation Committee is “independent,” as that term is defined in Nasdaq rules and regulations, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the“IRC”). The Compensation Committee met sixfive times during 2009.2010. As noted above, the Compensation Committee’s charter is available atwww.cray.com under “Investors — Corporate Governance.” The Compensation Committee assists the Board in fulfilling its responsibilities for the oversight of:
Our compensation policies, plans and benefit programs; | ||
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The compensation of the Chief Executive Officer and other senior officers; and
See “Compensation of the Executive Officers — Compensation Discussion and Analysis” for further information regarding the Compensation Committee and its actions with respect to senior officer compensation. The Compensation Committee’s Report on the Compensation Discussion and Analysis and related matters is set forth below beginning on page 34.
Corporate Governance Committee. The current members of the Corporate Governance Committee are Stephen C. Kiely (Chair), Frank L. Lederman and Daniel C. Regis. The Corporate Governance Committee and the Board have determined that each individual who currently is and who in 20092010 was a member of the Corporate Governance Committee is “independent,” as that term is defined in Nasdaq rules and regulations. The Corporate Governance Committee met sixfour times during 2009.2010. As noted above, the Corporate Governance Committee’s charter is available atwww.cray.com under “Investors — Corporate Governance.” The Corporate Governance Committee has the responsibility to:
Develop and recommend to the Board a set of corporate governance principles;
Recommend qualified individuals to the Board for nomination as directors;
Review the compensation of Board members and recommend to the full Board changes to Board compensation as appropriate to attract and retain qualified directors;
Lead the Board in its annual review of the Board’s performance; and
Recommend directors to the Board for appointment to Board committees.
See “Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals” regarding the Corporate Governance Committee’s processes for evaluating potential Board members and how shareholders can nominate director candidates, propose matters to come before the shareholders and communicate with the Board.
Strategic Technology Assessment Committee. The current members of the Strategic Technology Assessment Committee are William C. Blake (Chair), John B. Jones, Jr. and Frank L. Lederman. The Strategic Technology Assessment Committee and the Board have determined that each individual who currently is and who in 20092010 was a member of the Strategic Technology Assessment Committee is “independent,” as that term is defined in Nasdaq rules and regulations, although such independence is not a requirement for membership on this Committee. The Strategic Technology Assessment Committee met fivefour times during 2009.2010. As noted above, the Strategic Technology Assessment Committee’s charter is available atwww.cray.com under “Investors — Corporate Governance.” The Strategic Technology Assessment Committee has the responsibility to:
Assist the Board in its oversight of our technology development, including our product development roadmap; and
Assess whether our research and development investments are sufficient and appropriate to support the competitiveness of our offerings in the marketplace.
From time to time, the Board establishes other committees on an ad-hoc basis to assist in its oversight responsibilities.
We separate the roles of Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. Mr. Kiely has served as Chairman of the Board, a non-executive position, since August 2005. As Chairman, Mr. Kiely consults with Mr. Ungaro, our Chief Executive Officer, regarding agenda items for Board meetings; chairs executive sessions of the Board’s independent directors; on behalf of the independent directors, provides feedback and mentoring to the Chief Executive Officer; and performs such other duties as the Board deems appropriate.Board Leadership Structure11
The Board’s role in our risk oversight process includes receiving regular reports from members of our senior management on areas of material risk to us, including competitive, economic, operational, financial, legal and regulatory, and strategic and reputational risks. We also utilize a formal Enterprise Risk Management system (the“ERM System”) to assist us in tracking and mitigating risks. In addition to periodic review, evaluation and modification of risks maintained in the ERM System by management, we provide periodic reports of risks tracked in the ERM System to the Board (or the appropriate committee of the Board in the case of risks that are under the purview of a particular committee). The full Board or the appropriate committee receives these reports from the management personnel principally responsible for identifying, managing and mitigating a particular area of risk within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee receives the report, the chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting, which enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. As part of its charter, the Audit Committee discusses our policies with respect to risk assessment, risk management and the ERM System process set forth above.
Our Compensation Committee has discussed the concept of risk as it relates to our compensation program. The Compensation Committee does not believe our compensation program encourages excessive or inappropriate risk-taking for the following reasons: Base salaries are consistent with our employees’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security; The determination of incentive awards is based on a review of a variety of performance indicators, thus diversifying the risk associated with any single performance indicator; Long-term compensation programs are designed to reward employees for driving sustainable and profitable growth for shareholders; The vesting periods for equity compensation awards are designed to encourage employees to focus on sustained stock price appreciation; and The mix between fixed and variable, annual and long-term, and cash and equity compensation is designed to encourage strategies and actions that are in our shareholders’ long-term best interests. We encourage but do not require our directors to attend the annual meeting of shareholders either in person or telephonically. In Communications. The Corporate Governance Committee has established a procedure for our shareholders to communicate with the Board. Communications should be in writing, addressed to Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164, and addressed to the attention of the Board or any of its individual committees or to the Chairman of the Board. Copies of all communications so addressed will be promptly forwarded to the chairman of the committee involved, in the case of communications addressed to the Board as a whole, to the Corporate Governance Committee or, if addressed to the Chairman, to the Chairman of the Board. Director Candidates. The criteria for Board membership as adopted by the Board include a person’s integrity, knowledge, judgment, skills, expertise, collegiality, diversity of experience and other time commitments (including positions on other company boards) in the context of the then-current composition of the Board. While our Corporate Governance Guidelines do not prescribe diversity standards, as a matter of practice, the Corporate Governance Committee considers diversity in the context of the Board as a whole and takes into account theRisk Considerations in Our Compensation Program• Base salaries are consistent with our employees’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security;• The determination of incentive awards is based on a review of a variety of performance indicators, thus diversifying the risk associated with any single performance indicator;• Long-term compensation programs are designed to reward employees for driving sustainable and profitable growth for shareholders;• The vesting periods for equity compensation awards are designed to encourage employees to focus on sustained stock price appreciation; and• The mix between fixed and variable, annual and long-term, and cash and equity compensation is designed to encourage strategies and actions that are in our shareholders’ long-term best interests.Director Attendance at Annual Meetings2009,2010, all eight of our directors attended the 20092010 annual meeting.Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals12
Once the Corporate Governance Committee has identified a potential director nominee, the Corporate Governance Committee, in consultation with the Chief Executive Officer, evaluates the prospective nominee against the specific criteria that the Board has established and as set forth in our Corporate Governance Guidelines. If the Corporate Governance Committee determines to proceed with further consideration, then members of the Corporate Governance Committee, the Chief Executive Officer and other members of the Board, as appropriate, interview the prospective nominee. After completing this evaluation and interview, the Corporate Governance Committee makes a recommendation to the full Board, which makes the final determination whether to elect the new director.
The Corporate Governance Committee will consider candidates for director recommended by shareholders and will evaluate those candidates using the criteria set forth above. Shareholders should accompany their recommendations with a sufficiently detailed description of the candidate’s background and qualifications to allow the Corporate Governance Committee to evaluate the candidate in light of the criteria described above, a document signed by the candidate indicating his or her willingness to serve if elected and evidence of the nominating shareholder’s ownership of our common stock. Such recommendation and documents should be submitted in writing to Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164, and addressed to the attention of the Corporate Governance Committee.
Director Nominations by Shareholders. Our Bylaws permit shareholders to nominate directors at a shareholders’ meeting. In order to nominate a director at a shareholders’ meeting, a shareholder making a nomination must notify us not fewer than 60 nor more than 90 days in advance of the meeting or, if less than 60 days’ notice or prior public disclosure of the date of the meeting is given or made to the shareholders, 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:
The nominating shareholder’s name and address;
A representation that the nominating shareholder is entitled to vote at such meeting;
The number of shares of our common stock that the nominating shareholder owns and when the nominating shareholder acquired such shares;
A representation that the nominating shareholder intends to appear at the meeting, in person or by proxy;
The 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
The nominee’s executed consent to serve as a director if so elected.
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.
Shareholder Proposals.
20102011 Annual Meeting. In order for a shareholder proposal to be raised from the floor during the Annual Meeting, written notice of the proposal must be received by us not less than 60 days nor more than 90 days prior to the Annual Meeting or, if less than 60 days’ notice or prior public disclosure of the date of the Annual Meeting is given or made to the shareholders, by the 10th business day following the first public announcement of the Annual
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A brief description of the business the shareholder wishes to bring before the Annual Meeting, the reasons for conducting such business and the language of the proposal;
The shareholder’s name and address;
| • | ||
| �� | ||
The number of shares of our common stock that the shareholder owns and when the shareholder acquired them; | ||
A representation that the shareholder intends to appear at the Annual Meeting, in person or by proxy; and
Any material interest the shareholder has in the business to be brought before the Annual Meeting.
The Chairman of the Board, if the facts so warrant, may determine that any business was not properly brought before the Annual Meeting in accordance with our Bylaws.
20112012 Proxy Statement. In order for a shareholder proposal to be considered for inclusion in our proxy statement and form of proxy for the 20112012 annual meeting, we must receive the written proposal no later than December 27, 2010.30, 2011. Shareholder proposals also must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials.
If you wish to obtain a free copy of our Articles of Incorporation, Bylaws or any of our corporate governance documents, please contact Michael C. Piraino,Ruby H. Alexander, Assistant Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164. These documents also are available on our website,www.cray.com under “Investors — Corporate Governance.”
In setting director compensation in order to attract and retain highly qualified individuals to serve on our Board, the Corporate Governance Committee considers the significant amount of time that directors expend in fulfilling their duties, the skill level required of members of the Board and a general understanding of director compensation at companies of similar size and complexity. Directors who are also employees of the Company receive no additional compensation for their service on the Board. As described more fully below, director compensation is in the form of cash and, in order to align further the longer-term interests of the individual directors The Corporate Governance Committee reviews director compensation annually. Cash Compensation Each non-employee director receives an annual retainer of $20,000 (the retainer includes one Board meeting per quarter), paid quarterly in advance, plus $5,000 for each committee on which a director serves, paid quarterly in advance, and a fee of $1,500 for each meeting of the Board attended, whether in person or telephonically, Compensation of Directorsandwith those of our shareholders, equity, with the grant of a fully vested stock option with a ten-year term upon first joining the Board and annual grants of restricted stock vesting generally over two years.At a meeting heldNo changes to director compensation were made in 2009, and at the recommendation of the Corporate Governance Committee, the Board approved an adjustment to the cash compensation of non-management directors to more closely follow the practices of comparable companies.2010. In reaching decisions about director compensation, the Corporate Governance Committee has used publicly available professional compensation surveys, proxy data and the individual experience of the Committee members. To date, the Corporate Governance Committee has decided not to engage a compensation consultant with respect to director compensation.From January 1, 2009 to June 30, 2009, each non-employee director received an annual retainer of $10,000, paid quarterly in advance, and a fee of $2,500 for each meeting of the Board attended in person or $1,500 if attended telephonically. We paid an annual fee (paid quarterly in advance) to the Chairman of the Board ($4,000), and the chairs of the Audit ($6,000), the Compensation ($6,000), the Corporate Governance ($2,000) and the Strategic Technology Assessment ($2,000) Committees, and each director received a fee of $2,000 for each committee meeting attended, whether in person or telephonically. Effective July 1, 2009, eachwhich is paid monthly. We pay an annual fee,14
Equity Compensation
Stock Options. Each non-employee director, upon his or her first appointment or election to the Board, is granted an option for 5,000 shares, vesting immediately, with an exercise price equal to the fair market value of our common stock on the date of such first appointment or election.
Restricted Stock Awards. We currently grant to each continuing non-employee director elected by the shareholders restricted shares of common stock with a value equal to that director’s fees earned in the previous fiscal year. The per share value of shares granted is determined by using the fair market value of our common stock on the date of such election, which is the volume weighted average price on the date of grant. One-half of the shares are restricted against sale or transfer for a period of approximately one year from date of grant; the balance is restricted against sale or transfer for a period of approximately two years from the date of grant. The non-employee directors may vote and receive dividends on the restricted shares while the restrictions remain in place. The restricted shares vest in full if a non-employee director can no longer serve due to death or Disability or if, following a Change of Control, the non-employee director is removed from the Board or is not nominated to continue to serve as a director. The restricted shares are forfeited if, while unvested, a non-employee director resigns or retires from the Board (other than with the express approval of the Corporate Governance Committee), is asked to leave the Board by the Corporate Governance Committee for Cause or is not nominated by the Board to continue as a director other than following a Change of Control.
For purposes of the director restricted stock agreements, the following definitions apply:
“Cause” means a good faith determination by the Board that: a director has willfully failed or refused in a material respect to follow reasonable policies or directives established by the Board, including the Corporate Governance Guidelines, or willfully failed to attend to material duties or obligations of the director’s office (other than any such failure resulting from the director’s incapacity due to physical or mental illness), which the director has failed to correct within a reasonable period following written notice to the director; there has been an act by the director involving wrongful misconduct that has a demonstrably adverse affect on or material damage to us or our subsidiaries, or that constitutes a misappropriation of our assets; the director has engaged in an unauthorized disclosure of our confidential information; or the director has materially breached his or her obligations under the restricted stock agreement or in another agreement with us.
“Change of Control” means: our shareholders approve a merger or consolidation of us with any other corporation (other than to change our state of incorporation or which does not effect a substantial change in
ownership); or our shareholders approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of our assets; the acquisition by any person or entity as “beneficial owner,” directly or indirectly, of securities representing 50% or more of the total voting power represented by our then-outstanding voting securities, except pursuant to a negotiated agreement with us and pursuant to which such securities are purchased from us; a majority of the Board in office at the beginning of any36-month period is replaced during the course of such36-month period (other than by voluntary resignation of individual directors in the ordinary course of business) and such placement was not initiated by the Board as constituted at the beginning of such36-month period.
“Disability” means that, at the time a director’s employment is terminated, the director has been unable to perform the duties of the director’s position for a period of six consecutive months as a result of the director’s incapability due to physical or mental illness.
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In April 2011, our Board has establishedinstituted the following stock ownership guidelines for non-employee directors:
Directors must maintain a holding of at least 15,000 shares of our common stock (excluding unexercised stock options and unvested restricted stock units). The value of this number of shares of our common stock equals at least five (5) times a director’s current annual retainer (excluding any additional fees paid for meeting attendance, chair positions or committee participation) as calculated based upon the closing price per share of our common stock on December 31, 2010.
Each director was in compliance withhas five years following the foregoinglater of commencement of his or her service on our Board or the adoption of our stock ownership guidelines asto satisfy the minimum share holdings of December 31, 2009.our stock ownership guidelines.
Directors may sell enough shares to cover the income tax liability on vested grants.
The following table sets forth information regarding compensation earned by our non-employee directors for the year ended December 31, Director Compensation for 200920102009,2010, even if paid in 2010.2011. Mr. Ungaro is not included in this table as he is an employee and he receives no compensation for his service as a director. His compensation as an employee is shown in the Summary Compensation Table on page 35. Board and Total Cash Stock Annual Committee Meeting Fees Awards($) Option Name Retainer($) Chair Fees($) Fees($) Earned($) (1)(2) Awards(3) Total($) William C. Blake $ 17,500 $ 3,500 $ 15,000 $ 36,000 $ 36,499 — $ 72,499 John B. Jones, Jr. $ 20,000 — $ 24,750 $ 44,750 $ 42,499 $ 479 $ 87,728 Stephen C. Kiely $ 20,000 $ 10,500 $ 26,750 $ 57,250 $ 46,498 $ 2,325 $ 106,073 Frank L. Lederman $ 22,500 $ 6,750 $ 35,250 $ 64,500 $ 56,498 $ 1,000 $ 121,998 Sally G. Narodick $ 17,500 — $ 22,750 $ 40,250 $ 50,497 $ — $ 90,747 Daniel C. Regis $ 20,000 $ 8,000 $ 33,250 $ 61,250 $ 66,497 $ 750 $ 128,497 Stephen C. Richards $ 20,000 — $ 30,500 $ 50,500 $ 56,498 $ — $ 106,998
Name | Annual Retainer($) | Board and Committee Chair Fees($) | Meeting Fees($) | Total Cash Fees Earned($) | Stock Awards($) (1)(2) | Total($) | ||||||||||||||||||
William C. Blake | $ | 25,000 | $ | 5,000 | $ | 8,000 | $ | 38,000 | $ | 36,001 | $ | 74,001 | ||||||||||||
John B. Jones, Jr. | $ | 30,000 | — | $ | 14,250 | $ | 44,250 | $ | 44,751 | $ | 89,001 | |||||||||||||
Stephen C. Kiely | $ | 30,000 | $ | 15,000 | $ | 14,250 | $ | 59,250 | $ | 57,248 | $ | 116,498 | ||||||||||||
Frank L. Lederman | $ | 35,000 | $ | 7,500 | $ | 19,250 | $ | 61,750 | $ | 64,502 | $ | 126,252 | ||||||||||||
Sally G. Narodick | $ | 25,000 | — | $ | 16,750 | $ | 41,750 | $ | 40,250 | $ | 82,000 | |||||||||||||
Daniel C. Regis | $ | 30,000 | $ | 10,000 | $ | 21,750 | $ | 61,750 | $ | 61,252 | $ | 123,002 | ||||||||||||
Stephen C. Richards | $ | 30,000 | — | $ | 23,000 | $ | 53,000 | $ | 50,502 | $ | 103,502 | |||||||||||||
| (1) | Amounts in this column represent the fair value of the restricted stock awards granted on |
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| (2) | The following table provides additional information about non-employee director equity awards, including the stock awards made to non-employee directors during |
| Stock | ||||||||||||
| Options | ||||||||||||
| Restricted | Outstanding | Restricted Stock | ||||||||||
| Shares Granted in | December 31, | Awards Outstanding | ||||||||||
| 2009(A) | 2009(B) | December 31, 2009 | ||||||||||
| William C. Blake | 9,720 | 5,000 | 12,347 | |||||||||
| John B. Jones, Jr. | 11,318 | — | 14,744 | |||||||||
| Stephen C. Kiely | 12,383 | — | 16,495 | |||||||||
| Frank L. Lederman | 15,046 | — | 19,462 | |||||||||
| Sally G. Narodick | 13,448 | — | 17,331 | |||||||||
| Daniel C. Regis | 17,709 | — | 22,963 | |||||||||
| Stephen C. Richards | 15,046 | — | 19,843 | |||||||||
| Restricted Shares Granted in 2010(1) | Stock Options Outstanding December 31, 2010(2) | Restricted Stock Awards Outstanding December 31, 2010 | ||||||||||
William C. Blake | 7,023 | 5,000 | 11,883 | |||||||||
John B. Jones, Jr. | 8,730 | — | 14,389 | |||||||||
Stephen C. Kiely | 11,168 | — | 17,359 | |||||||||
Frank L. Lederman | 12,583 | — | 20,106 | |||||||||
Sally G. Narodick | 7,852 | — | 14,576 | |||||||||
Daniel C. Regis | 11,949 | — | 20,803 | |||||||||
Stephen C. Richards | 9,852 | — | 17,375 | |||||||||
| (1) | Pursuant to the policy described under “Equity Compensation — Restricted Stock Awards” above, on |
| (2) | All stock options shown are fully vested. |
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The following table lists our executive officers, who will serve in the capacities noted until their successors are duly appointed and qualified, and their respective ages as of April 5, 2010:
Name | Age | Position | ||||
Peter J. Ungaro | ||||||
| President and Chief Executive Officer | ||||||
Brian C. Henry | Executive Vice President and Chief Financial Officer | |||||
Barry C. Bolding | 50 | Vice President Cray Products Group and Corporate Marketing | ||||
Charles D. Fairchild | 42 | Vice President, Corporate Controller and Chief Accounting Officer | ||||
Larry W. Hoelzeman | 49 | Vice President Worldwide Sales | ||||
Wayne J. Kugel | 43 | Senior Vice President Operations and Customer Support | ||||
Charles A. Morreale | ||||||
| Vice President Custom Engineering | ||||||
Michael C. Piraino | Vice President, General Counsel and Corporate Secretary | |||||
Steven L. Scott | Senior Vice President and Chief Technology Officer | |||||
Margaret A. Williams | Senior Vice President Research & Development | |||||
Peter J. Ungarohas served as Chief Executive Officer and as a member of our Board of Directors since August 2005 and as President since March 2005; he2005. He previously served as Senior Vice President responsible for sales, marketing and services from May 2004 and before then served as Vice President responsible for sales and marketing when he joined us in August 2003. Prior to joining us, he served as Vice President, Worldwide Deep Computing Sales for IBM since April 2003. Prior to that assignment, he was IBM’s Vice President, Worldwide HPC Sales, a position he held since February 1999. He also held a variety of other sales leadership positions since joining IBM in 1991. Mr. Ungaro received a B.A. from Washington State University.
Brian C. Henryhas served as Executive Vice President and Chief Financial Officer since joining us in May 2005. Mr. Henry previously served as Executive Vice President and Chief Financial Officer of Onyx Software Corporation, a full suite customer relationship management company, which he joined in 2001. He previously served from 1999 to 2001 as Executive Vice President and Chief Financial Officer of Lante Corporation, a public internet consulting company focused one-markets and collaborative business models. From 1998 to 1999 he was Chief Operating Officer, Information Management Group, of Convergys Corporation, which he helped spin-off from Cincinnati Bell Inc., a diversified service company where he served as Executive Vice President and Chief Financial Officer from 1993 to 1998. From 1983 to 1993 he was with Mentor Graphics Corporation in key financial management roles, serving as Chief Financial Officer from 1986 to 1993. Prior to that, Mr. Henry worked for Deloitte & Touche LLP as a CPA. Mr. Henry received a B.S. from Portland State University and an M.B.A. from Harvard University where he was a Baker Scholar.
