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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrantx
Filed by a Party other than the Registranto
Check the appropriate box:
Cray Inc.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
xNo fee required
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: |
(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): |
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1. | To elect nine directors, each to serve a one-year term; | |
2. | To amend the 2001 Employee Stock Purchase Plan to comply with a new accounting rule and to provide administrative improvements; and | |
3. | To conduct any other business that may properly come before the meeting, and any adjournments of the meeting. |
• | by Internet; | |
• | by telephone; | |
• | by proxy card; or | |
• | in person at the Annual Meeting. |
Sincerely, | |
James E. Rottsolk | |
Chairman and Chief Executive Officer |
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Q: | Why did you send me this Proxy Statement? |
A: | We sent you this Proxy Statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote your shares of common stock at the 2005 Annual Meeting of Shareholders. |
This Proxy Statement summarizes the information regarding the matters to be voted upon at the Annual Meeting. You do not need to attend the Annual Meeting, however, to vote your shares. You may vote by Internet or by telephone or complete, sign and return the enclosed proxy card. | |
We began sending this Proxy Statement out on or about April 7, 2005, to all shareholders entitled to vote. If you owned shares of our common stock at the close of business on March 14, 2005, the record date for the Annual Meeting, you are entitled to vote those shares. On the record date, there were 87,703,979 shares of our common stock outstanding, our only class of stock having general voting rights. |
Q: | How many votes do I have? |
A: | You have one vote for each share of our common stock that you owned on the record date. The proxy card indicates the number of shares you owned on the record date. |
Q: | How can I vote? |
A: | You may vote by using the Internet, by telephone, by returning the enclosed proxy card or by voting in person at the Annual Meeting. |
Q: | How do I vote by Internet or by telephone? |
A: | For Shares Registered Directly in Your Name: |
If your shares are registered directly in your name, you may vote on the Internet or by telephone through services offered by our transfer agent, Mellon Investors Services LLC. Internet voting is available at the following address:http://proxyvoting.com/cray. You should read this Proxy Statement and be prepared to vote, and have available your 11-digit control number located on the right side at the bottom of your proxy card. | |
To vote by telephone, please use a touch-tone phone and call 1-866-540-5760 (toll-free). You will be asked to enter your 11-digit control number located on your proxy card. | |
You may vote by Internet or by telephone 24 hours a day, 7 days a week until 11:59 p.m. Eastern Daylight Time/8:59 p.m. Pacific Daylight Time on May 10, 2005, the day before the Annual Meeting. | |
For Shares Registered in the Name of a Brokerage Firm or Bank: | |
A number of brokerage firms and banks participate in a program for shares held in “street name” that offers Internet and telephone voting options. This program is different from the program provided by Mellon Investor Services LLC, for shares registered directly in the name of the shareholder. If your shares are held in an account at a brokerage firm or bank participating in this program, you may vote those shares by using the web site or calling the telephone number referenced on your voting form and following the instructions provided by your broker or banker. |
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Q: | How do I vote by proxy? |
A: | If you properly fill in your proxy card and send it to us in time to vote, your “proxy” (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board as follows: |
1. | “for”electing the nine nominees for director, each to serve one-year terms. | |
2. | “for”approval of amendments to our 2001 Employee Stock Purchase Plan to comply with a new accounting rule and to provide administrative improvements. |
If any other matter is presented, your proxy will vote in accordance with his best judgment. At the time we printed this Proxy Statement, we knew of no matters that needed to be acted on at the Annual Meeting other than those discussed in this Proxy Statement. |
