SECURITIES AND EXCHANGE COMMISSION
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by a Party other than the Registrant¨ Check the appropriate box:
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| ¨ | Preliminary Proxy Statement |
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| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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| þ | Definitive Proxy Statement |
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| ¨ | Definitive Additional Materials |
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| ¨ | Soliciting Material Pursuant to §240.14a-12 |
Cray Inc.
(Name of Registrant as Specified In Its Charter)
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| Cray Inc. |
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| (Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| (1) | Title of each class of securities to which transaction applies: |
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| (2) | Aggregate number of securities to which transaction applies: |
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| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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NOTICE OF
20142017 ANNUAL MEETING OF SHAREHOLDERS
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
Thursday,Tuesday, June
12, 2014,13, 2017, at 3:00 p.m. Pacific Time for the following purposes:
1. To vote on the election of
seveneight directors, each to serve a one-year term;
2. To vote, on an advisory and non-binding basis, to approve the compensation of our Named Executive Officers;
3. To vote, on an advisory and non-binding basis, on the frequency of holding future advisory votes on the compensation of our Named Executive Officers; and
4. To ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2014; and3. To vote, on an advisory or non-binding basis, to approve the compensation of our Named Executive Officers.
2017.
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 voteFOR the election of the nominees for director;FOR the ratification of the appointment of our independent registered public accounting firm for the year ending December 31, 2014; andFOR the approval of the compensation of our Named Executive Officers.Only shareholders of record on April 10, 2014,6, 2017, the record date for the Annual Meeting, are entitled to the notice of, and 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 23, 2014. 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. 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.
Sincerely,
President and Chief Executive Officer
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| 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 the Internet or by telephone or, if this Proxy Statement was mailed to you, sign, date and return the enclosed proxy card. |
Proposal 3: Advisory Vote onIf you wish to return the Compensation of Our Named Executive Officers
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. |
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Other Business — Discretionary Authority
Important Notice Regarding the Availability of Proxy Materials for Cray’s Annual Meeting of Shareholders on June 13, 2017 |
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The Cray Inc. Notice and Proxy Statement for the 2017 Annual Meeting of Shareholders and the 2016 Annual Report to Shareholders are available online at https://materials.proxyvote.com/225223 and http://investors.cray.com
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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 theInternet or bytelephone or, 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 Cray’s
Annual Meeting of Shareholders on June 12, 2014
The Cray Inc. Notice and Proxy Statement for the 2014 Annual Meeting of Shareholders
and the 2013 Annual Report to Shareholders are available online
athttps://materials.proxyvote.com/225223 andhttp://investors.cray.com
901 Fifth Avenue, Suite 1000
PROXY STATEMENT FOR
ANNUAL
MEETING OF SHAREHOLDERS
To Be
901 Fifth Avenue, Fifth Avenue Conference Room
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: | |
| Q: | Why am I receiving these materials? |
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| A: | The Board of Directors of Cray Inc. (“Cray” or the “Company”) has made these materials available to you via the Internet, or has delivered printed versions of these materials to you by mail, on or about April 23, 2014,21, 2017 in connection with its solicitation of proxies for use at our 20142017 annual meeting of shareholders (the “2017 Annual Meeting of Shareholders,” or the “Annual Meeting”), which will take place on Thursday,Tuesday, June 12, 2014,13, 2017, at 3:00 p.m. Pacific Time, in the Fifth Avenue Conference Room at our corporate headquarters located at 901 Fifth Avenue, Seattle, Washington.Washington 98164. For a map and/orand directions to our corporate headquarters, see our website,www.cray.com, under “About Cray — Contact Us.“Contact.” The contents of our website are not incorporated by reference into this Proxy Statement or our other SEC reports and filings. |
Q: | |
| Q: | What is included in these materials? |
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| A: | These materials include: |
Our NoticeNotice of the 20142017 Annual Meeting and our Proxy Statement, which summarize the information regarding the matters to be voted on at the Annual Meeting;
Our 20132016 Annual Report to Shareholders, which includes our Annual Report on Form 10-K and audited consolidated financial statements for the year ended December 31, 2013;2016; 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: | |
| Q: | What items will be voted on at the 20142017 Annual Meeting? |
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| A: | There are threefour known itemsmatters that will come before the shareholders at the 20142017 Annual Meeting: |
The election of seveneight directors to the Board of Directors, each to serve a one-year term;
The advisory and non-binding vote on the compensation of our Named Executive Officers;
The advisory and non-binding vote on the frequency of holding future advisory votes on the compensation of our Named Executive Officers; and
The ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2014; and2017.
The advisory vote on the compensation of our Named Executive Officers.
It is possible that other business may come before the Annual Meeting, although we currently are not aware of any such matters.
Q: | |
| Q: | What are the voting recommendations of our Board? |
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| A: | Our Board of Directors recommends that you vote your shares “FOR” each of the named nominees to the Board; “FOR” the ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2014; and “FOR” the approval of the compensation of our Named Executive Officers. In this Proxy Statement,Officers; “1 YEAR” as the terms “the Board of Directors,” “the Board,” or “our Board” refer to the Board of Directors of Cray.frequency |
with which our shareholders are provided an advisory and non-binding vote on the compensation of our Named Executive Officers; and “FOR” the ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2017. In this Proxy Statement, the terms “the Board of Directors,” “the Board,” or “our Board” refer to the Board of Directors of Cray. None of the directors have any substantial interest in any matter to be acted upon, other than elections to office with respect to the directors so nominated. None of the executive officers has any substantial interest in any matter to be acted upon, other than to the extent that the Board will consider the results of the non-binding advisory vote with respect to making determinations about the compensation of our Named Executive Officers.
Q: | |
| 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? |
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| A: | As permitted by the U.S. Securities and Exchange Commission (the “SEC”), we are making this Proxy Statement and the Annual Report available via the Internet. On or about April 23, 2014,21, 2017, we mailed a Notice of Internet Availability of Proxy Materials, sometimesalso referred to as the “Notice,” to our shareholders as of the record date and certain beneficial owners. We also then posted this Proxy Statement and the Annual Report on the Internet athttps://materials.proxyvote.com/225223 andhttp://investors.cray.com. The Notice contains instructions on how to access this Proxy Statement and the Annual Report and to vote online. |
Q: | |
| Q: | Why did I receive a full set of proxy materials rather than the Notice? |
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| 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)401(k) Plan”) paper copies of the proxy materials instead of the Notice. |
Q: | |
| Q: | Who may vote at the Annual Meeting? |
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| A: | If you owned shares of our common stock at the close of business on April 10, 2014,6, 2017, the record date for the Annual Meeting, you are entitled to vote those shares. On the record date, there were 40,689,40040,287,899 shares of our common stock outstanding, our only class of stock having general voting rights. You have one vote for each share of common stock owned by you on the record date. |
Q: | |
| Q: | What is the difference between holding shares as a shareholder of record orand holding shares as a beneficial owner of shares held in street name? |
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| A: | Shareholder of Record.Record. If you have shares registered directly in your name with our stock transfer agent, Computershare Inc. (“Computershare”), 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.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. | |
| 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: | |
| Q: | How do I vote via the Internet or by telephone? |
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| A: | If You Are a Shareholder of Record:Record: |
If 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,Monday, June
11, 2014,12, 2017, 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.
If You Are a Beneficial Owner of Shares RegisteredHeld in theStreet Name of a Brokerage Firm, Bank or Other Organization::
A number of brokerage firms, banks, andbroker-dealers or other similar 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 nomineesimilar organization, then you may vote by completing and signing the voting form and mailing it to that organization in the self-addressedself- addressed envelope it provided. Q: | |
| Q: | May I change my vote or revoke my proxy? |
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| A: | Yes. If you change your mind after you have voted by Internet or by telephone or you sent in your proxy card and wish to revote, you may do so by following one of 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: | |
| Q: | How do I vote if I hold shares in my Cray 401(k) Plan account? |
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| A: | Shares of Crayour 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. Under the Cray 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 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,Thursday, June
9, 2014.8, 2017. 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: | |
| Q: | How do I vote in person? |
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| 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,name,” 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: | |
| Q: | What happens if I do not give specific voting instructions? |
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| A: | Shareholders of Record.Record. If you are a shareholder of record and you: |
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.
Beneficial Owners of Shares Held in Street Name. If you are a beneficial owner of shares held in “street name” and do not provide the organization that holds your shares with specific voting instructions, then under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on “discretionary” matters but cannot vote on “non-discretionary” matters. 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.”
Please provide voting instructions to the organizations that hold your shares by carefully following their instructions.
Q: | |
| Q: | Which ballot measures are considered “discretionary” or “non-discretionary?” |
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| A: | Proposal 1 (election of seveneight directors), Proposal 2 (advisory and non-binding vote on the compensation of our Named Executive Officers), and Proposal 3 (advisory and non-binding vote on the frequency of holding future advisory votes on the compensation of our Named Executive Officers) are each “non-discretionary” items. If you do not instruct your broker how to vote with respect to these items, then your broker may not vote with respect to these proposals and those votes will be counted as “broker non-votes.” Broker non-votes will have no effect on the outcome of Proposal 1, Proposal 2 or Proposal 3 since broker non-votes are not considered entitled to vote on such proposals. Proposal 24 (ratification of the appointment of our independent registered public accounting firm) is considered a “discretionary” item and your broker may vote on this proposal. |
Q: | |
| Q: | How are abstentions treated? |
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| A: | Abstentions are counted for purposes of determining whether a quorum is present. For Proposal 1 (election of seveneight directors), a director nominee will be elected if the number of votes cast in favor of that director exceeds the number of votes cast against. For Proposal 2 (advisory and non-binding vote on the compensation of our Named Executive Officers) and Proposal 4 (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. Abstentions are not treated as votes cast affirmatively or negatively and therefore will have no effect on the outcome of Proposal 1, Proposal 2 or Proposal 4. For Proposal 3 (advisory and non-binding vote on the frequency of holding future advisory votes on the compensation of our Named Executive Officers), you elect tomay vote “1 YEAR,” “2 YEARS,” “3 YEARS” or “ABSTAIN.” If you abstain from voting on Proposal 3, the abstention will not impacthave an effect on the electionoutcome of directorsthe vote since the seven directors who receiveoption that receives the greatesthighest number of affirmative votes cast will be elected to the Board.frequency that has been approved by shareholders. |
For the purpose of determining whether the shareholders have approved Proposal 2 (ratification of independent registered public accounting firm) or Proposal 3 (advisory vote on the compensation of our Named Executive Officers), 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 as abstentions are not treated as votes cast affirmatively or negatively, and therefore will have no effect on the outcome of Proposal 2 or Proposal 3.
Q: | |
| Q: | What is the quorum requirement for the Annual Meeting? |
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| 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: | |
| Q: | What vote is required to approve each proposal? |
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| A. | Proposal 1: To Elect SevenEight Directors forEach to Serve a One-Year Terms.Term. |
The seven nominees
We have adopted a majority voting standard for the election of directors in non-contested elections. A director who receive the most votes “for” electionnominee will be elected if the number of shares cast in favor of that director’s election exceeds the number of votes cast against, assuming the presence of a quorum. Accordingly, ifIf a director nominee who is an incumbent does not receive the requisite vote, that director’s term will end on the earliest of (i) the date on which the Board appoints an individual to fill the office held by that director, (ii) the date of the director’s resignation, or (iii) 90 days after the date on which the voting results of the election are certified.
Proposal 2: Advisory and Non-Binding 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, 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,abstain from voting, your vote will not count either “for”have any effect on the outcome of the advisory vote, assuming the presence of a quorum.
Proposal 3: To Vote, on an Advisory and Non-Binding Basis, on the Frequency of Holding Future Advisory Votes on the Compensation of our Named Executive Officers.
The option of one year, two years or
“against”three years that receives the
nominee.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 and non-binding 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, assuming the presence of a quorum.
Proposal 2:4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31, 2014.2017. 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 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 as in either case it will not count either “for” or “against” the proposal, assuming the presence of a quorum.
Q: | |
| Q: | Who will count the vote?votes? |
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| A: | Representatives of Broadridge will serve as the Inspector of Elections and count the votes. |
Q: | |
| Q: | Is voting confidential? |
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| 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: | |
| Q: | Who pays the costs of soliciting proxies for the Annual Meeting? |
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| 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 fiduciariessimilar organizations for the expenses they incur in forwarding the proxy materials to you. |
Q: | |
| Q: | Can I view future proxy statements, annual reports and other documents via the Internet, and not receive any paper copies through the mail? |
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| 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:Record: Please visit the Broadridge Investor E-Connect proxy delivery preferences webpage, web-page,www.proxyvote.comwww.proxyvote.com, enter your voter control number found on your Notice or proxy card, and follow the
instructions for obtaining your documents electronically, or
telephone:telephone Broadridge at 1-800-579-1639, or send an email to:
sendmaterial@proxyvote.com. sendmaterial@proxyvote.com.
Beneficial Owner of Shares Held in Street Name:Name: Please visit the Broadridge Investor E-Connect webpage, web-page,www.proxyvote.comwww.proxyvote.com, and follow the instructions at that site, or telephone Broadridge at1-800-579-1639, or send an email to:sendmaterial@proxyvote.com. sendmaterial@proxyvote.com. Please have the Notice
or proxy card 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: | |
| Q: | How do I receive paper copies of the proxy materials, if I so wish? |
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| 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: | |
| Q: | I receivereceived multiple copies of the Notice and/or proxy materials. What does that mean and can I reduce the number of copies that I receive? |
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| 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. |
If your shares are registered directly in your name, you may be receiving more than one copy of the proxy materials because our transfer agent has more than one account for you with slightly different versions of your name, such as different first names (“James” and “Jim,” for example) or with and without middle initials. If this is the case, you can contact our transfer agent and consolidate your accounts under one name. The contact information for our transfer agent is set out below in the next Q and A.
If you own shares through a brokerage firm, bank or other organization holding your shares in “street name,” we have implemented “householding,” a process that reduces the number of copies of the Annual Meeting materials and other correspondence you receive from us. Householding is available 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.similar organization. As a result of householding, only one Notice of Internet Availability of Proxy Materials or Proxy Statement and Annual Report will be delivered to multiple shareholders sharing an address unless you notify your broker or bank to the contrary. If you hold your shares in
street name“street name” and would like to start householding, or if you participate in householding and would like to receive a separate Notice of Internet Availability of Proxy Materials or Proxy Statement and Annual Report, please call
1-800-542-1061 from a touch-tone phone1-866-540-7095 and provide the name of your broker, bank or other
nomineesimilar organization and your account number(s), or contact Ruby H. Alexander, Assistant Corporate Secretary, at Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164.
Unfortunately, householding is only possible for shares held through the same brokerage firm, bank or other
nominee.similar organization. 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.
We will deliver, promptly upon written or oral request, a separate copy of the Annual Meeting materials to a shareholder at a shared address to which a single copy of such materials
hadhas been delivered.
Q: | |
| 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? |
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| A: | You may contact our transfer agent, Computershare, by calling: 877-522-7762 (for foreign investors, 201-201-680-6578)680-6578), 800-231-5469 800-490-1493 (TDD for hearing-impaired in the United States) or 201-680-6610781-575-2394 (TDD for foreign investors), visit its website at:www.computershare.com/investor, or write to: Computershare, Shareholder Relations, P.O. Box 30170, College Station, TX 77842-3170. |
foreign investors), visiting its website at www.computershare.com/investor or writing to Computershare Inc. Shareholder Relations, P.O. Box 30170, College Station, TX 77842-3170.
Q: | |
| Q: | How can I find the voting results of the Annual Meeting? |
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| A: | The voting results will be announced at the Annual Meeting. We will report the voting results in a Current Report on Form 8-K filed with the SEC within four business days after the end of the Annual Meeting. |
Q: | |
| Q: | Whom should I call if I have any questions? |
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| A: | If you have any questions about the Annual Meeting or voting, or about your ownership of our common stock, please contact Ruby H. Alexander, our Assistant Corporate Secretary, at (206) 701-2000. |
OUR COMMON STOCK OWNERSHIP
The following table shows, as of April
10, 2014,6, 2017, the number of shares of our common stock beneficially owned by the following persons:
allAll persons we know to be beneficial owners of at least 5% of our common stock;
the executive officers named in the “Summary Compensation Table” on page 40;Our directors;
Our Named Executive Officers for 2016; and
allAll current directors and executive officers as a group.
As of April
10, 2014,6, 2017, there were
40,689,40040,287,899 shares of our common stock outstanding.
| | | | | | | | | | | | | | | | |
Name and Address(1) | | Common
Shares
Owned | | | Options
Exercisable
Within
60 Days | | | Total
Beneficial
Ownership(2) | | | Percentage | |
5% Shareholders | | | | | | | | | | | | | | | | |
Gilder, Gagnon, Howe & Co. LLC(3) 3 Columbus Circle, 26th Floor New York, NY 10019 | | | 3,901,622 | | | | — | | | | 3,901,622 | | | | 9.6 | % |
Invesco Ltd.(3) 1555 Peachtree Street NE Atlanta, GA 30309 | | | 3,726,891 | | | | — | | | | 3,726,891 | | | | 9.2 | % |
Wells Fargo & Company(3) 420 Montgomery Street San Francisco, CA 94104 | | | 3,608,388 | | | | — | | | | 3,608,388 | | | | 8.9 | % |
FMR LLC(3) 245 Summer Street Boston, MA 02210 | | | 2,721,729 | | | | — | | | | 2,721,729 | | | | 6.7 | % |
T. Rowe Price Associates, Inc.(3) 100 E. Pratt Street Baltimore, MD 21202 | | | 2,503,797 | | | | — | | | | 2,503,797 | | | | 6.2 | % |
Capital Research Global Investors (3) 333 South Hope Street Los Angeles, CA 90071 | | | 2,453,105 | | | | — | | | | 2,453,105 | | | | 6.1 | % |
BlackRock, Inc.(3) 40 East 52nd Street New York, NY 10022 | | | 2,339,296 | | | | — | | | | 2,339,296 | | | | 5.8 | % |
| | | | |
Independent Directors | | | | | | | | | | | | | | | | |
Prithviraj Banerjee | | | — | | | | 20,000 | | | | 20,000 | | | | * | |
John B. Jones, Jr.(4) | | | 12,146 | | | | — | | | | 12,146 | | | | * | |
Stephen C. Kiely(4) | | | 39,822 | | | | — | | | | 39,822 | | | | * | |
Frank L. Lederman(4) | | | 55,612 | | | | — | | | | 55,612 | | | | * | |
Sally G. Narodick(4) | | | 59,107 | | | | — | | | | 59,107 | | | | * | |
Daniel C. Regis(4) | | | 52,648 | | | | — | | | | 52,648 | | | | * | |
Stephen C. Richards(4) | | | 56,236 | | | | — | | | | 56,236 | | | | * | |
| | | | |
Named Executive Officers | | | | | | | | | | | | | | | | |
Peter J. Ungaro(5) | | | 624,869 | | | | 431,978 | | | | 1,056,847 | | | | 2.6 | % |
Brian C. Henry(5) | | | 171,720 | | | | 103,785 | | | | 275,505 | | | | * | |
William C. Blake(5) | | | 119,401 | | | | — | | | | 119,401 | | | | * | |
Arvind Parthasarathi(5) | | | 277,073 | | | | 11,979 | | | | 289,052 | | | | * | |
Michael C. Piraino(5) | | | 88,895 | | | | 139,812 | | | | 228,707 | | | | * | |
All current directors and executive officers as a group
(17 persons)(4)(5) | | | 2,005,444 | | | | 903,626 | | | | 2,909,070 | | | | 7.0 | % |
|
| | | | | | | | | | | |
| Name and Address (1) | | Common Shares Owned | | Restricted Stock Units Vesting and Options Exercisable Within 60 Days | | Total Beneficial Ownership (2) | | Percentage |
| 5% Shareholders | | | | | | | | |
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055 | | 4,761,454 |
| | — |
| | 4,761,454 |
| (3) | 11.8% |
| | | | | | | | | |
Capital Research Global Investors
333 South Hope Street
Los Angeles, CA 90071 | | 4,272,068 |
| | — |
| | 4,272,068 |
| (4) | 10.6% |
| | | | | | | | | |
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 | | 3,221,996 |
| | — |
| | 3,221,996 |
| (5) | 8.0% |
| | | | | | | | | |
Mairs and Power, Inc.