Barry C. Boldingserves as Vice President, Products Division and Corporate Marketing, overseeing product management, applications, benchmarking and corporate and product marketing for Cray’s entire range of high performance computing solutions. Prior to his appointment as Vice President in January 2009, Dr. Bolding was Cray’s Director of Product Marketing where he analyzed future products and developed long-term strategies. Over the course of his career, Dr. Bolding has worked with key customers in government, academia and commercial markets and held positions as a scientist, applications specialist, systems architect and presales product and marketing manager. He first joined Cray Research, Inc. in 1992 and has held subsequent positions with Network Computing Services and IBM. Dr. Bolding holds a B.S. in chemistry from the University of California at Davis and a Ph.D. in chemical physics from Stanford University.
Charles D. Fairchildhas served as Vice President, Corporate Controller and Chief Accounting Officer since joining us in May 2010. Mr. Fairchild previously served as Chief Financial Officer for Radiant Research and spent 14 years at Deloitte & Touche LLP. Mr. Fairchild received a B.A. in Business Administration and an M.B.A. from the University of Washington.
Larry W. Hoelzemanhas served as Vice President, Worldwide Sales since January 2011. Mr. Hoelzeman previously served as Vice President of Sales, North America since 2006. A 23-year veteran in the high
computing industry, Mr. Hoelzeman has served in a variety of sales and presales roles at Cray Research, Inc., Silicon Graphics, Inc. and Cray. Mr. Hoelzeman received a B.S. in computer science from the University of Central Arkansas.
Wayne J. Kugelserves as Senior Vice President Operations and Customer Support responsible for operations, customer service, enterprise risk management and product life cycle management. He joined us in 2001, and through 2005 he served as program director for the Red Storm supercomputer program and its commercial successor, the Cray XT3 system. He was named as Vice President responsible for operations in 2005 and promoted to Senior Vice President in earlyMay 2009. From 1995 through 2001, Mr. Kugel held various positions for IBM Business Intelligence, including serving as the leader of the worldwide Enterprise Customer Analytics group. From 1991 through 1995, he held a variety of information technology development and leadership roles for Carlson Marketing Group. Mr. Kugel received a B.A. from the University of Wisconsin, Eau Claire.
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Michael C. Pirainojoined Cray in October 2009serves as Vice President, General Counsel and Corporate Secretary.Secretary responsible for legal and human resources. He joined us in October 2009. Prior to joining Cray,us, from October 2007 to September 2009, he served with the Seattle office of the law firm Fenwick & West LLP (and a predecessor firm), where his practice focused on corporate finance and securities. From October 2006 to June 2007, Mr. Piraino served with the Exbiblio family of companies in various positions, including Chief Executive Officer. From May 1999 to October 2006, he served with WatchGuard Technologies, Inc. in various roles, including Vice President, General Counsel and Secretary, and from October 1995 to May 1999 he served with the law firm Perkins Coie LLP. Mr. Piraino began his career as a propulsion engineer at The Boeing Company. He holds a B.S. in aeronautical and astronautical engineering from Purdue University and a J.D.,magna cum laude, from the Seattle University School of Law.
Steven L. Scotthas served as Senior Vice President since September 2005. He originally served as an employee, having joined Cray Research in 1992, through mid-July 2005, and rejoined us in September 2005. He was named as Chief Technology Officer in October 2004 and then again in September 2005. He is responsible for designingdefining the integrated infrastructure that will drive our next generation of supercomputers. Prior to his appointment as Chief Technology Officer, Dr. Scott held a variety of technology leadership positions. He was formerly the chief architect of the Cray X1 system and was instrumental in the design of the Red Storm supercomputer system.Cray XT, Cray XE and follow-on “Cascade” systems. Dr. Scott holds 2227 U.S. patents in the areas of interconnection networks, cache coherence, synchronization mechanisms and scalable parallel architectures. Dr. Scott has served on numerous program committees and as an associate editor for the IEEE Transactions on Parallel and Distributed Systems, and is a noted expert in HPC architecture and interconnection networks. In 2005 he was the recipient of both the Seymour Cray Computing Award from the IEEE Computer Society and the Maurice Wilkes Award from the Association of Computing Machinery. He received a B.S. in electrical and computing engineering, an M.S. in computer science and Ph.D. in computer architecture, all from the University of Wisconsin where he was a Wisconsin Alumni Research Foundation and Hertz Foundation Fellow.
Margaret A. “Peg” Williamsis Senior Vice President Research and Development responsible for our software and hardware research and development efforts, including our current and future products and projects. Dr. Williams joined us in May 2005. From 1997 through 2005, she held various positions with IBM, including Vice President of Database Technology and Director and then Vice President of HPC Software and AIX Development. She also led the user support team at the Maui High Performance Computing Center from 1993 through 1996. From 1987 through 1993, Dr. Williams held various positions in high performance computing software development at IBM. Dr. Williams holds a B.S. in mathematics and physics from Ursinus College and an M.S. in mathematics and a Ph.D. in applied mathematics from Lehigh University.
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The following discussion describes the material elements of compensation for fiscal 2010 for our executive officers identified in the “Summary Compensation Table” below (the “Named Executive Officers”) In this discussion, we Compensation Discussion and Analysis and our other senior officers..first provide an executive summary with highlights of the discussion that follows. Next, wediscuss fiscal 2010 corporate performance, cover our compensation philosophy and objectives. We thenobjectives for fiscal 2010, review the components of our compensation program and describe the process we followfollowed in determining executive compensation. Finally, wecompensation for fiscal 2010 and present a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of the Named Executive Officers for fiscal 2009.2010. In addition, we describe post-2010 compensation governance changes we have implemented with respect to 280G gross-up payments, CEO and director stock ownership, “clawback” of compensation in the event of a financial restatement and the elimination of share recycling from our equity compensation plans.Executive Summary2010 Corporate Performance
We believe that it is critical to both our short and long term success that our compensation policies, plans and programs be closely correlated with our corporate performance. The following illustrate three areas of corporate performance in fiscal 2010 that we believe are important indicators of the effectiveness of that correlation in fiscal 2010.
| • | Revenue. We grew revenue for the third straight year, reporting record revenue of $319.4 million for the year ended December 31, 2010. The increase in revenue was principally due to the release of the Cray XE6 systems in 2010 and increased Custom Engineering revenue both of which were strategic goals for fiscal 2010. As further described below, the achievement of a specified predetermined revenue goal was a significant factor in determining the target and actual total compensation of our Named Executive Officers in fiscal 2010. |
| • | Adjusted Operating Income. We utilize the achievement of a specified level Adjusted Operating Income as a significant component of target and actual total compensation because we believe it rewards both controlling expenses and increasing gross profit contributions toward our goal of sustained profitability. For the year ended December 31, 2010, Adjusted Operating Income was $28.3 million. In 2009, Adjusted Operating Income was defined to also “add back” non-cash stock compensation expense. In 2010, non-cash stock compensation expense was not added back to reported operating income. Measured in accordance with the 2010 definition of Adjusted Operating Income, Adjusted Operating Income for the year ended December 31, 2009 would have been $7.7 million. |
| • | Positive Net Income. We reported net income of $15.1 million or $0.44 per share for the year ended December 31, 2010, as compared to the net losses we reported in the prior four fiscal years. While we do not use a predetermined net income goal as an actual component of target and actual total compensation for our Named Executive Officers, we believe profitability is a critical corporate goal and achieving profitability in fiscal 2010 is indicative of the impact that our compensation programs and policies can have on overall corporate performance. |
We achieved these results not only because we executed our business plan successfully and strengthened our product and service offerings, but because of the continued extraordinary performance of our outstanding employees, including our Named Executive Officers. Maintaining these results, positioning ourselves for future successes and further enhancing long-term shareholder value will require that we continue to attract, retain and motivate our workforce effectively.
Summary of Compensation Discussion and Analysis
| • | Philosophy and Objectives. We offer | ||
| • | Compensation Components and Purposes. The major elements of our compensation programs are: |
| • | Base Salaries— To provide | ||
| • | Short-Term Incentives—To motivate and reward achievement of and significant progress related to our critical performance goals, including tactical, strategic and financial goals; | ||
| • | Long-Term Incentives— To encourage recipients to focus on creating long-term shareholder value and to provide a significant retention | ||
| • | Employee Benefits— To meet the health and welfare needs of our employees and their dependents; and | ||
| • | Severance Policy and Change of Control Agreements— To attract and retain officers and to encourage officers to remain focused and engaged in the event of rumored or actual fundamental corporate changes and during any corporate transition. |
| • | The Executive Compensation Process. After reviewing our corporate goals, business plan and objectives for the year and analyses from independent compensation consultants, and in consultation with our Chief Executive Officer, when appropriate, the Compensation Committee determines base salary, the level of target awards under our annual cash incentive plan, including the “balanced scorecard” goals and objectives described below, and the number and type of equity grants to be awarded under our long-term equity incentive plans for our senior officers during that year. For its | ||
| • | Analysis of |
| • | Overview — Total Target Compensation— Given our operational and financial performance in |
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| Statement, the Compensation Committee, with respect to |
Maintained base salaries for our Named Executive Officers at levels that were set in 2009;
Maintained their respective target bonus awards (as a percentage of base salary) under the balanced scorecard component of our annual cash incentive plan from 2009 levels, which target awards have not been changed since 2006;
Discontinued an additional component of our annual cash incentive plan based on achieving a specified level of Adjusted Operating Income (as defined below); and
Granted long-term equity awards in the form of stock options and restricted stock to each Named Executive Officer.
| • | Base Salary —In light of the increases in base salary that were implemented in 2009, the Compensation Committee considered the current base salaries |
| • | ||
Annual Cash Incentive Compensation Plan —For | ||
| • | Long-Term Equity Awards —In order to provide longer-term performance and retention incentives, we generally grant stock options with ten-year terms and four-year vesting schedules, with exercise prices equal to 100% of grant date fair market value (determined by the most recent closing price for our common stock prior to the date of grant). We also grant restricted stock with vesting dependent on continued employment, generally with four-year vesting schedules, with half of the granted shares vesting after two years and the balance vesting after four |
| • | Post-2010 Compensation Governance Changes. As part of its 2011 annual review of our compensation practices and policies, the Compensation Committee recommended to the Board, and the Board subsequently implemented, a series of governance changes that will affect the future compensation of our Named Executive Officers. These changes did not influence the specific decisions the Compensation Committee made with respect to the compensation of our Named Executive Officers for fiscal 2010. Nonetheless, we believe they are illustrative of the continued desire of our leadership, including our Board and Compensation Committee, to adopt and implement new compensation practices which strengthen and enhance the effectiveness of our overall compensation programs and further create a strong correlation between our performance and the compensation of our Named Executive Officers. Specifically, we adopted new policies prohibiting new 280G gross-up obligations and requiring removal of any such provision in an agreement that is amended for specified reasons, imposing CEO (at least 3x based on 2010 year-end stock price) and director (at least 5x based on 2010 year-end stock price) stock ownership requirements, addressing “clawback” of compensation in the event of a financial restatement and eliminating share recycling from our equity compensation plans. |
Philosophy and Objectives
We offer technology differentiatedtechnology-differentiated products and services that require a highly educated, specialized andsought-after workforce and often involve long development cycles. In light of these challenges, our compensation philosophy is to provide and effectively implement policies, plans and programs designed to attract, retain and motivate the workforce required for us to achieve our strategic as well as tactical goals and create long-term value for our shareholders. To assist in these efforts, our compensation program has the following objectives:
To provide effective compensation and benefit programs that are competitive both within our industry and with other relevant organizations with whom we compete for employees; |
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To encourage and reward behaviors that ultimately contribute to the achievement of organizational goals that increase long-term shareholder value without encouraging unbalanced short-term focus or inappropriate risk taking, thus fostering an innovative, high-performance culture;
To align the interests of employees with the long-term interests of our shareholders; and
To provide a work environment that promotes integrity in all we do, innovation and excellence in execution, teamwork and respect for the individual.
Compensation Program Components and Purposes
We believe the components of our compensation program described below provide an appropriate mix of fixed and variable pay, balance incentives for short-term operational performance with long-term increases in shareholder value, reinforce an innovative, high-performance culture and encourage recruitment and retention of our employees and officers. As employees assume greater levels of responsibility, an increasing proportion of their compensation is linked to performance. We review our compensation program periodically and make adjustments as needed or appropriate in order to meet our objectives. We have described below the principal components of our compensation program and the purpose of each component.
Base Salaries — To provide a fixed compensation to attract and retain the best employees at all levels
Base pay opportunities for all positions are determined based on appropriate competitive reference points from salary surveys and other sources, internal responsibilities and each employee’s experience, qualifications, performance and potential impact within our organization.
Short-Term Incentives — To motivate and reward achievement of and significant progress related to critical, tactical, strategic and financial goals
Consistent with competitive practices, virtually all employees should have a portion of targeted total compensation at risk, contingent on performance relative to corporate, team and individual objectives. Employees should share in rewards when mutual efforts contribute to outstanding overall results.
Long-Term Incentives — To encourage recipients to focus on creating long-term shareholder value and to provide a significant retention incentive in the face of retention challenges
Key decision-makers and others in critical positions should have a meaningful portion of their total compensation opportunity linked to our success in or progress towards meeting our long-term objectives and increasing shareholder value.
Significant retention incentives are necessary to retain a highly educated, specialized and sought-after leaders, particularly in competition with companies with significantly greater resources.
Option grants encourage recipients to focus on performance and initiatives that should lead to an increase in the market price of our common stock, which benefits our shareholders; and when the market price for the underlying common stock is higher than the exercise prices of stock options that are not fully vested, those options provide a retention incentive.
Employee Benefits — To meet the health and welfare needs of our employees and their dependents
We assist employees in meeting important needs such as retirement income, affordable health care, survivor income, disability income, time-off and other needs through company-sponsored programs that promote good health and financial security and provide employees with reasonable flexibility in meeting their individual needs.
We do not provide to the Named Executive Officers or our other senior officers any deferred compensation or special retirement or pension plans or perquisites that are not available to our employees generally.
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Severance Policy and Change of Control Agreements — To attract and retain officers and to encourage officers to remain focused and engaged in the event of rumored or actual fundamental corporate changes and during any corporate transition
Role and Authority of the Compensation Committee
The current members of the Compensation Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards. The Compensation Committee and the Board have determined that each individual who served on the Compensation Committee in 20092010 and each current member of the Compensation Committee is “independent,” as that term is defined in Nasdaq rules and regulations, and an “outside director” within the meaning of Section 162(m) of the IRC. During 2009,2010, the Compensation Committee met in person or by telephone sixfive times.
The Compensation Committee assists our Board in fulfilling its responsibilities for the oversight of our compensation policies, plans and benefit programs, the compensation of our Chief Executive Officer and other senior officers, and the administration of our equity compensation plans. After reviewing competitive market data, expectations for the position, our corporate goals, business plan and objectives for the year and our prior performance, the Compensation Committee determines base salary, the level of target awards under our annual cash incentive plan, including the balanced scorecard goals and objectives, and the number and type of equity grants to be awarded under our long-term equity incentive plans for our senior officers during that year. The Compensation Committee has the authority to determine the annual compensation for our senior officers, other than for the Chief Executive Officer. The Compensation Committee evaluates the performance of and recommends the compensation of our Chief Executive Officer to the full Board.
Role of the Chief Executive Officer and Management
The Compensation Committee confers regularly with Mr. Ungaro, our Chief Executive Officer, and other senior officers and members of our Human Resources department regarding the structure and effectiveness of our compensation plans and proposals for changes to our compensation programs. As members of our Board, Compensation Committee members obtain information regarding our tactical and strategic objectives, goals, operational and financial results, our annual financial plan and the outlook regarding our future performance. The Compensation Committee meets in executive session two times each year with Mr. Ungaro to review his performance and his evaluation of the performance of other senior officers and annually to review his recommendations for the compensation of the other senior officers, including the other Named Executive Officers. Mr. Ungaro’s recommendations cover base salary, the structure of the annual cash incentive plan, including target awards and performance goals and objectives for each senior officer and the level and form of equity grants.
Role of Compensation Consultants
In August 2007, the Compensation Committee retainedSeptember 2009, the compensation firm of Watson Wyatt Worldwide (now Towers Watson & Co.)was retained by the Compensation Committee to conductupdate a competitive review it conducted in 2007 of our compensation programs for senior officers and to advise the Compensation Committee regarding a total compensation philosophy and provide continuing insight into and education on executive compensation trends and practices. The decision to retain a compensation consultant was in part in recognition that the market information obtained in connection with the prior officer hires was aging, and that the Compensation Committee could useactively seeks an
independent broad view of current compensation levels, practices and programs, particularly in the high-technology industry. Towers Watson completed its initial review andThe historical recommendations made its recommendations in November 2007 and these recommendations have been used by the Compensation Committee as a framework for its decisions regarding compensation for the Named Executive Officers and other senior officers for 2008 and 2009. In September 2009, Towers Watson was retained again by theThe Compensation Committee to update its review. It is expected that the Compensation Committee will utilizeutilized the results of this 2009 updated review when making compensation decisions in future periods, although this review did not influence 2009 compensation decisions.for 2010. Towers Watson reportsreported directly to the Compensation Committee was not retained by our management prior to 2007 and has not since performed any tasksservices for our management.
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For its 20092010 compensation decisions, the Compensation Committee considered the 20072009 Towers Watson recommendations to frame the overall total compensation approach and general market competitiveness. The Compensation Committee relied on data from the 2009 Radford Executive Compensation Survey to estimate market values for the components of total direct compensation. The Compensation Committee considered other sources, but Radford data provided the best matches for the executive positions and had the greatest observation points.
As in previous years, the Compensation Committee, in making specific decisions regarding each Named Executive Officer’s compensation, also considered Mr. Ungaro’s recommendations described above regarding our other senior officers and factors such as the internal and external relative parity among senior management, the experience and performance of individual officers, their current compensation levels, their potential impact within our Company and the reasonableness of the officer’s compensation in light of our compensation objectives and our operational and financial performance. Historically, we have had a relatively flat salary structure for our senior officers, with the significant differences in total compensation among the senior officers being reflected in short-term cash and long-term equity incentive awards. This approach helps us manage our fixed costs and yet provides the potential for higher compensation levels based on performance-dependent, short-term and long-term incentives.
The Compensation Committee also recognized that competition for most of our Named Executive Officers, including Mr. Ungaro, generally comes from much larger companies with significantly greater resources, whether in the high-performance computing industry or other technology companies, for which directly comparable compensation information may not be publicly available. The Compensation Committee also believes that for technical and engineering positions, such as those held by Dr. Williams and Dr. Scott, there are less consistently defined positions across technology companies so that the survey and peer group compensation information is less directly applicable to them, and that each of these officers has significant high-performance computing experience and achievements and roles not reflected in general survey and peer group analyses. The Compensation Committee also supplemented the 20072009 Towers Watson specific compensation information with its collective experience, judgment and trending assumptions to establish the 20092010 compensation for the Named Executive Officers and other senior officers.
Analysis of 20092010 Compensation Determinations
Overview — Total Target Compensation
The Compensation Committee adopted a total target compensation approach for our Named Executive Officers and other senior officers that framed its decisions covering:
Base salary;
Target awards under our annual cash incentive plan; and
Long-term equity grants of stock options and restricted stock.
Given our operational and financial performance in 20082009 and earlier and in light of the 20072009 Towers Watson analysis and other factors described in this Proxy Statement, the Compensation Committee, with respect to 20092010 compensation for our Named Executive Officers:
Maintained base salaries for our Named Executive Officers at levels that were set in 2009;
Maintained their respective target bonus awards (as a percentage of base salary) under the balanced scorecard component of our |
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Discontinued an additional component of our marketing group, and the Compensation Committee’s prior experience considering other potential sales candidates. Although Mr. Miller previously had the principal sales and marketing function, he did not receive a commission or overrideannual cash incentive plan based on sales volumes, but instead receivedachieving a high annual plan target award when comparedspecified level of Adjusted Operating Income (as defined below); and
Granted long-term equity awards in the form of stock options and restricted stock to the othereach Named Executive Officers (other than Mr. Ungaro).Officer.
As a result of these decisions, approximately 60%55% to 66%65% of the total 20092010 target compensation for our continuing Named Executive Officers (except for Mr. Ungaro) was performance-based and at risk, except forreliant on organizational and individual performance. For Mr. Ungaro, who had 80%77% of his total target compensation that was performance-based and at risk.
The Compensation Committee believes that the overall structure of the compensation for the Named Executive Officers is in furtherance of our compensation philosophy and objectives in providing, within our means and for our industry, competitive total target compensation with sufficient base salaries coupled with a significant proportion of the total target compensation based on performance and at risk, including a meaningful proportion that is equity-based, to align the officers’ interests with those of our shareholders and provide a strong retention and performance incentive.
Base Salary
The Compensation Committee uses five consistently structureda salary bands, with eachstructure based on market data as a tool to estimate competitive base salaries. The positions are first placed in a band separated into seven segments, with positions in the range dependingsalary structure based on experience, qualifications, performance and the particular impact the role can have within the Company.competitive market data. With Mr. Ungaro’s assistance, each executive officer (except for Mr. Ungaro himself) is assigned a position in that range. Followingrange of the salary band according to experience, qualifications, performance and the particular impact the role can have within the Company. The base salary associated with the assigned location of the position in the salary band is considered an estimate of competitive market value. Actual salaries of Named Executives Officers were generally at or slightly below the estimated market value of the position derived by using the salary structure tool based on competitive market data.
Based on this review, the Compensation Committee determined that for 2008 compensation purposes each Named Executive Officer had aand in light of increases in base salary that was substantiallywere implemented in the range suggested by the 2007 Towers Watson survey data, except that Mr. Ungaro’s base salary was significantly less than the suggested level for his experience, qualifications and performance, and Dr. Scott’s base salary exceeded the suggested level for his chief technology officer position.