Q: | May I change my vote or revoke my proxy? |
A: | Yes. If you change your mind after you have voted by Internet or telephone or sent in your proxy card and wish to revote, you may do so by following these procedures: |
1. | Vote again by Internet or by telephone; | |
2. | Send in another signed proxy with a later date; | |
3. | Send a letter revoking your vote or proxy to our Corporate Secretary at our offices in Seattle, Washington; or | |
4. | 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) account? |
A: | Shares of Cray stock held in the Cray 401(k) Savings Plan and Trust (the “401(k) Plan”) are registered in the name of the Trustee of the 401(k) Plan, Fidelity Management Trust Company. Nevertheless, under the 401(k) Plan participants may instruct the Trustee how to vote the shares of Cray common stock allocated to their accounts. |
The shares allocated under the 401(k) Plan can be voted by submitting voting instructions by Internet, by telephone or by mailing in a special proxy card with respect to the shares held in the participant’s account; this card has a blue stripe at the top. Voting of shares held in the 401(k) Plan must be completed by the close of business on Friday, May 6, 2005. 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 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 bank or brokerage firm, you must obtain a “legal proxy” from the bank or brokerage firm that holds your shares. You should contact your bank or brokerage account executive to learn how to obtain a legal proxy. |
Q: | What is the quorum requirement for the meeting? |
A: | The quorum requirement for holding the meeting and transacting business is a majority of the outstanding shares entitled to be voted. The shares may be present in person or represented by proxy at the meeting. |
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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 Nine Directors |
The nine nominees for Director who receive the most votes will be elected. Accordingly, if you do not vote for a nominee, or you indicate “withhold authority to vote” for a nominee on your proxy card, your vote will not count either “for” or “against” the nominee. | |
Proposal 2: To Amend Our 2001 Employee Stock Purchase Plan | |
To approve the amendments to our 2001 Employee Stock Purchase Plan, the number of shares voted in favor of the proposal must exceed the number of shares voted against. If you do not vote, or if you abstain from voting, it has no effect on this proposal. |
Q: | What is the effect of broker non-votes? |
A: | If your broker holds your shares in its “street name” and does not receive voting instructions from you, your broker nevertheless may vote your shares on Proposal 1 but not on Proposal 2. |
If a broker does not vote for a particular proposal, that is considered a broker non-vote. Broker non-votes will be counted for the purpose of determining the presence of a quorum. | |
A broker non-vote would have no effect on the outcome of Proposal 1 or Proposal 2 as only a plurality of votes cast is required to elect a Director, and a majority of the votes cast is required to approve the amendments to our 2001 Employee Stock Purchase Plan. |
Q: | Who will count the vote? |
A: | Representatives of Mellon Investor Services LLC, our transfer agent, will serve as the Inspector of Elections and count the votes. |
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 (Mellon Investor Services LLC) examine these documents. We will not disclose your vote to our management unless it is necessary to meet legal requirements. We will forward to management, however, any written comments that you make on the proxy card or elsewhere. |
Q: | Who pays the costs of soliciting proxies for the Annual Meeting? |
A: | We will pay all the costs of soliciting these proxies. Although we are mailing these proxy materials, our officers and employees may also solicit proxies by telephone, by fax, 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. W. F. Doring & Co., Inc. may help solicit proxies for an approximate cost of $4,500 plus reasonable expenses. |
Q: | I receive multiple copies of the Proxy Statement and Annual Report on Form 10-K, and other documents from Cray. Can I reduce the number of copies that I receive? |
A: | Yes. |
For registered shareholders of record: | |