332 Minnesota Street, W-1520
First National Bank Building
St. Paul, MN 55101 | | 3,149,271 |
| | — |
| | 3,149,271 |
| (6) | 7.8% |
| | | | | | | | | |
| Independent Directors | | | | | | | | |
| Prithviraj Banerjee | | 4,344 |
| | 20,000 |
| | 24,344 |
| (7) | * |
| Martin J. Homlish | | 1,065 |
| | 20,000 |
| | 21,065 |
| (8) | * |
| Stephen C. Kiely | | 22,675 |
| | — |
| | 22,675 |
| | * |
| Sally G. Narodick | | 39,455 |
| | — |
| | 39,455 |
| | * |
| Daniel C. Regis | | 45,080 |
| | — |
| | 45,080 |
| (9) | * |
| Max L. Schireson | | 2,226 |
| | 20,000 |
| | 22,226 |
| (10) | * |
| Brian V. Turner | | — |
| | 20,000 |
| | 20,000 |
| (11) | * |
| | | | | | | | | |
| Named Executive Officers | | |
| | |
| | |
| | |
| Peter J. Ungaro | | 265,992 |
| | 610,393 |
| | 876,385 |
| (12) | 2.1% |
| Brian C. Henry | | 60,743 |
| | 116,060 |
| | 176,803 |
| (13) | * |
| Charles A. Morreale | | 84,624 |
| | 53,190 |
| | 137,814 |
| (14) | * |
| Michael C. Piraino | | 42,512 |
| | 168,838 |
| | 211,350 |
| (15) | * |
| Margaret A. Williams | | 110,211 |
| | 59,626 |
| | 169,837 |
| (16) | * |
| Steven L. Scott | | 67,657 |
| | 13,249 |
| | 80,906 |
| (17) | * |
| Ryan W. J. Waite | | 4,923 |
| | 3,666 |
| | 8,589 |
| (18) | * |
| All current directors and executive officers as a group (13 persons) | | 588,722 |
| | 1,080,749 |
| | 1,669,471 |
| | 4.0% |
| |
* Less | Less than 1% of the outstanding common stock. |
| |
| (1) | Unless otherwise indicated, all addresses are c/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 that may be exercised on April 10, 2014,6, 2017, or within 60 days thereafter. |
| |
| (3) | The information under the column “Common Shares Owned” with respect to Gilder, Gagnon, Howe & Co. LLCBlackRock, Inc. is based on a Schedule 13G/A filed with the SEC on January 12, 2017, regarding beneficial ownership as of December 31, 2016. In that Schedule 13G/A, BlackRock, Inc. reported beneficial ownership of 4,761,454 shares, with sole voting power of 4,667,135 shares, without shared voting power, sole dispositive power of 4,761,454 shares and without shared dispositive power. |
| |
| (4) | The information under the column “Common Shares Owned” with respect to Capital Research Global Investors is based on a Schedule 13G/A filed with the SEC on February 12, 2014,13, 2017, regarding beneficial ownership as of December 31, 2013.2016. In that Schedule 13G/A, Gilder, Gagnon, Howe & Co. LLCCapital Research Global Investors reported beneficial ownership of 3,901,6224,272,068 shares, with sole voting power andof 4,272,068 shares, without shared voting power, sole dispositive power over 27,829of 4,272,068 shares and without shared dispositive power. |
| |
| (5) | The information under the column “Common Shares Owned” with respect to The Vanguard Group, Inc. is based on a Schedule 13G filed with the SEC on February 10, 2017, regarding beneficial ownership as of December 31, 2016. In that Schedule 13G, The Vanguard Group, Inc. reported beneficial ownership of 3,221,996 shares, with sole voting power of 79,557 shares, with shared voting power of 5,200 shares, sole dispositive power of 3,139,239 shares and with shared dispositive power over 3,901,622of 82,757 shares. |
The information under the column “Common Shares Owned” with respect to Invesco Ltd. is based on a Schedule 13G filed with the SEC on February 10, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, Invesco Ltd. reported beneficial ownership of 3,726,891 shares, with sole voting power of 3,505,018 shares, without shared voting power, sole dispositive power of 3,726,891 shares and without shared dispositive power.
The information under the column “Common Shares Owned” with respect to Wells Fargo & Company is based on a Schedule 13G/A filed with the SEC, on January 28, 2014, regarding ownership as of December 31, 2013. In that Schedule 13G/A, Wells Fargo & Company, as parent company, reported beneficial ownership of 3,608,388 shares, with sole voting power of 27,216 shares, sole dispositive power of 27,216 shares and shared voting power of 3,580,953 shares and shared dispositive power of 3,581,172 shares, with its subsidiary, Wells Capital Management Incorporated, an investment adviser, reporting beneficial ownership of 3,557,268 shares, without sole voting power or sole dispositive power and shared voting power of 790,968 shares and shared dispositive power of 3,557,268 shares, and another subsidiary, Wells Fargo Funds Management, LLC, an investment adviser, reporting beneficial ownership of 2,787,641 shares, without sole voting power or sole dispositive power and shared voting power of 2,787,641 shares and shared dispositive power of 2,787,641 shares.
The information under the column “Common Shares Owned” with respect to FMR LLC is based on a Schedule 13G/A filed with the SEC on March 10, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G/A, FMR LLC reported beneficial ownership of 2,721,729 shares, with sole voting power over 393,057 shares and sole dispositive power over 2,721,729 shares.
The information under the column “Common Shares Owned” with respect to T. Rowe Price Associates, Inc. is based on a Schedule 13G filed with the SEC on February 10, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, T. Rowe Price Associates, Inc. reported beneficial ownership of 2,503,797 shares, with sole voting power of 244,000 shares, without shared voting power, sole dispositive power of 2,503,797 shares and without shared dispositive power.
The information under the column “Common Shares Owned” with respect to Capital Research Global Investors is based on a Schedule 13G filed with the SEC on February 12, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, Capital Research Global Investors reported beneficial ownership of 2,453,105 shares, with sole voting power of 2,453,105 shares, without shared voting power, sole dispositive power of 2,453,105 shares and without shared dispositive power.
The information under the column “Common Shares Owned” with respect to BlackRock, Inc. is based on a Schedule 13G filed with the SEC on January 28, 2014, regarding beneficial ownership as of December 31, 2013. In that Schedule 13G, BlackRock, Inc. reported beneficial ownership of 2,339,296 shares, with sole voting power of 2,225,420 shares, without shared voting power, sole dispositive power of 2,339,296 shares and without shared dispositive power.
(4) | |
| (6) | The numberinformation under the column “Common Shares Owned” with respect to Mairs and Power, Inc. is based on a Schedule 13G/A filed with the SEC on February 14, 2017, regarding beneficial ownership as of December 31, 2016. In that Schedule 13G/A, Mairs and Power, Inc. reported beneficial ownership of 3,149,271 shares, with sole voting power of 2,505,378 shares, without shared voting power, sole dispositive power of 3,149,271 shares and without shared dispositive power. |
| |
| (7) | Represents (i) 4,344 shares held by Mr. Banerjee and (ii) 20,000 options exercisable within 60 days of April 6, 2017. |
| |
| (8) | Represents (i) 1,065 shares held by Mr. Homlish and (ii) 20,000 options exercisable within 60 days of April 6, 2017. |
| |
| (9) | Represents (i) 2,227 shares held by Mr. Regis, and (ii) 42,853 shares held by Regis Investments, L.P. Mr. Regis is the general partner of Regis Investment L.P. and has voting and dispositive power over the shares held by Regis Investment, L.P. |
| |
| (10) | Represents (i) 2,226 shares held by Mr. Schireson and (ii) 20,000 options exercisable within 60 days of April 6, 2017. |
| |
| (11) | Represents 20,000 options exercisable by Mr. Turner within 60 days of April 6, 2017. |
| |
| (12) | Represents (i) 262,549 shares held by Mr. Ungaro, (ii) 3,443 shares held in the Cray 401(k) Plan, (iii) 595,893 options exercisable within 60 days of April 6, 2017, and (iv) 14,500 shares of commonrestricted stock shown for the indicated directors includes restricted shares that vest on the dates indicated, andunits that are forfeitable in certain circumstances, as follows: |
| | | | | | | | | | | | | | | | |
Directors | | Unvested
Restricted
Shares
Total | | | June 7,
2014 | | | June 14,
2014 | | | June 14,
2015 | |
Prithviraj Banerjee | | | — | | | | — | | | | — | | | | — | |
John B. Jones, Jr. | | | 5,307 | | | | 1,938 | | | | 3,369 | | | | — | |
Stephen C. Kiely | | | 7,393 | | | | 2,727 | | | | 2,333 | | | | 2,333 | |
Frank L. Lederman | | | 6,917 | | | | 2,784 | | | | 2,067 | | | | 2,066 | |
Sally G. Narodick | | | 4,441 | | | | 1,769 | | | | 1,336 | | | | 1,336 | |
Daniel C. Regis | | | 6,795 | | | | 2,727 | | | | 2,034 | | | | 2,034 | |
Stephen C. Richards | | | 4,987 | | | | 2,276 | | | | 1,356 | | | | 1,355 | |
(5) | The numberexpected to vest within 60 days of April 6, 2017. Does not include 20,000 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: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Executive Officers | | Unvested
Restricted
Shares
Total(a) | | | April 30,
2014 | | | May 12,
2014 | | | May 17,
2014 | | | July 1,
2014 | | | Feb. 6,
2015 | | | April 30,
2015 | | | July 1,
2015 | | | Aug. 3,
2015 | | | Feb. 6,
2016 | | | July 1,
2016 | | | April 30,
2016 | | | July 1,
2017 | |
Peter J. Ungaro | | | 216,250 | | | | — | | | | 50,000 | | | | — | | | | 28,125 | | | | — | | | | — | | | | 28,125 | | | | 50,000 | | | | — | | | | 28,125 | | | | — | | | | 11,875 | |
Brian C. Henry | | | 114,750 | | | | — | | | | 25,000 | | | | — | | | | 15,250 | | | | — | | | | — | | | | 15,250 | | | | 27,500 | | | | — | | | | 15,250 | | | | — | | | | 6,500 | |
William C. Blake | | | 75,500 | | | | 17,500 | | | | — | | | | — | | | | 4,000 | | | | — | | | | 17,500 | | | | 4,000 | | | | — | | | | — | | | | 4,000 | | | | 17,500 | | | | 4,000 | |
Arvind Parthasarathi | | | 257,750 | | | | — | | | | — | | | | — | | | | 7,500 | | | | 25,000 | | | | — | | | | 7,500 | | | | — | | | | 25,000 | | | | 7,500 | | | | — | | | | 1,250 | |
Michael C. Piraino | | | 69,250 | | | | — | | | | 7,500 | | | | — | | | | 10,250 | | | | — | | | | — | | | | 10,250 | | | | 20,000 | | | | — | | | | 10,250 | | | | — | | | | 4,000 | |
Other executive officers | | | 268,750 | | | | — | | | | 40,000 | | | | 7,500 | | | | 38,500 | | | | — | | | | — | | | | 38,500 | | | | 70,000 | | | | — | | | | 38,500 | | | | — | | | | 14,750 | |
| (a) | Includesperformance vesting restricted stock awards as set forth below, for shares of common stock that vest upon the achievement of certain operational and strategic performance criteria exclusively related to the operation of our YarcData business or upon a change of control of Cray with the amount vesting as a result of a change of control dependent on the gross proceeds received by Cray shareholders, with such gross proceed levels set at the time of grant with an objective of increasing the reward to the extent that the YarcData business likely contributed materially to the amount of gross proceeds received by shareholders (such awards, the “granted in 2013 (“Performance Vesting Restricted Stock AwardsRSAs”). Such restricted stock award will expire completely if the operational, which expired and strategic performancewere forfeited without vesting criteria are not satisfied byon the calendar day immediately following that date on which Cray files itswe filed our Annual Report on Form 10‑K with the SEC for the fiscal year ended December 31, 2016. |
| |
| (13) | Represents (i) 60,743 shares held by Mr. Henry, (ii) 108,810 options exercisable within 60 days of April 6, 2017, and (iii) 7,250 shares of restricted stock units that are expected to vest within 60 days of April 6, 2017. Does not include 10,000 shares of Performance Vesting RSAs, which expired and were forfeited without vesting on the calendar day immediately following that date on which we filed our Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2016. |
| | | | |
Executive Officers
(14) | Represents (i) 82,565 shares held by Mr. Morreale, (ii) 2,059 shares held in the Cray 401(k) Plan, (iii) 48,690 options exercisable within 60 days of April 6, 2017, and (iv) 4,500 shares of restricted stock units that are expected to vest within 60 days of April 6, 2017. Does not include 7,000 shares of Performance Vesting |
RSAs, which expired and were forfeited without vesting on the calendar day immediately following that date on which we filed our Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2016.
| Performance
Vesting
Restricted Stock
Awards | |
Peter J. Ungaro
(15) | Represents (i) 41,937 shares held by Mr. Piraino, (ii) 575 shares held in the Cray 401(k) Plan, (iii) 164,338 options exercisable within 60 days of April 6, 2017, and (iv) 4,500 shares of restricted stock units that are expected to vest within 60 days of April 6, 2017. Does not include 7,000 shares of Performance Vesting RSAs granted on July 1, 2013, which expired and were forfeited without vesting on the calendar day immediately following that date on which we filed our Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2016. |
| | 20,000 | |
Brian C. Henry
(16) | Represents (i) 106,120 shares held by Dr. Williams, (ii) 4,091 shares held in the Cray 401(k) Plan, and (iii) 55,626 options exercisable within 60 days of April 6, 2017. |
| | 10,000 | |
William C. Blake
(17) | Represents (i) 67,657 shares held by Dr. Scott, (ii) 7,999 options exercisable within 60 days of April 6, 2017, and (iii) 5,250 shares of restricted stock units that are expected to vest within 60 days of April 6, 2017. |
| | 7,000 | |
Arvind Parthasarathi(a)
(18) | | | 184,000 | |
Michael C. Piraino
| | | 7,000 | |
Other executive officers
| | | 21,000 | Mr. Waite resigned from Cray effective March 24, 2017. Represents (i) 4,923 shares held by Mr. Waite and (ii) 3,666 options exercisable within 60 days of April 6, 2017. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended or the (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 the reporting persons complied with their filing requirements for
2013, except as follows: Each of (a) Barry C. Bolding, Brian C. Henry, Charles A. Morreale, Peter J. Ungaro and Margaret A. Williams filed a Form 5 to report three late Form 4 transactions reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards; (b) Charles D. Fairchild, Arvind Parthasarathi and Michael C. Piraino filed a Form 5 to report two late Form 4 transactions reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards; and (c) William C. Blake filed a Form 5 to report one late Form 4 transaction reporting the forfeiture of common stock by holders of restricted stock awards in exchange for payments by the Company of statutory tax withholding amounts on behalf of the holders arising as a result of the vesting of restricted stock awards.2016.
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 in day-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, outside auditors and compensation consultants), by reading the reports and other materials that we send them regularly and by participating in Board and
committeeCommittee meetings.
Corporate Governance Principles
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
thatwho 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 “About Cray —“Company - Company Information - Investors —- Corporate Governance.” WeTo satisfy the disclosure requirements of item 5.05 of Form 8-K, we will post on this website any amendments to the Code of Business Conduct or waivers of the Code of Business Conduct for directors and executive officers. We periodically review our governance practices against requirements of the SEC, the listing standards of the NasdaqNASDAQ Global Market (“NasdaqNASDAQ”), the laws of the state of Washington and practices suggested by recognized corporate governance authorities. For 2017, we have engaged an independent third-party to help conduct a self-evaluation process for each of our directors and the Board, a practice which we generally undertake approximately every other year.
As of April
23, 2014,21, 2017, our Board has eight members.
John B. Jones, Jr. is not standing for re-election to our Board, his term as a director will end on the date of the Annual Meeting and the size of our Board will decrease from eight to seven directors at such time. The Board appreciates Mr. Jones’ service and contributions to our success. The Board has determined that all of our directors serving on our Board as of April
23, 2014,21, 2017, except for Mr. Ungaro, our President and Chief Executive Officer, meet the
NasdaqNASDAQ 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
NasdaqNASDAQ 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. As of April
23, 2014,21, 2017, seven of our eight directors
arewere considered independent, and one member of our management, Mr. Ungaro, our President and Chief Executive Officer,
iswas 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
NasdaqNASDAQ and SEC rules that disqualify a person from being considered as independent, considers the responses from each director in an annual questionnaire and reviews the applicable standards with each Board member.
Meetings and Attendance
The
During 2016, the Board met
nineseven times
and the Board’s standing committees held a total of
20 meetings and the Board’s special transaction committee held one meeting during 2013.27 meetings. The rate of attendance in
20132016 for all directors at Board and
committeeCommittee meetings was 98%.
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 times as required.needed. In addition, the Board committees meet periodically without members of our management present.
The Committees of the Board
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
committeesCommittees is, or has ever been, one of our employees.
Audit Committee. Committee.