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Our annual cash incentive plan is an important element of the compensation program for all of our employees, including the Named Executive Officers. This annual cash incentive plan provides performance-based cash incentives based on our performance and individual performance against specific targets, with the purpose of motivating and rewarding achievement of our critical, tactical, strategic and financial goals. For 2009,2010, the annual cash incentive plan for our senior officers, including all Named Executive Officers, was based on a balanced scorecard award plan which in turn was based on quantitative financial and qualitative operational goals, consistent with prior years, andexcept that it no longer included a potential additional payment for the Named Executive Officers and certain other senior officers of 25% of their respective target awards if we achieved at least $5 million ina specified level of Adjusted Operating Income because we believed the Adjusted Operating Income components of our balanced scorecard for 2009.2010
created the appropriate incentives for earnings-related performance. These awards were payable only if the specified performance objectives were achieved. As a matter of retention, officers must in most circumstances continue to be employed by us when the awards are paid, generally in early March following the applicable year, in order to receive the cash payments.
Based on the Compensation Committee, Towers Watson determined a competitive range of total cash compensation, usingbenchmarking data, the market base salary midpoint from its base salary review and an average of (a) the average target percentages from the three compensation surveys described above — Watson Wyatt Data Services, Mercer Executive Compensation and Radford Executive — and (b) a regression analysis of target incentivesawards as a percentpercentage of base salary fromwere considered to be consistent with the peer group companies. Using the 2008 incentive plancompetitive market data findings, except for Mr. Ungaro (whose target award percentages against the new 2009 base salary levels, each Named Executive Officer, other than Mr. Henry, was above the level of Towers Watson’s 2007 total targeted cash compensation; when the additional potential award based on greater than $5 millionnot changed in Adjusted Operating Income is considered, our total cash compensation targets were above the Towers Watson market compensation levels for each Named Executive Officer, particularly Mr. Ungaro, Dr. Williams and Dr. Scott. With respect to Mr. Ungaro, the2010). The Compensation Committee considered whether to decrease his incentive plan target award below 150% of base salary in light of the Committee’s decision to increase his base salary and to be more in line with the 2007 peer group awards. The Committee determined not to decrease his incentive plan target award as his current target award put Mr. Ungaro’s total compensation in the range that the Compensation Committee believed appropriate asand the Compensation Committee believed that comparisons with the peer group meanmarket data were not sufficient to determine appropriate compensation for our Chief Executive Officer, who must lead us in competition against much larger companies such as IBM and Hewlett-Packard, and as a result of the Committee ratedCompensation Committee’s continued high rating of Mr. Ungaro’s performance significantly higher thanperformance. Further, the peer group mean. Further, theCompensation Committee wanted a greater proportion of Mr. Ungaro’s compensation to be at risk and based on performance, thus emphasizing the incentive nature of his compensation, and the Compensation Committee further believed that the incentive plan targets contained rigorous thresholds that must be met before the target awards could be earned, which thresholds had prevented incentive plans awards being paid in previous years.
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Named Executive Officers | Title | Target Award As % of Base Salary | |||||
Peter J. Ungaro | President and Chief Executive Officer | 150 | % | ||||
Brian C. Henry | Executive Vice President and Chief Financial Officer | 60 | % | ||||
Margaret A. Williams | Senior Vice President Research and Development | 60 | % | ||||
Steven L. Scott | Senior Vice President and Chief Technology Officer | 50 | % | ||||
Wayne J. Kugel | Senior Vice President Operations and Customer Support | 50 | % | ||||
Ian W. Miller* | Former Senior Vice President Productivity Solutions Group and Marketing | 100 | % | ||||
| * | Mr. Miller’s employment with us terminated effective August 14, 2010. Actual payments made to Mr. Miller related to our 2010 annual cash incentive plan were made in accordance with our Executive Severance Policy in effect on August 14, 2010. |
Balanced Scorecard Awards
The following is a description of the balanced scorecard component and goals for Named Executive Officers:
General Conditions. The minimum percentage achievement for each balanced scorecard goal was 25% (at the “Threshold” target — below the Threshold target achievement was set at 0%) and the maximum was 150% (at the “Stretch” target). Subject to the caps described below, the achievement for each balanced scorecard goal was added based on the weighting of that particular goal for the individual to determine an overall balanced scorecard percentage payout. Without achieving a positive Adjusted Operating Income, the maximum aggregate balanced scorecard percentage payout was capped at 12.5%. The maximum aggregate balanced scorecard percentage payout was also capped at 50%25% above the Adjusted Operating Income percent achievement (for example, if the Adjusted Operating Income percent achievement was 50%40%, overall balanced scorecard percentage payouts would be capped at 75%50% regardless of achievement against other goals). Finally, the maximum aggregate balanced scorecard percentage payout was capped at 100% unless we achieved at least $260$280 million in Product and Custom Engineering Bookings, as defined below, in 20092010 in order to emphasize the need for revenue over a term longer than 20092010 and to replace the revenue anticipated to be recognized in 2009.
Balanced Scorecard Goals. In setting 20092010 performance goals for the annual cash incentive plan, the Compensation Committee set performance goals weighted differently for each Named Executive Officer, depending on their areas of responsibility and the factors on which they have the most influence. Each Named Executive Officer had one or more of the following quantitative financial goals for 20092010 as set out in the following table. If actual results fell between the specified points in the table but above the Threshold target, a resulting percentage could, at the discretion of the Compensation Committee, be interpolated (for example, if 2009 Product and Custom Engineering Bookings were $205 million, that component could have been weighted at 45%, and if they were $280 million, that component could be weighted at 125%).interpolated. All dollar figures are in millions.
| Threshold | Target | Stretch | ||||||
Measurement | (25%) | (65%) | (100%) | (150%) | ||||
| 2009 Product and Custom Engineering Bookings | $180 | $230 | $260 | $300 | ||||
| 2009 Revenue from Strategic Initiatives | $ 30 | $ 41 | $ 50 | $ 70 | ||||
| Adjusted Operating Income | $ 5 | $ 13 | $ 20 | $ 30 | ||||
| Leadership Goals | Meets Some Expectations | Meets Expectations | Fully Meets / Sometimes Exceeds Expectations | Exceeds Expectations |
Measurement | Threshold (25%) | (65%) | Target (100%) | Stretch (150%) | ||||
2010 Revenue | $285 | $310 | $325 | $360 | ||||
2010 Revenue from Strategic Initiatives | $ 65 | $ 80 | $ 85 | $100 | ||||
Adjusted Operating Income | $ 7 | $ 18 | $ 28 | $ 47 | ||||
Leadership Goals | Meets Some Expectations | Meets Expectations | Fully Meets / Sometimes Exceeds | Exceeds Expectations |
The Compensation Committee selected the foregoing financial measurement factors for the following reasons:
272010 Revenue to emphasize the importance of improving our overall financial performance and expanding our market share by increasing the sale of our product and services.
In addition, the Named Executive Officers responsible for technical areas had similar quantitative financial goals and qualitative product development and marketing goals for the year, weighted as appropriate for their respective areas of responsibility, and each Named Executive Officer had qualitative leadership goals.
Individual Balanced Scorecards. The 20092010 scorecards for each Named Executive Officer are described below:
Peter J. Ungaro — As our President and Chief Executive Officer, Mr. Ungaro’s scorecard was based on our overall financial performance and most heavily weighted on Adjusted Operating Income, with weightings of 20%15% for Product and Custom Engineering Bookings, 20%2010 revenue, 15% for revenue from strategic initiatives, 35%50% for Adjusted Operating Income and 25%20% for leadership goals. Mr. Ungaro’s leadership category included strategy development and execution goals, which included building our Custom Engineering business, improving our long-term business model and overall market competitiveness, growing our market share, retiring our convertible notes whilespecific product development goals, maintaining a healthy financial position and SEC/Sarbanes-Oxley compliance and achieving specific product development goals.
Brian C. Henry — As our Executive Vice President, Chief Financial Officer and head of our IT, group, Mr. Henry’s scorecard was based on our overall financial performance and was evenlymost heavily weighted across categories,on Adjusted Operating
Income, with weightings of 25%15% for Product and Custom Engineering Bookings, 25%2010 revenue, 15% for revenue from strategic initiatives, 25%50% for Adjusted Operating Income and 25%20% for leadership goals. Mr. Henry’s leadership goals included goals relating to cash management, improving our long-term business model and our overall competitiveness, retiring our convertible notes while maintaining a healthy financial position, capital expendituresexpenditure levels, SEC/Sarbanes-Oxley compliance, succession planning within the finance department, finance and IT department budget management, improving monthly financial reportinghiring initiatives, sales team assistance on specified matters and specific IT process enhancements.
Margaret A. Williams — As our Senior Vice President responsible for research and development, Dr. Williams’ scorecard was weighted 60%30% for specific product development achievements, and15% for engineering budget management, 25% on35% for Adjusted Operating Income and 15%20% for leadership goals. Dr. Williams’ leadership goals included advancing succession planning for key positions within the research and development group, improving product quality and reliability, planning, designing and implementing specific development goals, obtaining approval of specific Defense Advanced Research Projects Agency(“DARPA”)High Productivity Computing Systems(“HPCS”)program milestones, and successful implementation of improved processes and methodologies across the research and development group and developing an integrated plan and priorities for Cray XT hardware and software development.
Steven L. Scott — As our Senior Vice President and our Chief Technology Officer, Dr. Scott’s scorecard was weighted across several factors, with 25%10% for Product and Custom Engineering Bookings, 20%2010 revenue, 15% for revenue from strategic initiatives, 30%50% for Adjusted Operating Income and 25% for leadership goals. Dr. Scott’s leadership goals included defining our long-term product roadmap, supporting our Custom Engineering unit in winningdeveloping new business, providing technical leadership to our Cascade program and the DARPA HPCS project, managing our principal engineer program and corporate architecture teamtechnology board and using the team to assist in key technical directions, working with our government programs office to obtain increased governmental research and development support, supporting Dr. Williams in achieving budget and development targets and adding software-focused expertise to the Chief Technology office.
Wayne J. Kugel — As our Senior Vice President responsible for operations and customer support, Mr. Kugel’s scorecard was weighted 20% for customer support gross margin, 20% for 2010 product gross profit, 40% for Adjusted Operating Income and 20% for leadership goals. Mr. Kugel’s leadership goals included continuing the roll-out of enterprise risk management, advancing succession planning for key positions within the organization, managing the overall budget of his team, supporting Cray’s product and process quality initiatives and meeting certain product availability goals, attaining certain revenue threshold for certain Company initiatives, establishing long-term strategies for global operations and maintaining SEC/Sarbanes-Oxley and export compliance.
Ian W. Miller — AsUntil his departure from Cray on August 14, 2010, Mr. Miller was our Senior Vice President responsible for our Productivity Solutions Group and Marketing,Marketing. Mr. Miller’s original scorecard was most heavily weighted to specific sales and marketing goals, with 30%40% for Cray CX1CX system revenue 30%and margin, 40% for Adjusted Operating Income and 40%20% for other specific Productivity Solutions Group and marketing goals. Mr. Miller’s Productivity Solutions Group and marketing goals included advancing succession planning and building management skills within both groups, completing recruitment of the Productivity Solutions Group team, recruiting resellers for the Cray CX1 system, motivating and training the sales channel, considering
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For 2009,2010, the percentage achievement for each of the Adjusted Operating Income, Product2010 Revenue and Custom Engineering Bookings and 20092010 Revenue from Strategic Initiatives goals was 65% without100.7%, 86.9% and 46.6%, respectively. It was determined that Mr. Ungaro attained 95%, Messrs. Henry and Kugel each attained 90% and Drs. Williams and Scott each
attained 100% of their leadership goals under the benefit2010 cash incentive plan. Additionally, Dr. Williams had two product development-related goals that were weighted 20% and 10% of interpolation. her individual balanced scorecard total. Dr. Williams’ attainment against these two product development-related goals was determined to be 100% for each goal.
Because the Company did not achieve the product and custom engineering bookings target (the Company achieved over 95% of the target, however), total 2010 bonus achievement was capped at 100%.
The Compensation Committee has the right to adjust the formula incentive award for each officer based on their judgment as to the officer’s individual performance. No 20092010 awards to officers were adjusted for individual performance.
Award Based on Adjusted Operating Income
We believe that the Compensation Committee and the Board have historically set performance targets for our annual cash incentive plan that are achievable, but require significant effort to be met, with annual incentive awards at target being at substantial risk and incentive awards above target being very difficult to realize. In the past nineten years, we paid no cash incentive awards for 2001, 2004, 2005 or 2007, paid at-target awards for 2006, paid above-target awards for 2002, 2003 and 2008 and paid below-target awards for 2009.
Long-Term Equity Awards
We grant stock options and restricted stock for certain new hires, principally for senior manager and officer positions and generally on an annual basis as part of the total target compensation plan for the Named Executive Officers and other senior officers. In accordance with our compensation philosophy and objectives described above, these grants are designed to:
Align the interest of recipients with our shareholders;
Motivate and reward recipients to increase shareholder value over the long-term;
Provide a significant proportion of their total target compensation at risk subject to future performance; and
Provide a retention incentive.
As noted earlier, in the past several years we have recruited a number of key senior officers and through that process have learned that the available talent pool in our industry is limited and that candidates and our officers have significant other opportunities. Given these circumstances, the Compensation Committee has emphasized the retention nature of equity awards to keep our senior management team in place. For this reason and due to the difficulty in designing appropriate performance criteria that remained operative over several years, the Compensation Committee considered but did not add specific performance criteria to any of the 20092010 equity grants. The Compensation Committee has undertaken to continue to review whether to add performance criteria to at least part of future equity grants.
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We grant restricted stock with vesting dependent on continued employment, generally with four-year vesting schedules, with half of the granted shares vesting after two years and the balance vesting after four years (the actual vesting date is generally designed to occur during open trading window periods following publication of our quarterlyand/or annual operating results). Awards of restricted stock are designed to increase each recipient’s ownership of our common stock, thereby aligning their interests with shareholders and, with a longer-term vesting schedule, to provide a significant long-term retention incentive.
Towers Watson determined a competitive range of total compensation, usingprovided market data estimating the market base salary midpoint from its base salary review and an average of (a) the average target percentages from the three compensation surveys described above, and (b) a regression analysis of target incentivesmedian total long-term incentive values expressed as a percentmultiples of base salary fromsalaries for each of the peer group companies, with the difference between the target total compensation and target total cash compensation (combining base salary and target annual cash incentive awards) resulting in a suggested value for long-term compensation.positions. Towers Watson suggested using valuation methods analogous to the expensing of these awards for financial reporting purposes to determine the number of options and restricted shares to grant.
Named Executive Officers | Title | Total Equity Award Value As Multiple of Base Salary | ||||
Peter J. Ungaro | President and Chief Executive Officer | 1.9x | ||||
Brian C. Henry | Executive Vice President and Chief Financial Officer | 1.3x | ||||
Margaret A. Williams | Senior Vice President Research and Development | 1.1x | ||||
Steven L. Scott | Senior Vice President and Chief Technology Officer | 1.0x | ||||
Wayne J. Kugel | Senior Vice President Operations and Customer Support | .7x | ||||
Ian W. Miller* | Former Senior Vice President Productivity Solutions Group and Marketing | .7x | ||||
| * | Mr. Miller’s employment with us terminated effective August 14, 2010. Actual payments made to Mr. Miller relating to our 2010 annual cash incentive plan were made in accordance with our Executive Severance Policy in effect on August 14, 2010. |
As explained above, the Compensation Committee has not used any one factor in its equity grant determinations nor set a specific burn or use rate, although the Compensation Committee generally expects that the pool of options and restricted stock should be available for grants for at least the next two to three years. See “Guidelines for Granting Equity Compensation” below.
For information regarding equity grants in 20092010 and in prior years, see the tables and associated footnotes and narratives under “Compensation Tables” below.
Stock Option Repurchase Program.
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We have adopted an executive severance policy and entered into certain change of control agreements and titled management retention agreements, designed to attract and retain officers in a competitive marketplace for talent, to retain officers during the uncertainty of rumored or actual fundamental corporate changes and to ensure that the officers evaluate any potential acquisition situations impartially without concern for how they may be personally affected. We believe that these plans are important competitive considerations, as it is generally believed that it takes senior corporate officers significant time to find new employment after their employment
ends. The basicAs described below, our Board implemented a new policy, which requires the removal of any provisions related to 280G gross-up payments in any existing agreement or arrangement with any executive officer in the event the material compensation terms of theany such arrangement or agreement are amended in a manner that is materially favorable to such executive severance policy and the management retention agreements were first established a number of years ago and have not been changed substantively since their commencement in order to provide consistency for all covered officers, except for changes negotiated from time to time in connection with hiring new individual executive officers. In late 2008, we adopted a new executive severance policy and entered into new management retention agreements designed to comply with Section 409A of the IRC, although we maintained the basic structure of the previous policy and agreements to provide continuity.
Executive Severance Policy. In October 2002, our Board adopted an Executive Severance Policy that covered our then senior executive officers. As described above, weWe updated the Executive Severance Policy in late 2008 to comply with Section 409A of the IRC, and in December 2010 in order to comply with Section 409A of the IRC.IRC and eliminate unnecessarily complex provisions. If officers are terminated without Cause or resign for Good Reason, as those terms are defined in the Policy, the officers receive for certain periods,a single lump sum payment equal to his or her per pay period base salary rate multiplied by a number, ranging from six to 12, months, depending on their officeposition and how long they have served as officers, continuation of base salary, health and term life insurance benefits an extended timefor a period ranging from six to exercise vested options12 months, and outplacement services. Mr. Ungaro and Mr. Henry also receive their base salary and full target incentive award in accordance with our previous agreements with each of them, which were negotiated in 2005 when Mr. Ungaro was named our President and Mr. Henry first joined us, and the other covered officers couldalso receive part or all of their respective target cash incentive awards for the year in which their employment terminates.terminates depending on the timing of their termination. To receive these benefits, the officer must provide us with a general release and continue to comply with his or her confidentiality and other agreements with us. The payment of a portion or all of the severance payments may be delayed to after six months following termination of employment, as required by Section 409A of the IRC. For officers who are not parties to the management retention agreements discussed below, the Policy provides benefits following a Change of Control if they are terminated without Cause or terminate for Good Reason, as such terms are defined in the Policy, within 24 months of the Change of Control. Our obligations under the Policy are unfunded, and our Board has the express right to modify or terminate the Policy at any time prior to a Potential Change of Control or Change of Control, as those terms are defined in the Policy, or prior to delivery of a notice of termination of employment for a covered officer.
Management Retention Agreements. We previously entered into change of control agreements with each of the Named Executive Officers and certain other senior officers. In late 2008 we entered into new management retention agreements with our senior officers, including each Named Executive Officer, which modified the earlier agreements to comply with Section 409A of the IRC. Payments are made under these agreements only if two events
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In addition, the agreements with Mr. Ungaro and Mr. Henry each provide that, for a one-month period beginning six months following a Change of Control, he can resign and receive the benefits under his Agreement
if at such time he no longer holds his same position and reporting relationship at a company registered under the Exchange Act as he held with us prior to the Change of Control. This was added as a competitive provision and balanced the key nature of their current positions with a publicly-held company, the loss of which constitutes a substantial diminution of job responsibilities and duties, and the provision of an appropriate period following a Change of Control to permit negotiations as to their respective positions, if any, with the new controlling entity.
Stock Option Plans and Restricted Stock Agreements. Our stock option plans and restricted stock agreements provide that if the Company is sold and the existing options and restricted stock are not continued or assumed by the successor entity, then each optionee would have the opportunity to exercise his or her options in full, including any portion not then vested, and the options would terminate upon the sale becoming effective, and the restricted stock would vest in full. We believe that acceleration of vesting of options and restricted stock is appropriate when the options and restricted stock grants are not continued or assumed by the successor company, as the recipient has not received the full contemplated benefit of the equity award due to circumstances beyond the recipient’s control.
The Executive Severance Policy, the Management Retention Agreements and the stock option plans and restricted stock agreements are described in more detail under “Termination of Employment and Change of Control Arrangements — Narrative to the Termination of Employment and Change of Control Payments Table” below.
Retirement Plans
Our only retirement plan for all U.S. employees, including the Named Executive Officers, is a qualified 401(k) plan under which employees may contribute a portion of their salary on a pre-tax basis. Participants may invest in a limited number of mutual funds, and may sell, but may not direct the purchase of, shares of our common stock. We match
Prior to December 31, 2010, we matched 25% of participant contributions, with half of the match paid in shares of common stock on a quarterly basis during the year and the balance paid after year-end in cashand/or shares of common stock, as the Board decides. In recent years the final matching contribution has been madedecided. From December 31, 2010 until either February or April 2011 (depending on an employee’s title) we matched or will match 25% of participant contributions in sharescash. From February or April 2011 (depending on an employee’s title), we matched or will match 12.5% of our common stock.
We do not have any pension plan for any of our U.S. employees, including our Named Executive Officers. We do not have any plan for any of our Named Executive Officers or other employees that provides for the deferral of compensation on a qualified or non-qualified basis under the IRC other than the Cray 401(k) Plan.
Additional Benefits and Perquisites
We have health and welfare plans available on a non-discriminatory basis to all employees in the United States designed to meet the health and welfare needs of our employees and their families and to provide a total competitive
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Group health insurance and dental and vision benefits;
Life insurance based on salary, with additional coverage available for purchase up to a maximum of $500,000;
Employee Stock Purchase Plan qualified under Section 423 of the IRC;
Long-term care;
Short-term and long-term disability insurance;
Supplemental income protection (available for purchase);
Flexible spending accounts for health care and dependent care; and
An employee assistance plan and travel assistance.