We are working with our transfer agent to reduce the number of copies of the annual meeting materials and other correspondence you receive from us. Through a process called “householding,” SEC regulations permit us to deliver a single copy of our Proxy Statement and Annual Report to shareholders sharing the same address. You would still receive a separate proxy card for each account for voting on the proposals being submitted to the shareholders. |
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At a later date, you will receive a letter of consent from our transfer agent offering to household eligible registered shareholder accounts. At that time, return the consent letter to the address specified and your accounts will be set up for householding. If you consent to householding, your election will remain in effect until you revoke it. If you revoke your consent, you will be sent separate documents mailed within 30 days after receipt of your revocation. | |
For shareholders who own their shares through a brokerage firm, bank or other nominee: | |
Householding has been implemented for shareholders who share the same last name and address and hold shares in “street name,” where the shares are held through the same brokerage firm, bank or other nominee. This has saved us sending over 7,500 additional copies this year. If you hold your shares in street name and would like to start or stop householding, please call 1-800-542-1061 and provide the name of your broker, bank or other nominee and your account number(s). |
Q: | As a registered shareholder, can I view future proxy statements, annual reports and other documents over the Internet, and not receive any hard copies through the mail? |
A: | Yes. If you wish to elect to view future proxy statements, annual reports and other documents only over the Internet, please visit the Mellon Investor Service Direct web page,www.melloninvestor.com/isd/, and follow the instructions for establishing a personal identification number and obtaining your documents electronically. Your election to view these documents over the Internet will remain in effect until you revoke it. Please be aware that if you choose to access these materials over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. If you choose to view future proxy statements and annual reports over the Internet, next year you will receive an e-mail with instructions on how to view those materials and vote. Allowing us to household annual meeting materials or electing to view them electronically will help us save on the cost of printing and distributing these materials. |
Q: | Whom should I call if I have any questions? |
A: | If you have any questions about the Annual Meeting or voting, or your ownership of our common stock, please contact Kenneth W. Johnson, our Corporate Secretary, at (206) 701-2000. Mr. Johnson’s email isken@cray.com. |
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Options or | |||||||||||||
Warrants | |||||||||||||
Common | Exercisable | ||||||||||||
Shares | Within | Total Beneficial | |||||||||||
Name and Address*(1) | Owned | 60 Days | Ownership | Percentage | |||||||||
5% Shareholders | |||||||||||||
Terren S. Peizer(2) | — | 5,157,198 | 5,157,198 | 5.55 | % | ||||||||
11111 Santa Monica Blvd., #650 | |||||||||||||
Los Angeles, CA 90025 | |||||||||||||
Granahan Investment Management, Inc.(3) | 4,722,696 | — | 4,722,696 | 5.38 | % | ||||||||
275 Wyman Street, Suite 270 | |||||||||||||
Waltham, MA 02154 | |||||||||||||
Independent Directors | |||||||||||||
Daniel J. Evans | 31,143 | 88,500 | 119,643 | ** | |||||||||
John B. Jones, Jr. | 7,800 | 28,333 | 36,133 | ** | |||||||||
Kenneth W. Kennedy, Jr. | 1,292 | 97,500 | 98,792 | ** | |||||||||
Stephen C. Kiely | 15,000 | 109,000 | 124,000 | ** | |||||||||
Frank L. Lederman | — | 40,000 | 40,000 | ** | |||||||||
Sally G. Narodick | 5,000 | 30,000 | 35,000 | ** | |||||||||
Daniel C. Regis | — | 30,001 | 30,001 | ** | |||||||||
Stephen C. Richards | 25,000 | 30,000 | 55,000 | ** | |||||||||
Named Executives | |||||||||||||
James E. Rottsolk(4) | 161,664 | 1,454,568 | 1,616,232 | 1.81 | % | ||||||||
Burton J. Smith | 227,829 | 1,026,000 | 1,253,829 | 1.41 | % | ||||||||
Peter J. Ungaro | 20,436 | 900,000 | 920,436 | 1.04 | % | ||||||||
Kenneth W. Johnson(5) | 92,664 | 400,200 | 492,864 | ** | |||||||||
David R. Kiefer | 48,701 | 395,000 | 443,701 | ** | |||||||||
Gerald E. Loe | 63,603 | 492,284 | 555,887 | ** | |||||||||
All directors and executive officers as a group (15 persons) | 725,718 | 5,582,431 | 6,308,149 | 6.75 | % |
* | Unless otherwise indicated, all addresses are c/o Cray Inc., 411 First Avenue South, Suite 600, Seattle, WA 98104-2860. |