The current members of the Audit Committee are Daniel C.Mr. Regis (Chair), Sally G.Ms. Narodick and Stephen C. Richards.Mr. Turner. Mr. Turner was appointed as a member to the Audit Committee on April 18, 2016. Mr. Kiely’s term as a member of the Audit Committee ended on August 4, 2016. The Audit Committee and the Board have determined that each individual who currently is and who in 20132016 was a member of the Audit Committee is “independent,” as that term is defined in SEC and NasdaqNASDAQ rules and regulations, and that Mr.Messrs. Regis isand Turner are each an “audit committee financial expert,” as that term is defined in SEC regulations. The Audit Committee met seven times during 2013.2016. As noted above, the Audit Committee’s charter is available atwww.cray.com under “About Cray —“Company - Company Information - 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 and disclosure controls;
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
2:4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31,
2014 —2017 - Audit Committee Pre-Approval Policy” below.
The report of the Audit Committee regarding its review of the consolidated financial statements and other matters is set forth
below beginning on page 55.below.
Compensation Committee. Committee.
The current members of the Compensation Committee are Frank L. LedermanMr. Schireson (Chair), John B. Jones, Jr., Stephen C.Mr. Kiely and Stephen C. Richards. Mr. Jones is not standing for re-electionTurner. Mr. Turner was appointed as a member toour Board, and his term on the Compensation Committee will end on June 12, 2014, the dateApril 18, 2016. Ms. Narodick’s term as a member of the Annual Meeting.Compensation Committee ended on August 4, 2016. The Compensation Committee and the Board have determined that each individual who currently is and who in 20132016 was a member of the Compensation Committee is “independent,” as that term is defined in NasdaqNASDAQ rules and regulations, and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986,IRC and a “non-employee director” as amended (the “IRC”).defined in Rule 16b-3 under the Exchange Act. The Compensation Committee met sixseven times during 2013.2016. As noted above, the Compensation Committee’s charter is available atwww.cray.com under “About Cray —“Company - Company Information - Investors —- Corporate Governance.” The Compensation Committee assists the Board in fulfilling its responsibilities for the oversight of:
Our compensation policies, plans and benefit programs;
The compensation of the Chief Executive Officer and other executive officers; and
The administration of our equitycash- and equity-based compensation plans.
plans; andEvaluation and mitigation of potential risks related to our compensation policies.
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 39.below.
Corporate Governance Committee. Committee.
The current members of the Corporate Governance Committee are Stephen C.Mr. Kiely (Chair), Frank L. Lederman, SallyMs. Narodick and Daniel C.Mr. Regis. The Corporate Governance Committee and the Board have determined that each individual who currently is and who in 20132016 was a member of the Corporate Governance Committee is “independent,” as that term is defined in NasdaqNASDAQ rules and regulations. The Corporate Governance Committee met foureight times during 2013.2016. As noted above, the Corporate Governance Committee’s charter is available atwww.cray.com under “About Cray —“Company - Company Information - Investors —- Corporate Governance.” The Corporate Governance Committee has the responsibility to: •Develop and recommend to the Board a set of corporate governance principles;
guidelines;•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.
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. Committee.
The current members of the Strategic Technology Assessment Committee are PrithvirajDr. Banerjee (Chair), John B. Jones, Jr., Frank L. LedermanMr. Homlish and Stephen C. Kiely. Mr. Jones served as the Chair of our Strategic Technology Assessment Committee until May 1, 2013 when Dr. Banerjee was appointed as the Chair. Mr. Jones is not standing for re-election to our Board, and his term on the Strategic Technology Assessment Committee will end on June 12, 2014, the date of the Annual Meeting.Schireson. The Strategic Technology Assessment Committee and the Board have determined that each individual who currently is and who in 2016 was a member of the Strategic Technology Assessment Committee is “independent,” as that term is defined in NasdaqNASDAQ rules and regulations, although such independence is not a requirement for membership on this Committee. The Strategic Technology Assessment Committee met threefive times during 2013.2016. As noted above, the Strategic Technology Assessment Committee’s charter is available atwww.cray.com under “About Cray —“Company - Company Information - Investors —- Corporate Governance.” The Strategic Technology Assessment Committee has the responsibility to: Assist the Board in its oversight of our technology development, including ourstrategy and product development roadmap;plans; 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.
Board Leadership Structure
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. We believe that this structure is currently appropriate given the experience of Mr. Kiely, both outside of his service with us and as a member of our Board,
our size and stage of development and the operational efficiencies that currently result from separating the roles.
Mr. Kiely has both operational and corporate governance experience that is highly applicable to a company such as ours. Our Board, in consultation with members of our senior executive team, including Mr. Ungaro, believes that capitalizing on such technology and governance expertise by designating Mr. Kiely as Chairman of the Board is the most effective way to realize the leadership potential offered by both Mr. Kiely and Mr. Ungaro at this time. However, we believe that it is in the best interests of our shareholders for the Board to make a determination regarding the separation or combination of these roles each time it elects a new Chairman of the Board or Chief Executive Officer or at other times, based in each case on the relevant facts and circumstances applicable at that time.
Board’s Role in Risk Oversight
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”“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).Audit Committee. The full Board or the appropriate committeeAudit 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 committeethe Audit Committee receives the report, the chairman of the relevant committeeAudit 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 committeesthe Audit Committee 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 and risk management and the ERM System process set forth above.management.
Risk Considerations in Our Compensation Program
Our Compensation Committee has discussed the concept of risk as it relatesrelated to our 2016 compensation program. The Compensation Committee engagesengaged an independent compensation advisorconsultant, Mercer (US) Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (“Mercer”), to assess the risks of itsour 2016 compensation program. The Compensation Committee does not believe our 2016 compensation program encouragesencouraged 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 cash incentive awards is based on a review of a variety of performance indicators, including individual performance, thus diversifying the risk associated with any single performance indicator; likewise, our cash incentive plans for 2016 includes specific caps on the target awards and utilizes a “balanced scorecard” approach to appropriately weight goals and performance. We believe this cap limits the incentive for excessive risk-taking by our employees;
Long-term equity compensation programs are designed to reward executives and other participants for driving sustainable and profitable growth for shareholders;
Equity incentive awards for our executive officers have included different types of equity instruments (with both time-based vesting and performance vesting), which helps to diversify the executive officers’ interests and limit the potential value of excessive risk taking;
The vesting periods for our time-based vesting equity compensation awards are designed to encourage executives and other participants to focus on sustained stock price appreciation;
Our performance vesting restricted stock units that were granted in 2015 (the “Performance Vesting RSUs”) vest upon the achievement of certain operational and financial milestones, and those milestones and the terms of the grants are designed to encourage sustained, measurable performance;
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.
interests;Our system of internal controls over financial reporting, standards of business conduct and compliance programs, among other things, reduce the likelihood of manipulation of our financial performance to enhance payments under our bonus and sales compensation plans;
Our Chief Executive Officer is subject to, and is in compliance with, our stock ownership guidelines, described under “Compensation Discussion and Analysis - Compensation Program Components and Purposes,” which encourage a level of stock ownership that we believe appropriately aligns his long-term interests with those of our shareholders;
We have a clawback or recoupment policy for certain y -based incentive compensation of our executive officers; and
Our Insider Trading Policy prohibits all employees from pledging shares, engaging in short sales or hedging transactions involving our securities.
Director Attendance at Annual Meetings
We encourage, but do not require, our directors to attend the
annual meeting of shareholdersAnnual Meeting either in person or telephonically. In
2013, seven2016, all of our directors
who were directors at the time of our annual meeting of shareholders attended the
20132016 annual meeting.
Shareholder Communications, Director Candidate Recommendations and Nominations and Other Shareholder Proposals
Communications.
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 or to individual directors, to the Corporate Governance Committee or, if addressed to the Chairman, to the Chairman of the Board.
Director Candidates. 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. The Board has not adopted a specific set of minimum qualifications that are necessary for a nominee to possess. 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 the personal characteristics (gender, ethnicity, age) and experience (industry, professional, public service) of current and prospective directors to facilitate Board deliberations that reflect a broad range of perspectives. The Corporate Governance Committee is responsible for assessing the appropriate balance of skills brought to the Board by its members, and ensuring that an appropriate mix of specialized knowledge (e.g., financial, industry or technology) is represented on the Board. Since 2012, the Corporate Governance Committee has engaged a third partythird-party consulting firm, Heidrick & Struggles, International, Inc., to assist the Corporate Governance Committee in identifying candidates for Board membership. 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
electappoint 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. 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.
20142017 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 10th10th business day following the first public announcement of the Annual Meeting. The proposal must also contain the information required in our Bylaws for shareholder proposals, including: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 is entitled to vote at such meeting;
A representation that the shareholder intends to appear at the Annual Meeting, in person or by proxy; and
AnyA brief description of 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.
20152018 Proxy Statement. In order for a shareholder proposal to be considered for inclusion in our proxy statement and form of proxy for the 20152018 annual meeting, we must receive the written proposal no later than December 24, 2014.22, 2017. 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 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 “About Cray —“Company - Company Information - Investors —- Corporate Governance.”
Compensation of Directors
In setting director compensation 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 our employees receive no additional compensation for their service on the Board. As described more fully below, director compensation is in the form of cash and, to align further the longer-term interests of the individual directors with 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.in one year.
The Corporate Governance Committee reviews director compensation annually.
No changes to director compensation were madeIn 2016, the Corporate Governance Committee increased certain cash retainers as set forth in
2013.the table below. 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, theThe Corporate Governance Committee has
decided not to engage a compensation consultantrecently engaged Mercer with respect to director compensation.
On August 4, 2016, the Board adopted a revised Non-Employee Director Compensation Policy, pursuant to which the annual retainer fee for service on the Board was increased from $40,000 to $50,000 and the annual retainer for the Chairman of the Board was increased from $25,000 to $40,000. The following table sets forth the cash compensation policy in
20132016 for our non-employee
directors. | | | | |
Annual retainer for service on the: | | | | |
Board | | $ | 40,000 | |
Audit Committee | | $ | 10,000 | |
Compensation Committee | | $ | 5,000 | |
Corporate Governance Committee | | $ | 5,000 | |
Strategic Technology Assessment Committee | | $ | 5,000 | |
Annual retainer for service as the Chair of the: | | | | |
Board | | $ | 25,000 | |
Audit Committee | | $ | 15,000 | |
Compensation Committee | | $ | 10,000 | |
Corporate Governance Committee | | $ | 5,000 | |
Strategic Technology Assessment Committee | | $ | 5,000 | |
Per Board meeting fee | | $ | — | |
Per Committee meeting fee | | $ | — | |
directors:
|
| | | |
| Annual retainer for service on the: | |
| Board (effective August 4, 2016) | $ | 50,000 |
|
| Board (through August 3, 2016) | $ | 40,000 |
|
| Audit Committee | $ | 10,000 |
|
| Compensation Committee | $ | 5,000 |
|
| Corporate Governance Committee | $ | 5,000 |
|
| Strategic Technology Assessment Committee | $ | 5,000 |
|
| Annual retainer for service as the Chair of the: | |
|
| Board (effective August 4, 2016) | $ | 40,000 |
|
| Board (through August 3, 2016) | $ | 25,000 |
|
| Audit Committee | $ | 15,000 |
|
| Compensation Committee | $ | 10,000 |
|
| Corporate Governance Committee | $ | 5,000 |
|
| Strategic Technology Assessment Committee | $ | 5,000 |
|
When the Board creates committees other than the standing committees identified above, the Board determines whether to extend the same committee fee structure to the members of such committees.
WeMembers of the Board do not receive any per meeting fees, but we do reimburse all expenses related to participation in meetings of the shareholders, Board and committees.
Mr. Jones is not standing for re-election to our Board, and his term on the Board will end on June 12, 2014, the date of the Annual Meeting. In March 2014, the Board granted a $75,000 cash bonus to John B. Jones, Jr. to be paid to Mr. Jones on the date of the Annual Meeting in recognition of his nine years of valued service and contributions to Cray.
Amendment to Board Compensation Policy. In March 2014, the Board amended the Board compensation policy to reflect that future restricted stock awards to continuing non-employee directors will vest 100% on the earlier of (i) 12 months from the date of grant and (ii) the date that is immediately prior to the date of the next annual shareholders’ meeting.Stock Options. Each non-employee director, upon his or her first appointment or election to the Board, is granted ana fully vested stock option, with a ten-year term, for 20,000 shares vesting immediately, with an exercise price equal to the fair market value of our common stock as reported by NASDAQ on the trading date of suchimmediately prior to the first appointment or election.
Restricted Stock Awards. We currently grant to eachEach continuing non-employee director first elected or reelected by our shareholders at the 2016 annual meeting of our shareholders was granted restricted shares of common stock with a value equal to that director’s cash fees earned in 2015 with such award granted on or immediately following the previous fiscal year.2016 annual meeting of our shareholders. Effective August 4, 2016, each continuing director first elected or reelected by our shareholders is granted restricted shares of common stock with a value equal to $110,000 with such award granted on or immediately following each annual meeting of our shareholders. The per share valuenumber of shares grantedsubject to the restricted stock award is determined by usingbased on the fair market valueclosing price of our common stock on the date of such election, which is the closing sales price for our common stockas reported by NASDAQ on the trading day immediately prior to grant.the date of our annual meeting of shareholders. Restricted stock awards granted in June 20132016 to our continuing non-employee directors will vest 50%100% on the earlier of June 14, 2014 and8, 2017 or the date that is immediately prior to the date of our Annual Meeting and 50% on the earlier of June 14, 2015 and the date that is immediately prior to the date of our 2015 annual meeting of shareholders, except as noted below. In March 2014, the Board amended the restricted stock award granted to Mr. Jones on June 14, 2013 to accelerate the vesting on such award so that it will be 100% vested on the earlier of June 14, 2014 and the date that is immediately prior to the date of our2017 Annual Meeting. In line with the amended Board compensation policy described above, restricted stock awards to continuing non-employee directors will vest 100% on the earlier of (i) 12 months from the date of grant and (ii) the date that is immediately prior to the date of the next annual shareholders’ meeting. Until the shares are vested, the shares are restricted against sale or transfer. 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 (as defined in our 2013 Equity Incentive Plan, as amended and restated (the “Amended and Restated 2013 Equity Incentive Plan”)) or followingupon a Corporate Transaction.Transaction (as defined in our Amended and Restated 2013 Equity Incentive Plan). 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), or is asked to leave the Board by the Corporate Governance Committee.For purposes of the director restricted stock agreements, the following definitions apply (terms not defined in the text below are defined in the In addition, under our Amended and Restated 2013 Equity Incentive Plan):
“Corporate Transaction” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of Cray representing fifty percent (50%) orPlan, a non-employee director may receive awards for no more of the total voting power represented by Cray’s then-outstanding voting securities; (ii) the consummation of the sale or disposition by Cray of all or substantially all of Cray’s assets; (iii) the consummation of a merger or consolidation of Cray with any other corporation, other than a merger or consolidation which would result in the voting securities of Cray outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of Cray or such surviving entity or its parent outstanding immediately after such merger or consolidation; (iv) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of Cray give up all of their equity interest in Cray (except for the acquisition, sale or transfer of all or substantially all of the outstanding150,000 shares of Cray); or (v) any liquidation or dissolution of Cray. Notwithstanding the foregoing, to the extent that any amount constituting deferred compensation as defined in Section 409A of the Code) would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of Cray or a change in the ownership of a substantial portion of the assets of Cray (both as defined in Section 409A of the Code).
In such restricted stock agreements, “Disability” is determined by Company policies.
per calendar year.
Stock Ownership Guidelines.Guidelines.
Our Board instituted the following stock ownership guidelines for non-employee directors:
Directors mustPrior to August 4, 2016, directors were expected maintain a holding of at least 15,000 shares of our common stock (excluding unexercised stock options and unvested restricted shares). The value of this number of shares of our common stock was equal to at least five (5) times the then-current annual retainer payable to our directors (excluding
(excluding any additional fees paid for meeting attendance, chair positions or committee participation) as calculated at the time of adoption of this guideline and based upon the closing price per share of our common stock on December 31, 2010 (this amount is greater than five (5) times the current annual retainer payable to our directors based on the closing price per share for our common stock as reported by NASDAQ on December 31, 2016). As of August 4, 2016, directors are expected to own shares of our common stock, on December 31, 2013).the value of which equals at least $250,000.
Each director has five years following the later of commencement of his or her service on our Board or the adoption or amendment of our stock ownership guidelines to satisfy the minimum share holdings of our stock ownership guidelines.
Directors may sell enough shares to cover the income tax liability when restricted shares vest.