We do not provide perquisites for the Named Executive Officers or other senior officers that are not available on the same terms to our employees generally.
Post-2010 Compensation Governance Changes
As part of its 2011 annual review of our compensation practices and policies, the Compensation Committee recommended to the Board, and the Board subsequently implemented, a series of governance changes that will affect the future compensation of our Named Executive Officers. These changes did not influence the specific decisions the Compensation Committee made with respect to the compensation of our Named Executive Officers for fiscal 2010. Nonetheless, we believe they are illustrative of the continued desire of our leadership, including our Board and Compensation Committee, to adopt and implement new compensation practices which strengthen and enhance the effectiveness of our overall compensation programs and further create a strong correlation between our performance and the compensation of our Named Executive Officers. Specifically, we adopted new policies with respect to:
Elimination of Future 280G Tax Gross-Up Payments. Our existing management retention agreements provide for a tax gross-up payment if payments are subject to an “excess parachute payment” excise tax. We believed at the time these agreements were entered into that tax gross-up payments were an appropriate component of executive compensation so that the recipient could receive the benefit of the intended compensation without regard to the complexity of the calculations of “excess parachute payments” and because the payment would be limited to two times annual compensation and benefits, rather than the higher levels generally permitted by IRC before the excise tax is imposed. The Board, however, has since concluded, after consulting with the Compensation Committee and outside advisors, that these types of gross-up payments should not be a component of our executive compensation practices in the future and are no longer necessary to recruit and retain talented executives. As a result, our Board implemented a new policy, which requires the removal of any provisions related to these payments in any existing agreement or arrangement with any executive officer in the event the material compensation terms of any such arrangement or agreement are amended in a manner that is materially favorable to such executive officer and that no gross-up payments be included in any new agreement we enter into with new or existing executive officers.
CEO Stock Ownership Guidelines
Compensation Recovery. We adopted a recoupment or “clawback” policy for cash and equity incentive awards paid to executive officers. The policy provides that if an executive officer’s actual compensation was based upon the achievement financial results that were subsequently the subject of a substantial restatement of our financial statements and the executive officer’s fraud or intentional illegal conduct materially contributed to that financial restatement, then, in addition to any other remedies available to us under applicable law, to the extent permitted by law and as the Board determines appropriate, we may:
cancel any outstanding compensation award granted after the adoption of the policy (whether or not granted pursuant to a plan and regardless of whether it is vested or deferred); and/or
require recoupment of all or a portion of any after-tax portion of any bonus, incentive payment, commission, equity-based award or other compensation granted or received after the adoption of the policy.
Under the policy, it is a requirement that the individual was an executive officer when the compensation was granted or received and that the financial restatement resulted in greater compensation than would have otherwise been received.
Elimination of Share Recycling. We amended each of our existing equity incentive plans to eliminate any share recycling provisions contained in them. As a result, in the future, any shares of our common stock that are either tendered as payment for an option or withheld for payment of taxes will be not added back to the overall pool of shares available for future grant under the applicable plan.
Stock Ownership Guidelines
In April 2011, to better align our Chief Executive Officer. The Compensation CommitteeOfficer’s and theour Board’s interest with those of our shareholders, our Board believe thatadopted stock ownership further aligns the interestsguidelines for our Chief Executive Officer and more robust ownership guidelines for our Board. Details of our officers withChief Executive Officers’ stock ownership guidelines are disclosed under “CEO Stock Ownership Guidelines” on page 36and details of our shareholders and we review theirBoard’s stock ownership regularly. We also continue to review our practice of utilizing informal guidelines to manage officer stock ownership.
Guidelines for Granting Equity Compensation
In 2005 and 2006, the Compensation Committee made decisions regarding base salaries and annual cash incentive awards in the spring of each year and decisions regarding annual equity grants in December. In 2007, the Compensation Committee decided to make all awards to senior officers in the spring concurrent with compensation decisions for all employees in order to have a more cohesive approach to total compensation for each senior officer, and for that reason the Compensation Committee made no general equity grants to senior executive officers in 2007. In each of 20082009 and 2009,2010, the general equity grants were made in May. While the Compensation Committee expects to complete the senior officer compensation awards, including equity grants in May 2010,August 2011, the 20102011 awards have not yet been made. The Compensation Committee approves new-hire equity grants for vice presidents and has established guidelines for equity grants of new hires below that rank to be approved by the Chief Executive Officer pursuant to those guidelines. New-hire grants for awards approved by the Chief Executive Officer are effective on the seventh day of the month following the month the employee commenced employment with us, or, if later, following the month during which the Chief Executive Officer formally approves the grant, and the exercise prices for stock option grants are set at the closing price for our common stock on the trading day immediately prior to the effective date of grant.
Under our option plans, we may not grant stock options at a discount to the fair market value of our common stock or, except under certain older plans, reduce the exercise price of outstanding options except in the case of a stock split or other recapitalization events. We do not grant stock options with a so-called “reload” feature, and we do not loan funds to employees to enable them to exercise stock options.
Securities Trading Policies
Our securities trading policies statepolicy includes that directors, officers and employees may not trade in Company securities while possessing material nonpublic information concerning the Company, trade in Company securities outside of the applicable trading windows, purchase or sell puts or calls to sell or buy our common stock, engage in short sales with respect to our common stock, or buy our common stock on margin or pledge shares of our common stock. Our policies restrictExcept for trades pursuant to approved Rule 10b5-1 plans, our policy restricts trading in our common stockCompany securities by directors, officers and certain specified employees to open window periods following the release of our quarterly and annual financial results, except for trades pursuant to approvedRule 10b5-1 plans.
33results.
Section 162(m) of the IRC limits to $1 million per person the amount that we may deduct for compensation paid in any one year to our Chief Executive Officer and certain of our most highly compensated officers. This limitation does not apply, however, to “performance-based” compensation, as defined in the IRC. Our stock options generally qualify as “performance-based” compensation and, except for incentive stock options, may result in a deduction for us at the time of exercise. Payments to our Chief Executive Officer and certain of our most highly compensated officers under our annual cash incentive plan and our outstanding restricted stock grants do not qualify as “performance-based” compensation and are not deductible to the extent that the $1 million limit is exceeded. The deductibility of some types of compensation payments depends upon the timing of the awards and the vesting or exercise of previously granted rights. Interpretations of and changes in applicable tax laws and regulations, as well as other factors beyond our control, also can affect deductibility of compensation. Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs, particularly given our considerable net loss carry-forward position for U.S. tax purposes. Rather, we maintain the flexibility to structure our compensation programs in ways that promote the best interests of our shareholders.
The Compensation Committee is responsible for overseeing the Company’s compensation policies, plans and benefits program, the compensation of the Chief Executive Officer and other senior officers and the administration of our equity compensation plans. As set forth in the Compensation Committee’s charter, which can be found at:www.cray.com under “Investors — Corporate Governance,” the Compensation Committee acts only in an oversight capacity, and relies on the work and assurances of management and outside advisers that the Compensation Committee retains. The Compensation Committee believes it has satisfied its charter responsibilities for The Compensation Committee has worked with management for the past several years to develop a systematic compensation philosophy and structure. In 2007, the Compensation Committee retained Watson Wyatt Worldwide (now Towers A second focus area of the Compensation Committee has been the structure and strength of the Company’s senior management team. Most of the Company’s current management team was hired in 2005, when Mr. Ungaro became President, or more recently, including key hires and promotions in 2008, 2009 and The Compensation Committee also: approves the compensation of new vice-presidents as they are hired, including base salary, annual cash incentive targets, equity grants and hiring bonuses, if any; determines the policy for awarding stock optionsand/or restricted stock grants to other new hires; works with the Board in overseeing the Cray 401(k) Plan; periodically reviews the Company’s staffing, including open positions and turnover; receivesCompensation Committee Report2009.2010.Watson & Co.)Watson), a leading executive compensation consultant, to advise the Compensation Committee. Towers Watson personnel conducted an in-depth review of the then current compensation practices, including interviews with a number of managers at the Company, and then reported its findings to the Compensation Committee in a series of meetings, some with management and some in executive sessions. In September of 2009, the Compensation Committee retained Towers Watson to update the 2007 review. The results of that collaboration, which formed the basis in many respects for the 20092010 executive compensation decisions, are described in the foregoing Compensation Discussion and Analysis. In September 2009, after the Compensation Committee had made its 2009 compensation decisions, Towers Watson was retained again by the Compensation Committee to update its review. It is expected that the Compensation Committee will utilize the results of this review when making compensation decisions in future periods, although this review did not influence 2009 compensation decisions.2009.2010. The Compensation Committee meets twice a year with Mr. Ungaro to review his performance as our Chief Executive Officer and to obtain his assessment of the strengths and weaknesses of the management team. The Compensation Committee believes that under Mr. Ungaro’s leadership the Company has made great strides in a very competitive market and in difficult times. The Compensation Committee has worked with Mr. Ungaro to develop a strong “performance culture” at the Company. One aspect of that process has been emphasis on succession plans, identification of high potential, at-risk and retiring employees and efforts to improve the officers’ management and leadership skills within a relatively new and thin management group. Another aspect, as is reflected in the Towers Watson compensation structure, is to add significant retention and incentive elements in long-term compensation awards to competitive base salaries, as discussed in the foregoing Compensation Discussion and Analysis.34
The Compensation Committee has reviewed and discussed with management the above Compensation Discussion and Analysis. Based on that review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
The Compensation Committee
Frank L. Lederman, Chair
John B. Jones, Jr.
Stephen C. Kiely
Stephen C. Richards
The tables on the following pages describe, with respect to our Named Executive Officers, the 2010, 2009 Summary Compensation The following table summarizes the compensation for the indicated years of our Chief Executive Officer, our Chief Financial Officer and our Summary Compensation TableCompensation Tables2008 and 20072008 salaries, bonuses, incentive awards and other compensation reportable under SEC rules, plan-based awards granted in 2009,2010, values of outstanding equity awards as of year-end 2009,2010, exercises of stock options and vesting of restricted stock awards in 2009,2010, and potential payments upon termination of employment and following a Change of Control.threefour highest paid other executive officers for the year ended December 31, 2009.2010 including Mr. Miller whose employment with us terminated effective August 14, 2010. 2009 Non-Equity Name and Stock Option Incentive Plan All Other Principal Position Year Salary Bonus(2) Awards(3) Awards(4) Compensation(5) Compensation(6) Total(7) Peter J. Ungaro 2009 $ 440,385 — $ 563,250 $ 347,275 $ 440,000 $ 4,651 $ 1,795,561 President and Chief 2008 $ 350,000 — $ 589,869 $ 285,600 $ 853,125 $ 4,415 $ 2,083,009 Executive Officer 2007 $ 350,000 $ 437,500 — — — $ 4,361 $ 791,861 Brian C. Henry 2009 $ 349,038 — $ 300,400 $ 177,278 $ 132,600 $ 6,728 $ 966,044 Chief Financial Officer and 2008 $ 325,000 — $ 294,935 $ 160,650 $ 302,250 $ 6,367 $ 1,089,202 Executive Vice President 2007 $ 325,000 $ 260,000 — — — $ 5,758 $ 590,758 Margaret A. Williams 2009 $ 323,077 — $ 281,625 $ 166,328 $ 139,400 $ 6,728 $ 917,158 Senior Vice President 2008 $ 300,000 — $ 249,055 $ 135,660 $ 253,800 $ 6,367 $ 944,882 Research and Development 2007 $ 300,000 $ 240,000 — — — $ 4,560 $ 544,560 Steven L. Scott 2009 $ 323,077 $ 750 $ 225,300 $ 134,417 $ 102,400 $ 4,651 $ 790,595 Senior Vice President and 2008 $ 300,000 $ 500 $ 235,948 $ 128,520 $ 225,000 $ 4,415 $ 894,383 Chief Technology Officer 2007 $ 300,000 — — — — $ 21,238 $ 321,238 Ian W. Miller(1) 2009 $ 270,000 — $ 168,975 $ 98,550 $ 118,300 $ 6,728 $ 662,553 Senior Vice President 2008 $ 230,000 $ 100,000 $ 264,020 $ 142,000 $ 288,493 $ 6,140 $ 1,030,653 Productivity Solutions Group and Marketing
Name and Principal Position | Year | Salary | Bonus(2) | Stock Awards(3) | Option Awards(4) | Non-Equity Incentive Plan Compensation(5) | All Other Compensation(6) | Total(7) | ||||||||||||||||||||||||
Peter J. Ungaro President and Chief Executive Officer | 2010 | $ | 450,000 | — | $ | 562,910 | $ | 308,454 | $ | 603,450 | $ | 4,125 | $ | 1,928,939 | ||||||||||||||||||
| 2009 | $ | 450,000 | — | $ | 563,250 | $ | 347,275 | $ | 440,000 | $ | 4,111 | $ | 1,804,636 | |||||||||||||||||||
| 2008 | $ | 350,000 | — | $ | 589,869 | $ | 285,600 | $ | 853,125 | $ | 3,875 | $ | 2,082,469 | |||||||||||||||||||
Brian C. Henry Chief Financial Officer and Executive Vice President | 2010 | $ | 340,000 | — | $ | 281,455 | $ | 154,227 | $ | 180,336 | $ | 5,500 | $ | 961,518 | ||||||||||||||||||
| 2009 | $ | 340,000 | — | $ | 300,400 | $ | 177,278 | $ | 132,600 | $ | 5,486 | $ | 955,764 | |||||||||||||||||||
| 2008 | $ | 325,000 | — | $ | 294,935 | $ | 160,650 | $ | 302,250 | $ | 5,125 | $ | 1,087,960 | |||||||||||||||||||
Margaret A. Williams Senior Vice President Research and Development | 2010 | $ | 315,000 | — | $ | 225,164 | $ | 123,382 | $ | 189,000 | $ | 5,500 | $ | 858,046 | ||||||||||||||||||
| 2009 | $ | 315,000 | — | $ | 281,625 | $ | 166,328 | $ | 139,400 | $ | 5,486 | $ | 907,839 | |||||||||||||||||||
| 2008 | $ | 300,000 | — | $ | 249,055 | $ | 135,660 | $ | 253,800 | $ | 5,125 | $ | 943,640 | |||||||||||||||||||
Steven L. Scott Senior Vice President and Chief Technology Officer | 2010 | $ | 315,000 | $ | 1,000 | $ | 197,019 | $ | 107,959 | $ | 143,325 | $ | 4,125 | $ | 768,428 | |||||||||||||||||
| 2009 | $ | 315,000 | $ | 750 | $ | 225,300 | $ | 134,417 | $ | 102,400 | $ | 4,111 | $ | 781,978 | ||||||||||||||||||
| 2008 | $ | 300,000 | $ | 500 | $ | 235,948 | $ | 128,520 | $ | 225,000 | $ | 3,875 | $ | 893,843 | ||||||||||||||||||
Wayne J. Kugel Senior Vice President Operations and Customer Support | 2010 | $ | 245,000 | — | $ | 112,582 | $ | 61,691 | $ | 110,740 | $ | 4,125 | $ | 534,138 | ||||||||||||||||||
Ian W. Miller(1) Former Senior Vice President Productivity Solutions Group and Marketing |
| 2010 2009 2008 |
| $ $ $ | 160,000 260,000 230,000 |
|
$ | — — 100,000 |
| $ $ $ | 112,582 168,975 264,020 |
| $ $ $ | 61,691 98,550 142,000 |
| $ $ | — 118,300 288,493 |
| $ $ $ | 376,822 5,486 5,125 |
| $ $ $ | 711,095 651,311 1,029,638 |
| ||||||||
| (1) | Mr. Miller’s employment with us terminated effective August 14, 2010 and, therefore, his 2010 salary represents a partial-year employment. Mr. Miller joined us in February | |
| (2) | The amounts shown for | |
| (3) | With the exception of ignoring the |
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See the section entitled “Share-Based Compensation” in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010, for a description of the valuation of these restricted stock awards. The amount any Named Executive Officer realizes, if any, from these restricted stock awards will depend on the future market value of our common stock when these shares are sold, and there is no assurance that the Named Executive Officers will realize amounts at or near the values shown.
| (4) | With the exception of ignoring the | |
See the section entitled “Share-Based Compensation” in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010, for a description of the valuation of these stock options, including key assumptions under the Black-Scholes pricing model; the values determined by the Black-Scholes pricing model are highly dependent on these assumptions, particularly regarding volatility of the market price for our common stock and expected life of these options. There is no assurance that the options will ever be exercised, in which case no value will be realized by the Named Executive Officer. The amount any Named Executive Officer realizes, if any, from these options depends on the future excess, if any, of the market value of our common stock over the exercise price of the options when the Named Executive Officer sells the underlying shares, and there is no assurance that the Named Executive Officers will realize amounts at or near the values shown.
| (5) | The information in this column reflects payments to the Named Executive Officers under our annual cash incentive plan for the indicated year. Payments for our | |
| (6) | “All Other Compensation” for |
| Group Term | Cray 401(k) Plan | |||||||
Officer | Life Insurance | Match | ||||||
| Peter J. Ungaro | $ | 540 | $ | 4,111 | ||||
| Brian C. Henry | $ | 1,242 | $ | 5,486 | ||||
| Margaret A. Williams | $ | 1,242 | $ | 5,486 | ||||
| Steven L. Scott | $ | 540 | $ | 4,111 | ||||
| Ian W. Miller | $ | 1,242 | $ | 5,486 | ||||
Officer | Cray 401(k) Plan Match | Severance Payment | ||||||
Peter J. Ungaro | $ | 4,125 | — | |||||
Brian C. Henry | $ | 5,500 | — | |||||
Margaret A. Williams | $ | 5,500 | — | |||||
Steven L. Scott | $ | 4,125 | — | |||||
Wayne J. Kugel | $ | 4,125 | — | |||||
Ian W. Miller | $ | 4,870 | $ | 371,952 | * | |||
| * | The amount shown for Mr. Miller includes: $100,000 (paid to Mr. Miller in 2010, which is a portion of the total amount of the base salary component of severance pay that we will pay to Mr. Miller in accordance with the Executive Severance Policy in effect on the date Mr. Miller’s employment with us terminated); $238,420 (the target incentive award component of severance pay paid by us to Mr. Miller in accordance with the Executive Severance Policy in effect on the date Mr. Miller’s employment with us terminated); $32,312 (the fair market value of his unvested restricted shares, the vesting of which was accelerated on August 14, 2010); and $1,220 (Mr. Miller’s coverage under COBRA paid by us). |
| (7) | The amounts shown in the “Total” column are the sum of the amounts shown in the columns for salary, bonus, stock awards, option awards, non-equity incentive plan compensation and all other compensation, as required by SEC rules. Because these sums combine cash payments earned by and made to the Named Executive Officers and amounts not earned by or paid to the Named Executive Officers but rather amounts reflecting the grant date fair value of restricted stock awards and options held by the Named Executive Officers, the actual total amount earned in any year by a Named Executive Officer depends on future events and, for the reasons described in footnotes (2) and (3) above, there is no assurance that the Named Executive Officers will realize a total sum at or near the values shown. |
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The following table sets forth certain information with respect to the potential cash incentive awards and the equity awards for the year ended December 31, 2009,2010, to the Named Executive Officers. See “Analysis of 20092010 Compensation Determinations — Annual Cash Incentive Compensation Plan” and “— Long-Term Equity Awards” in the Compensation Discussion and Analysis above.