** | Less than 1% |
(1) | This table is based upon information supplied by the named executive officers, directors and 5% shareholders. Unless otherwise indicated in these notes and subject to community property laws where applicable, each of the listed shareholders has sole voting and investment power with respect to the shares shown as beneficially owned by such shareholder. The number of shares and percentage of beneficial ownership includes shares of common stock issuable pursuant to stock options and warrants held by the person or group in question, which may be exercised or converted on March 21, 2005, or within 60 days thereafter. |
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(2) | Mr. Peizer has sole voting and dispositive powers regarding the shares of common stock underlying certain warrants, which are held of record by Laphroig LLC (warrants for 4,882,438 shares) and Chinaco LLC (warrants for 256,970 shares). |
(3) | Based on a Schedule 13G as of December 31, 2004, and dated February 9, 2005, Granahan Investment Management, Inc., had sole voting power and sole dispositive power over 1,025,196 shares and 4,722,696 shares, respectively, and shared voting power over 3,697,500 shares. |
(4) | Mr. Rottsolk disclaims beneficial ownership of 5,871 shares for which he has voting and dispositive powers as custodian for his son under the Washington Uniform Gifts to Minors Act. |
(5) | Mr. Johnson disclaims beneficial ownership of 2,600 shares for which he has voting and dispositive powers as a trustee of trusts for the benefit of his children, 100 shares owned by his wife and 500 shares owned by a child. |
Section 16(a) Beneficial Ownership Reporting Compliance |
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The Committees of the Board |
• | the quality and integrity of our accounting and financial reporting processes and the audits of our financial statements, | |
• | the qualifications and independence of the public auditing firm engaged to issue an audit report on our financial statements, | |
• | the performance of our systems of internal controls, disclosure controls and internal audit functions, and | |
• | our procedures for legal and regulatory compliance, risk assessment and business conduct standards. |
• | our compensation policies, plans and benefit programs, | |
• | the compensation of the chief executive officer and other executive officers, and | |
• | the administration of our equity compensation plans. |
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• | develop and recommend to the Board a set of corporate governance principles, | |
• | recommend qualified individuals to the Board for nomination as directors, | |
• | lead the Board in its annual review of the Board’s performance, and | |
• | recommend directors to the Board for appointment to Board committees. |
Lead Director |
Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals |
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• | your name and address, | |
• | the number of shares of our common stock which you own and when you acquired them, | |
• | a representation that you intend to appear at the meeting, in person or by proxy, | |
• | each nominee’s name, age, address and principal occupation or employment, | |
• | all information concerning the nominee that must be disclosed about nominees in proxy solicitations under the SEC proxy rules, and | |
• | each nominee’s executed consent to serve as a director if so elected. |
• | a brief description of the business you wish to bring before the meeting, the reasons for conducting such business and the language of the proposal, | |
• | your name and address, | |
• | the number of shares of our common stock which you own and when you acquired them, | |
• | a representation that you intend to appear at the meeting, in person or by proxy, and | |
• | any material interest you have in the business to be brought before the meeting. |
How We Compensate Directors |
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Director Attendance at Annual Meetings |
How We Compensate Executive Officers |
Long-Term | |||||||||||||||||||||
Annual Compensation | Compensation | ||||||||||||||||||||
All Other | |||||||||||||||||||||
Other Annual | Restricted | Compen- | |||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus(1) | Compensation | Stock(5) | Options | sation(2) | ||||||||||||||
James E. Rottsolk | 2004 | $ | 350,000 | — | — | — | 200,000 | $ | 7,658 | ||||||||||||
Chief Executive Officer | 2003 | $ | 337,500 | $263,813 | — | $131,245 | — | $ | 8,106 | ||||||||||||