Director Compensation for 20132016 The following table sets forth information regarding compensation earned by our non-employee directors for the year ended December 31,
2013, even if paid in 2012.2016. Mr. Ungaro is not included in this table as he is an employee and he receives no compensation for his service as a director. His compensation as an employee is shown in the
Summary“Summary Compensation
TableTable” set forth under “Compensation of Executive Officers - Compensation Tables.” Mr. Turner was appointed to our Board on
page 40. | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or
Paid in Cash($) | | | Stock
Awards($)
(1)(2) | | | Option
Awards($)
(2)(3) | | | Non-Equity
Incentive Plan
Compensation | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings | | All Other
Compensation(4) | | Total | |
Prithviraj Banerjee | | $ | 33,450 | | | $ | — | | | $ | 169,726 | | | | | | | | | $ | 203,176 | |
John B. Jones, Jr. | | $ | 51,675 | | | $ | 64,425 | | | | | | | | | | | | | $ | 116,100 | |
Stephen C. Kiely | | $ | 85,000 | | | $ | 89,228 | | | | | | | | | | | | | $ | 174,228 | |
Frank L. Lederman | | $ | 65,000 | | | $ | 79,035 | | | | | | | | | | | | | $ | 144,035 | |
Sally G. Narodick | | $ | 50,761 | | | $ | 51,097 | | | | | | | | | | | | | $ | 101,858 | |
Daniel C. Regis | | $ | 70,000 | | | $ | 77,792 | | | | | | | | | | | | | $ | 147,792 | |
Stephen C. Richards | | $ | 55,000 | | | $ | 51,842 | | | | | | | | | | | | | $ | 106,842 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Annual Retainer ($) | | Board and Committee Chair Fees ($) | | Committee Fees ($) | | Total Cash Fees Earned ($) | | Stock Awards ($)(1)(2) | | Option Awards ($)(2)(3) | | Total ($) |
| Prithviraj Banerjee | | $ | 44,076 |
| | $ | 5,000 |
| | $ | 5,000 |
| | $ | 54,076 |
| | $ | 49,850 |
| | — |
| | $ | 103,926 |
|
| Martin J. Homlish | | $ | 44,076 |
| | — |
| | $ | 5,000 |
| | $ | 49,076 |
| | $ | 37,126 |
| | — |
| | $ | 86,202 |
|
| Stephen C. Kiely | | $ | 44,076 |
| | $ | 36,114 |
| | $ | 15,951 |
| | $ | 96,141 |
| | $ | 81,747 |
| | — |
| | $ | 177,888 |
|
| Sally G. Narodick | | $ | 44,076 |
| | — |
| | $ | 17,976 |
| | $ | 62,052 |
| | $ | 55,393 |
| | — |
| | $ | 117,445 |
|
| Daniel C. Regis | | $ | 44,076 |
| | $ | 15,000 |
| | $ | 15,000 |
| | $ | 74,076 |
| | $ | 69,790 |
| | — |
| | $ | 143,866 |
|
| Max L. Schireson | | $ | 44,076 |
| | $ | 10,000 |
| | $ | 10,000 |
| | $ | 64,076 |
| | $ | 50,965 |
| | — |
| | $ | 115,041 |
|
| Brian V. Turner | | $ | 32,208 |
| | — |
| | $ | 10,549 |
| | $ | 42,757 |
| | — |
| | $ | 322,400 |
| | $ | 365,157 |
|
| |
| (1) | Amounts in this column represent the fair value of the restricted stock awards granted on June 14, 2013,8, 2016, calculated in accordance with ASC 718 by multiplying the marketclosing price of our common stock as reported by NASDAQ on the date of the grant ($19.123)34.86) by the number of shares awarded disregarding any adjustments for estimated forfeitures. The amount any director realizes from these restricted stock awards, if any, will depend on the future market value of our common stock when these shares are sold, and there is no assurance that any director will realize amounts at or near the values shown. A more detailed discussion of the assumptions used in the valuation of stock awards made in the year 20132016 may be found in Note 2 of the Notes to the Financial Statements in our Annual Report on Form 10-K10‑K for the year ended December 31, 2013.2016. |
| |
| (2) | The following table provides additional information about non-employee director equity awards, including the stock awards made to non-employee directors during 20132016 and the number of stock options and shares of restricted stock held by each non-employee director on December 31, 2013:2016: |
| | | | | | | | | | | | | | | | |
Name | | Restricted Shares
Granted in 2013(a) | | | Stock Options
Granted
in 2013(b) | | | Restricted Stock
Awards Outstanding
December 31, 2013 | | | Stock Options
Outstanding
December 31, 2013 | |
Prithviraj Banerjee | | | — | | | | 20,000 | | | | — | | | | 20,000 | |
John B. Jones, Jr. | | | 3,369 | | | | — | | | | 5,307 | | | | — | |
Stephen C. Kiely | | | 4,666 | | | | — | | | | 7,393 | | | | — | |
Frank L. Lederman | | | 4,133 | | | | — | | | | 6,917 | | | | — | |
Sally G. Narodick | | | 2,672 | | | | — | | | | 4,441 | | | | — | |
Daniel C. Regis | | | 4,068 | | | | — | | | | 6,795 | | | | — | |
Stephen C. Richards | | | 2,711 | | | | — | | | | 4,987 | | | | — | |
|
| | | | | | | | |
| Name | | Restricted Shares
Granted in 2016
(a) | | Stock Options
Granted in 2016
(b) | | Restricted Shares Outstanding
December 31, 2016 | | Stock Options Outstanding December 31, 2016 |
| Prithviraj Banerjee | | 1,430 | | — | | 1,430 | | 20,000 |
| Martin J. Homlish | | 1,065 | | — | | 1,065 | | 20,000 |
| Stephen C. Kiely | | 2,345 | | — | | 2,345 | | — |
| Sally G. Narodick | | 1,589 | | — | | 1,589 | | — |
| Daniel C. Regis | | 2,002 | | — | | 2,002 | | — |
| Max L. Schireson | | 1,462 | | — | | 1,462 | | 20,000 |
| Brian V. Turner | | — | | 20,000 | | — | | 20,000 |
| |
| (a) | Pursuant to the policy described under “Equity Compensation —- Restricted Stock Awards” above, on June 14, 2013,8, 2016, we granted to each non-employee director shares of restricted stock, halfall of which vest on the earlier of June 14, 20148, 2017 and the date that is immediately prior to the date of our 20142017 Annual Meeting of Shareholders, and half of which vest on the earlier of June 14, 2015 and the date that is immediately prior to the date of our 2015 Annual Meeting of Shareholders, except as noted below. Mr. Jones’ June 14, 2013 restricted stock grant was amended by the Board in March 2014 and will vest 100% on the earlier of June 14, 2014 and the date that is immediately prior to the date of our 2014 Annual Meeting of Shareholders.Meeting. |
| |
| (b) | Pursuant to the policy described under “Equity Compensation —- Stock Options” above, on May 1, 2013,April 18, 2016, we granted an option for 20,000 shares to Dr. BanerjeeMr. Turner upon his appointment to the Board. The option was fully vested on the date of grant. |
| |
| (3) | This amount represents the aggregate grant date fair value of the stock option award, without reflecting forfeiture, computed in accordance with ASC 718 for 2013.2016. This amount does not represent the actual amount paid to or realized by the Directordirector for this award during 2013.2016. |
The following table lists,
as of April 6, 2017, our executive officers, who will serve in the capacities noted until their successors are duly appointed, and their respective
ages as of April 10, 2014:ages: | |
| | | | |
Name | | Age | | | Position |
Peter J. Ungaro | | | 45 | 48 | | President and Chief Executive Officer |
Brian C. Henry | | | 57 | 60 | | Executive Vice President and Chief Financial Officer |
William C. Blake
Charles D. Fairchild | | | 64 | | | Senior Vice President and Chief Technology Officer |
Barry C. Bolding
| | | 53 | | | Vice President, Storage & Data Management and Corporate Marketing |
Charles D. Fairchild
| | | 45 | 48 | | Vice President, Corporate Controller and Chief Accounting Officer |
Geun-Bum (Daniel) Kim
Charles A. Morreale | | | 51 | 55 | | Senior Vice President, and General Manager, Cluster Solutions |
Charles A. Morreale
| | | 52 | | | Vice President, Field Operations |
Arvind Parthasarathi
Michael C. Piraino | | | 39 | 49 | | Senior Vice President and General Manager, YarcData |
Michael C. Piraino
| | | 46 | | | Vice President Administration, General Counsel and Corporate Secretary |
Margaret A. Williams
Efstathios Papaefstathiou | | | 55 | 49 | | Senior Vice President, High Performance Computing SystemsResearch and Development |
Peter J. Ungaro has served our as Chief Executive Officer and as a member of our Board of Directors since August 2005 and as our President since March 2005. From September 2004 until AugustMarch 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 our Vice President responsible for sales and marketing. He served as Vice President, Worldwide Deep Computing Sales for IBM Corporation from April 2003 to August 2003 and as Vice President, Worldwide HPC Sales, from February 1999 to April 2003. Mr. Ungaro also held a variety of other sales leadership positions at IBM beginning in 1991. Mr. Ungaro received a B.A. from Washington State University. Brian C. Henry has served as our Executive Vice President and Chief Financial Officer since May 2005. Mr. Henry is responsible for finance and accounting, manufacturing and supply chain. Mr. Henry previously served as Executive Vice President and Chief Financial Officer of Onyx Software Corporation, a full suite customer relationship management company, from 2001 to 2005. From 1999 to 2001, he was Executive Vice President and Chief Financial Officer of Lante Corporation, a public internetInternet consulting company focused one-markets and collaborative business models. From 1998 to 1999, Mr. Henry was Chief Operating Officer, Information Management Group, of Convergys Corporation, which was spun off from Cincinnati Bell Inc., a diversified service company, where Mr. Henry 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 at Deloitte & Touche LLP, an accounting and audit firm, as a Certified Public Accountant. Mr. Henry received a B.S. from Portland State University and an M.B.A. from Harvard University where he was a Baker Scholar. William C. BlakeCharles D. Fairchildhas served as Senior Vice President and Chief Technology Officer since April 2012 and served on our Board of Directors from June 2006 to June 2012. Mr. Blake is responsible for defining the integrated infrastructure that will drive Cray’s next generation of supercomputers and solutions. Mr. Blake has been involved in the high performance computing industry for three decades. Until January 2011, he served as General Manager of Parallel Computing Platforms in Microsoft Corporation’s technical computing group. Prior to its acquisition by Microsoft, Mr. Blake was President and Chief Executive Officer of Interactive Supercomputing, Inc. which developed and sold an interactive parallel computing platform that extended existing desktop simulation tools for parallel computing on a spectrum of computing architectures. Before assuming this position in January 2007, he served as Senior Vice President, Product Development of Netezza Corporation, which develops, markets and sells data warehouse appliances. Prior to that, he held key management positions with Compaq Computer Corporation and Digital Equipment Corporation. Mr. Blake is a former member of the board of directors of TotalView Technologies, Inc., Terascala, Inc., Cluster File Systems, Inc., and UnlimitedScale, Inc. and is a member of the Institute of Electrical and Electronics Engineers and the Association for Computing Machinery. He received a B.S.E.E. from the Lowell Technological Institute.
Barry C. Bolding became our Vice President, Storage & Data Management and Corporate Marketing in September 2011. Dr. Bolding oversees our storage solutions business and corporate marketing. From May 2010 until November 2011, Dr. Bolding served as Vice President, Cray Products Group and Corporate Marketing, overseeing product management, applications, benchmarking and corporate and product marketing for Cray’s entire range of high performance computing solutions. From January 2009 to May 2010, he served as our Vice President of the Scalable Systems Business Unit. Prior to 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 held subsequent positions with Network Computing Services and IBM. Dr. Bolding received a B.S. in chemistry from the University of California at Davis and a Ph.D. in chemical physics from Stanford University.
Charles D. Fairchild has served as Vice President, Corporate Controller and Chief Accounting Officer since May 2010. Mr. Fairchild previously served as Chief Financial Officer of Radiant Research, Inc., a clinical research and development company, 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.
Geun-Bum (Daniel) KimCharles A. Morrealehas served as our Senior Vice President and General Manager, Cluster Solutions since November 2012, bringing more than 20 years of business and engineering experience. He formerly held the dual role of President and Chief Executive Officer of Appro International, Inc., a company he founded in May 1991 as a contract manufacturer. By 1998, Mr. Kim expanded Appro to become one of the largest vendors of original equipment manufacturer high performance computing systems in the United States, and in 2000 he repositioned Appro to design and sell Appro’s own line of branded high performance servers and clusters. In 2007, Mr. Kim established Appro’s direction to deliver only supercomputing solutions. Mr. Kim holds an M.B.A. from the University of Missouri, Kansas City and a Business Administration degree from Sogang University in Korea.Charles A. Morreale became our Vice President, Field Operations insince September 2011. Mr. Morreale is responsible for customer facing organizations around the world including sales and presales, service, benchmarking and special purpose systems. Prior to such appointment, Mr. Morreale served as our Vice President Custom Engineering responsible for custom engineering. Prior to that, he served as our Vice President responsible for central and field service and benchmarking organizations from April 2005 through January 2009, and, from March 2004 until April 2005, as Director of Worldwide Sales Support. From 2001 to 2004, he was an HPC Sales Executive at IBM and was responsible for worldwide HPC sales activities in the life sciences segment. From 1984 to 2001, he held a variety of positions at Cray Research, Inc. and Silicon Graphics, Inc., starting as a programmer analyst and ending as the Northeast Territory Sales Account Manager. He received a B.S. from The College of New Jersey.
Arvind ParthasarathiMichael C. Piraino has served as our Senior Vice President and General Manager, YarcData, a division of Cray Inc., since February 2012. From February 2005 to February 2012, he served in several roles with Informatica Corporation, a provider of enterprise data integration and data quality software and services, where he most recently served as Senior Vice President and General Manager of the Master Data Management business unit, in which he led a global team delivering business-focused data management solutions for life sciences, financial services, retail, manufacturing, and healthcare companies as well as government agencies. From August 2007 to January 2010, he served as Informatica’s Vice President of Product Management for data quality products, and from March 2006 to April 2007, he was Senior Director responsible for data migration and data integration solutions. Mr. Parthasarathi was previously Director of Product Management at i2 Technologies, Inc., a provider of supply chain management solutions. Mr. Parthasarathi received a bachelor’s degree in computer science from the Indian Institute of Technology and a master’s degree in computer science from the Massachusetts Institute of Technology.Michael C. Piraino has served as Vice President Administration, General Counsel and Corporate Secretary since September 2011.August 2015. Mr. Piraino is responsible for the legal, human resources, information technology and facilities teams. From September 2011 to August 2015, Mr. Piraino was our Vice President Administration, General Counsel and Corporate Secretary, responsible for the legal, human resources, information technology, facilities and government programs and quality and process excellence teams. From October 2009 to September 2011, he served as Vice President, General Counsel and Corporate Secretary and was responsible for legal and fromsince August 2010, he was responsible for human resources as well. From October 2007 to September 2009, he was an attorney at 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 technology companies in various positions, including Chief Executive Officer. From May 1999 to October 2006, he was at WatchGuard Technologies, Inc., a provider of network security solutions, in various roles, including Vice President, General Counsel and Secretary. From October 1995 to May 1999, he was an attorney at Perkins Coie LLP, a law firm. Mr. Piraino began his career as a propulsion engineer at The Boeing Company. He received 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.
Efstathios “Stathis” PapaefstathiouMargaret A.(Peg) Williams became our Senior Vice President, High Performance Computing Systems in September 2011. Dr. Williams is responsible for our high performance computing systems software and hardware research and development efforts, product management and product marketing. Prior to such appointment, Dr. Williams has served as our Senior Vice President of Research &and Development since January 2017. Mr. Papaefstathiou is responsible for ourleading the software and hardware engineering efforts for all of Cray’s research and development efforts, including our current and future products and projects. Dr. Williams joined us inFrom August 2014 to December 2016, Mr. Papaefstathiou was Senior Vice President, Engineering for Aerohive Networks, Inc., a computer networking equipment company. From January 2012 through May 2005. From 1997 through 2005, she held various positions with IBM, including2014, he served as the Vice President of DatabaseProduct Development - Cloud Technology with F5 Networks, an application delivery controller company. Previously, Mr. Papaefstathiou held a number of technical and Directorsenior management positions at Microsoft Corporation from August 1999 through December 2011 in the areas of distributed operating systems, data center automation, and Vice President of HPCrobotics, specifically as General Manager from February 2008 through December 2011 and Software and AIX Development. She also led the user support team at the Maui High Performance Computing Center, a research and development center,Architect from 1993March 2006 through 1996. From 1987 through 1993, Dr. Williams held various positions in high performance computing software development at IBM. Dr. Williams received a B.S. in mathematics and physics from Ursinus College and an M.S. in mathematics andFebruary 2008. Mr. Papaefstathiou holds a Ph.D. in applied mathematicsComputer Science from Lehigh University.the University of Warwick, United Kingdom, and a B.Sc. in Computer Science from North College, Greece.
COMPENSATION OF THE EXECUTIVE OFFICERS
Compensation Discussion and Analysis
The following discussion describes the material elements of compensation for 20132016 for (i) the individuals who served as our chief executive officer (Mr. Ungaro) and chief financial officer (Mr. Henry) during 2016, (ii) our three most highly compensated executive officers, identifiedother than our chief executive officer and chief financial officer, who served as executive officers as of December 31, 2016 (Messrs. Morreale and Piraino and Dr. Williams) and (iii) two additional individuals who were among our most highly compensated individuals in the “Summary Compensation Table” below (the2016 but who no longer were Section 16 officers as of December 31, 2016 (Dr. Scott ceased being a Section 16 officer on May 5, 2016 and Mr. Waite ceased being a Section 16 officer on May 5, 2016 and his employment with Cray terminated on March 24, 2017). We refer to these seven individuals as our “Named Executive Officers”). for 2016:
|
| |
| Peter J. Ungaro | President and Chief Executive Officer |
| Brian C. Henry | Executive Vice President and Chief Financial Officer |
| Charles A. Morreale | Senior Vice President, Field Operations |
| Michael C. Piraino | Senior Vice President Administration, General Counsel and Corporate Secretary |
| Margaret A. Williams (1) | Senior Vice President, Research and Development |
| Steven L. Scott | Senior Vice President and Chief Technology Officer |
| Ryan W. J. Waite | Senior Vice President, Products |
| |
| (1) | As reported on our Current Report on Form 8-K filed with the SEC on March 18, 2016, Dr. Williams informed us of her plans to retire. Dr. Williams ceased serving as our Senior Vice President, Research and Development effective January 1, 2017 and is expected to continue in her reduced role until June 30, 2017. |
This discussion covers
20132016 corporate performance, our compensation philosophy and objectives for
2013,2016, the components of our compensation program and the process we followed in determining executive compensation for
2013.2016. It also presents a detailed discussion and analysis of the Compensation Committee’s specific decisions about the compensation of
the followingthese Named Executive Officers for
2013: | | |
Peter J. Ungaro
| | President and Chief Executive Officer |
Brian C. Henry
| | Executive Vice President and Chief Financial Officer |
Arvind Parthasarathi
| | Senior Vice President and General Manager, YarcData |
William C. Blake
| | Senior Vice President & Chief Technology Officer |
Michael C. Piraino
| | Vice President Administration, General Counsel and Corporate Secretary |
20132016.
2016 Corporate Performance
We believe it is critical to our short-termshort- and long-term success that our compensation policies, plans and programs be closely correlated with our corporate performance. While we were profitable in 2016, our revenue and profitability declined year over year, substantially driven by a slow-down in the segments of the high-end of the supercomputing market that we target.
The following are three areas of corporate performance we evaluated in connection with determining our Named Executive Officers’ total compensation in 2013. | • | | Revenue. Revenue increased from $421.0 million in 2012 to $525.7 million in 2013.2016:
Revenue — Revenue decreased from $724.7 million in 2015 to $629.8 million in 2016. As further described below, the achievement of predetermined revenue goals, including from certain of our key initiatives, was a significant factor in determining the target and actual total compensation of our Named Executive Officers in 2013. |
| • | | Adjusted Operating Income. We utilize the achievement of a specified level of Adjusted Operating Income as a significant component for determining target and actual total compensation because we believe it rewards growing revenues, controlling expenses and increasing gross profit contributions, in furtherance of our goal of sustained profitability. Adjusted Operating Income was $21.7 million in 2013 down from $31.4 million in 2012.