Grants of Plan-Based Awards
| Exercise | ||||||||||||||||||||||||||||||||||||
| All | Price | |||||||||||||||||||||||||||||||||||
| All | Other | of | ||||||||||||||||||||||||||||||||||
| Estimated Possible Payouts | Other | Option | Option | |||||||||||||||||||||||||||||||||
| Under Non-Equity | Stock | Awards | Awards | Grant Date Fair | ||||||||||||||||||||||||||||||||
| Grant | Incentive Plan Awards(1) | Awards | (underlying | ($ per | Value(4) | |||||||||||||||||||||||||||||||
Name | Date | Threshold | Target | Maximum | (shares)(2) | shares)(2) | share)(3) | Stock | Options | |||||||||||||||||||||||||||
| Peter J. Ungaro | 5/13/09 | — | — | — | 150,000 | 150,000 | $ | 3.74 | $ | 563,250 | $ | 328,500 | ||||||||||||||||||||||||
| — | $ | 84,375 | $ | 843,750 | $ | 1,181,250 | — | — | — | — | — | |||||||||||||||||||||||||
| Brian C. Henry | 5/13/09 | — | — | — | 80,000 | 80,000 | $ | 3.74 | $ | 300,400 | $ | 175,200 | ||||||||||||||||||||||||
| — | $ | 25,500 | $ | 255,000 | $ | 357,000 | — | — | — | |||||||||||||||||||||||||||
| Margaret A. Williams | 5/13/09 | — | — | — | 75,000 | 75,000 | $ | 3.74 | $ | 281,625 | $ | 164,250 | ||||||||||||||||||||||||
| — | $ | 23,625 | $ | 236,250 | $ | 330,750 | — | — | — | — | — | |||||||||||||||||||||||||
| Steven L. Scott | 5/13/09 | — | — | — | 60,000 | 60,000 | $ | 3.74 | $ | 225,300 | $ | 131,400 | ||||||||||||||||||||||||
| — | $ | 19,688 | $ | 196,875 | $ | 275,625 | — | — | — | — | — | |||||||||||||||||||||||||
| Ian W. Miller | 5/13/09 | — | — | — | 45,000 | 45,000 | $ | 3.74 | $ | 168,975 | $ | 98,550 | ||||||||||||||||||||||||
| — | $ | 32,500 | $ | 325,000 | $ | 455,000 | — | — | — | — | — | |||||||||||||||||||||||||
| Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards (shares)(2) | All Other Option Awards (underlying shares)(3) | Exercise Price of Option Awards ($ per share)(4) | Grant Date Fair Value(5) | |||||||||||||||||||||||||||||||
Name | Threshold | Target | Maximum | Stock | Options | |||||||||||||||||||||||||||||||
Peter J. Ungaro | 5/12/10 | — | — | — | 100,000 | 100,000 | $ | 5.47 | $ | 562,910 | $ | 308,454 | ||||||||||||||||||||||||
| $ | 168,750 | $ | 675,000 | $ | 1,012,500 | — | — | — | — | — | ||||||||||||||||||||||||||
Brian C. Henry | 5/12/10 | — | — | — | 50,000 | 50,000 | $ | 5.47 | $ | 281,455 | $ | 154,227 | ||||||||||||||||||||||||
| $ | 51,000 | $ | 204,000 | $ | 306,000 | — | — | — | — | — | ||||||||||||||||||||||||||
Margaret A. Williams | 5/12/10 | — | — | — | 40,000 | 40,000 | $ | 5.47 | $ | 225,164 | $ | 123,382 | ||||||||||||||||||||||||
| $ | 47,250 | $ | 189,000 | $ | 283,500 | — | — | — | — | — | ||||||||||||||||||||||||||
Steven L. Scott | 5/12/10 | — | — | — | 35,000 | 35,000 | $ | 5.47 | $ | 197,019 | $ | 107,959 | ||||||||||||||||||||||||
| $ | 39,375 | $ | 157,500 | $ | 236,250 | — | — | — | — | — | ||||||||||||||||||||||||||
Wayne J. Kugel | 5/12/10 | — | — | — | 20,000 | 20,000 | $ | 5.47 | $ | 112,582 | $ | 61,691 | ||||||||||||||||||||||||
| $ | 30,625 | $ | 122,500 | $ | 183,750 | — | — | — | — | — | ||||||||||||||||||||||||||
Ian W. Miller(6) | 5/12/10 | — | — | — | 20,000 | 20,000 | $ | 5.47 | $ | 112,582 | $ | 61,691 | ||||||||||||||||||||||||
| $ | 65,000 | $ | 260,000 | $ | 390,000 | — | — | — | — | — | ||||||||||||||||||||||||||
| (1) | The threshold payout level represents the minimum aggregate balanced scorecard percentage payout that would result from achieving at least the Threshold level (as defined in our annual cash incentive compensation plan for | |
| (2) | Reflects the number of restricted stock awards to each Named Executive Officer on May |
| (3) | Twenty-five percent of the stock options granted on May |
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| (4) | ||
| (5) | The grant date fair value of the restricted stock awards and stock option grants represents our total projected expense for financial reporting purposes of those awards and grants. See the section entitled “Share-Based Compensation” in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report onForm 10-K for the year ended December 31, |
| (6) | Mr. Miller’s employment with us terminated effective August 14, 2010. |
Outstanding Equity Awards on December 31, 20092010
The following table sets forth certain information with respect to outstanding equity awards at December 31, 2009,2010, held by our Named Executive Officers.
Outstanding Equity Awards at Fiscal Year-End
| Option Awards | Stock Awards | ||||||||||||||||||||||||
| Number of | Market Value | ||||||||||||||||||||||||
| Number of Shares | Option | Shares That | of Shares | ||||||||||||||||||||||
| Underlying Unexercised Options | Exercise Price | Option | Have Not | That Have | |||||||||||||||||||||
Name | Exercisable(1) | Unexercisable(2) | ($ per share)(3) | Expiration Date | Vested | Not Vested(8) | |||||||||||||||||||
| Peter J. Ungaro | 31,666 | 48,334 | $ | 6.63 | 5/16/18 | 31,575 | (4) | $ | 202,712 | ||||||||||||||||
| — | 150,000 | $ | 3.74 | 5/13/19 | 90,000 | (5) | $ | 577,800 | |||||||||||||||||
| 150,000 | (6) | $ | 963,000 | ||||||||||||||||||||||
| Brian C. Henry | 124,999 | — | $ | 5.92 | 5/23/15 | 17,375 | (4) | $ | 111,548 | ||||||||||||||||
| 17,812 | 27,188 | $ | 6.63 | 5/16/18 | 45,000 | (5) | $ | 288,900 | |||||||||||||||||
| — | 80,000 | $ | 3.74 | 5/13/19 | 80,000 | (6) | $ | 513,600 | |||||||||||||||||
| Margaret A. Williams | 15,041 | 22,959 | $ | 6.63 | 5/16/18 | 17,375 | (4) | $ | 111,548 | ||||||||||||||||
| — | 75,000 | $ | 3.74 | 5/13/19 | 38,000 | (5) | $ | 243,960 | |||||||||||||||||
| 75,000 | (6) | $ | 481,500 | ||||||||||||||||||||||
| Steven L. Scott | 71,600 | — | $ | 3.80 | 9/26/15 | 11,050 | (4) | $ | 70,941 | ||||||||||||||||
| 14,249 | 21,751 | $ | 6.63 | 5/16/18 | 36,000 | (5) | $ | 231,120 | |||||||||||||||||
| — | 60,000 | $ | 3.74 | 5/13/19 | 60,000 | (6) | $ | 385,200 | |||||||||||||||||
| Ian W. Miller | 22,915 | 27,085 | $ | 5.34 | 2/11/18 | 50,000 | (7) | $ | 321,000 | ||||||||||||||||
| — | 45,000 | $ | 3.74 | 5/13/19 | 45,000 | (6) | $ | 288,900 | |||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||
| Number of Shares Underlying Unexercised Options | Option Exercise Price ($ per share)(3) | Option Expiration Date | Number of Shares That Have Not Vested | Market Value of Shares That Have Not Vested(7) | ||||||||||||||||||||
Name | Exercisable(1) | Unexercisable(2) | ||||||||||||||||||||||
Peter J. Ungaro | 51,666 | 28,334 | $ | 6.63 | 5/16/18 | 45,000 | (4) | $ | 322,650 | |||||||||||||||
| 59,374 | 90,626 | $ | 3.74 | 5/13/19 | 150,000 | (5) | $ | 1,075,500 | ||||||||||||||||
| — | 100,000 | $ | 5.47 | 5/12/20 | 100,000 | (6) | $ | 717,000 | ||||||||||||||||
Brian C. Henry | 124,999 | — | $ | 5.92 | 5/23/15 | 22,500 | (4) | $ | 161,325 | |||||||||||||||
| 15,938 | 29,062 | $ | 6.63 | 5/16/18 | 80,000 | (5) | $ | 573,600 | ||||||||||||||||
| 31,666 | 48,334 | $ | 3.74 | 5/13/19 | 50,000 | (6) | $ | 358,500 | ||||||||||||||||
| — | 50,000 | $ | 5.47 | 5/12/20 | ||||||||||||||||||||
Margaret A. Williams | 24,541 | 13,459 | $ | 6.63 | 5/16/18 | 19,000 | (4) | $ | 136,230 | |||||||||||||||
| 29,687 | 45,313 | $ | 3.74 | 5/13/19 | 75,000 | (5) | $ | 537,750 | ||||||||||||||||
| — | 40,000 | $ | 5.47 | 5/12/20 | 40,000 | (6) | $ | 286,800 | ||||||||||||||||
Steven L. Scott | 71,600 | — | $ | 3.80 | 9/26/15 | 18,000 | (4) | $ | 129,060 | |||||||||||||||
| 23,249 | 12,751 | $ | 6.63 | 5/16/18 | 60,000 | (5) | $ | 430,200 | ||||||||||||||||
| 23,749 | 36,251 | $ | 3.74 | 5/13/19 | 35,000 | (6) | $ | 250,950 | ||||||||||||||||
| — | 35,000 | $ | 5.47 | 5/12/20 | ||||||||||||||||||||
Wayne J. Kugel | 9,687 | 5,313 | $ | 6.63 | 5/16/18 | 7,500 | (4) | $ | 53,775 | |||||||||||||||
| 15,833 | 24,167 | $ | 3.74 | 5/13/19 | 40,000 | (5) | $ | 286,800 | ||||||||||||||||
| — | 20,000 | $ | 5.47 | 5/12/20 | 20,000 | (6) | $ | 143,400 | ||||||||||||||||
Ian W. Miller(8) | 31,248 | — | $ | 5.34 | 2/14/12 | |||||||||||||||||||
| 14,062 | — | $ | 3.74 | 2/14/12 | ||||||||||||||||||||
| (1) | All stock options listed in this column are fully vested and exercisable. | |
| (2) |
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| following 36 months so that all of these options will be vested on May 16, | ||
| (3) | The option exercise prices were set at 100% of | |
| (4) | The restricted shares vest on | |
| (5) | ||
| One-half of the restricted shares vest on May 15, 2011, and the remaining half vest on May 15, 2013. See footnote (4) above for other information regarding our restricted share awards. |
| (6) | One-half of |
| (7) | Determined by multiplying the closing price of |
| (8) | Mr. Miller’s employment with us terminated effective August 14, 2010. |
20092010 Option Exercises and Stock Vested
The following table provides information regarding restricted stock awards granted to the Named Executive Officers exercised any optionswhich vested during the fiscal year ended December 31, 2009 and no restricted stocks vested2010. No Named Executive Officer exercised options during the fiscal year ended December 31, 2009 for any of the Named Executive Officers.
| Stock Awards | ||||||||
Name | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($)(2) | ||||||
Peter J. Ungaro | 76,575 | $ | 428,114 | |||||
Brian C. Henry | 39,875 | $ | 224,201 | |||||
Margaret A. Williams | 36,375 | $ | 206,596 | |||||
Steven L. Scott | 29,050 | $ | 161,150 | |||||
Wayne J. Kugel | 10,675 | $ | 58,013 | |||||
Ian W. Miller | 31,250 | $ | 166,313 | |||||
| (1) | Represents the number of shares acquired upon vesting of restricted shares. |
| (2) | Represents the value of vested restricted stock awards calculated by multiplying the number of vested restricted stock awards by the closing price of our common stock on Nasdaq on the vesting date or, if the vesting occurred on a day on which Nasdaq was closed for trading, the next trading day. |
Termination of Employment and Change of Control Arrangements
The following discussion and table summarize the compensation that would have been payable to each Named Executive Officer upon(except for Mr. Miller as described below) under the various scenarios assuming termination of his or her employment at the close of business on December 31, 2009.
No special payments are due if any of the Named Executive Officers terminates his or her employment voluntarily without Good Reason, is terminated for Cause or retires. For all terminations, a terminated employee receives accrued and unpaid salary and the balance in his or her Cray 401(k) Plan account; weaccount. We do not accrue vacation pay for the Named Executive Officers or other senior officers. As part of and on the same basis as we provide benefits to all of our U.S. employees, the Named Executive Officers have life insurance and disability benefits.
The actual amounts to be paid to and the value of stock options and restricted stock held by a Named Executive Officer upon any termination of employment can be determined only at the time of such termination, and depend on the facts and circumstances then applicable.
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| Accelerated | Continued | |||||||||||||||||||||||
| Severance | Restricted Stock | Accelerated | Benefit Plan | Tax | ||||||||||||||||||||
Name and Termination Event | Payment(1) | Award(2) | Stock Options(3) | Coverage(4) | Gross-Up(5) | Total(6) | ||||||||||||||||||
Peter J. Ungaro | ||||||||||||||||||||||||
| Death/Disability | — | $ | 1,743,512 | $ | 402,000 | — | — | $ | 2,145,512 | |||||||||||||||
| Resignation for Good Reason or Termination without Cause | $ | 1,125,000 | $ | 330,071 | — | $ | 36,189 | — | $ | 1,491,260 | ||||||||||||||
| After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 2,250,000 | $ | 1,743,512 | $ | 402,000 | $ | 50,122 | — | $ | 4,445,634 | |||||||||||||
Brian C. Henry | ||||||||||||||||||||||||
| Death/Disability | — | $ | 914,048 | $ | 214,400 | — | — | $ | 1,128,448 | |||||||||||||||
| Resignation for Good Reason or Termination without Cause | $ | 544,000 | $ | 170,136 | — | $ | 43,044 | — | $ | 757,180 | ||||||||||||||
| After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 1,088,000 | $ | 914,048 | $ | 214,400 | $ | 63,035 | — | $ | 2,279,483 | |||||||||||||
Margaret A. Williams | ||||||||||||||||||||||||
| Death/Disability | — | $ | 837,008 | $ | 201,000 | — | — | $ | 1,038,008 | |||||||||||||||
| Resignation for Good Reason or Termination without Cause | $ | 504,000 | $ | 152,347 | — | $ | 35,603 | — | $ | 691,950 | ||||||||||||||
| After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 1,008,000 | $ | 837,008 | $ | 201,000 | $ | 53,476 | — | $ | 2,099,484 | |||||||||||||
Steven L. Scott | ||||||||||||||||||||||||
| Death/Disability | — | $ | 687,261 | $ | 160,800 | — | — | $ | 848,061 | |||||||||||||||
| Resignation for Good Reason or Termination without Cause | $ | 472,500 | $ | 126,956 | — | $ | 42,056 | — | $ | 641,512 | ||||||||||||||
| After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 945,000 | $ | 687,261 | $ | 160,800 | $ | 61,786 | — | $ | 1,854,847 | |||||||||||||
Ian W. Miller | ||||||||||||||||||||||||
| Death/Disability | — | $ | 609,900 | $ | 149,852 | — | — | $ | 759,752 | |||||||||||||||
| Resignation for Good Reason or Termination without Cause | $ | 476,667 | — | — | $ | 42,564 | — | $ | 519,231 | |||||||||||||||
| After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 953,333 | $ | 609,900 | $ | 149,852 | $ | 68,224 | $ | 444,113 | $ | 2,225,422 | ||||||||||||
Name and Termination Event | Severance Payment(2) | Accelerated Restricted Stock Award(3) | Accelerated Stock Options(4) | Continued Benefit Plan Coverage(5) | Total(6) | |||||||||||||||
Peter J. Ungaro | ||||||||||||||||||||
Death/Disability | — | $ | 2,115,150 | $ | 496,148 | — | $ | 2,611,298 | ||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 1,125,000 | $ | 634,097 | — | $ | 52,493 | $ | 1,811,590 | |||||||||||
After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 2,250,000 | $ | 2,115,150 | $ | 496,148 | $ | 56,504 | $ | 4,917,802 | ||||||||||
Brian C. Henry | ||||||||||||||||||||
Death/Disability | — | $ | 1,093,425 | $ | 259,392 | — | $ | 1,352,817 | ||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 554,000 | $ | 331,239 | — | $ | 67,224 | $ | 952,463 | |||||||||||
After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 1,088,000 | $ | 1,093,425 | $ | 259,392 | $ | 75,913 | $ | 2,516,730 | ||||||||||
Margaret A. Williams | ||||||||||||||||||||
Death/Disability | — | $ | 960,780 | $ | 230,691 | — | $ | 1,191,471 | ||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 504,000 | $ | 300,841 | — | $ | 46,609 | $ | 851,450 | |||||||||||
After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 1,008,000 | $ | 960,780 | $ | 230,691 | $ | 54,007 | $ | 2,253,478 | ||||||||||
Steven L. Scott | ||||||||||||||||||||
Death/Disability | — | $ | 810,210 | $ | 190,726 | — | $ | 1,000,936 | ||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 472,500 | $ | 253,638 | — | $ | 57,998 | $ | 784,136 | |||||||||||
After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 945,000 | $ | 810,210 | $ | 190,726 | $ | 62,873 | $ | 2,008,809 | ||||||||||
Wayne J. Kugel | ||||||||||||||||||||
Death/Disability | — | $ | 483,975 | $ | 119,762 | — | $ | 603,737 | ||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 367,500 | $ | 148,255 | — | $ | 55,914 | $ | 571,669 | |||||||||||
After Change of Control, Resignation for Good Reason or Termination without Cause | $ | 735,000 | $ | 483,975 | $ | 119,762 | $ | 60,068 | $ | 1,398,805 | ||||||||||
Ian W. Miller(1) | ||||||||||||||||||||
Resignation for Good Reason or Termination without Cause | $ | 498,420 | $ | 32,312 | — | $ | 1,220 | $ | 531,952 | |||||||||||
| (1) | Mr. Miller’s employment with us terminated effective August 14, 2010. The amounts shown for Mr. Miller represent actual amounts paid by us to Mr. Miller in accordance with our Executive Severance Policy in effect on August 14, 2010. |
| (2) | Except for |
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| payable |
| (3) | Under our restricted stock agreements, all unvested restricted stock vests in full upon death or Disability or, if following a Change of Control, there is a termination without Cause or a resignation for Good Reason. If a Named Executive Officer has held restricted stock for 18 months and his or her employment is terminated for any reason other than Cause, then the Named Executive Officer receives a pro-rata portion of the unvested shares based on the time period he or she has held the restricted stock compared to the four-year vesting period. The amounts shown in this column reflect the value of the Named Executive Officer’s unvested restricted shares with vesting accelerated to December 31, |
| (4) | Under our stock option plans, in the event of death or Disability, all unvested options become exercisable and all option holders have a12-month period or, if earlier, until the expiration date of the options to exercise their options. The amounts shown in this column reflect the value of the Named Executive Officer’s unvested stock options with vesting accelerated to December 31, | |
Under the Management Retention Agreements, if there is either a termination without Cause or a resignation for Good Reason within two years after a Change of Control, all unvested options become exercisable and the optionee has 12 months to exercise all of his or her options or, if earlier, until the expiration date of the options. We calculated the value of the unvested stock options based upon the difference between the aggregate market value of the shares of common stock underlying the unvested stock options and the aggregate exercise price that the Named Executive Officer would be required to pay upon exercise of those stock options. We used a price of $7.17 per share to determine market value, which was the closing market price of our common stock on December 31, 2010, as reported by Nasdaq.
See the “Outstanding Equity Awards at Fiscal Year-End” table above for a description of the options vested and unvested as of December 31, 2010.
| (5) | The amounts shown in this column, as provided in our Executive Severance Policy, reflect the cost of COBRA coverage for medical, dental, vision and orthodontia benefits and the premiums for $500,000 of term life insurance for | |
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| (6) |
Narrative to the Termination of Employment and Change of Control Payments Table
While we have offer letters to senior officers, including the Named Executive Officers that set out terms of their initial compensation and agreements regarding confidential information and ownership of intellectual property, we do not have employment agreements with our senior officers and each of them is employed “at will.” As described above under “Analysis of 20092010 Compensation Determinations — Severance Policy and Change of Control Agreements” in the Compensation Discussion and Analysis and more fully below, our senior officers, including all of the Named Executive Officers, are covered by our Executive Severance Policy and a more limited group of senior officers, including all of our Named Executive Officers, are parties to Management Retention Agreements that come into effect upon a Change of Control. In addition, our stock option plans and restricted stock agreements contain provisions that apply to terminations of employment.
Executive Severance Policy. In December 2008, our Board amended our2010, we adopted a revised Executive Severance Policy, or the “Policy,” that covers our officers, including the Named Executive Officers, soto the extent that he or she is not otherwise covered by his or her Management Retention Agreement described below.
Under the Policy, complied with Section 409A of the IRC. The Policy applies to terminations of employmentif a Named Executive Officer is terminated without Cause or resignations forif he or she resigns with Good Reason, asthen, among other things, such terms are defined inNamed Executive Officer is entitled to the Policy; the Policy does not apply if the Management Retention Agreements described below are applicable and does not applyfollowing benefits:
a single lump sum payment equal to employment terminations due to death, Disability, retirement, Causehis or resignations other than for Good Reason. Under the Policy, Mr. Ungaro and Mr. Henry each receive payments of theirher per pay period base salary and full target incentive award under our annual cash incentive plans. Senior vice presidents receive salary continuation in an amountrate multiplied by the Applicable Severance Period;
a single lump sum payment equal to their base salaryhis or her Incentive Compensation;
continuation of coverage under COBRA for a period of nine months plus one month for each year of service as an officer, up to a maximum of 12 months, and vice presidents receive salary continuation, in an amount equal to their base salary for a period of six months plus one month for each year of service as an officer, up to a maximum of nine months. In addition, these officers are eligible to receive a pro-rata portion of the target incentive award but only if officers who are not terminated receive their incentive awards for that year.
executive outplacement services.
In order to receive these benefits, the Named Executive Officer must provide us with a general release and continue to comply with his or her confidentiality and other agreements with us. Our obligations underWe also have the Policy are unfunded, and our Board has the express right to modify, terminate or terminateadd or delete individuals covered by, the Policy at any time prior to a change of control (as defined in Section 409A of the IRC), or with respect to an officer covered by the Policy, until delivery of a notice of termination with respect to such officer.
Under the Policy, the following terms have the following meanings:
“Applicable Severance Period” means, for Messrs. Ungaro and Henry, 12 months, and for Drs. Williams and Scott and Mr. Kugel, nine months, plus one month for each year of service as an officer, up to a maximum of 12 months.
“Cause” means a termination of employment resulting from a good faith determination by us that there has been a willful failure or refusal in a material respect to follow any code of business conduct or the reasonable policies or directives established by us or to attend to material duties or obligations (other than any such failure resulting from incapacity due to physical or mental illness), which has not been corrected within 30 business days following written notice; an act involving misconduct, which could reasonably be expected to have an adverse impact on or material damage to us, or which constitutes a material misappropriation of our assets; the unauthorized disclosure of confidential information which could reasonably be expected to have an adverse impact on or cause material damage to us; or the provision of services for another company or person which competes with us, without the prior written approval; or a material breach of obligations under the Policy.