and President | 2002 | $ | 300,000 | $429,750 | — | — | 615,872 | $ | 86,709 | ||||||||||||
Burton J. Smith | 2004 | $ | 250,000 | — | — | — | 100,000 | $ | 6,338 | ||||||||||||
Chief Scientist | 2003 | $ | 246,500 | $100,500 | — | $ 49,996 | — | $ | 8,169 | ||||||||||||
2002 | $ | 236,000 | $180,304 | — | — | 263,962 | $ | 7,836 | |||||||||||||
Peter J. Ungaro(3) | 2004 | $ | 283,333 | — | — | — | 400,000 | $ | 3,759 | ||||||||||||
Senior Vice President | 2003 | $ | 100,480 | $319,680 | — | $180,000 | 500,000 | $ | 315 | ||||||||||||
Kenneth W. Johnson | 2004 | $ | 220,000 | $ 30,000 | — | — | 50,000 | $ | 7,713 | ||||||||||||
Senior Vice President, | 2003 | $ | 217,500 | $160,440 | — | $ 43,995 | — | $ | 8,327 | ||||||||||||
General Counsel and CFO | 2002 | $ | 210,000 | — | — | — | 190,889 | $ | 11,270 | ||||||||||||
David R. Kiefer | 2004 | $ | 225,000 | — | — | — | 100,000 | $ | 6,264 | ||||||||||||
Senior Vice President | 2003 | $ | 221,500 | $ 90,450 | — | $ 44,998 | — | $ | 6,725 | ||||||||||||
2002 | $ | 210,000 | $160,440 | — | — | 256,365 | $ | 36,909 | |||||||||||||
Gerald E. Loe(4) | 2004 | $ | 240,000 | — | $48,991 | — | 50,000 | $ | 6,370 | ||||||||||||
Senior Vice President | 2003 | $ | 237,500 | $113,900 | $47,796 | $ 56,666 | — | $ | 5,349 | ||||||||||||
2002 | $ | 227,500 | $219,650 | $91,040 | — | 469,961 | $ | 30,019 |
(1) | Bonuses are shown for the year earned. The bonuses were paid in the following calendar year. |
(2) | “All Other Compensation” for 2004 includes premiums for group term life insurance policies (Mr. Rottsolk — $3,660, Mr. Smith — $3,712, Mr. Ungaro — $506, Mr. Johnson — $3,712, Mr. Kiefer — $2,418 and Mr. Loe — $2,373) and our matching contributions under our 401(k) Plan |
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(Mr. Rottsolk — $3,998, Mr. Smith — $2,626, Mr. Ungaro — $3,253, Mr. Johnson — $4,001, Mr. Kiefer — $3,846 and Mr. Loe — $3,997). | |
(3) | Mr. Ungaro joined us in August 2003. The amount shown as “Bonus” for 2003 includes a one-time hiring bonus of $250,000. On March 7, 2005, Mr. Ungaro was appointed President. In connection with his appointment as President, he received a one-time appointment bonus of $300,000 that in part was in lieu of a payment under a 2004 special incentive plan based on product revenue and gross margin. We had accrued $88,647 for payment of such 2004 bonus. |
(4) | Mr. Loe resigned as an officer effective October 31, 2004; he remained as an employee through January 1, 2005. The amounts shown as “Other Annual Compensation” for Mr. Loe relate to the forgiveness of certain indebtedness to us pursuant to a March 21, 2002, agreement with us. |
(5) | The following individuals held the indicated number of restricted shares at December 31, 2004, with the value indicated based on the closing per share price of our common stock on the Nasdaq National Market systems on December 31, 2004, of $4.66: Mr. Rottsolk — 13,850 shares with a value of $64,541; Mr. Smith — 5,276 shares with a value of $24,586; Mr. Johnson — 4,453 shares with a value of $20,751; Mr. Kiefer — 6,456 shares with a value of $30,085; and Mr. Loe — 8,130 shares with a value of $37,886. If we were to pay dividends on our common stock, the holders of the restricted shares would be eligible to receive such dividends. |
Number of | % of Total | |||||||||||||
Securities | Options | |||||||||||||
Underlying | Granted to | Exercise | Grant Date | |||||||||||
Options | Employees in | Price | Expiration | Present | ||||||||||
Name | Granted(1) | Fiscal Year(2) | Per Share | Date | Value(3) | |||||||||
James E. Rottsolk | 200,000 | 6.1% | $ | 6.89 | 2/05/2014 | $ | 1,068,000 | |||||||
Burton J. Smith | 100,000 | 3.1% | $ | 6.89 | 2/05/2014 | $ | 534,000 | |||||||
Peter J. Ungaro | 100,000 | 3.1% | $ | 6.89 | 2/05/2014 | $ | 534,000 | |||||||
300,000 | 9.2% | $ | 3.69 | 9/20/2014 | $ | 86,100 | ||||||||
Kenneth W. Johnson | 50,000 | 1.5% | $ | 6.89 | 2/05/2014 | $ | 267,000 | |||||||
David R. Kiefer | 100,000 | 3.1% | $ | 6.89 | 2/05/2014 | $ | 534,000 | |||||||
Gerald E. Loe | 50,000 | 1.5% | $ | 6.89 | 2/05/2014 | $ | 267,000 |
(1) | The options granted in 2004 were then exercisable 25% after the first year, and thereafter became exercisable ratably per month over the next 36 months. On March 21, 2005, the vesting of all of these options was accelerated, and all of these options then became exercisable in full. Generally, all of the executive officers’ options will expire ten years from the date of grant or earlier if employment terminates. |