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| • | | Positive Net Income. We reported net income of $32.2 million or $0.85 per share in 2013. Net income in 2012 was $161.2 million or $4.42 per share in 2012. Net income in 2012 included a $139.1 million pre-tax gain in connection with the sale to Intel of certain intellectual property and other assets related to the research and development of hardware network interconnect technologies. Although we do not use a predetermined net income goal as an actual component for determining target awards at target being and actual total compensation for our Named Executive Officers, we believe profitability is a critical corporate goal.
|
Summary of Compensation Discussion and Analysis
| • | | Philosophy and Objectives. We offer technology-differentiated products and services that require a highly educated, specialized and sought-after workforce and that 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.
|
| • | | Compensation Components and Purposes. The major elements of our compensation programs are:
|
| • | | Base Salaries — To provide fixed compensation to attract and retain the best employees at all levels;
|
| • | | Short-Term Incentives — To motivate and reward achievement of and significant progress related to critical, 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 incentive in the face of retention challenges;
|
| • | | 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 them to remain focused and engaged in the event of rumored or actual fundamental corporate changes and during any corporate transition.
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| • | | The Executive Compensation Process. 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 the year. In making these determinations, the Compensation Committee considers our corporate goals, business plan and objectives for the year, reviews analyses from our independent compensation consultant, Mercer (US) Inc. (“Mercer”), a wholly-owned subsidiary of March & McLennan Companies, Inc., and consults with our Chief Executive Officer, when appropriate. For its 2013 compensation decisions, the Compensation Committee considered the Mercer analyses described below to contextualize our overall total compensation approach and general market competitiveness. The Compensation Committee also analyzed compensation payable by companies that we consider to be in our peer group and by other companies with which we generally compete for hiring executives. The Compensation Committee also considered the roles, responsibilities and specialized expertise of the Named Executive Officers, including our Chief Executive Officer and that competition for our Named Executive Officers generally comes from much larger companies with significantly greater resources.
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| • | | Analyses of 2013 Compensation Determinations.
|
| • | | Overview —Total Target Compensation — Given our operational and financial performance in 2012 and earlier, and in light of the Mercer analyses and other factors described in this Proxy Statement, the Compensation Committee:
|
Increased base salaries for three of the five Named Executive Officers in 2013;
Maintained the target bonus awards (as a percentage of base salary) for all of our Named Executive Officers underin 2016.
Operating Income — Operating income was $9.1 million in 2016, down $31.9 million from 2015. There were no adjustments to operating income in 2016 or 2015. We use the balanced scorecardachievement of a specified level of operating income as a significant component for determining actual total compensation of our annual cash incentive plan;Named Executive Officers because we believe it rewards growing revenues, controlling expenses and
Granted increasing gross profit contributions, in furtherance of our long-term equity awardsgoal of profitable growth.
Net Income — We reported net income of $10.6 million or $0.26 per share in 2016. Net income was $27.5 million or $0.68 per share in 2015. Although we do not use a predetermined net income goal as an actual component for determining the actual total compensation of our Named Executive Officers, we believe sustained, profitable growth is a critical long-term corporate goal.
Overview of 2016 Compensation Determinations
Based on our operational and financial performance in 2015 and earlier, and in light of the Mercer analyses and other factors described in this Proxy Statement, the Compensation Committee made the following compensation decisions for 2016:
Base Salary — Increased the base salaries for Messrs. Ungaro, Henry, Morreale, Piraino and Waite and Dr. Scott to align their base salaries with our desired position in the form of stock optionscompetitive market and restricted stock to each Named Executive Officer.because base salaries had not been increased in some cases since 2013, and maintained the base salary for Dr. Williams.
Annual Cash Incentive Compensation Plan
| • |
| ◦ | | Base SalaryTarget Bonuses — TheMaintained the target bonus awards as a percentage of base salaries of Messrs. Ungaro, Henry and Piraino, were increased by $50,000, $25,000, and $30,000, respectively, to recognize corporate growth, their individual performance andsalary at the placement of their existing base salaries relative tosame levels as in 2015 for the market median. In the cases of Messrs. Ungaro and Henry, these were the first salary increases since 2009.
Named Executive Officers. |
| • |
| ◦ | | Annual Cash Incentive Compensation PlanPerformance Goals and Achievement — For 2013,2016, the annual cash incentive plan for our senior officers, including all Named Executive Officers utilized a balanced scorecard, whichand certain other senior officers (the “2016 Executive Bonus Plan”) was based on various weighted quantitative financial goals, and qualitative operational goals,which we refer to as the “balanced scorecard,” consistent with prior years. Our 2013 annual cash incentive plan for our senior officersThe 2016 Executive Bonus Plan included a 25%, 100% and 200% level percentage attainment for our quantitative financial goals and qualitative operational goals. If the minimum 25% threshold attainment iswas not met, then the attainment for that particular goal iswas deemed to be 0%. In
|
| addition, our approach has been to set “stretch” goals such that even threshold attainment can reflect a significant accomplishment and therefore 0% attainment on a particular goal can result from what by external standards could be deemed successful execution. In 2013, we achieved approximately 132% ofFor 2016, the 2013 Adjusted Operating Incomeachievement for our Revenue goal and 101% of the Revenue goal. We did not meet the minimum threshold attainment ofthreshold; the Big Data Businessachievement for our Commercial Revenue goal anddid not meet the Cray Cluster Solutions (“CCS”) & Cluster-Attached Revenueminimum threshold; the percentage attainment against the Analytics Customer Wins goal eachwas 62.5%; the achievement for the Operating Income goal did not meet the minimum threshold. Each of whichthese goals is described in greater detail below. Considering these achievements together withThe 2016 achievement level under the 2016 Executive Bonus Plan was 12.5% of each Named Executive Officer’s attainment of their unique Leadership goals, ourTarget Bonus. The actual bonus earned by each Named Executive Officers achieved aOfficer was reduced to 6.8% of Target Bonus because the total 2016 payout that averaged 82.4% of their respective target awards. |
| • | | Long-Term Equity Awards — 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 priorpursuant to the date2016 Executive Bonus Plan exceeded a specific percentage of grant). We also grant restricted stockthe PBOI. “PBOI” means operating income with vesting dependent on continued employment, generally with four-year vesting schedules. All of our Named Executive Officers also received an award of performance-based restricted stock. This award will vest, if at all, only uponaggregate bonuses otherwise payable under the achievement of certain operational and strategic performance criteria exclusively related to the operation of our YarcData business or upon a change of control of Cray with the amount vesting as a result of a change of control dependent on the gross proceeds received by our shareholders. The gross proceed levels were set at the time of grant with an objective of increasing the reward to the extent that the YarcData business likely contributed materially to the amount of gross proceeds received by our shareholders (such awards, the “Performance Vesting Restricted Stock Awards”). The Performance Vesting Restricted Stock Awards will expire completely if the operational and strategic performance vesting criteria are not satisfied by the calendar day immediately following that date on which we file our Form 10-K with the SEC for the fiscal year ended December 31, 2016.2016 Bonus Plans (as defined below) added back.
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Long Term Equity Awards — Granted long-term equity awards in the form of stock options with ten-year terms and four-year vesting schedules, with exercise prices equal to 100% of grant date fair market value, as determined by the most recent closing price of our common stock as reported by NASDAQ prior to the date of grant. We also granted restricted stock units with vesting dependent on continued employment, generally with four-year vesting schedules. We granted long-term equity awards in the form of stock options and restricted stock units on May 19, 2016, to Messrs. Ungaro, Henry, Morreale, Piraino and Waite and Dr. Scott. As a result of her impending retirement, Dr. Williams did not receive a grant of equity awards in 2016.
As a result of these decisions, approximately 79% of the total 2016 target compensation for our Chief Executive Officer and approximately 63% to 69% of the total 2016 target compensation for all of our other Named Executive Officers (except Dr. Williams) was variable and dependent upon organizational performance.
Philosophy and Objectives
We offer technology-differentiated products and services that require a highly educated, specialized and sought-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 which we compete for employees;
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;
To provide a retention incentive; and
To provide a work environment that promotes integrity, innovation and excellence, 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.officers and create direct alignment with our shareholders by providing equity ownership in the Company. 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 to meet our objectives. We have describeddescribe below the principal components of our compensation program and the purpose of each component.
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, 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 Salaries — To provide fixed compensation to attract and retain the best employees at all levels
| |
| ◦ | Base pay opportunities for all positions are determined based on competitive market data, including salary surveys and other sources, internal responsibilities and each employee’s experience, qualifications, performance and potential impact within our organization. |
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 have a portion of targeted total compensation at risk, contingent on performance relative to corporate objectives including, for employees (not including Named Executive Officers and certain other senior officers), individual objectives. Employees should share in rewards when mutual efforts contribute to outstanding overall results. |
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 incentiveincentives in the face of retention challenges
| |
| ◦ | Key decision-makers 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 highly educated, specialized and sought-after leaders, particularly in competition with companies with significantly greater resources. |
| |
| ◦ | Long-term equity awards, such as awards of restricted stock, restricted stock units and stock options, 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 unvested awards of restricted stock, restricted stock units and in-the-money stock options can 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, paid vacation 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 the Named Executive Officers or our other senior officers any deferred compensation or special retirement or pension plans or any benefits or perquisites that are not available to our employees generally. |
Severance Policy and Change of Control Agreements — To attract and retain officers and to encourage them to remain focused and engaged in the event of rumored or actual fundamental corporate changes and during any corporate transition.
| |
| ◦ | We provide continuation of compensation and benefits to certain officers if they are terminated without Cause or resign for Good Reason, as those terms are defined in our policies and agreements. |
Other Compensation-Related Policies and Practices — To enforce our commitment to good corporate governance practices related to compensation, including:
| |
| ◦ | Our insider trading policy prohibits transactions that involve pledging, hedging or short sales of our equity. Our Chief Executive Officer is subject to, and in compliance with, our stock ownership guidelines, which encourage a level of stock ownership that we believe appropriately aligns his long-term interests with those of our shareholders. We have a clawback or recoupment policy for certain performance-based incentive compensation of our executive officers. |
Benchmarking and Other Factors
For its 2016 compensation decisions, the Compensation Committee considered Mercer’s recommendations to contextualize the overall total compensation approach and general market competitiveness and compared the compensation approach to our peer group companies.
Each year, to assist the Compensation Committee in its deliberations on executive compensation, the Compensation Committee reviews and updates our list of peer companies (our “Peer Group”) as points of comparison, as necessary, to ensure that the comparisons are meaningful. When considering companies for inclusion in our Peer Group, the Compensation Committee considers companies that are in our industry and similar other industries such as application software, systems software, communications equipment, electronic components, electronic equipment and instruments, technology hardware, storage and peripherals, are similar to us with respect to elements such as operating results, research and development investments and product solutions, size of revenue (approximately 0.5x to 2x our target revenue for year-end 2016), market capitalization and those companies with whom we compete in the recruitment of executive officers. Based on these factors and management’s input, Mercer recommended, and the Compensation Committee approved, the following companies to comprise our Peer Group for 2016: Ansys Inc., Avid Technology, Inc., Cavium Inc., Commvault Systems, Inc., Extreme Networks, Inc., F5 Networks, Inc., Finisar Corp. Fortinet Inc., Mellanox Technologies Inc., Netgear Inc., OSI Systems, Quantum Corp., Silicon Graphics International Corp. and Super Micro Computer, Inc.
Between 2015 and 2016, our Peer Group changed with (i) the addition of Netgear Inc., Finisar Corp, and Fortinet Inc. based on industry, revenue size and business description, and (ii) the removal of FEI Company (acquired by Thermo Fisher), Qlik Technologies, Inc. (taken private), QLogic Corporation (acquired by Cavium) and Harmonic Inc. (due to its respective small revenue size compared to us). The Compensation Committee also relied on data from the 2016 Radford Global Technology Survey, which is comprised of organizations within the technology sector and includes data subsets that are comprised of organizations that are similar to us in terms of revenue. However, the Compensation Committee does not benchmark its compensation to any particular level or against any specific member of the Peer Group. Rather, it utilizes the Peer Group information and the Radford and International Pay Analysis System, or IPAS, surveys as data points in determining, with the assistance of Mercer, the appropriate overall total compensation.
As in previous years, the Compensation Committee, in making specific decisions regarding each Named Executive Officer’s (other than Mr. Ungaro’s) compensation, 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 Cray and the reasonableness of the officer’s compensation in light of our compensation objectives and our operational and financial performance. Historically, we have had, and we continue to have, a relatively flat salary structure for our senior officers, with the significant differences in total compensation among the senior officers reflected in short-term cash and long-term equity incentive awards. This approach helps us provide a market competitive base salary and also provides the potential for higher compensation levels based on performance-dependent, short- and long-term incentives.
The Compensation Committee recognizes that competition for our Named Executive Officers, including Mr. Ungaro, generally comes from a variety of organizations in the high-performance computing industry or other technology companies, including much larger companies.
Each of the Named Executive Officers has significant high performance computing experience or achievements and/or a role not reflected in general survey and peer group analyses. The Compensation Committee also supplemented the specific compensation information provided by Mercer with its collective experience, judgment and trending assumptions to establish the 2016 compensation for the Named Executive Officers and other senior officers.
Results of the 2016 Say-on-Pay Vote
We value the input of our shareholders on our compensation programs. We hold an advisory vote on executive compensation on an annual basis. When designing our 2016 executive compensation program for our Named Executive Officers, the Compensation Committee carefully considered, among other things, the vote results from our prior annual meeting, including the results of our say-on-pay vote that have reflected support for our compensation practices, as well as the lack of any significant shareholder feedback requiring compensation changes, and decided to continue our existing compensation policies and practices. In addition, we engage in dialogue with our large shareholders on an ongoing basis. The Compensation Committee will continue to consider the results of our say-on-pay votes when making future compensation decisions for Named Executive Officers.
2016 Compensation Determinations
Base Salary
The Compensation Committee uses a salary structure based on market data as a tool to estimate competitive base salaries. With Mr. Ungaro’s assistance (except with respect to Mr. Ungaro’s salary), the salary of each executive officer is evaluated relative to the market reference points, and according to experience, qualifications, performance and the particular impact the role can have within Cray. We determined that the salaries of our Named Executive Officers, which had not been increased since 2013 in some instances, had fallen below our desired positioning.
The Compensation Committee considered the base salaries of our Named Executive Officers and determined that an increase was appropriate and, effective July 2, 2016, increased the base salaries from $500,000 to $540,000 for Mr. Ungaro, from $365,000 to $400,000 for Mr. Henry, from $280,000 to $325,000 for Mr. Morreale, from $290,000 to $325,000 for Mr. Piraino, from $350,000 to $380,000 for Dr. Scott and from $300,000 to $325,000 for Mr. Waite. The salary of Dr. Williams remained unchanged from 2015. While Named Executive Officers’ salaries are reviewed each year, increases are infrequent because we believe increases of just a few percent are unlikely to provide significant motivation or retention value for highly compensated senior executives. Our current approach is to increase the salaries of our Named Executive Officers typically when they fall significantly below our target position in the market, which results in somewhat less frequent but larger adjustments.
Annual Cash Incentive Compensation Plans
Our 2016 annual cash incentive plans, which include the 2016 Executive Bonus Plan and the annual cash incentive plan for our employees (the “2016 Employee Bonus Plan;” together with the 2016 Executive Bonus Plan, collectively the “2016 Bonus Plans”), are an important element of the compensation program for our employees and senior officers, including the Named Executive Officers. Our 2016 Bonus Plans were based on quantitative financial goals with different weightings, which we refer to as the “balanced scorecard.” These awards were payable only if specified performance levels were achieved. In addition, the 2016 Employee Bonus Plan included an individual performance component.
Based on analysis of our Peer Group and the Radford and IPAS surveys described above, for 2016, the target awards as a percentage of base salary for Messrs. Ungaro and Piraino and Dr. Williams were above the 75th percentile, the target award as a percentage of base salary for Dr. Scott was at the 75th percentile and the target awards for Messrs. Henry, Morreale and Waite were between the 50th and 75th percentiles. We maintained all target bonus awards as a percentage of base salary at the same levels as in 2015. However, the Compensation Committee does not benchmark its compensation to any particular level or against any specific member of the Peer Group. Rather, it utilizes the Peer Group information as a data point in determining, with the assistance of Mercer, the appropriate compensation. The Compensation Committee believes that the Named Executive Officers should have a meaningfulgreater proportion of their variable compensation relative to total compensation at-risk and based on performance, thus emphasizing the incentive nature of their compensation. The Compensation Committee also believes that the incentive plan targets should contain rigorous thresholds that must be met before the target awards can be earned.
Annual Cash Incentive Compensation Targets
The following table sets forth the 2016 target award amount for our Named Executive Officers pursuant to our 2016 Executive Bonus Plan:
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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 | | 65% |
| Charles A. Morreale | | Senior Vice President, Field Operations | | 65% |
| Michael C. Piraino | | Senior Vice President Administration, General Counsel and Corporate Secretary | | 65% |
| Margaret A. Williams | | Senior Vice President, Research and Development | | 75% |
| Steven L. Scott | | Senior Vice President and Chief Technology Officer | | 65% |
| Ryan W. J. Waite | | Senior Vice President, Products | | 65% |
General Conditions
The minimum percentage achievement for each balanced scorecard goal was 25% of target (at the “Threshold” level - below the Threshold achievement was set at 0%) and the maximum was 200% of target (at the “Maximum” level). In addition, our approach has been to set “stretch” goals such that even threshold attainment can reflect a significant accomplishment and therefore 0% attainment on a particular goal can result from what by external standards could be deemed successful execution. Each of the goals is weighted, as described below, to determine the overall percentage payout.
The aggregate bonus payment to all participants (including Named Executive Officers and employees) under our 2016 Bonus Plans may not exceed 30% of PBOI. To the extent, absent this cap, the aggregate bonus payment under the 2016 Bonus Plans would exceed 30% of PBOI, all such bonus payments are reduced on a pro-rata basis such that the aggregate bonus payment under the 2016 Bonus Plans equals 30% of PBOI. For 2016, a PBOI cap adjustment was required and all bonuses were reduced to 54.65% of their otherwise calculated level.
The 2016 Executive Bonus Plan includes qualified financial goals, which are weighted the same for each Named Executive Officer.
Qualified Financial Goals
The following are the qualified financial goals included in our 2016 Bonus Plans and the rationale for including them. These goals were established by our Compensation Committee:
Revenue — To emphasize the importance of improving our overall financial performance by expanding our addressable markets in areas where we can leverage our experience and technology, and to measure our ability to grow relative to market opportunities. (Revenue means GAAP reported total company revenue)
Commercial Revenue — To emphasize the importance of growth in this strategic market segment. (Commercial Revenue means GAAP Revenue recognized in 2016 for commercial company sales that includes product revenue, maintenance and other services. A commercial company is an entity whose goal is to make a profit for their owners and that the funds to purchase the equipment or services from Cray are not principally from government sources).
Analytics Customer Wins — To emphasize the importance of growth in this market. (An Analytics Customer Win means a binding contract to purchase a “Qualifying Product”).