“Good Reason” for Messrs. Ungaro, Henry and Kugel, and Drs. Williams and Scott means a material negative change in the employment relationship, due to a material reduction in base salary by more than 10% (whether in one or a series of reductions) compared to his or her base salary immediately prior to such reduction; a material reduction in annual target award opportunities under our annual cash incentive plan (other than an across-the-board reduction applicable to all of our senior officers); a material diminution of authority, duties, or responsibilities; a demotion of his or her title such that he or she is no longer covered by the Policy; or a request to relocate, except for office relocations that would not increase his or her one-way commute by more than 40 miles.
“Incentive Compensation” means, for Messrs. Ungaro and Henry, 100% of his target award under our annual cash incentive plans, and for Drs. Williams and Scott and Mr. Kugel, the pro-rata portion (based on the time period served during the fiscal year) of his or her target incentive award under our annual cash incentive plans.
Management Retention Agreements. Our Named Executive Officers have Management Retention Agreements that provide for specified termination benefits if we terminate his or her employment without Cause or if he or she resigns for Good Reason, in each case, during the period commencing after a Potential Change of Control orand ending 24 months after a Change of Control as those terms are defined in the Policy, or with respect to a covered officer until he or she receives a notice of termination.
a single lump sum cash payment equal to two times the officer’s annual compensation, payable in a lump-sum within 30 days of termination. Under these agreements, “annual compensation” means one year of base salary, at the highest base salary rate that was paid to the officer in the12-month period prior to the date of his or her terminationannual compensation;
acceleration of employment, plus the annual cash incentive plan award
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reimbursement for all COBRA payments for medical benefits for 18 months;
reimbursement of the premiums for a term life insurance policy for 24 months following termination; and
in certain circumstances, if the officerhe or she incurs excise tax due to the application of Section 280G of the IRC, the officer is entitled to an additional cash payment so that he or she will be in the same position as if the excise tax were not applicable. We have also agreed to pay theapplicable, and legal fees and other costs incurred with respect to any challenge by the Internal Revenue Service to these calculations and payments.
In the Management Retention Agreements, the following terms have the following meanings:
“annual compensation” means one year of base salary, at the highest base salary rate that he or she was paid in the 12-month period prior to the date of his or her termination, plus 100% of his or her target award under our annual cash incentive plans that he or she was eligible to receive in that 12-month period.
“Cause” means a termination of employment resulting from a good faith determination by our Board that there has been a willful failure or refusal in a material respect to follow reasonable policies or directives or to attend to material duties or obligations (other than any such failure resulting from incapacity due to physical or mental illness), which has not been corrected within a reasonable period following written notice; an act involving wrongful misconduct which has a demonstrable adverse impact on or material damage to us, or which constitutes a material misappropriation of our assets; the unauthorized disclosure of confidential information which has a demonstrably adverse impact on us or has caused material damage to us; or the provision of services for another company or person which competes with us, without the prior written approval; or a material breach of obligations under the Management Retention Agreement.
“Change of Control” means a merger, consolidation, share exchange or other reorganization with any other entity (other than a merger, consolidation share exchange or other reorganization where the holders of our voting securities immediately prior to such transaction own at least 50% of the voting power of the outstanding securities of us or the surviving corporation after such transaction); the sale, lease, exchange or other disposition of all or substantially all of our assets; our shareholders approve a plan of liquidation; the acquisition by any person or entity, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then outstanding voting securities except pursuant to a negotiated agreement with us and pursuant to which such securities are purchased from us; or at any time during a 24-month period, individuals who at the beginning of such period constituted the Board (including each new director elected during such 24-month period whose nomination or election was approved by two-thirds of the directors in office at the beginning of such period) shall cease for any reason to constitute at least a majority of the Board.
“Good Reason” means a material negative change in the employment relationship, including, without limitation, a material reduction in base salary by more than 5% (whether in one or a series of reductions); a material reduction in annual target award opportunities under our annual cash incentive plan, which shall be deemed to include reductions that would reduce his or her total target compensation (including base salary but excluding the value of any equity component) by more than 5% compared to his or her total target compensation for the immediately preceding year (including base salary but excluding the value of any equity component); a material diminution in status, title, position(s) or responsibilities; a request to relocate, except for office relocations that would not increase his or her one-way commute by more than 25 miles or changes in customary office locations resulting in substantially increased travel; discontinuance of, or a reduction in, benefits; or the failure to obtain the assumption of the Management Retention Agreement by a successor to all or substantially all of our business or assets.
“Potential Change of Control” means we have entered into an agreement which, if consummated, would result in a Change of Control; any third-party or we publicly announce an intention to take or consider taking action which, if consummated, would result in a Change of Control; or our Board adopts a resolution stating that a Potential Change of Control has occurred.
Stock Option Plans. Our stock option plans provide that upon termination of employment, other than for Cause, death or permanent and total disability (as defined in the IRC), the options cease vesting and the optionee has three months to exercise the option or, if earlier, until the option expires. If the optionee is terminated for Cause or “resigns in lieu of dismissal” (that is, a resignation after we have notified the optionee that he or she would be terminated for Cause), the option is deemed to have terminated at the time of the first act that led to such termination. Upon termination for death or disability, the options vest in whole and the optionee (or his or her successor) has 12 months to exercise the options or, if earlier, until the options expire. If an officer receives the benefit of the Executive Severance Policy and his or her employment is terminated without Cause or due to a resignation for Good Reason, as such terms are defined in the Policy, then the officer would receive an extended period in which to exercise his or her options that are vested at the time of termination, as described above under “Executive Severance Policy.” In the event of a
merger, consolidation, sale of all or substantially all of the assets or liquidation, unless the existing options are continued or assumed by the successor entity, if any, with appropriate adjustments, then the stock options terminate upon the effective date of such transaction, and each optionee would be provided the opportunity to exercise his or her options in full, including any portion not then vested. Our Board may extend the period in which to exercise an option, but not beyond the original expiration date of the option.
Under our stock option plans, “Cause” means the violation of any reasonable rule or policy that results in damage to us, or which after notice to do so, has not been corrected within a reasonable period; willful misconduct or gross negligence with respect to his or her responsibilities; willful failure to perform his or her job as required to meet our objectives; any wrongful conduct which has an adverse impact on us or which constitutes a misappropriation of our assets; the unauthorized disclosure of confidential information; or the provision of services for another company or person which competes with us, without the prior written approval.
Restricted Stock Agreements. Under our restricted stock agreements with each of the Named Executive Officers, the restricted stock vests in full upon the death or Disability of the recipient or if, following a Change of Control, in addition to death or Disability, the Named Executive Officer is terminated without Cause or terminates for Good Reason. The restricted shares are forfeited if a Named Executive Officer’s employment is terminated for any other reason, except ifIf the Named Executive Officer has held the restricted stock for at least 18 months and his or her employment is terminated for any reason other than Cause, or if the Named Executive Officer retires, then the Named Executive Officer receives a pro-rata portion of the unvested shares based on the time period he or she has held the restricted stock compared to the four-year vesting period. The restricted shares are forfeited if a Named Executive Officer’s employment is terminated for any other reason. In addition, in the event of a merger, consolidation, sale of all or substantially all of the assets or liquidation, the restricted stock vests in full if we fail to have the restricted stock agreements continued or assumed by the successor entity.
In our restricted stock agreements, except where noted:
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In our restricted stock agreements, “Disability” means that, at the time the officer’shis or her employment is terminated, the officerhe or she has been unable to perform the duties of his or her position for a period of six consecutive months as a result of the officer’shis or her incapacity due to physical or mental illness; (pursuantillness.
In our restricted stock agreements, “Good Reason” means a reduction in salary or benefits (other than reductions applicable to the Severance Policy and management retention agreements) the meaning given to such term in the Company’s disability plans as in effect immediately prior to the date of the notice of the officer’s termination (the language in such plan as of December 31, 2009, defines “disability” as when an officer is unable to perform with reasonable continuity the material duties of her or his own occupation and suffersemployees generally); a loss of at least 20% in her or his indexed predisability earnings when working in her or his own occupation); and (pursuant to the stock option plans) permanent and total disability as defined in Section 22(e)(3) of the IRC.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010, with respect to compensation plans under which shares of our common stock are authorized for issuance, including plans previously approved by our shareholders and plans not previously approved by our shareholders.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010, with respect to compensation plans under which shares of our common stock are authorized for issuance, including plans previously approved by our shareholders and plans not previously approved by our shareholders.
Plan Category | Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Shares of Common Stock Available for Future Issuance Under Equity Compensation Plans (excluding shares reflected in 1st column) | |||||||||
Equity compensation plans approved by shareholders(1) | 2,836,705 | $ | 6.31 | 3,256,667 | ||||||||
Equity compensation plans not approved by shareholders(2) | 609,005 | $ | 5.72 | — | ||||||||
Total | 3,445,710 | $ | 6.20 | 3,256,667 | ||||||||
| (1) | The shareholders approved our 1995, 1999 and 2003 stock option plans, our 2004, 2006 and 2009 long-term equity compensation plans and our 2001 employee stock purchase plan (including as amended); the 1995 and 1999 stock option plans have terminated and no more options may be granted under those plans. Pursuant to these stock option plans, incentive options may be granted to employees (including officers) and nonqualified options may be granted to employees, officers, directors, agents and consultants with exercise prices at least equal to the fair market value of the underlying common stock at the time of grant. While the Board may grant options with varying vesting periods under these plans, most options granted to employees vest over four years, with 25% of the options vesting after one year and the remaining options vesting monthly over the next three years, and most option grants to non-employee directors vesting monthly over the twelve months after grant. Under the 2004, 2006 and 2009 long-term equity compensation plans, the Board may grant restricted and performance stock grants in addition to incentive and nonqualified stock options. As of December 31, 2010, under the option and equity compensation plans approved by shareholders under which we may grant stock options, an aggregate of 3,256,667 shares remained available for grant as options and, under the option and equity compensation plans approved by shareholders under which we may grant restricted and bonus awards, an aggregate of 1,699,108 shares were available for such awards. |
Under the 2001 employee stock purchase plan, as amended, all employees are eligible to participate and purchase shares of our common stock at a purchase price equal to 95% of the fair market value of our common stock on the fourth business day after the end of each offering period. The employee stock purchase plan covers a total of 1,000,000 shares; at December 31, 2010, we had issued a total of 894,667 shares under the plan and had a total of 105,333 shares available for future issuance. The first two columns do not include the shares to be issued under the employee stock purchase plan for the offering period that began on December 16, 2010 and ended on March 15, 2011.
| (2) | The shareholders did not approve the 2000 non-executive employee stock option plan. Under the 2000 non-executive employee stock option plan approved by the Board of Directors on March 30, 2000, an aggregate of 1,500,000 shares pursuant to non-qualified options could be issued to employees, agents and consultants but not to officers or directors. Otherwise, the 2000 non-executive employee stock option plan is similar to the stock option plans described in footnote (1) above. On March 30, 2010, the 2000 non-executive employee stock option plan was terminated, which ended future grants but did not affect then |
outstanding options. At December 31, 2010, under the 2000 non-executive employee stock option plan we had options for 579,915 shares outstanding. |
On April 1, 2004, in customary office locations resultingconnection with the acquisition of OctigaBay Systems Corporation, subsequently renamed Cray Canada Inc., we assumed that company’s key employee stock option plan, including existing options. Options could be granted to Cray Canada employees, directors and consultants. Otherwise the Cray Canada key employee stock option plan is similar to the stock option plans described in substantially increased travel; or a discontinuancefootnote (1) above. On March 8, 2006, the Cray Canada plan was terminated, which ended future grants but did not affect then outstanding options. Under the Cray Canada key employee stock option plan, we had 29,090 options outstanding as of or a reduction in, benefits.
From time to time we have issued warrants as compensation to consultants and others for services without shareholder approval. As of December 31, 2010, we had no such warrants outstanding.
The current members of the Compensation Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards. No member of the Compensation Committee was an officer or employee of ours or any of our subsidiaries in Compensation Committee Interlocks and Insider Participation20092010 or formerly. In addition, none of our executive officers currently serves or has served on the board of directors or compensation committee of any entity whose executive officers included any of our directors.44
We recognize that transactions between us and any of our significant shareholders, directors, executive officers and employees can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of us and our shareholders. Therefore, as a general matter and in accordance with our Code of Business Conduct, it is our preference to avoid such transactions. Nevertheless, we recognize that there are situations where such transactions may be in, or may not be inconsistent with, our best interests. Our Board has adopted a written Related Person Transaction Policy that requires the Audit Committee of our Board to review and, if appropriate, approve or ratify any such transactions. Specifically, pursuant to the policy, the Audit Committee will review any transaction in which we are or will be a participant and the amount involved exceeds $120,000, and in which any of our 5% shareholders, directors or executive officers, or any of their immediate family members, has a direct or an indirect material interest. After its review, the Audit Committee will only approve or ratify those transactions that are in, or are not inconsistent with, our best interests, as the Audit Committee determines, and the Audit Committee, in its sole discretion, may impose such conditions as it deems appropriate on us or the related person in connection with approval of the transaction. A copy of our Related Person Transaction Policy is available on our website:www.cray.com under “Investors — Corporate Governance — Governance Documents.”
We did not enter into any transaction in 20092010 requiring Audit Committee approval or ratification under our Related Person Transaction Policy.
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The information contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC or be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 ofRegulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The Audit Committee is responsible for overseeing the Company’s accounting and financial reporting processes and audits of the Company’s consolidated financial statements. As set forth in its charter, which can be found atwww.cray.com under “Investors — Corporate Governance,” the Audit Committee acts only in an oversight capacity and relies on the work and assurances of management, which has primary responsibility for the Company’s consolidated financial statements and reports, as well as of the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of the Company’s audited consolidated financial statements to generally accepted accounting principles. The Audit Committee periodically meets separately with our management, without the auditors present, and with the auditors, without management present. The Audit Committee believes it has satisfied its charter responsibilities for 2009.
The Company reported no material weaknesses in its system of internal controls over financial reporting and has received favorable opinions from the independent auditors for each year since 2004, including for 2009.2010. The Company included the 20092010 report and opinion in its Annual Report onForm 10-K for the year ended December 31, 2009.2010. The Audit Committee met in person or by telephone 1011 times in 2009.2010. In the course of these meetings, the Audit Committee reviewed the results of audit examinations, evaluations of the Company’s internal controls and the overall quality of its financial reporting.
In accordance with Audit Committee policy and the requirements of law, the Audit Committee pre-approves all services to be provided by any independent auditors responsible for providing an opinion on the Company’s consolidated financial statements filed with the SEC. Peterson Sullivan LLP, the Company’s independent registered public accounting firm, did not perform any non-audit services for the Company in 20082009 or 2009.2010. See “Discussion of Proposals Recommended by the Board — Proposal 2:5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2010”2011” below.
The Audit Committee engaged Peterson Sullivan LLP as the Company’s independent registered public accounting firm for 2009,2010, and reviewed its overall audit scope and plans. The Audit Committee also has discussed with Peterson Sullivan LLP the matters required to be discussed by SAS No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received and reviewed the written disclosures and the letter from Peterson Sullivan LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with Peterson Sullivan LLP its independence from the Company.
The Audit Committee has engaged Peterson Sullivan LLP as the Company’s independent registered public accounting firm for 2010.2011. In taking this action, the Audit Committee considered carefully Peterson Sullivan LLP’s performance for the Company in that capacity since its retention in mid-2005, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards. Although the Audit Committee has the sole authority to appoint the independent registered public accounting firm, the Audit Committee has recommended that the Board ask the shareholders to ratify the appointment of Peterson Sullivan LLP as the Company’s independent registered public accounting firm at the Annual Meeting. The Board has followed the Audit Committee’s recommendation. See “Discussion of Proposals Recommended by the Board — Proposal 2:5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2010”2011” below.
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In reliance on the reviews and discussions referred to above, the Audit Committee has recommended to the Board that the audited consolidated financial statements be included in the Annual Report onForm 10-K for the year ended December 31, 2009,2010, for filing with the SEC.
The Audit Committee
Daniel C. Regis, Chair
Sally G. Narodick
Stephen C. Richards
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Our Bylaws fix the number of members of our Board at eight. Eight directors presently serve on our Board for terms ending at the Annual Meeting. The Board has nominated Ms. Narodick, Dr. Lederman, We know of no reason why any nominee may be unable to serve as a director. If any nominee becomes 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 or her term, or the Board increases the number of directors, then the Board may fill the vacancy. Board Recommendation: The Board recommends that you vote “FOR” the election of all nominees for director. Director Qualifications The following paragraphs provide information as of the date of this Proxy Statement about each nominee. The information presented includes information each director has given us about his or her age, all positions he or she holds, his or her principal occupation and business experience for the past five years, and the names of other publicly held companies of which he or she currently serves as a director or has served as a director during the past five years. In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to us and our Board. Finally, we value their significant experience on other public company boards of directors and board committees. Information about the number of shares of common stock beneficially owned by each director appears above under the heading “Our Common Stock Ownership.” There are no family relationships among any of the directors and executive officers of Cray. William C. Blake Mr. Blake, Proposal 1: To Elect Eight Directors for One-Year Termsand Mr. Blake, Mr. Jones, Mr. Kiely, Mr. Regis, Mr. Richards and Mr. Ungaro for re-election to the Board, each to hold office until the annual meeting in 2011.2012.60,61, joined our Board in June 2006. Mr. Blake has been involved in the high-performancehigh performance computing industry for nearly three decades. He currently servesUntil January 2011, Mr. Blake served as General Manager, Parallel Computing Platform group at Microsoft Corporation after the acquisition in September 2009 of Interactive Supercomputing, Inc. (“ISC”) where he served as the President and Chief Executive Officer. ISC developed and sold an interactive parallel computing platform that extendsextended existing desktop simulation tools for parallel computing on a spectrum of computing architectures. Before assuming this position in January 2007, he served as the Senior Vice President, Product Development of Netezza Corporation, which develops, markets and sells data warehouse appliances. Prior to joining Netezza in 2002, he was with Compaq Computer Corporation for nine years, managing both Compaq’s worldwide high-performance technical computing business and its software development group from 1996 to 2002, which included responsibility for compiler development for the Alpha processor; from 1993 to 1996 he was Compaq’s director of software products development and long-range operating system strategy. Mr. Blake previously held various key engineering management positions with Digital Equipment Corporation from 1981 to 1993. Mr. Blake is a former member of the board of directors of TotalView Technologies, Inc., a provider of debugging and analysis solutions for complex computer codes, and Terascala Inc., a provider of high-performance storage appliances,appliances. He was also a board member of Cluster File Systems, Inc. and Unlimited Scale, Inc., and he is a member of the Institute of Electrical and Electronics Engineers and the Association for Computing Machinery. He received a B.S.B.S.E.E. from the Lowell Technological Institute. We believe Mr. Blake’s qualifications to sit on our Board of Directors include his three decades of experience in the high-performance computing industry and his technical expertise in product development and technology strategy.48
Mr. Jones, 65,66, joined our Board in December 2004. He was a leading high-technology equity research analyst for nearly 20 years. Until his retirement in 2004, Mr. Jones was a Senior Managing Director at Schwab SoundView Capital Markets. He joined SoundView in 2002 as a Senior Equity Research Analyst. From 1992 to 2002, Mr. Jones was a Managing Director and Senior Analyst at Salomon Brothers, Salomon Smith Barney and Citibank, where he covered the Server and Enterprise Hardware, Printer and Test & Measurement industries. From 1985 to 1992, he was a partner and senior analyst at Montgomery Securities. Prior to his career as an equity research analyst, Mr. Jones held various positions in the computer industry at Stratus Computer, Wang Laboratories and IBM. From 2004 to 2008, Mr. Jones served on the board of directors of Stratus Technologies, Inc., a provider of fault tolerant computer services,servers, technologies and services. In November 2010, Mr. Jones was elected to the Tahoe Truckee Airport District as a director. He received a B.S. from the University of Oregon. We believe Mr. Jones’ qualifications to sit on our Board of Directors include his significant experience working at and evaluating high-technology companies and their ability to create long-term value and his familiarity with the computer industry in general.
Stephen C. Kiely
Mr. Kiely, 64,65, joined our Board in 1999, was appointed Lead Director in January 2005 and Chairman of the Board in August 2005. From 1999 to July 2008, he was Chairman of Stratus Technologies, Inc., a provider of fault tolerant computer servers, technologies and services. Mr. Kiely served as Chief Executive Officer of Stratus Technologies from 1999 through June 2003. He joined Stratus Technologies in 1994 and held various executive positions with Stratus Technologies, 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 Inc. and IBM. Mr. Kiely is a member of the board of directors of Stratus Technologies. Mr. Kiely received a B.A. from Fairfield University and an M.S. in Management from the Stanford University Graduate School of Business. We believe Mr. Kiely’s qualifications to sit on our Board of Directors include his significant experience as a Chief Executive Officer and executive in the computer and information technology industries, combined with his corporate governance expertise.