(2) | We granted options for an aggregate of 3,264,929 shares to employees in 2004. |
(3) | We used a modified Black-Scholes model of option valuation to determine grant date present value. We do not agree that the Black-Scholes model properly determines the value of an employee stock option. Calculations for the named executive officers are based on an expected 7.1-year option term. Other assumptions used for the valuations are: |
• | risk-free interest rate of 4.3%; | |
• | annual dividend yield of 0%; and | |
• | volatility of 84%. |
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Shares Underlying | Value of Unexercised | |||||||||||||||||
Unexercised Options at | In-the-Money Options at | |||||||||||||||||
Shares | December 31, 2004 | December 31, 2004(1) | ||||||||||||||||
Acquired | Value | |||||||||||||||||
Name | on Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
James E. Rottsolk | — | — | 1,093,730 | 460,838 | $481,051 | $ | 246,749 | |||||||||||
Burton J. Smith | 3,000 | $17,790 | 874,329 | 201,671 | $246,143 | $ | 103,557 | |||||||||||
Peter J. Ungaro | — | — | 177,082 | 722,918 | — | $ | 291,000 | |||||||||||
Kenneth W. Johnson | 3,600 | $14,454 | 302,697 | 127,503 | $118,928 | $ | 80,597 | |||||||||||
David R. Kiefer | 15,000 | $107,000 | 243,329 | 201,671 | $203,543 | $ | 103,557 | |||||||||||
Gerald E. Loe | 9,995 | $56,362 | 492,284 | 217,921 | $296,517 | $ | 156,985 |
(1) | “In-the-money” stock options are options for which the exercise price is less than the market price of the underlying stock on a particular date. On December 31, 2004, the closing per share price of our common stock on the Nasdaq National Market System was $4.66. |
Number of Shares of | ||||||||||||
Number of Shares of | Common Stock Available | |||||||||||
Common Stock to be | Weighted-Average Exercise | for Future Issuance Under | ||||||||||
Issued Upon Exercise of | Price of Outstanding | Equity Compensation | ||||||||||
Outstanding Options, | Options, Warrants and | Plans (excluding shares | ||||||||||
Plan Category | Warrants and Rights | Rights | reflected in 1st column) | |||||||||
Equity plans approved by shareholders(1) | 10,283,161 | $5.88 | 5,715,087 | |||||||||
Equity plans not approved by shareholders(2) | 4,001,230 | $3.30 | 812,861 |
(1) | The shareholders approved our 1988, 1995 Independent Director, 1995, 1999 and 2003 stock option plans, our 2004 long-term equity compensation plan and our 2001 employee stock purchase plan. Pursuant to these stock option plans, incentive 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 4 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 vest monthly over the twelve months after grant. On March 21, 2005, the vesting of all employee stock options with per share exercise prices of $2.36 or higher was accelerated; the vesting of stock options granted to non-employee directors was not accelerated. Under the 2004 long-term plan, the Board may grant restricted and performance stock grants in addition to incentive and nonqualified stock options. Under these option and equity compensation plans approved by shareholders, 5,715,087 shares remained available for grant as of December 31, 2004. Under the 2001 employee stock purchase plan, all employees are eligible to participate and currently have the right to |
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purchase shares in three month offering periods at the lesser of (a) 85% of the fair market value of the common stock at the beginning of each offering period or (b) 100% of the fair market value of the common stock at the end of each offering period. At the 2005 Annual Meeting, the shareholders will consider a proposal to amend the Plan, including the formula for determining the purchase price of shares under the Plan. See “Proposal 2: To Amend Our 2001 Employee Stock Purchase Plan” below. The 2001 employee stock purchase plan covers a total of 4,000,000 shares; at December 31, 2004, we had issued a total of 1,048,889 shares under the 2001 plan and had a total of 2,951,111 shares available for future issuance. The first two columns do not include the shares available under the 2001 employee stock purchase plan for the offering period that spans December 31, 2004, as neither the number of shares to be issued in that offering period nor the offering price was then determinable. | |