Operating Income — To maintain an emphasis on profitability. (Operating income financial goals may exclude the in-year costs and benefits of acquisitions and divestitures, non-cash accounting changes, restructuring charges or impairment costs, and one-time events. In special circumstances, the Compensation Committee of the Board of Directors of Cray may, but did not in 2016, adjust the calculation of Operating Income in either direction for unusual events).
With respect to the Revenue goal, the threshold goal, or 25% attainment, was $725 million, the target goal, or 100% attainment, was $825 million, and the maximum goal, or 200% attainment, was $950 million or above. With respect to the Commercial Revenue goal, the minimum goal, or 25% attainment, was $70 million, the target goal, or
100% attainment, was $125 million, and the maximum goal, or 200% attainment, was $200 million or above. With respect to the Analytics Customer Wins, the minimum goal, or 25% attainment, was 5 wins, the target goal, or 100% attainment, was 12 wins, and the maximum goal, or 200% attainment, was 22 wins or above. With respect to the GAAP Operating Income goal, the threshold goal, or 25% attainment, was $26 million, the target goal, or 100% attainment, was $52 million, and the maximum goal, or 200% attainment, was $90 million or above.
The weighting of each of the goals was 20% for Revenue, 20% for Commercial Revenue, 20% for Analytics Customer Wins, and 40% for GAAP Operating Income. For 2016, the achievement for the Revenue, Commercial Revenue, and GAAP Operating Income goals were below Threshold. The percentage achievement for the Analytics Customer Wins goal was 62.5%.
For 2016, the overall achievement under the 2016 Executive Bonus Plan for each of our Named Executive Officers prior to reduction of payouts as a result of the PBOI cap was 12.5%, while payouts under the 2016 Executive Bonus Plan for each Named Executive Officer was 6.8% after a 54.65% reduction due to the PBOI cap.
Difficulty of Performance Goals
We believe that the Compensation Committee has historically set performance targets for our annual cash incentive plans that are achievable, but that include significant challenges 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 five years, we paid above-target awards for 2012 and 2015, and paid below-target awards for 2013, 2014 and 2016. At the time the Compensation Committee established the 2016 qualified financial goals, which was before it was broadly understood that there was a slow-down in the segments of the high-end of the supercomputing market that we target, it determined that these goals were achievable, but required significant effort to be met. While we were profitable in 2016, our revenue and profitability declined from 2015 driven in part by the market slow-down. Performance of three of these goals was below Threshold.
Discretionary Bonuses
Our Compensation Committee may award discretionary cash bonuses to, among other things, incentivize new hires, encourage retention of executives and reward individuals or groups of individuals who make exceptional contributions to Cray. No discretionary bonuses were paid to our Named Executive Officers during 2016.
Long-Term Equity Awards
Historically, and in 2016, we granted stock options, restricted stock units and/or restricted stock awards to 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 managers and 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 portion of their total target compensation opportunity linkedat risk subject to future performance; and
Provide a retention incentive.
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 retentive nature of equity awards to keep our senior management team in place.
Target Total Equity Awards
Mercer provided market data estimating the total long-term incentive values expressed as multiples of base salaries for each of the Named Executive Officers. The Compensation Committee has not used any one factor in its equity grant determinations. Rather, in determining the size of equity awards, the Compensation Committee considered the Named Executive Officer’s (i) contributions to our successoverall performance, (ii) future potential performance and contributions to Cray, (iii) current ownership of our common stock, (iv) extent and frequency of prior stock option grants and restricted stock awards and/or restricted stock units and (vi) unvested stock options and restricted stock awards and/or restricted stock units and the remaining duration of the outstanding stock options, restricted stock awards and/or restricted stock units.
The following table sets forth the value of the 2016 equity grants to the Named Executive Officers expressed as a multiple of their respective base salary:
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| | | | |
| Named Executive Officers | | Title | | Total Equity Award Value As A Multiple of Base Salary (1) |
| Peter J. Ungaro | | President and Chief Executive Officer | | 2.27x |
| Brian C. Henry | | Executive Vice President and Chief Financial Officer | | 1.53x |
| Charles A. Morreale | | Senior Vice President, Field Operations | | 1.08x |
| Michael C. Piraino | | Senior Vice President Administration, General Counsel and Corporate Secretary | | 1.08x |
| Margaret A. Williams | | Senior Vice President, Research and Development | | — (2) |
| Steven L. Scott | | Senior Vice President and Chief Technology Officer | | 1.15x |
| Ryan W. J. Waite | | Senior Vice President, Products | | 1.08x |
| |
| (1) | These multiples are based on the closing price per share of our common stock on the date of grant for restricted stock units and the value of the closing price per share of our common stock one business day prior to the date of grant for stock options based on the Black-Scholes Model. |
| |
| (2) | As a result of her impending retirement, Dr. Williams did not receive a grant of equity awards in 2016. |
For additional information regarding equity grants in or progress towards meeting our long-term objectives2016 and increasing shareholder value.in prior years, see the tables and associated footnotes and narratives under “Compensation Tables” below.
SignificantTo provide longer-term performance and retention incentives, we generally grant stock options and restricted stock units. Our stock options typically have ten-year terms and four-year vesting schedules, with the exercise price equaling 100% of the most recent closing price for our common stock as reported by NASDAQ prior to the date of grant. Our time-based vesting restricted stock units typically have four-year vesting schedules. Equity awards are necessarytypically granted each year to retain highly educated, specializedcertain employees. Whether grants are made and sought-after leaders, particularlythe number of shares granted varies based on many factors, including financial performance and retention concerns. As financial gain from stock options depends on increases in competition with companies with significantly greater resources.
Optionthe market price for our common stock after the date of grant, we believe stock 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 all of our shareholders;shareholders. In addition, for unvested restricted stock units, 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 grants of restricted stock units or options provide a retention incentive.
Stock options, however, represent a high-risk and potential high-return component, as the realizable value, and consequently the retention incentive, of each stock option can fall to zero if the market price for the underlying common stock falls below the exercise price.EmployeeIn 2016, we granted time-based vesting restricted stock units and stock options to each of our Named Executive Officers, except Dr. Williams, to whom we did not grant equity awards in 2016 as a result of her impending retirement. For Messrs. Ungaro, Henry, Morreale, Piraino and Waite and Dr. Scott, 25% of such restricted stock units vest on each of May 19, 2017, May 19, 2018, May 19, 2019 and May 19, 2020. For Messrs. Ungaro, Henry, Morreale, Piraino and Waite and Dr. Scott, 25% of such stock option awards vest on May 19, 2017, with the remaining balance vesting monthly over the next 36 months so that all options will be vested on May 19, 2020.
Severance Policy and Change of Control Agreements
The Company’s Executive Severance Policy, management retention agreements, stock option plans and equity award agreements provide for certain employment termination and/or change in control benefits. Each is 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 (the “Cray 401(k) Plan”). 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 previously purchased in such plan on their behalf. For 2016, we matched 20% of each participant’s total 2016 contributions in cash.
We do not have a 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 — Toand Perquisites
We have health and welfare plans available on a non-discriminatory basis to all U.S. employees designed to meet the health and welfare needs of our employees and their dependents
families and to provide a total competitive compensation package. We assist employees in meeting important needs such as retirement income, affordable health care, survivor income, disability income, paid vacation 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 providethese benefits to the Named Executive Officers or ourand other senior officers any deferred compensation or special retirement or pension plans nor anyon the same terms and conditions as provided to all other eligible employees:
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 insurance;
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 plan.
We do not provide benefits or perquisites for the Named Executive Officers or other senior officers that are not available on the same terms to our employees generally.
Severance PolicyChief Executive Officer Stock Ownership Guidelines
We have stock ownership guidelines for our Chief Executive Officer in furtherance of our goal of aligning the interests of our Chief Executive Officer with those of our shareholders. Under the guidelines prior to August 4, 2016, our Chief Executive Officer was expected to hold 200,000 vested shares of our common stock, which amount represented, when we adopted this guideline, at least three (3) times the value of his then-current base salary based on the closing stock price of our stock as of December 31, 2010 (this amount is greater than three (3) times his current base salary based on the closing price per share of our common stock on December 31, 2016), within the later of five years from appointment as Chief Executive Officer and ChangeFebruary 2016. Mr. Ungaro satisfied these requirements. As of Control Agreements — To attractAugust 4, 2016, our Chief Executive Officer is required to hold such number of shares that equal in value at least three times his annual base salary. Mr. Ungaro also satisfies the new requirements.
Compensation Recovery
We have a recoupment or “clawback” policy for cash and retain officersequity incentive awards paid to executive officers. The policy provides that if an executive officer’s actual compensation was based upon the achievement of 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 encourage officersthat financial restatement, then, in addition to remain focusedany other remedies available to us under applicable law, to the extent permitted by law and engagedas 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 the event of rumored or actual fundamental corporate changes and during any corporate transition
We provide continuation ofgreater compensation and benefits to certain officers if they are terminated without Cause or resign for Good Reason, as those terms are defined in our policies and agreements.
than would have otherwise been received.
The Executive Compensation Process
The Compensation Committee determines base salary, the level of target awards under our annual cash incentive plan for executive officers, 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 the year. In making these determinations, the Compensation Committee considers our corporate goals, business plan and objectives for the year, reviews analyses from our independent compensation consultant, Mercer, and consults with our Chief Executive Officer, when appropriate. For its 2016 compensation decisions, the Compensation Committee considered the Mercer analyses described below to contextualize our overall total compensation approach and general market competitiveness. The Compensation Committee also analyzed compensation payable by companies that we consider to be in our Peer Group and by other companies with which we generally compete for hiring executives. The Compensation Committee also considered the roles, responsibilities and specialized expertise of the Named Executive Officers, including our Chief Executive Officer, and that competition for our Named Executive Officers generally comes from much larger companies with significantly greater resources.
Role and Authority of the Compensation Committee
The current members of the Compensation Committee are
Frank L. LedermanMr. Schireson (Chair),
John B. Jones, Jr., Stephen C.Mr. Kiely and
Stephen C. Richards. John B. Jones, Jr. will not be standing for re-electionMr. Turner. Mr. Turner was appointed as a member to the
Board of Directors and hisCompensation Committee on April 18, 2016. Ms. Narodick’s term as a
Board member
andof the Compensation Committee
member will expire upon the AnnualMeeting.ended on August 4, 2016. The Board has determined that each individual who served on the Compensation Committee in 20132016 and each current member of the Compensation Committee is “independent,” as that term is defined in NasdaqNASDAQ rules and regulations, and an “outside director” within the meaning of Section 162(m) of the IRC and a “non-employee director” as defined in Rule 16b-3 under the Exchange Act. During 2013,2016, 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
for executive officers, 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, subject to any approval by the full Board which the Compensation Committee or legal counsel determines to be desirable or that is required by applicable law or
the listing standards of the Nasdaq Stock Market.by NASDAQ rules and regulations.
The Compensation Committee also: determines the policy for awarding stock options and/or restricted stock
grantsunits to
other new
hires;hires who are not senior officers; makes grants of stock options and/or restricted stock
units to other employees;
evaluates risks, if any, associated with our compensation programs; works with the Board in overseeing
ourthe Cray 401(k) Plan; periodically reviews our staffing, including open positions and turnover; receives reports on our health and safety records and any equal employment opportunity claims, investigations and reports; and considers our medical and other health benefits, including potential changes and enhancements, from both a cost and a competitive perspective.
The Compensation Committee may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Compensation Committee or to officers to perform certain of its duties on its behalf.
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 Resourceshuman 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
twice each year with Mr. Ungaro to review his performance and at least once a year to review 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
for executive officers, including target awards and performance goals and objectives for each senior officer, and the level and form of equity grants.
Role of Compensation Consultants
The Compensation Committee retained Mercer to review our compensation programs for senior officers, advise the Compensation Committee regarding total compensation philosophy, define the applicable market and conduct benchmarking analyses, and provide continuing insight into and education on executive compensation trends and practices. The Compensation Committee actively seeks an independent broad view of current compensation levels, practices and programs, particularly in the high-technology industry. Mercer reported directly to the Compensation Committee and has not performed any services for our management either prior to or since its engagement by the Compensation Committee.
TheDuring 2016, the Compensation Committee reviewed the services of Mercer and the fees provided to Mercer relative to Mercer’s revenues. Based on the foregoing, and other factors relating to Mercer’s independence, the Compensation Committee confirmed that Mercer was an independent compensation advisor to the Compensation Committee and that
their respective engagementsits engagement did not present any conflicts of interest.
Benchmarking and Other Factors
For its 2013 compensation decisions, the Compensation Committee considered Mercer’s recommendations to contextualize the overall total compensation approach and general market competitiveness and compared the compensation approach to our peer group companies.
When considering companies for inclusion as one of our peer group companies, the Compensation Committee considers companies that are in our industry, are similar to us with respect to elements such as operating results, research and development investments and product solutions, and those companies with whom we compete in the recruitment of executive officers. For 2013, the Compensation Committee selected companies to comprise our peer group including F5 Networks, Inc., Super Micro Computer, Inc., Fei Company, Silicon Graphics International Corp., Silicon Laboratories Inc., Semtech Corporation, Emulex Corporation, QLogic Corporation, Fusion-io, Inc., Ocz Technology Group, Inc., Extreme Networks, Inc., Lattice Semiconductor Corporation, Silicon Image, Inc., Radisys Corporation, Micrel, Incorporated, Mercury Systems, Inc. and Electro Scientific Industries, Inc.
Additionally, the Compensation Committee also relied on data from the 2012 Radford Global Technology Survey, which is comprised of organizations within the technology sector and includes data subsets that are comprised of organizations that are similar to us in terms of size.
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 Cray 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 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 and long-term incentives.
The Compensation Committee recognized that competition for 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, there are less consistently defined positions across technology companies so that the survey and peer group compensation information is less directly applicable to them.
Each of the Named Executive Officers has significant high performance computing experience and/or achievements and roles not reflected in general survey and peer group analyses. The Compensation Committee also supplemented the specific compensation information provided by Mercer with its collective experience, judgment and trending assumptions to establish the 2013 compensation for the Named Executive Officers and other senior officers.
Results of the 2013 Say on Pay Vote
The Compensation Committee considered the results of our 2013 say on pay vote that reflected strong support for our compensation practices and decided to continue our existing compensation policies and practices. At the 2011 annual shareholders meeting, the shareholders voted, on an advisory basis, to approve the Board’s recommendation that future advisory votes on our executive compensation be held every year and we have determined to follow the shareholder vote and hold an advisory vote on our executive compensation every year.
Results of the 2013 Equity Plan Vote
The Compensation Committee considered the results of our 2013 equity incentive plan vote that reflected strong support for our equity compensation practices and decided to continue our existing equity compensation policies and practices.
2013 Compensation Determinations
Overview — Total Target Compensation
The Compensation Committee has adopted a total target compensation approach for our Named Executive Officers and other senior officers that framed its decisions covering:
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 2012 and earlier and in light of Mercer’s analyses and other factors described in this Proxy Statement, the Compensation Committee:
Increased base salaries for three of our five Named Executive Officers;
Maintained the target bonus awards (as a percentage of base salary) for all of our Named Executive Officers under the balanced scorecard component of our annual cash incentive plan; and
Granted long-term equity awards in the form of stock options, restricted stock and performance vesting restricted stock to each Named Executive Officer.
As a result of these decisions, approximately 73% to 85% of the total 2013 target compensation for our Named Executive Officers was performance-based and reliant on organizational and individual performance.
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 a salary structure based on market data as a tool to estimate competitive base salaries. The positions are first placed in a band in the salary structure based on competitive market data. With Mr. Ungaro’s assistance (except with respect to Mr. Ungaro’s salary), the salary of each executive officer is evaluated relative to the market median salary according to experience, qualifications, performance and the particular impact the role can have within Cray. Actual salaries of Named Executive Officers averaged at or below the estimated market median of the position based on competitive market data.
To recognize growth in their organizational management responsibilities, to recognize their individual performances, in consideration of the placement of their existing base salary relative to the market median and in consideration of the fact that Messrs. Ungaro’s and Henry’s, base salaries had not been increased since 2009, the Compensation Committee increased Messrs. Ungaro’s, Henry’s and Piraino’s base salaries, by $50,000, $25,000, and 30,000, respectively. Messrs. Blake’s and Parthasarathi’s base salaries were unchanged in 2013. In 2013, after taking into account the increase to base salaries discussed above, our Named Executive Officers’ base salaries were between the 25th percentile and the median percentile for our peer group companies.
Annual Cash Incentive Compensation Plan
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 2013, 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 2012. These awards were payable only if the specified performance objectives were achieved.
Based on benchmarking data, the target awards as a percentage of base salary for Messrs. Ungaro, Blake and Piraino were above the 75th percentile and Messrs. Henry and Parthasarathi were between the 50th and 75th percentiles. When comparing our Named Executive Officers to benchmarking data, the Compensation Committee wants a greater proportion of their variable compensation relative to total compensation to be at risk and based on performance, thus emphasizing the incentive nature of their compensation, and the Compensation Committee also believes that the incentive plan targets contained rigorous thresholds that must be met before the target awards could be earned, which thresholds had prevented incentive plan awards being paid in previous years.
Annual Cash Incentive Compensation Targets
The following table shows the 2013 target award amount for each Named Executive Officer under our annual cash incentive plan:
| | | | | | |
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 | | | 65 | % |
William C. Blake
| | Senior Vice President and Chief Technology Officer | | | 65 | % |
Arvind Parthasarathi
| | Senior Vice President and General Manager, YarcData | | | 65 | % |
Michael C. Piraino
| | Vice President Administration, General Counsel and Corporate Secretary | | | 55 | % |
Balanced Scorecard Awards
The following is a description of the balanced scorecard components and goals for our 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 200% (at the “Maximum” 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.
The aggregate bonus payment to all participants under the annual cash incentive plans for executive officers and employees (the “Bonus Plans”) may not exceed 50% of PBOI (“pre-bonus” operating income, defined below). To the extent, absent this cap, the aggregate bonus payment under the Bonus Plans would exceed 50% of PBOI, all such bonus payments are reduced on a pro-rata basis such that the aggregate bonus payment under the Bonus Plans equals 50% of PBOI. “PBOI” means Operating Income with aggregate bonuses paid under the Bonus Plans added back.
Balanced Scorecard Goals. In setting 2013 performance goals for the annual cash incentive plan, the Compensation Committee set performance goals with varied weighting for each Named Executive Officer, depending on their areas of responsibility and the factors over which they have the most influence. Each Named Executive Officer had individual leadership goals and the following quantitative financial goals for 2013, for the following reasons:
Revenue to emphasize the importance of improving our overall financial performance by expanding our addressable market in areas where we can leverage our experience and technology.