Frank L. Lederman
Dr. Lederman, 60,61, joined our Board in 2004. HeFrom 1995 until his retirement in 2002, he served as Vice President and Chief Technical Officer of Alcoa Inc., a world leader in the production and management of primary aluminum (primary, fabricated aluminum, and alumina combinedalumina),from 1995 until his retirement in 2002, where he had overall responsibility for global research, development, and engineering, including the 950-member Alcoa Technical Center. He was also a member of Alcoa’sthe Corporate Executive Council, which acted as anAlcoa’s internal board for conducting quarterly reviews of the results and plans of each business unit. From 1988 to 1995, Dr. Lederman was with Toronto-based Noranda Inc., which was a large diversified natural resources conglomerate where he served as Senior Vice President —of Technology and, among otherfor Toronto-based Noranda Inc., formerly a diversified natural resources conglomerate. His responsibilities directedincluded directing the Noranda Technology Center in Montreal. Before joining Noranda, heDr. Lederman was with General Electric Company from 1976 to 1988, servingbeginning as a physicist, and inwhere he led the development of GE’s first medical ultrasound system. He also held a number of management positions, including manager of electronics research programs and resources at the Corporate R&D Center in Schenectady, N.Y. Dr. Lederman received a B.S. in Mathematics and an M.S. in Physics from Carnegie-Mellon University, and he receivedas well as an M.S. and Ph.D. in Physics from the University of Illinois. DuringIllinois, and he was a post-doctoral fellow in electrical engineering at the University of Pennsylvania. Over the past 20 years, he has served on numerous advisory boards and panels at universities and government laboratories. On our Board of Directors, Dr. Lederman represents the interests of customers and end users. We believe Dr. Lederman’s qualifications to sit on our Board of Directors include his over four decades of experience in computing hisand mathematical modeling. He has a deep understanding of computing from the perspective of customers and end users, and hishe regularly visits universities to remain current on scientific research and supercomputer applications. Dr. Lederman has over three decades of experience in the management of technology and large technical development programs at large corporations.
other laboratories, using his expertise to help them develop technology strategies. He has considerable experience in developing and implementing performance-based compensation programs for technical organizations.
Sally G. Narodick
Ms. Narodick, 64,65, joined our Board in 2004. She is a retired educational technology ande-learning consultant. From 2000 to 2004, Ms. Narodick was President of Narodick Consulting, ane-learning consulting firm. From 1998 to 2000, she served as Chief Executive Officer of Apex Online Learning, an Internet educational
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Daniel C. Regis
Mr. Regis, 70, 71,joined our Board in 2003. He is currently the General Partner of Regis Investments, LP and has served in this role since 1998. He has been the Chairman of the advisory board for Fluke Venture Partners II, LP, a Northwest venture capital partnership, since 2004. From 2000 to 2009, he was the Managing Director of Digital Partners, a venture capital fund specializing in Northwest emerging technology companies. From 1996 to 1999, he was President of Kirlan Venture Capital, Inc., where he managed similarly focused technology funds. During that time, he was also a director or chairman of several pre-public companies. Prior to 1996, Mr. Regis spent over 30 years with Price Waterhouse LLP, including serving as managing partnerManaging Partner of the Seattle office and previously of the Northwest and Portland, Oregon offices. Since 2003, Mr. Regis has served as a member of the board of directors of Columbia Banking System, Inc., and in In 2004, Mr. Regis joined the board of Art Technology Group, Inc. and became the Chairman of the board of directors in 2005.2005, where he served in this role until January 2011 when Art Technology Group merged with Oracle Corporation. He is also a member of the audit committee of Columbia Banking Systems, Inc. and chairs its risk management committee, and iswas a member of the audit committee of Art Technology Group, Inc. From 2003 to 2004, Mr. Regis was also a member of the board of directors of Primus Knowledge Solutions, Inc. until its merger with and into Art Technology Group, Inc. in 2004 and chaired its audit committee. He received a B.S. from Seattle University. We believe Mr. Regis’ qualifications to sit on our Board of Directors include his over three decades of experience in finance and accounting, including as a managing partner at a national accounting firm, as well as his experience evaluating and directing technology companies.
Stephen C. Richards
Mr. Richards, 56,57, joined our Board in 2004. He is currently a private investor. From 2000 to 2004, when he retired, he served as Chief Operating Officer and Chief Financial Officer of McAfee, Inc., the leading provider of intrusion prevention and risk management solutions. From 1999 to 2000, he served as Chief Online Trading Officer of E*TRADE Group, Inc. From 1998 to 1999, he served as Senior Vice President, Corporate Development and New Ventures at E*TRADE, following two years as E*TRADE’s Senior Vice President of Finance, Chief Financial Officer and Treasurer. Prior to joining E*TRADE in 1996, he was Managing Director and Chief Financial Officer of Correspondent Clearing at Bear Stearns & Companies, Inc., Vice President/Deputy Controller of Becker Paribas and First Vice President/Controller of Jefferies and Company, Inc.
Mr. Richards is a member of the board of directors of Guidance Software, Inc. From June 2007 to July 2010, he served as a member of the board of directors of BigFix, Inc. and Guidance Software, Inc., and isfrom July 2005 through June 2010, he served as a trustee for the UC Davis Foundation. From 1999 to 2009, he served as a member of the board of directors of Trade Station Group.TradeStation Group, Inc. Mr. Richards is a Certified Public Accountant. He received a B.A. from the University of California at Davis and an M.B.A. in Finance from the University of California at Los Angeles. We believe Mr. Richards’ qualifications to sit on our Board of Directors include his extensive experience as a finance and operational executive, including as a Chief Financial Officer of multiple technology-based, publicly-traded companies.
Peter J. Ungaro
Mr. Ungaro, 41,42, has served as Chief Executive Officer and as a member of our Board since August 2005 and as President since March 2005. From May 2004 until August 2005, Mr. Ungaro served as our Senior Vice President responsible for sales, marketing and services and from August 2003 until September 2004, he served as Vice President responsible for sales and marketing. Prior to joining us, he served as Vice President, Worldwide Deep
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We are asking our shareholders to vote, on an advisory or non-binding basis, on the compensation of our Named Executive Officers as disclosed pursuant to the Compensation Discussion and Analysis beginning on page 22, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on the compensation of our Named Executive Officers. Philosophy and Compensation Program Our compensation program is designed to attract, retain and motivate the highly educated, specialized and sought-after workforce required for us to achieve our goals and create long-term value for our shareholders. The following highlights the major components of our compensation program: Short-Term Incentives: Our short-term incentives reward our Named Executive Officers for achieving our near-term critical tactical, strategic and financial goals. A meaningful portion of each Named Executive Officer’s total compensation is contingent upon achievement of these near-term objectives. Long-Term Incentives: Our long-term incentives focus our Named Executive Officers on creating long-term shareholder value and, in the face of competition for top talent with companies with significantly greater resources, provides a critical retention incentive. As Cray’s key decision-makers, a substantial portion of our Named Executive Officer’s potential compensation is linked to our long-term objectives and increasing shareholder value. The short-term and long-term incentives constitute by far the largest portion of total target compensation for our Named Executive Officers. In fiscal 2010, for example, approximately 77% of Mr. Ungaro’s total target compensation (and approximately 77% of his actual compensation) was performance-based and at risk. Similarly, approximately 55% to 65% of the 2010 total target compensation for our continuing Named Executive Officers was performance-based and at risk (and approximately 54% to 64% of their actual compensation was performance-based and at risk). Other Compensation Components: In line with our philosophy of linking our Named Executive Officer’s compensation to the achievement of our goals and increasing shareholder value, the other components (base salary, employee benefits, our severance policy and change of control agreements) of our compensation program are deemphasized. Fiscal 2010 Compensation and 2010 Corporate Performance Given our operational and financial performance in 2009 and earlier and in light of the Towers Watson analysis and other factors described in this Proxy Statement, the Compensation Committee, with respect to 2010 compensation for our Named Executive Officers: Maintained base salaries for our Named Executive Officers at levels that were set in 2009; Maintained their respective target bonus awards (as a percentage of base salary) under the balanced scorecard component of our annual cash incentive plan from 2009 levels, which target awards have not been changed since 2006; Discontinued an additional component of our annual cash incentive plan based on achieving a specified level of Adjusted Operating Income (as defined below); and Granted long-term equity awards in the form of stock options and restricted stock to each Named Executive Officer. We believe that it is critical to both our short and long term success that our compensation policies, plans and programs be closely correlated with our corporate performance. The following illustrate three areas of corporate performance in fiscal 2010 that we believe are important indicators of the effectiveness of that correlation in fiscal 2010. Revenue. We grew revenue for the third straight year, reporting record revenue of $319.4 million for the year ended December 31, 2010. The increase in revenue was principally due to the release of the Cray XE6 systems in 2010 and increased Custom Engineering revenue both of which were strategic goals for fiscal 2010. The achievement of a specified predetermined revenue goal was a significant factor in determining the target and actual total compensation of our Named Executive Officers in fiscal 2010. Adjusted Operating Income. We utilize the achievement of a specified level Adjusted Operating Income as a significant component of target and actual total compensation because we believe it rewards both controlling expenses and increasing gross profit contributions toward our goal of sustained profitability. For the year ended December 31, 2010, Adjusted Operating Income was $28.3 million. In 2009, Adjusted Operating Income was defined to also “add back” non-cash stock compensation expense. In 2010, non-cash stock compensation expense was not added back to reported operating income. Measured in accordance with the 2010 definition of Adjusted Operating Income, Adjusted Operating Income for the year ended December 31, 2009 would have been $7.7 million. Positive Net Income. We reported net income of $15.1 million or $0.44 per share for the year ended December 31, 2010, as compared to the net losses we reported in the prior six fiscal years. While we do not use a predetermined net income goal as an actual component of target and actual total compensation for our Named Executive Officers, we believe profitability is a critical corporate goal and achieving profitability in fiscal 2010 is indicative of the impact that our compensation programs and policies are having on overall corporate performance. We achieved these results not only because we executed our business plan successfully and strengthened our product and service offerings, but because of the continued extraordinary performance of our outstanding employees, including our Named Executive Officers. Maintaining these results, positioning ourselves for future successes and further enhancing long-term shareholder value will require that we continue to attract, retain and motivate our workforce effectively. Recommendation We are asking for shareholder approval of the compensation of our Named Executive Officers as described in this Proxy Statement by voting in favor of the resolution set forth below. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the policies and practices described in this Proxy Statement. “RESOLVED, that the shareholders approve, in a non-binding vote, the compensation of the Company’s Named Executive Officers as disclosed pursuant to the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure set forth in the Proxy Statement relating to the Company’s 2011 Annual Meeting of Shareholders.” Even though this say-on-pay vote is advisory and therefore will not be binding on Cray, we value the opinions of our shareholders. Accordingly, to the extent there is a significant vote against the compensation of our Named Executive Officers, we will consider our shareholders’ concerns and the Compensation Committee will evaluate what actions may be necessary or appropriate to address those concerns. Board Recommendation: The Board recommends that you vote “FOR” the approval of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement. Proposal 3: Advisory Vote on the Frequency of Holding Future Advisory Votes on the Compensation of Our Named Executive Officers We are also asking our shareholders to vote, on an advisory or non-binding basis, on the frequency of future shareholder advisory votes on our executive compensation programs, such as Proposal 2. In particular, we are asking whether the advisory vote on the compensation of our Named Executive Officers should occur once every year, every two years or every three years. After careful consideration of the frequency alternatives, the Board believes that conducting an annual advisory vote on the compensation of our Named Executive Officers is appropriate for Cray and its shareholders at this time. The Board’s determination was influenced by the fact that the compensation of our Named Executive Officers is evaluated, adjusted and approved on an annual basis. As part of the annual review process, the Board believes that shareholder sentiment should be a factor that is taken into consideration by the Board and the Compensation Committee in making decisions with respect to the compensation of our Named Executive Officers. By providing an advisory vote on the compensation of our Named Executive Officers on an annual basis, our shareholders will be able to provide us with direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. We understand that our shareholders may have different views as to what is the best approach for Cray, and we look forward to hearing from our shareholders on this agenda item every year. Accordingly, our Board recommends that the advisory vote on the compensation of our Named Executive Officers be held every year. You may cast your vote by choosing the option of one year, two years, three years, or abstain from voting in response to the resolution set forth below: “RESOLVED, that the option of once every year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold an advisory vote by shareholders to approve the compensation of the Named Executive Officers, as disclosed in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure.” The option of one year, two years or three years that receives the highest number of votes cast will be the frequency of the vote on the compensation of our Named Executive Officers that has been approved by shareholders on an advisory basis. Even though your vote is advisory and therefore will not be binding on Cray, we value our shareholders’ opinions and we will thoughtfully consider our shareholders’ vote. Board Recommendation: The Board recommends a vote “FOR” the option of once every year as the frequency with which shareholders are provided an advisory vote on the compensation of our Named Executive Officers. Proposal 4: To Approve the Cray Inc. Amended and Restated 2001 Employee Stock Purchase Plan We are asking our shareholders to approve our Amended and Restated 2001 Employee Stock Purchase Plan, or Amended ESPP, which includes amendments to the 2001 Employee Stock Purchase Plan, as amended, or ESPP, that: (1) extend the term of the ESPP by five years so that it will expire on September 30, 2016; and (2) authorize an additional 750,000 shares of common stock for issuance under the ESPP. The Amended ESPP also includes changes related to implementing these two amendments. The ESPP will otherwise remain unchanged. The Amended ESPP was approved by our Board on March 1, 2011. The Amended ESPP will extend the term of the ESPP to September 30, 2016. Without this amendment, the ESPP will expire on September 30, 2011. The Amended ESPP will also increase the authorized shares for issuance under the ESPP by 750,000 shares, enabling us to meet the anticipated demand for shares under the ESPP through 2016. This will allow us to continue to make the benefits of the ESPP available to eligible employees, which the Board and our management believe is an important element of the total compensation and benefits that we offer to our employees, assists in the retention of our current employees, attracts new employees, and provides our employees with incentives to contribute to our future success by providing an opportunity to purchase shares of our common stock. ESPP History. The Board adopted the ESPP on August 1, 2001 and it was subsequently adopted by our shareholders. The Board adopted an amendment to the ESPP on March 21, 2005, which was also subsequently approved by our shareholders. The Board approved the Amended ESPP for which we are seeking shareholder approval on March 1, 2011. Since the ESPP’s inception, 911,501 shares have been issued and 88,499 shares are currently available for future issuance. If the Amended ESPP is approved, an additional 750,000 shares will be available for future issuance. Description of the Amended ESPP. The following is a summary of the principal provisions of the Amended ESPP. This summary is qualified in its entirety by reference to the full text of the Amended ESPP, which is attached as Appendix A to this Proxy Statement. To the extent that there is a conflict between this summary and the actual terms of the Amended ESPP, the terms of the Amended ESPP will govern. The Amended ESPP is an employee benefit program that enables eligible employees to purchase shares of our common stock via payroll deductions without incurring broker commissions and with a 5% deduction from market price. Subject to adjustment as provided in the Amended ESPP, a maximum of 1,750,000 shares of common stock will be reserved for issuance under the Amended ESPP. The Amended ESPP will terminate on the earlier of September 30, 2016, or the date on which all shares available for issuance under the Amended ESPP shall have been sold pursuant to purchase rights exercised under the Amended ESPP. The Amended ESPP is administered by our Compensation Committee. The Compensation Committee is authorized to administer and interpret the Amended ESPP and to make such rules and regulations as it deems necessary to administer the ESPP. The administration, interpretation or application of the Amended ESPP by the Compensation Committee is final and binding upon all participants. All individuals employed by us, other than those employees whose customary employment is 20 hours or less per week or whose customary employment is for not more than five months in any particular calendar year, are eligible to participate in the Amended ESPP. Our officers (subject to Rule 16b-3 under the Securities Exchange Act of 1934, as amended) are also eligible to participate. However, no employee (whether before or after exercising any rights under the Amended ESPP) who would own or be deemed to own stock (including any stock that may be purchased under any outstanding options) possessing 5% or more of the total combined voting power or value of all classes of our stock is eligible to participate in the Amended ESPP. Non-employee directors are also not eligible to participate. Each of our executive officers has an interest in this Proposal No. 4. As of April 4, 2011, there were approximately 844 employees of the Company eligible to participate in the Amended ESPP and 94 employees participating, with no executive officers participating. Eligible employees may elect to contribute from $25.00 per semi-monthly pay period up to 15% of their gross base pay. However, no participant may purchase more than $25,000 of our common stock under the ESPP in any one calendar year. Each participant may enroll in three-month periods, in which shares of common stock are purchased on the fourth business day after the last day of each offering period. A separate offering will usually commence on March 16, June 16, September 16 and December 16 of each year. The Compensation Committee has the authority to change the offering periods. The purchase price per share will be equal to 95% of the closing market price on the fourth business day after the end of the offering period. Purchase rights granted under the Amended ESPP are not assignable or transferable other than by will or by the laws of descent and distribution following the participant’s death. A participant may elect at any time up to the fourth business day after the end of an offering period to terminate participation and either to withdraw the accumulated funds or to have the funds deposited to date held for the purchase of shares at the end of the offering period. In the event a change is made in our capitalization, such as a stock split or payment of a stock dividend, that results in an increase or decrease in the number of outstanding shares of common stock without our receipt of additional consideration, an appropriate adjustment will be made in the shares subject to purchase and in the purchase price per share, subject to any required action by our shareholders. In the event of our sale, merger, reorganization or reverse merger in which the Amended ESPP is not assumed by the acquirer, all outstanding purchase rights under the Amended ESPP shall automatically be exercised immediately prior to the consummation of such sale, merger, reorganization or reverse merger by applying the payroll deductions of each participant for the offering period in which such transaction occurs to the purchase of whole shares of common stock at 95% of the fair market value of the common stock immediately prior to the consummation of such transaction (subject to share limitations). The Board may, at any time or from time to time, alter, amend, suspend or discontinue this Amended ESPP immediately following the close of any offering period. To the extent necessary to comply with Section 423 of the IRC, we shall obtain shareholder approval in such a manner and to such a degree as required. The Amended ESPP will continue until the earliest of September 30, 2016 (if the amendments are approved), termination by our Board, or issuance of all of the shares reserved for issuance under the Amended ESPP. If our shareholders do not approve the amendments, none of the proposed 750,000 additional shares shall be issued, and instead we will refund the funds collected after the current pool of shares is depleted, and the ESPP will terminate upon the earlier of (i) September 30, 2011 or (ii) the date on which all shares available for issuance under the ESPP have been sold. Tax Consequences. The Amended ESPP and the right of participants to make purchases under the Amended ESPP are intended to qualify under the provisions of Sections 421 and 423 of the IRC. Under these provisions, no income will be taxable to a participant at the time of grant of the purchase right or the purchase of shares. A participant may become liable for tax upon disposition of the shares acquired, as follows. If the participant disposes of shares purchased pursuant to the Amended ESPP after the later of (a) two years from the enrollment date or (b) one year from the date on which the shares were purchased, the participant will recognize ordinary income equal to the lesser of (1) the excess of the fair market value of the shares at the time of disposition over the purchase price, or (2) 5% of the fair market value of the shares on the enrollment date. Any gain on the disposition in excess of the amount treated as ordinary income will be treated as capital gain. We are not entitled to take a deduction for the amount of the discount in the circumstances indicated above. The foregoing summary of the effect of federal income taxation upon the participant and us with respect to the shares purchased under the ESPP does not purport to be complete. Reference should be made to the applicable provisions of the IRC. In addition, the summary does not discuss the tax implications of a participant’s death or the provisions of the income tax laws of any municipality, state, or foreign country in which the participant may reside. New Plan Benefits Because the benefits under the Amended ESPP depend on the fair market value of our common stock at various future dates, it is not possible to determine the benefits that will be received by employees if they participate in the Amended ESPP. During fiscal year 2010, twoNamed Executive Officers participated in the Amended ESPP. As of December 31, 2010, since the inception of the Amended ESPP, the aggregate number of shares issued to each Named Executive Officer and the various indicated groups under the Amended ESPP are: Named Executive Officers Peter J. Ungaro Brian C. Henry Margaret A. Williams Steven L. Scott Wayne J. Kugel Ian W. Miller All current executive officers as a group (10 persons) All current non-employee directors as a group (seven persons) All employees, excluding current executive officers Board Recommendation: The Board recommends that you vote “FOR” the Cray Inc. Amended and Restated 2001 Employee Stock Purchase Plan. Proposal 5: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, The Audit Committee has retained Peterson Sullivan LLP to serve as our independent registered public accounting firm to conduct an audit of our consolidated financial statements for Board Recommendation: The Board recommends that you vote “FOR” Proposal Selection of our independent registered public accounting firm is not required to be submitted to a vote of the shareholders of the Company for ratification. The Sarbanes-Oxley Act of 2002 requires the Audit Committee to be directly responsible for the appointment, compensation and oversight of the audit work of the independent registered public accounting firm. However, the Board is submitting this matter to the shareholders as a matter of good corporate practice. If the shareholders fail to vote on an advisory basis in favor of ratifying this selection, the Audit Committee will reconsider whether to retain Peterson Sullivan LLP, and may retain that firm or another without re-submitting the matter to our shareholders. Even if the shareholders vote on an advisory basis in favor of ratifying the appointment, the Audit Committee, in its discretion, may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of us and our shareholders. Representatives of Peterson Sullivan LLP are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. Services and Fees The following table lists the fees for services rendered by Peterson Sullivan LLP for Proposal 2: Advisory Vote on the Compensation of Our Named Executive Officers• • • Number of Shares
Issued Under ESPP— — 14,720 — — 10,480 48,637 0 862,864 201020112010,2011, and the Board has directed that our management submit the selection of Peterson Sullivan LLP for ratification by the shareholders at the Annual Meeting. In retaining Peterson Sullivan LLP, the Audit Committee considered carefully Peterson Sullivan LLP’s performance for us in that capacity since its retention in mid-2005, its independence with respect to the services to be performed and its general reputation for adherence to professional auditing standards.25 to ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.2011.20082009 and 2009: Services 2008 2009 Audit Fees(1) $ 528,000 $ 521,000 Audit-Related Fees(2) — — Tax Fees(3) — — All Other Fees(4) — — Total $ 528,000 $ 521,000
Services | 2009 | 2010 | ||||||
Audit Fees(1) | $ | 521,000 | $ | 530,000 | ||||
Audit-Related Fees(2) | — | — | ||||||
Tax Fees(3) | — | — | ||||||
All Other Fees(4) | — | — | ||||||
Total | $ | 521,000 | $ | 530,000 | ||||
| (1) | Audit services billed in | |
| (2) | No audit-related services were billed in | |
| (3) | No tax services were billed in | |
| (4) | There were no fees billed for other services in |
| Peterson Sullivan LLP to date has not performed any non-audit services for us. |
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All audit, tax and other services to be performed for us by our independent auditors must be pre-approved by the Audit Committee. The Audit Committee reviews the description of the services and an estimate of the anticipated costs of performing those services. Services not previously approved cannot commence until such approval has been granted. Pre-approval usually is granted at regularly scheduled meetings. If unanticipated items arise between meetings of the Audit Committee, the Audit Committee has delegated approval authority to the Chairman of the Audit Committee, in which case the Chairman communicates such pre-approvals to the full Audit Committee at its next meeting. During 2009,2010, all services performed by Peterson Sullivan LLP were pre-approved by the Audit Committee in accordance with this policy.