(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 6,000,000 shares pursuant to non-qualified options could be issued to employees, agents and consultants but not to officers or directors. On April 1, 2004, in connection with the acquisition of OctigaBay Systems Corporation, since renamed Cray Canada Inc., we assumed that company’s key employee stock option plan, including existing options. Options may be granted to Cray Canada employees, directors and consultants. Otherwise the 2000 non-executive employee stock option plan and the Cray Canada key employee stock option plan are similar to the stock option plans described in footnote (1) above. At December 31, 2004, under the 2000 non-executive employee stock plan we had options for 3,344,217 shares outstanding and no options available for grant; under the Cray Canada key employee stock option plan, we had 657,013 options outstanding and 812,861 options available for grant. From time to time we have issued warrants as compensation to consultants and others for services without shareholder approval. As of December 31, 2004, we had no such warrants outstanding. |
Management Agreements and Policies |
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Compensation Committee Interlocks and Insider Participation |
Report on Executive Compensation for 2004 by the Compensation Committee |
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The Compensation Committee | |
Frank L. Lederman, Chairman | |
John B. Jones, Jr. | |
Kenneth W. Kennedy, Jr. | |
Stephen C. Kiely |
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Services and Fees |
Services | 2004 | 2003 | ||||||
Audit Fees(1) | $ | 1,419,000 | $ | 699,000 | ||||
Audit-Related Fees(2) | $ | 29,000 | $ | 85,000 | ||||
Tax Fees(3) | $ | 228,000 | $ | 136,000 | ||||
All Other Fees(4) | — | — | ||||||
Total | $ | 1,649,000 | $ | 920,000 | ||||
(1) | Audit services billed in 2004 consisted of: audit of our annual financial statements, audits of the Company’s assessment of its internal control over financial reporting and the effectiveness of the Company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reviews of our quarterly financial statements, statutory and regulatory audits, consents, comfort letters and other services related to filings with the Securities and Exchange Commission and capital raising offerings. Services billed in 2003 consisted of: audit of our annual financial statements, reviews of our quarterly financial statements, statutory and regulatory audits, consents, comfort letters and other services related to filings with the Securities and Exchange Commission. |
(2) | Audit-related services billed in 2004 consisted of employee benefit audits. Audit-related services billed in 2003 consisted of: financial accounting and reporting consultations, Sarbanes-Oxley Act Section 404 advisory services and employee benefit audits. |
(3) | Tax services billed in 2004 and 2003 consisted of tax compliance and tax planning and advice. |
• | Fees for tax compliance services totaled $70,000 in 2004 and $74,000 in 2003. Tax compliance services are services rendered, based upon facts already in existence or transactions already occurred, to document, compute and obtain government approval for amounts to be included in tax filings. Such services consisted of federal, state and local income tax return assistance, sales and use, property and other tax return assistance, assistance with tax return filings in certain foreign jurisdictions and transfer pricing documentation. | |
• | Fees for tax planning and advice services totaled $158,000 in 2004 and $62,000 in 2003. Tax planning and advice are services rendered with respect to proposed transactions or that structure a transaction to obtain a particular tax result. Such services consisted of tax advice related to research and development tax credits and tax advice related to intra-group restructuring. |
(4) | There were no fees billed for other services in 2004 or 2003. |
• | Consultations and consents related to SEC filings and registrations statements | |
• | Audits of employee benefit plans |
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• | Statutory audits required by our foreign subsidiaries and consultation of accounting matters | |
• | Tax planning and tax compliance for the U.S. and foreign income and other taxes | |
• | Assistance related to implementation of Section 404 of the Sarbanes-Oxley Act of 2002 |
Audit Committee Pre-Approval Policy |
The Audit Committee | |
Daniel C. Regis, Chairman | |
Sally G. Narodick | |
Stephen C. Richards |
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12/31/99 | 12/29/00 | 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | |||||||||||||||||||
Cray Inc. | 100.0 | 33.3 | 41.6 | 170.4 | 220.7 | 103.6 | ||||||||||||||||||
Nasdaq Stock Market (U.S.) | 100.0 | 60.3 | 47.8 | 33.1 | 49.4 | 53.8 | ||||||||||||||||||
Nasdaq Computer Manufacturer Stocks | 100.0 | 57.0 | 39.3 | 26.0 | 36.2 | 47.3 |
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Proposal 2: | To Amend Our 2001 Employee Stock Purchase Plan |
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By order of the Board of Directors, | |
Kenneth W. Johnson | |
Corporate Secretary |
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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 any Code Section 125 cafeteria benefit program, but excluding any severance pay, hiring or relocation bonuses and pay in lieu of vacation and sick leave. | |
b. “Board” means the Company’s Board of Directors. | |
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 Washington corporation, and all subsidiaries of Cray Inc. designated by the Plan Administrator as participating in the Plan and any corporate successor to all or substantially all of the assets or voting stock of Cray Inc. which shall by appropriate action adopt the Plan. | |
f. “Eligible Employee” means any employee of 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 15, 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 actively participating in the Plan. | |
j. “Plan Administrator” shall mean the Compensation Committee of the Board, as appointed from time to time by the Board. |
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(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. |
(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 |
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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. |
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(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, |
(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. |
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(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, |
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PROXY
CRAY INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints James E. Rottsolk, Burton J. Smith and Kenneth W. Johnson, and each of them, proxies with power of substitution to vote on behalf of the undersigned all shares that the undersigned may be entitled to vote at the Annual Meeting of Shareholders of Cray Inc. (the “Company”) on May 11, 2005, and any adjournments thereof, with all powers that the undersigned would possess if personally present, with respect to the following:
The shares represented by this proxy will be voted as specified on the reverse side, but if no specification is made, this proxy will be voted for the proposals to elect nine directors, each to serve a one-year term, and to approve the amendments to our 2001 Employee Stock Purchase Plan.The proxies are authorized to vote in their discretion as to other matters that may come before this meeting. A majority of the proxies or substitutes at the meeting may exercise all the powers granted hereby.
If you vote by Internet or telephone, please do not return this proxy.
(Continued and to be marked, dated and signed on the reverse side.)
Address Change/Comments (Mark the corresponding box on the reverse side) | ||
DFOLD AND DETACH HERED
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Mark Here | ||
For Address | ||
Change or | ||
Comments. |
1. | Election of nine directors, each to serve a one-year term | FOR | WITHHOLD | |||
all nominees | AUTHORITY | |||||
listed (except | to vote for | |||||
(Instructions: To withhold authority to vote for any individual, | as withheld) | nominees listed | ||||
strike a line through the nominee’s name below.) |
Nominees: | 01 John B. Jones, Jr. | |||
02 Kenneth W. Kennedy, Jr. | ||||
03 Stephen C. Kiely | ||||
04 Frank L. Lederman | ||||
05 Sally G. Narodick | ||||
06 Daniel C. Regis | ||||
07 Stephen C. Richards | ||||
08 James E. Rottsolk | ||||
09 Burton J. Smith |
2. | Approval of the amendments to our 2001 Employee Stock Purchase Plan | FOR | AGAINST | ABSTAIN |
The proxies are authorized to vote in their discretion as to other matters that may come before this meeting. A majority of the proxies or substitutes at the meeting may exercise all the powers granted hereby.
The Board of Directors recommends that you vote for election of named Directors and in favor of Proposal 2.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signatures(s) | Date: | , 2005 | ||||||
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
DFOLD AND DETACH HERED