While the Notice of Our Annual Report onForm 10-K for the fiscal year ended December 31, By order of the Board of Directors, Michael C. Piraino Corporate Secretary Seattle, Washington April OTHER BUSINESS — DISCRETIONARY AUTHORITY20102011 Annual Meeting of Shareholders provides for transaction of all other business as may properly come before the Annual Meeting, including any adjournments or postponements of the Annual Meeting, the Board knows of no matters to be brought before the Annual Meeting other than those referred to in this Proxy Statement. If, however, other matters are properly presented at the Annual Meeting, the individuals appointed as proxies will vote your shares as they determine in their discretion to be advisable.2009,2010, including consolidated financial statements and schedules, forms a part of our 20092010 Annual Report that was provided to shareholders with this Proxy Statement. The Annual Report is available on our website:www.cray.com under “Investors — Financials — Annual Reports and Proxy Statements.” Additional copies of the 20092010 Annual Report onForm 10-K may be obtained without charge by writing to Michael C. Piraino,Ruby H. Alexander, Assistant Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164.
26, 20105228, 2011
Appendix A
xAMENDED AND RESTATED 2001 EMPLOYEE STOCK PURCHASE PLAN Use dark black pencil
(as amended and restated March 1, 2011)
1.Purposes
The Cray Inc. 2001 Amended and Restated Employee Stock Purchase Plan (the “Plan”) is intended to provide additional incentives to employees and a convenient means by which eligible employees of the Company may purchase the Company’s shares of Common Stock and a method by which the Company may assist and encourage such employees to become shareholders of the Company.
2.Definitions
As used herein, the following definitions apply:
a. “Base Salary” means the gross amount of the participant’s base salary for each payroll period, including incentive bonuses, overtime, commissions and any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or pen only
b. “Board” means the Company’s Board of Directors RecommendsDirectors.
c. “Code” means the Internal Revenue Code of 1986, as amended from time to time.
d. “Common Stock” means the Company’s common stock.
e. “Company” means Cray Inc., a VoteFORproposal 1.
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f. “Eligible Employee” means any employee of Shareholders
the Company, other than an employee whose customary employment is for 20 hours or less per week or whose customary employment is for not more than 5 months per calendar year. No employee who would after an offering pursuant to the Plan own or be deemed (under Section 425(d) of the Code) to own stock (including any stock that may be purchased under any outstanding options) possessing 5% or more of the total combined voting power or value of all classes of stock of the Company shall be eligible to participate in the Plan.
g. “Enrollment Date” means the first day of each Offering Period.
h. “Offering Period” shall mean the three-month or other period selected by the Plan Administrator during which Participants may purchase shares of the Common Stock. Unless otherwise determined by the Plan Administrator, Offering Periods generally shall run from March 16 through June 9, 2010 — 3:00 PM (Pacific Time)This Proxy15, June 16 through September 15, September 16 through December 15, and December 16 through March 15.
i. “Participant” means any Eligible Employee of the Company who is Solicitedactively participating in the Plan.
j. “Plan Administrator” shall mean the Compensation Committee of the Board, as appointed from time to time by the Board.
3.Administration
a.Powers. The Plan Administrator shall have full authority to administer this Plan, including, without limitation, authority to interpret and construe any provision of this Plan; to determine the Offering Periods and the maximum number of shares of Common Stock which may be purchased in any one Offering Period; to determine, in accordance with Section 7(c), the fair market value of the Common Stock on Behalfany date; to prescribe, amend and rescind rules and regulations relating to this Plan; within law, to waive or modify any term or
provision contained in this Plan or in any right to purchase shares of Common Stock under this Plan; to authorize any person to execute on behalf of the Company any instrument required to effectuate this Plan; and to make all other determinations deemed necessary or advisable for the administration for this Plan. The interpretation and construction by the Plan Administrator of any terms or provisions of this Plan, any right issued hereunder or of any rule or regulation promulgated in connection herewith and all actions taken by the Plan Administrator shall be conclusive and binding on all interested parties. The Plan Administrator may delegate administrative functions to individuals who are officers or employees of the Company.
b.Limited Liability. No member of the Board of Directors.
4.Offering Periods
a.Determination. Shares of Common Stock shall be offered for purchase under this Plan through a series of successive Offering Periods, each to be of a duration of three months, as selected by the Plan Administrator, until such time as the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or the Plan shall have been sooner terminated in accordance with Sections 10 and 11(b).
b.Separate Purchase Rights. The undersigned hereby appointsParticipant shall be granted a separate purchase right for each Offering Period in which he/she participates. The purchase right shall be granted on the Enrollment Date on which such individual first joins the Offering Period in effect under the Plan and shall be automatically exercised for successive Offering Periods, unless the Participant withdraws from the Plan.
5.Eligibility and Participation
a.Enrollment Dates. An individual who is an Eligible Employee on the start date of the Offering Period may enter that Offering Period on such start date, provided he/she enrolls in the Offering Period before such date in accordance with Section 5(b) below. That start date shall then become such individual’s Enrollment Date for the Offering Period, and on that date such individual shall be granted his/her purchase right for the Offering Period. Should such Eligible Employee not enter the Offering Period on the start date, then he/she may not subsequently join that particular Offering Period on any later date.
b.Enrollment Forms. To participate for a particular Offering Period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including the payroll deduction authorization) and file such forms with the Plan Administrator at least 10 business days before his/her scheduled Enrollment Date unless the Participant has participated in the previous Offering Period and has not submitted a withdrawal form to the Company.
c.Payroll Deductions. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock under the Plan shall be at a rate of not less than $25.00 per semi-monthly pay period nor more than 15% of the Base Salary paid to the Participant during each Offering Period, unless the Plan Administrator consents to a lower amount or higher rate for all Participants. The deduction rate so authorized shall continue in effect for the remainder of the Offering Period.
A Participant may change the amount of his or her payroll deduction for a subsequent Offering Period by filing an amended payroll deduction form at least 10 business days prior to the commencement of such subsequent Offering Period.
Payroll deductions will automatically cease upon the termination of the Participant’s purchase right in accordance with the applicable provisions of Section 7 below.
d.Rule 16b-3. Employees who are officers of the Company may participate only in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as in effect from time to time.
e.Participation Voluntary. Participation in this Plan shall be voluntary.
6.Stock Subject to Plan
a.Total Number. The total number of shares of Common Stock which may be issued under this Plan shall not exceed 1,750,0001 shares (subject to adjustment under Section 6(b) below).
b.Changes to Capitalization. In the event any change is made to the Company’s outstanding Common Stock by reason of any stock dividend, stock split, combination of shares or other change affecting such outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to (i) the class and maximum number of shares issuable over the term of this Plan, (ii) the class and maximum number of shares purchasable per Participant during each Offering Period, (iii) the class and maximum number of shares purchasable in the aggregate by all Participants on any one purchase date under the Plan and (iv) the class and number of shares and the price per share of the Common Stock subject to each purchase right at the time outstanding under this Plan. Such adjustments shall be designed to preclude the dilution or enlargement of rights and benefits under this Plan.
7.Purchase Rights
a.Terms and Conditions. An Employee who participates in this Plan for a particular Offering Period shall have the right to purchase shares of Common Stock during such Offering Period and the four business days thereafter, upon the terms and conditions set forth below and shall execute a subscription agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable.
b.Purchase Price. Common Stock shall be issuable at the end of each Offering Period at a purchase price equal to 95% of the fair market value per share on the fourth business day after such Offering Period ends.
c.Valuation. For purposes of determining the fair market value per share of Common Stock on any relevant date, the following procedures shall be in effect:
(i) The fair market value on any date shall be equal to the last sale price of the Common Stock on such date, as reported by Nasdaq or other comparable sources. If there is no quoted price for such date, then the closing price on the next preceding day for which there does exist such a quotation, as so reported, shall be determinative of fair market value.
(ii) If Section 7(c)(i) is not applicable, the fair market value shall be determined by the Plan Administrator in good faith. Such determination shall be conclusive and binding on all persons.
d.Number of Purchasable Shares. The number of shares purchasable per Participant for each Offering Period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during such Offering Period by the purchase price in effect for the Offering Period. No Participant, however, may purchase shares in violation of Section 8(a).
e.Payment. Payment for the Common Stock purchased under the Plan shall be effected only by means of the Participant’s authorized payroll deductions. Such deductions shall begin on the first day coincident with or immediately following the Participant’s Enrollment Date into the Offering Period and shall continue through the pay period ending with or immediately prior to the last day of the Offering Period. The amounts so collected shall be credited to the Participant’s book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes.
| 1 | Number reflects the one-for-four reverse stock split effected June 8, 2006 (with the original 4,000,000 shares issuable under the Plan becoming 1,000,000 shares) plus additional shares added thereafter. |
f.Termination of Purchase Right. The following provisions shall govern the termination of outstanding purchase rights:
(i) A Participant may terminate his or her participation in the Plan, by filing at any time up to the close of business on the fourth business day after the Offering Period ends, the prescribed notification form with the Plan Administrator (or its designate). In such event, the Participant shall have the following election upon termination:
(A) to withdraw all of the Participant’s payroll deductions for such Offering Period, without interest, or
(B) to have such funds held for the purchase of shares at the end of the Offering Period in which the Participant terminated his or her participation.
Such termination will constitute a termination of participation in the Plan with respect to successive Offering Periods unless the Participant re-enrolls in the Plan pursuant to Section 7(f)(ii) with respect to a subsequent Offering Period.
(ii) The withdrawal and termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the Offering Period for which such withdrawn or terminated purchase right was granted. In order to resume participation in any subsequent Offering Period, such individual must re-enroll in the Plan by making a timely filing of a new subscription agreement and payroll withholding authorization.
(iii) If the Participant ceases to remain an Eligible Employee while his/her purchase right remains outstanding, then such individual (or the personal representative of the estate of a deceased Participant) shall have the following election, exercisable until the close of business on the fourth business date after the Offering Period in which the Participant ceases Eligible Employee status:
(A) to withdraw all of the Participant’s payroll deductions for such Offering Period, without interest, or
(B) to have such funds held for the purchase of shares at the end of the Offering Period in which his or her status as an Eligible Employee ceased.
If no such election is made, then such funds shall be refunded, without interest, as soon as possible after the close of such Offering Period. In no event, however, may any payroll deductions be made on the Participant’s behalf following his/her cessation of Eligible Employee status.
g.Stock Purchase. Shares of Common Stock shall automatically be purchased on behalf of each Participant on the fourth business day after the end of each Offering Period and for all purposes shares of Common Stock purchased pursuant to the Plan shall be deemed to have been issued and sold at the close of business on the fourth business day after the last date of each Offering Period. The purchase shall be effected by applying such Participant’s payroll deductions for the Offering Period to the purchase of whole shares of Common Stock (subject to the limitation on the maximum number of purchasable shares) at the purchase price in effect for such Offering Period. Any payroll deductions not applied to such purchase because they are not sufficient to purchase a whole share shall be carried over for application in the successive Offering Period unless the Participant has withdrawn from the Plan, in which event such amount will be refunded to the Participant, without interest.
h.Proration of Purchase Rights. Subject to the limitations set forth in Section 6(a), the Plan Administrator may determine the number of shares of Common Stock, subject to periodic adjustment under Section 6(b), which may be purchased in the aggregate by all Participants in any one Offering Period under the Plan. Should the total number of shares of Common Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed either (i) the maximum limitation on the number of shares purchasable in the aggregate on such date or (ii) the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro rated to such individual, shall be refunded to such Participant, without interest.
i.Rights as Shareholder. A Participant shall have no rights as a shareholder with respect to the shares subject to his/her outstanding purchase right until the shares are actually purchased on the Participant’s behalf in accordance with the applicable provisions of the Plan. No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as practicable after the purchase of shares for an Offering Period, a stock certificate for the number of shares purchased on the Participant’s behalf. Such certificate may, upon the Participant’s request, be issued in the names of the Participant and his/her spouse as tenants-in-common or as joint tenants with right of survivorship.
j.Assignability. Purchase rights granted under this Plan shall not be assignable or transferable by the Participant other than by will or by the laws of descent and distribution following the Participant’s death, shall not be subject to execution, attachment or similar process, and shall be exercised during the Participant’s lifetime only by the Participant.
k.Change in Ownership. Should the Company or its shareholders enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the state in which the Company is incorporated), or
(ii) a reverse merger in which the Company is the surviving corporation but in which more than 50% of the Company’s outstanding voting stock is transferred to holders different from those who held the stock immediately prior to the reverse merger, then, unless the successor shall continue this Plan and assume all the obligations evidenced by the outstanding rights to purchase shares of Common Stock or shall provide equivalent rights with respect to the successor’s securities, all to the reasonable satisfaction of the Board, all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to the consummation of such sale, merger, reorganization or reverse merger by applying the payroll deductions of each Participant for the Offering Period in which such transaction occurs to the purchase of whole shares of Common Stock at 95% of the fair market value of the Common Stock immediately prior to the consummation of such transaction. However, the applicable share limitations of Sections 7 and 8 shall continue to apply to any such purchase.
The Company shall use its best efforts to provide at least 10 days’ advance written notice of the occurrence of any such sale, merger, reorganization or reverse merger, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights in accordance with the applicable provisions of this Section 7.
8.Accrual Limitations
a.Dollar Limit. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with rights to purchase Common Stock accrued under any other purchase right outstanding under this Plan and similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding.
b.Application. For purposes of applying such accrual limitations, the right to acquire Common Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows:
(i) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire $25,000 worth of Common Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to one or more purchase rights held by the Participant during such calendar year.
(ii) If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Offering Period, then the payroll deductions which the Participant made during that Offering Period with respect to such purchase right shall be refunded, without interest.
c.Controlling Provision. In the event there is any conflict between the provisions of this Section 8 and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Section 8 shall be controlling.
9.Status of Plan Under Federal Tax Laws
This Plan is designed to qualify as an employee stock purchase plan under Code Section 423, and shall be governed and construed accordingly.
10.Amendment and Termination
a.Amendments, Suspension, Discontinuation. The Board may alter, amend, suspend or discontinue this Plan immediately following the close of any Offering Period. However, the Board may not, without the approval of the Company’s shareholders:
(i) materially increase the number of shares issuable under this Plan or the maximum number of shares which may be purchased per Participant or in the aggregate during any one Offering Period under this Plan, except that the Plan Administrator shall have the authority, exercisable without such shareholder approval, to effect adjustments to the extent necessary to effect changes in the Company’s capital structure pursuant to Section 6(b);
(ii) alter the purchase price formula so as to reduce the purchase price payable for the shares of Common Stock issuable under this Plan;
(iii) materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility to participate in this Plan; or
(iv) adopt amendments which require shareholder approval under applicable law, including Section 16(b) of the Securities Exchange Act of 1934, provided, however, that notwithstanding the foregoing the Board without further shareholder approval may amend the Plan in any way (A) necessary to qualify the Plan as an employee stock purchase plan under Code Section 423, as such section may be amended and/or superceded by a successor provision from time to time, or (B) to insure that the purchase rights under the Plan will not be expensed for financial statement reporting purposes under SFAS No. 123(R), Accounting for Stock-Based Compensation, as amended and/or superceded by a successor provision from time to time.
b.Termination of Purchase Rights. The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate all outstanding purchase rights under this Plan immediately following the close of any Offering Period. Should the Company elect to exercise such right, then this Plan shall terminate in its entirety. No further purchase rights shall thereafter be granted or exercised, and no further payroll deductions shall thereafter be collected, under this Plan.
11.General Provisions
a.Requirements. No shares of Common Stock shall be issued hereunder, including any additional shares of Common Stock added to the Plan pursuant to Section 10(a)(i), until (i) this Plan, or any additional shares of Common Stock, as applicable, shall have been approved by the Company’s shareholders and (ii) the Company shall have complied with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, applicable laws of foreign countries and other jurisdictions, the requirements of any quotation service or stock exchange upon which the shares may then be listed, and all other applicable requirements established by law or regulation.
b.Plan Termination. This Plan shall terminate upon the earlier of (i) September 30, 2016 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under this Plan. In the event shareholder approval is not obtained, or such legal compliance is not effected, within 12 months after the date on which the Plan is adopted by the Board, or amended by the Board such that shareholder approval is required, the Plan shall terminate and have no further force or effect, and all funds collected by the Company following the non-approval of the Plan or amendment, as applicable, shall be returned to all subscribers, without interest; provided, however, that no additional shares of Common Stock that have been added to the Plan pursuant to Section 10(a)(i) shall be issued to an Eligible Employee until shareholder approval, if required, is obtained.
c.Costs. All costs and expenses incurred in the administration of this Plan shall be paid by the Company.
d.No Status as Employee. Neither the action of the Company in establishing the Plan, or any action taken under this Plan by the Board or the Plan Administrator, nor any provision of this Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company for any period of specific duration, and such person’s employment may be terminated at any time, with or without cause.
e.No Segregation of Funds. All payroll deductions received or held by the Company under this Plan may be used by the Company for any corporate purposes and the Company shall not be obligated to segregate the payroll deductions.
f.No Interest. No Participant shall be entitled, at any time, to any payment or credit for interest with respect to or on the payroll deductions contemplated herein, or on any other assets held hereunder for the Participant’s account.
g.Governing Law. The provisions of this Plan shall be governed by the laws of the State of Washington.
As amended by the Board of Directors on March 1, 2011, and approved by the Shareholders on.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
CRAY INC.
M35979-Z55060-P10277
For Against Abstain
CRAY INC.
901 FIFTH AVENUE, STE. 1000
SEATTLE, WA 98164
ATTN: CAROL LYNN COLE
To withhold authority to vote for any individual
nominee(s), mark “For All Except” and write the
number(s) of the nominee(s) on the line below.
For Against Abstain
2. To approve, on an advisory or non-binding basis, the
compensation of our Named Executive Officers.
5. To ratify the appointment of Peterson Sullivan LLP as our
independent registered public accounting firm for the
fiscal year ending December 31, 2011.
3. To select, on an advisory or non-binding basis, the
frequency of holding future advisory votes on the
compensation of our Named Executive Officers.
4. To approve our Amended and Restated 2001 Employee
Stock Purchase Plan.
For
All
Withhold
All
For All
Except
0 0 0
NOTE: Such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
01) William C. Blake
02) John B. Jones, Jr.
03) Stephen C. Kiely
04) Frank L. Lederman
1. Election of Directors, each to serve a one-year term.
Nominees:
VOTE BY INTERNET—www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 p.m. Eastern Time on the cut-off date or the day
before the meeting date. Have your proxy card in hand when you access the web
site and follow the instructions to obtain your records and to create an electronic
voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the Internet. To sign up for
electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access proxy materials
electronically in future years.
VOTE BY PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
11:59 p.m. Eastern Time on the cut-off date or the day before the meeting date.
Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we
have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
The Board of Directors recommends you vote FOR the
following nominees:
0 0 0 0
00 0 000
0 0 0
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney,
executor, administrator, or other fiduciary, please give full title as such. Joint owners
should each sign personally. All holders must sign. If a corporation or partnership, please
sign in full corporate or partnership name, by authorized officer.
1 Year 2 Years 3 Years Abstain
The Board of Directors recommends you vote FOR the
following proposal:
05) Sally G. Narodick
06) Daniel C. Regis
07) Stephen C. Richards
08) Peter J. Ungaro
The Board of Directors recommends you vote
1 YEAR on the following proposal:
The Board of Directors recommends you vote FOR
proposals 4 and 5:
CRAY INC.
Annual Meeting of Shareholders
June 16, 2011 3:00 PM
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) Peter J. Ungaro and MichaelBrian C. Piraino, and eachHenry, or either of them, as proxies, each with the power of substitutionto
appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on behalfthe reverse side of this proxy, all of
the undersigned all shares of Common Stock of CRAY INC. that the undersigned may beshareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders of Cray Inc. (the “Company”)to
be held at 3:00 p.m. PDT on June 9, 2010,16, 2011, at 901 Fifth Avenue, Fifth Avenue Conference Room, Seattle, WA 98164, and all adjournments and postponements thereof, with all powers thatany
adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the undersigned would possess if personally present, with respect to the following:
this proxy will be voted as specifiedin accordance with the Board of Directors’ recommendations.
Continued and to be signed on the reverse side but if no specification is made, this proxy will be voted
Important Notice Regarding the Availability of Proxy Materials for the proposal to elect eight directors, each to serve a one-year term,Annual Meeting:
The Notice and for the proposal to ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010. The proxiesProxy Statement and Annual Report are authorized to vote in their discretion as to all other matters that may come before the Annual Meeting of Shareholders and all matters incidental to the conduct of the meeting. A majority of the proxies or substitutesavailable at the meeting may exercise all the powers granted hereby.
M35980-Z55060-P10277