Adjusted Operating Income (our reported operating income after adding back any non-cash accounting changes, restructuring charges or impairment costs and one-time events), to reward both controlling expenses and increasing gross profit contributions toward our goal of sustained profitability.
Big Data Business Revenue (2013 storage and data management revenue and certain qualifying big data related revenue or bookings from our other business units) to emphasize the importance of these early-stage but growing businesses.
Cluster Solutions and Cluster-Attached Storage Revenue (revenue from our new CCS business unit together with revenue from our storage and data management business that is not attached to our traditional compute products) to emphasize the importance of growing this new segment of our business.
With respect to the Revenue goal, the minimum goal, or 25% attainment, was $450 million, the target goal, or 100% attainment, was $525 million, and the maximum goal, or 200% attainment, was $625 million. With respect to the Adjusted Operating Income goal, the minimum goal, or 25% attainment, was $3 million, the target goal, or 100% attainment, was $16 million, and the maximum goal, or 200% attainment, was $33 million. With respect to the Big Data Business Revenue goal, the minimum goal, or 25% attainment, was $70 million, the target goal, or 100% attainment, was $85 million, and the maximum goal, or 200% attainment, was $110 million. With respect to the CCS and Cluster-Attached Storage Revenue goal, the minimum goal, or 25% attainment, was $70 million, the target goal, or 100% attainment, was $95 million, and the maximum goal, or 200% attainment, was $130 million.
In addition to the quantitative financial goals, each Named Executive Officer had his own leadership goals, which are described in more detail below. With respect to the leadership goals, the minimum goal, or 25% attainment, was Meets Some Expectations, the target goal, or 100% attainment, was Fully Meets/Sometimes Exceeds Expectations, and the maximum goal, or 200% attainment, was Dramatically Exceeds Expectations.
If actual results fell between the specified levels but above the minimum threshold goal, a resulting percentage could, in the discretion of the Compensation Committee, be interpolated.
Individual Balanced Scorecards. The 2013 scorecards for each Named Executive Officer are the same except for their Leadership goals and with respect to the weighting of Mr. Parthasarathi’s scorecard which included a greater emphasis on his YarcData-specific goals that were included in his Leadership goals and lesser emphasis on Revenue and CCS and Cluster-Attached Storage Revenue.
Peter J. Ungaro — Mr. Ungaro’s scorecard was weighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 10% for leadership goals. Mr. Ungaro’s leadership goals included strategy development and execution goals, which included winning a role in a major research and development contract, positioning the company for growth, building a big data strategy, living our core values and continued compliance with applicable governmental rules and regulations.
Brian C. Henry — Mr. Henry’s scorecard was weighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 10% for leadership goals. Mr. Henry’s leadership goals included goals relating to the integration of Appro International,
Inc., on-time delivery of manufactured products, implementing a finance and budgeting tool, living our core values and continued compliance with applicable governmental rules and regulations.
William C. Blake — Mr. Blake’s scorecard was weighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 10% for leadership goals. Mr. Blake’s leadership goals included developing a strategy for large-scale data-intensive computing, establishing a MapReduce/Hadoop programming model, shifting from a Statement of Work based product planning process to a broader market-in customer driven approach, living our core values and continued compliance with applicable governmental rules and regulations.
Arvind Parthasarathi — Mr. Parthasarathi’s scorecard was weighted 15% for Revenue, 20% Big Data Business Revenue, 5% for CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 20% for leadership goals. Mr. Parthasarathi’s leadership goals included bookings goals, acquisition of new customers, Urika deliverables, product development, living our core values and continued compliance with applicable governmental rules and regulations.
Michael C. Piraino — Mr. Piraino’s scorecard was weighted 20% for Revenue, 20% Big Data Business Revenue, 10% for CCS and Cluster-Attached Storage Revenue, 40% for Adjusted Operating Income and 10% for leadership goals. Mr. Piraino’s leadership goals included specific goals relating to the many administrative departments for which he is responsible, living our core values and continued compliance with applicable governmental rules and regulations.
For 2013, the percentage achievement for the Revenue goal was determined to be 100.8%, the percentage achievement for the Adjusted Operating Revenue goal was determined to be 131.9%. Attainment against the Big Data Business Revenue goal and the CCS and Cluster-Attached Storage Revenue goal was determined to not meet the minimum thresholds.
It was determined that each of Messrs. Ungaro, Henry and Piraino attained 100% of their respective leadership goals under the 2013 cash incentive plan, Mr. Blake attained 92% of his leadership goals, and Mr. Parthasarathi attained 85% of his leadership goals under the 2013 cash incentive plan.
Difficulty of Performance and Net Income Targets
We believe that the Compensation Committee has 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 eight years, we paid no cash incentive awards for 2007, paid at-target awards for 2006, paid above-target awards for 2008 and 2012, and paid below-target awards for 2009, 2010, 2011 and 2013.
Discretionary Bonuses
Our Compensation Committee may award discretionary bonuses to, among other things, incentivize new hires, encourage retention of executives and reward individuals or groups of individuals who make exceptional contributions to Cray. No discretionary bonuses were awarded to Named Executive Officers in 2013.
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.
Time-Based Equity Awards
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). Equity awards are typically granted each year. Whether grants are made and the number of shares granted vary based on many factors, including financial performance and retention concerns. As financial gain from stock options depends on increases in the market price for our common stock after the date of grant, we believe 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 all of our shareholders. In addition, 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. Stock options, however, represent a high-risk and potential high-return component, as the realizable value, and consequently the retention incentive, of each option can fall to zero if the market price for the underlying common stock falls below the exercise price.
We grant restricted stock with vesting dependent on continued employment, generally with four-year vesting schedules, with one quarter of the granted shares vesting each year. 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.
Performance-Based Equity Awards
To provide specific performance incentives with respect to the development of our YarcData business, some of our employees, including all Named Executive Officers, were granted Performance Vesting Restricted Stock Awards in 2013, which were one-time grants associated with the development of our YarcData business. These awards of restricted stock vest, if at all, only upon the achievement of certain operational and strategic performance criteria exclusively related to the operation of our YarcData business or upon a change of control of Cray. The amount that would vest as a result of a change of control depends on the gross proceeds received by our shareholders. The gross proceed levels are set at the time of grant with an objective of increasing the reward to the extent that the YarcData business likely contributed materially to the amount of gross proceeds received by our shareholders. We currently believe that achieving such operational and strategic performance criteria will be very difficult, even when considered over a multi-year time horizon.
The Performance Vesting Restricted Stock Awards do not provide for any time-based vesting and the value that such employee will receive, if any, is contingent solely upon the achievement of the performance criteria. The Performance Vesting Restricted Stock Awards will expire completely if the operational and strategic performance vesting criteria are not satisfied by the calendar day immediately following that date on which we file our Form 10-K with the SEC for the fiscal year ended December 31, 2016. In 2013, the number of time-based Restricted Stock grants that would have normally been awarded was reduced for all of our executive officers, including each Named Executive Officer, as an offset to the addition of the grant of Performance Vesting Restricted Stock. Our executive officers and each Named Executive Officers received fewer time-based Restricted Stock awards in 2013 than they would have typically been granted had we not granted Performance
Vested Restricted Stock Awards. Our typical practice is to award the same number of time-based Restricted Stock and stock options to our executives, but in 2013, we reduced the number of time-based Restricted Awards in light of the Performance Vesting Restricted Stock Awards in 2013. The Performance Vesting Restricted Stock Awards granted in 2013 were meant to provide additional focus on the development of our YarcData business.
Target Total Equity Awards
Mercer provided market data estimating the total long-term incentive values expressed as multiples of base salaries for each of our Named Executive Officers. In determining the size of equity awards, the Compensation Committee considered the Named Executive Officer’s (i) contributions to our overall performance, (ii) future potential performance and contributions to Cray, (iii) current ownership of our common stock, (iv) extent and frequency of prior option grants and restricted stock awards and (vi) unvested stock options and restricted stock and the remaining duration of the outstanding options and restricted stock. When considering the total target equity awards for 2013, given the contingency and difficulty of achievement, the Compensation Committee significantly discounted the value of Performance Vesting Restricted Stock Awards. The value of the 2013 equity grants to the Named Executive Officers expressed as a multiple of base salary were generally above the estimated market medians primarily due to the one-time addition of Performance Vesting Restricted Stock, and consistent with our compensation philosophy and objectives described above.
| | | | |
Named Executive Officers
| | Title
| | Total Equity Award Value As A
Multiple of Base Salary(1)
|
Peter J. Ungaro
| | President and Chief Executive Officer | | 3.3x |
Brian C. Henry
| | Executive Vice President and Chief Financial Officer | | 2.5x |
Arvind Parthasarathi
| | Senior Vice President and General Manager, YarcData | | 4.7x |
William C. Blake
| | Senior Vice President and Chief Technology Officer | | 2.1x |
Michael C. Piraino
| | Vice President Administration, General Counsel and Corporate Secretary | | 2.0x |
(1) | These multiples are based upon the total equity award value at the time the Compensation Committee approved the grants, including the more “at risk” Performance Vesting Restricted Stock grants which have been valued according to the same methodology as time-based restricted stock (for restricted shares and Performance Vesting Restricted Stock Awards, the value is based on the closing price per share of our common stock at the time the Compensation Committee approved the grants and for stock options, the value is based on one-half of the closing price per share of our common stock at the time the Compensation Committee approved the grants) which occurred prior to the effective date of the grants. |
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. The Compensation Committee expects that the pool of options and restricted stock currently available for grants is sufficient to meet our current and future requirements.
For information regarding equity grants in 2013 and in prior years, see the tables and associated footnotes and narratives under “Compensation Tables” below.
Severance Policy and Change of Control Agreements
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. We have a policy that prohibits the inclusion of any new provisions related to 280G gross-up payments and 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 any such arrangement or agreement are amended in a manner that is materially favorable to the executive.
Executive Severance Policy. In October 2002, our Board adopted an Executive Severance Policy that covered our then senior executive officers. We 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, 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 a single lump sum payment equal to six to 12 months of base salary, depending on their position and how long they have served as officers, continuation of health and term life insurance benefits for a period generally ranging from six to 12 months (or up to 18 months in certain circumstances), and outplacement services. Mr. Ungaro and Mr. Henry also receive their 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. The other covered officers also receive part or all of their respective target cash incentive awards for the year in which their employment 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. 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 that term is defined in the Policy, or prior to delivery of a notice of termination of employment for a covered officer.
Management Retention Agreements. In 2008, we began entering into change of control agreements with Named Executive Officers and certain other senior officers. In 2011, we amended the form of Management Retention Agreement, which modified the earlier agreements to comply with Section 409A of the IRC. Payments are made under these agreements only if two events occur (often referred to as a “double-trigger” form of agreement): first, there must be a Change of Control; and, second, within 24 months after the Change of Control, the officer’s employment is terminated without Cause or the officer resigns for Good Reason, as such terms are defined in the agreement. If the agreements apply, the officer is to receive a lump sum payment equal to two times the officer’s annual compensation (base salary plus annual cash incentive plan award at target), payment of the COBRA costs for medical benefits for 18 months, reimbursement of the cost of term life insurance for 24 months, the acceleration of vesting of all stock options and 12 months to exercise all options after termination or, if earlier, until the options expire, and outplacement services. If there is a dispute as to whether “Cause” or “Good Reason” exists, the officer remains an employee until the dispute is settled, with Cray having the election to have the officer continue to work or be placed on paid leave. All or a part of certain payments may be delayed to after six months following termination of employment, as required by Section 409A of the IRC. In the prior agreements, we provided 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. We have a policy that mandates any future amendments to these retention agreements meeting specific criteria must remove these gross-up payments and that no gross-up payments be included in any new retention agreements.
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 (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) provide that if Cray is sold and the existing options and restricted stock are not continued or assumed by the successor entity, or paid out an amount equal to the excess of the fair market value over the exercise price or purchase price, 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 or paid out an amount equal to the excess of the fair market value over the exercise price or purchase price, as the recipient has not received the full contemplated benefit of the equity award due to circumstances beyond the recipient’s control. In addition, our restricted stock agreements (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) generally provide that if the holder’s employment is terminated without Cause or for Good Reason following a change of control or dies or suffers a disability, all restricted shares not then vested shall immediately vest. In addition, 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 has held the restricted stock compared to the four-year vesting period.
The Executive Severance Policy, the Management Retention Agreements and the stock option plans and restricted stock agreements (other than the restricted stock agreements reflecting the Performance Vesting Restricted Stock Awards) 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. For 2013, we matched 12.5% of the participant’s total 2013 contributions in cash.
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 our 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 compensation package. We provide these benefits to the Named Executive Officers and other senior officers on the same terms and conditions as provided to all other eligible employees:
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 insurance;
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 plan.
We do not provide benefits or perquisites for the Named Executive Officers or other senior officers that are not available on the same terms to our employees generally.
CEO Stock Ownership Guidelines. We have stock ownership guidelines for our Chief Executive Officer in furtherance of our goal of aligning the interests of our Chief Executive Officer with those of our stockholders. Under the guidelines, our Chief Executive Officer is expected to hold 200,000 vested shares of our common stock, which amount represented, when we adopted this guideline, at least three (3) times the value of his then-current base salary based on the closing stock price of our stock as of December 31, 2010 (this amount is greater than three (3) times his current base salary based on the closing price per share of our common stock on December 31, 2013), within the later of five years from appointment as Chief Executive Officer and February 2016.
Compensation Recovery. We have 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.
Securities Trading Policies
Our securities trading policy includes that, except for trades pursuant to approved Rule 10b5-1 plans, directors, officers and employees may not trade in Cray securities while possessing material nonpublic information concerning Cray or trade in Cray securities outside of the applicable trading windows. Our securities trading policy further includes that directors, officers and employees may not purchase or sell puts or calls to sell or buy our common stock, engage in short sales,
put options, call options, or any other hedging transactions with respect to our common stock, or buy our common stock on margin or pledge shares of our common stock. Except for trades pursuant to approved Rule 10b5-1 plans, our policy restricts trading in Cray securities by directors, officers and employees to open window periods following the
widespread public release of our quarterly and annual financial results.
Section 162(m) of the IRC limits to
$1$1.0 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
other most highly compensated
officers.officers, unless certain requirements are met. This limitation does not apply, however, to “performance-based” compensation, as defined in the IRC. Our stock options generally qualify as “performance-based” compensation, except for incentive stock options.
Payments to our Chief Executive OfficerWe anticipate that the compensation income paid by Cray realized upon the exercise of qualifying stock options may be deductible. Compensation income paid by Cray realized upon the settlement of restricted stock units granted under a shareholder-approved equity incentive plan may be deductible if certain pre-existing performance criteria and certain
other requirements of
our most highly compensated officers under our annualSection 162(m) of the IRC are satisfied. In addition, compensation income paid by Cray as a cash
incentive plan and our outstanding restricted stock grants dobonus is generally not
qualify as “performance-based” compensation and are not deductibleanticipated to
the extent that the $1 million limit is exceeded.be fully deductible. 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.
Risk from Compensation Policies and Practices
The Compensation Committee reviews our compensation policies and practices to determine areas of resulting risk and the actions that we have taken, or should take, to mitigate any such identified risk. Based on the Compensation Committee’s review of our compensation policies and practices, we do not believe that any risks relating from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on our business. Additional information on the committee’s analysis of compensation-related risk is set forth above under “The Board of Directors - Risk Considerations in Our Compensation Program.”
Compensation Committee Report
The Compensation Committee is responsible for overseeing our 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 “About Cray —“Company - Company Information - 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 2013.2016. The Compensation Committee has worked with management for the past several years to develop a systematic compensation philosophy and structure. The Compensation Committee retained Mercer to advise the Compensation Committee. The analysis and advice provided by Mercer formed the basis in many respects for the
20132016 executive compensation decisions as described in the foregoing Compensation Discussion and Analysis.
A second focus area of the Compensation Committee has been the structure and strength of our senior management team.
Most of our current management team was hired in 2005, when Mr. Ungaro became President, or more recently, including key hires and promotions in 2008, 2009, 2011 and 2012. 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, we have made great strides in a very competitive
market and through difficult times.market. The Compensation Committee has worked with Mr. Ungaro to develop a strong “performance culture” at Cray. 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 our management group. Another aspect, as is reflected in our 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.
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
Max L.
Lederman,Schireson, Chair
John B. Jones, Jr.
Stephen C. Kiely
Stephen C. Richards
Brian V. Turner
The tables on the following pages describe, with respect to our Named Executive Officers, the
2013, 20122016, 2015 and
20112014 salaries, bonuses, incentive awards and other compensation reportable under SEC rules, plan-based awards granted in
2013,2016, values of outstanding equity awards as of year-end
2013,2016, exercises of stock options and vesting of restricted stock awards in
2013,2016, and potential payments upon termination of employment and following a Change of Control.
The following table summarizes the compensation for the indicated years for our Named Executive Officers for the year ended December 31,
2013.2016.
Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | | Salary | | | Bonus | | | Stock
Awards(1)(2) | | | Option
Awards(3) | | | Non-Equity
Incentive Plan
Compensation(4) | | | All Other
Compensation(5) | | | Total(6) | |
Peter J. Ungaro President and Chief Executive Officer | | | 2013 | | | $ | 475,000 | (7) | | $ | 3,250 | (8) | | $ | 1,353,915 | | | $ | 414,262 | | | $ | 621,750 | | | $ | 2,187 | | | $ | 2,870,364 | |
| | | 2012 | | | $ | 450,000 | | | | — | | | $ | 779,831 | | | $ | 432,598 | | | $ | 1,012,500 | | | $ | 2,125 | | | $ | 2,677,054 | |
| | | 2011 | | | $ | 450,000 | | | | — | | | $ | 603,180 | | | $ | 333,767 | | | $ | 202,500 | | | $ | 2,063 | | | $ | 1,591,510 | |
Brian C. Henry Executive Vice President and Chief Financial Officer | | | 2013 | | | $ | 352,500 | (9) | | | — | | | $ | 722,088 | | | $ | 226,672 | | | $ | 196,680 | | | $ | 2,875 | | | $ | 1,500,815 | |
| | | 2012 | | | $ | 340,000 | | | | — | | | $ | 419,909 | | | $ | 232,938 | | | $ | 331,500 | | | $ | 2,812 | | | $ | 1,327,159 | |
| | | 2011 | | | $ | 340,000 | | | | — | | | $ | 331,749 | | | $ | 183,572 | | | $ | 66,300 | | | $ | 2,750 | | | $ | 924,371 | |
William C. Blake Senior Vice President and Chief Technology Officer | | | 2013 | | | $ | 270,000 | | | | — | | | $ | 461,334 | | | $ | 132,876 | | | $ | 144,086 | | | $ | 1,896 | | | $ | 1,010,192 | |
| | | 2012 | | | $ | 181,731 | (10) | | | — | | | $ | 774,459 | (11) | | | | | | $ | 176,702 | | | $ | 60,006 | (12) | | $ | 1,192,898 | |
Arvind Parthasarathi Senior Vice President and General Manager, YarcData | | | 2013 | | | $ | 310,000 | | | | — | | | $ | 1,584,582 | | | $ | 39,081 | | | $ | 171,074 | | | $ | 1,863 | | | $ | 2,106,600 | |
| | | 2012 | | | $ | 280,192 | (13) | | $ | 40,000 | (14) | | $ | 2,433,056 | (15) | | $ | 166,384 | | | $ | 272,439 | | | $ | 1,565 | | | $ | 3,193,636 | |
Michael C. Piraino Vice President Administration, General Counsel and Corporate Secretary | | | 2013 | | | $ | 275,000 | (16) | | | — | | | $ | 461,334 | | | $ | 132,876 | | | $ | 132,226 | | | $ | 2,188 | | | $ | 1,003,624 | |
| | | 2012 | | | $ | 245,000 | (17) | | $ | 50,000 | (18) | | $ | 299,935 | | | $ | 166,384 | | | $ | 214,500 | | | $ | 2,125 | | | $ | 977,944 | |
| | | 2011 | | | $ | 230,000 | | | | — | | | $ | 241,272 | | | $ | 133,507 | | | $ | 46,000 | | | $ | 2,063 | | | $ | 652,842 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary | | Bonus | | Stock Awards (1)(2) | | Option Awards (3) | | Non-Equity Incentive Plan Compensation(4) | | All Other Compensation (5) | | Total (6) |
| Peter J. Ungaro | | 2016 | | $ | 520,000 |
| (7) | | — |
|
| | $ | 869,400 |
| (8) | | $ | 354,045 |
| | $ | 55,333 |
| | $ | 3,600 |
| | $ | 1,802,378 |
|
President and
Chief Executive Officer | | 2015 | | $ | 500,000 |
|
| | — |
|
| | $ | 4,931,928 |
| (8) | | $ | 336,897 |
| | $ | 778,500 |
| | $ | 3,600 |
| | $ | 6,550,925 |
|
| | 2014 | | $ | 500,000 |
|
| | — |
|
| | $ | 975,600 |
| (9) | | $ | 400,318 |
| | $ | 263,100 |
| | $ | 2,625 |
| | $ | 2,141,643 |
|
| | | | | | | | | | | | | | | | | | | | |
| Brian C. Henry | | 2016 | | $ | 382,500 |
| (10) | | — |
|
| | $ | 434,700 |
| (8) | | $ | 177,022 |
| | $ | 17,761 |
| | $ | 4,800 |
| | $ | 1,016,783 |
|
| Executive Vice President and Chief Financial Officer | | 2015 | | $ | 365,000 |
|
| | — |
|
| | $ | 2,465,964 |
| (8) | | $ | 168,449 |
| | $ | 244,368 |
| | $ | 4,800 |
| | $ | 3,248,581 |
|
| | 2014 | | $ | 365,000 |
|
| | — |
|
| | $ | 460,700 |
| (9) | | $ | 189,039 |
| | $ | 83,200 |
| | $ | 3,450 |
| | $ | 1,101,389 |
|
| | | | | | | | | | | | | | | | | | | | |
| Charles A. Morreale | | 2016 | | $ | 302,500 |
| (11) | | — |
|
| | $ | 248,400 |
| (8) | | $ | 101,156 |
| | $ | 14,431 |
| | $ | 4,800 |
| | $ | 671,287 |
|
| Senior Vice President, Field Operations | | 2015 | | $ | 280,000 |
|
| | — |
|
| | $ | 2,310,864 |
| (8) | | $ | 112,299 |
| | $ | 186,550 |
| | $ | 4,800 |
| | $ | 2,894,513 |
|
| | 2014 | | $ | 267,808 |
| (12) | |
|
|
| | $ | 298,100 |
| (9) | | $ | 122,319 |
| | $ | 52,800 |
| | $ | 3,450 |
| | $ | 744,477 |
|
| | | | | | | | | | | | | | | | | | | | |
| Michael C. Piraino | | 2016 | | $ | 307,500 |
| (13) | | — |
|
| | $ | 248,400 |
| (8) | | $ | 101,156 |
| | $ | 14,431 |
| | $ | 3,600 |
| | $ | 675,087 |
|
| Senior Vice President Administration, General Counsel and Corporate Secretary | | 2015 | | $ | 290,000 |
|
| | — |
|
| | $ | 2,310,864 |
| (8) | | $ | 112,299 |
| | $ | 193,778 |
| | $ | 3,460 |
| | $ | 2,910,401 |
|
| | 2014 | | $ | 290,000 |
|
| | — |
|
| | $ | 257,450 |
| (9) | | $ | 105,640 |
| | $ | 56,000 |
| | $ | 2,625 |
| | $ | 711,715 |
|
| | | | | | | | | | | | | | | | | | | | |
| Margaret A. Williams | | 2016 | | $ | 400,000 |
|
| | — |
|
| | — |
|
| | — |
| | $ | 20,494 |
| | $ | 4,800 |
| | $ | 425,294 |
|
| Senior Vice President, Research and Development | | 2015 | | $ | 400,000 |
| | | — |
| | | $ | 2,248,824 |
| (8) | | $ | 89,839 |
| | $ | 309,900 |
| | $ | 4,800 |
| | $ | 3,053,363 |
|
| | 2014 | | $ | 400,000 |
| | | — |
| | | $ | 185,850 |
| (8) | | $ | 76,998 |
| | $ | 102,900 |
| | $ | 3,450 |
| | $ | 769,198 |
|
| | | | | | | | | | | | | | | | | | | | |
| Steven L. Scott | | 2016 | | $ | 365,000 |
| (14) | | — |
|
| | $ | 310,500 |
| (8) | | $ | 126,445 |
| | $ | 16,873 |
| | $ | 4,800 |
| | $ | 823,618 |
|
| Senior Vice President and Chief Technology Officer | | 2015 | | $ | 350,000 |
|
| | — |
|
| | $ | 2,341,884 |
| (8) | | $ | 123,529 |
| | $ | 233,415 |
| | $ | 3,600 |
| | $ | 3,052,428 |
|
| | 2014 | | $ | 107,698 |
| (15) | | $ | 200,000 |
| (16) | | $ | 2,070,400 |
| (17) | | — |
| | $ | 24,900 |
| | — |
| | $ | 2,402,998 |
|
| | | | | | | | | | | | | | | | | | | | |
| Ryan W. J. Waite | | 2016 | | $ | 312,500 |
| (18) | | — |
|
| | $ | 248,400 |
| (8) | | $ | 101,156 |
| | $ | 14,431 |
| | — |
| | $ | 676,487 |
|
| Senior Vice President, Products | | 2015 | | $ | 300,000 |
|
| | — |
|
| | $ | 2,248,824 |
| (8) | | $ | 89,839 |
| | $ | 200,265 |
| | — |
| | $ | 2,838,928 |
|
| | 2014 | | $ | 23,077 |
| (19) | | $ | 160,000 |
| (20) | | $ | 814,750 |
| (21) | | — |
| | — |
| | — |
| | $ | 997,827 |
|
| |
| (1) | These amounts represent the aggregate grant date fair value of restricted stock awards and restricted stock units, without reflecting forfeitures, computed in accordance with ASC 718 for 2013, 2012 and 2011,2016, 2015 or 2014, respectively. These amounts do not represent the actual amounts paid to or realized by the Named Executive Officer for these awards during years 2013, 20122016, 2015 or 2011.2014. The value as of the grant date for restricted stock awards and restricted stock units is recognized over the number of days of service required for the grant to become vested. 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, 2016, for a description of the valuation of these restricted stock awards and restricted stock units. The amount any Named Executive Officer realizes, if any, from these restricted stock awards and restricted stock units 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. |
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, 2013, 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.
| |
| (2) | The valuation methodology for Stock Awardsrestricted stock awards and restricted stock units as described in footnote (1) assumes full vesting and maximum performance achievement and does not take into account the performance vesting criteria (and the reduced likelihood of vesting) associated with the Performance Vesting Restricted Stock Award included in the value of the Stock Awards. The Performance Vesting Restricted Stock Awards vest, if at all, only upon the achievement of certain operational and strategic RSUs granted |
in 2015 and described further in footnote (8), below. The Performance Vesting RSUs vest, if at all, only upon the achievement of certain revenue and operating income milestones or upon a change of control of Cray.
| performance criteria exclusively related to the operation of our YarcData business or upon a change of control of Cray with the amount vesting as a result of a change of control dependent on the gross proceeds received by our shareholders, with such gross proceed levels set at the time of grant with an objective of increasing the reward to the extent that the YarcData business likely contributed materially to the amount of gross proceeds received by shareholders. The Performance Vesting Restricted Stock Awards will expire completely if the operational and strategic performance vesting criteria are not satisfied by the calendar day immediately following that date on which we file our Form 10-K with the SEC for the fiscal year ended December 31, 2016. |
| (3) | These amounts represent the aggregate grant date fair value of stock option awards, without reflecting forfeitures, computed in accordance with ASC 718 for 2013, 2012 and 2011,2016, 2015 or 2014, respectively. These amounts do not represent the actual amounts paid to or realized by the Named Executive Officer for these awards during years 2013, 20122016, 2015 or 2011.2014. The value as of the grant date for stock option awards is recognized over the number of days of service required for the grant to become vested.See the sections entitled “Share-Based Compensation” and “Shareholders’ Equity” in Notes 2 and 15 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016, 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 as reported by NASDAQ 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. |
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, 2013, 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.
| |
| (4) | The information in this column reflects payments to the Named Executive Officers under our annual cash incentive plan2016 Executive Bonus Plan for the indicated year. Payments for amountamounts earned under our 2013 annual cash incentive plan2016 Executive Bonus Plan were paid in March 2014.2017. See the “Grants of Plan-Based Awards” table below and “Analyses of 2013 “2016 Compensation Determinations —- Annual Cash Incentive Compensation Plan”Plans” in the Compensation Discussion and Analysis above for a description of the 2013 annual cash incentive plan, 2016 Executive Bonus Plan, including the conditions to payments of awards. |
| |
| (5) | “All Other Compensation” for 20132016 includes matching contributions under ourthe Cray 401(k) Plan: |
| | | | |
Officer | | Cray 401(k)
Plan Match | |
Peter J. Ungaro | | $ | 2,187 | |
Brian C. Henry | | $ | 2,875 | |
William C. Blake | | $ | 1,896 | |
Arvind Parthasarathi | | $ | 1,863 | |
Michael C. Piraino | | $ | 2,188 | |
|
| | |
| Officer | | Cray 401(k) Plan Match |
| Peter J. Ungaro | | $3,600 |
| Brian C. Henry | | $4,800 |
| Charles A. Morreale | | $4,800 |
| Michael C. Piraino | | $3,600 |
| Margaret A. Williams | | $4,800 |
| Steven L. Scott | | $4,800 |
| Ryan W. J. Waite | | — |
| |
| (6) | The amounts shown in the “Total” column are the sum of the amounts shown in the columns for salary, bonus, restricted stock awards, restricted stock units, Performance Vesting RSUs, stock 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 andwith amounts not earned by or paid to the Named Executive Officers but rather amounts reflecting the grant date fair value of restricted stock awards, andrestricted stock units, options or Performance Vesting RSUs 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 (1), (2) and (3) above, there is no assurance that the Named Executive Officers will realize a total sum at or near the values shown. |
| |
| (7) | Prior to and including July 1, 2016, Mr. Ungaro’s annual salary was $500,000. Effective July 2, 2016, Mr. Ungaro’s annual salary was increased to $500,000 effective$540,000. |
| |
| (8) | The valuation methodology for the restricted stock units as described in footnote (1) assumes full vesting and maximum performance achievement and does not take into account the performance vesting criteria (and the reduced likelihood of vesting) associated with the Performance Vesting RSUs included in the value of the restricted stock units. The Performance Vesting RSUs vest, if at all, only upon the achievement of certain revenue and operating income milestones, both of which must be met, in either fiscal year 2016, 2017, 2018 or 2019, or upon a change of control of Cray. The Performance Vesting RSUs will expire completely if the milestones are not satisfied, or a change of control has not occurred, by the calendar day immediately following that date |
on which we file our Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2019. No milestones were achieved and no shares vested in 2016.
| |
| (9) | The valuation methodology for these restricted stock awards is described in footnote (1). |
| |
| (10) | Prior to and including July 1, 2013. |
(8) | This amount represents a one-time discretionary bonus received by2016, Mr. Ungaro. |
(9) | Henry’s annual salary was $365,000. Effective July 2, 2016, Mr. Henry’s annual salary was increased to $365,000 effective$400,000. |
| |
| (11) | Prior to and including July 1, 2013.2016, Mr. Morreale’s annual salary was $280,000. Effective July 2, 2016, Mr. Morreale’s annual salary was increased to $325,000. |
(10) | |
| (12) | Prior to and including June 27, 2014, Mr. BlakeMorreale’s annual salary was $255,000. Effective June 28, 2014, Mr. Morreale’s annual salary was increased to $280,000. |
| |
| (13) | Prior to and including July 1, 2016, Mr. Piraino’s annual salary was $290,000. Effective July 2, 2016, Mr. Piraino’s annual salary was increased to $325,000. |
| |
| (14) | Prior to and including July 1, 2016, Dr. Scott’s annual salary was $350,000. Effective July 2, 2016, Dr. Scott’s annual salary was increased to $380,000. |
| |
| (15) | Dr. Scott was appointed as our Senior Vice President and Chief Technology Officer in April 2012.on September 8, 2014. His 20122014 salary reflects his partial service during 2012. Mr. Blake2014. Dr. Scott was compensated based on an annual salary of $270,000.$350,000. |
(11) | |
| (16) | This amount represents a one-time signing bonus received by Dr. Scott. |
| |
| (17) | This amount reflects Mr. Blake’sDr. Scott’s initial new hire equity award, the size of which was determined as part of the negotiation of his total compensation package. |
(12) | The amount shown in |
| (18) | Prior to and including July 1, 2016, Mr. Blake’s “Other” column includes $23,500 earned byWaites’s annual salary was $300,000. Effective July 2, 2016, Mr. Blake as a director during 2012 and $36,000 paidWaites’s annual salary was increased to Knowledge Web LLC as compensation for consulting services performed by Mr. Blake.$325,000. |
(13) | |
| (19) | Mr. ParthasarathiWaite was appointed as our Senior Vice President, and General Manager, YarcData in February 2012.Products on December 1, 2014. His 20122014 salary reflects his partial service during 2012.2014. Mr. ParthasarathiWaite was compensated based on an annual salary of $310,000.$300,000. |
(14) | |
| (20) | This amount represents a one-time signing bonus received by Mr. Parthasarathi.Waite. |
(15) | |
| (21) | This amount includesreflects Mr. Parthasarathi’sWaite’s initial new hire equity award, the size of which was determined as part of the negotiation of his total compensation package. |
(16) | Mr. Piraino’s annual salary was increased to $290,000 effective July 1, 2013. |
(17) | Mr. Piraino’s annual salary was increased to $260,000, effective June 30, 2012. |
(18) | This amount represents a one-time discretionary bonus received by Mr. Piraino. |
Grants of Plan-Based Awards in 20132016 The following table sets forth certain information with respect to the potential cash incentive awards and the equity awards for the year ended December 31,
2013,2016, to the Named Executive Officers. See
“Analyses of 2013“2016 Compensation Determinations
—- Annual Cash Incentive Compensation
Plan”Plans” and
“—“2016 Compensation Determinations - Long-Term Equity Awards” in the Compensation Discussion and Analysis above.
Grants of Plan-Based Awards
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Grant
Date | | | Approval
Date | | | Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(1) | | | All
Other
Stock
Awards
(shares) | | | Other
Option Awards
(underlying
shares) | | | Exercise
Price
of
Option
Awards
($ per
share)(2) | | | Grant Date
Fair Value(3) | |
Name | | | | Threshold | | | Target | | | Maximum | | | | | | Stock | | | Options | |
Peter J. Ungaro | | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 47,500 | (4) | | | 53,000 | (5) | | $ | 19.64 | | | $ | 952,755 | | | $ | 414,262 | |
| | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 20,000 | (6) | | | — | | | | — | | | $ | 401,160 | | | | — | |
| | | | | | | | | | $ | 187,500 | | | $ | 750,000 | | | $ | 1,500,000 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Brian C. Henry | | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 26,000 | (4) | | | 29,000 | (5) | | $ | 19.64 | | | $ | 521,508 | | | $ | 226,672 | |
| | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 10,000 | (6) | | | — | | | | — | | | $ | 200,580 | | | | — | |
| | | | | | | | | | $ | 59,313 | | | $ | 237,250 | | | $ | 474,500 | | | | — | | | | — | | | | — | | | | — | | | | — | |
William C. Blake | | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 16,000 | (4) | | | 17,000 | (5) | | $ | 19.64 | | | $ | 320,928 | | | $ | 132,876 | |
| | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 7,000 | (6) | | | — | | | | — | | | $ | 140,406 | | | | — | |
| | | | | | | | | | $ | 43,875 | | | $ | 175,500 | | | $ | 351,000 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Arvind Parthasarathi | | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 5,000 | (4) | | | 5,000 | (5) | | $ | 19.64 | | | $ | 100,290 | | | $ | 39,081 | |
| | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 74,000 | (6) | | | — | | | | — | | | $ | 1,484,292 | | | | — | |
| | | | | | | | | | $ | 50,375 | | | $ | 201,500 | | | $ | 403,000 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Michael C. Piraino | | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 16,000 | (4) | | | 17,000 | (5) | | $ | 19.64 | | | $ | 320,928 | | | $ | 132,876 | |
| | | 07/01/13 | | | | 05/31/13 | | | | — | | | | — | | | | — | | | | 7,000 | (6) | | | — | | | | — | | | $ | 140,406 | | | | — | |
| | | | | | | | | | $ | 39,875 | | | $ | 159,500 | | | $ | 319,000 | | | | — | | | | — | | | | — | | | | — | | | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Name | | Grant Date | | Approval Date | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | All Other Stock Awards (shares) | | Other Option Awards (underlying shares) | | Exercise Price of Option Awards ($ per share) (2) | | Grant Date Fair Value (3) |
| |
| |
| |
| | | Threshold | | Target | | Maximum | | Units | | Options |
| | Peter J. Ungaro | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 28,000 |
| (4) | | 28,000 |
| (5) | | $ | 31.45 |
| | $ | 869,400 |
| | $ | 354,045 |
|
| | | — | | — | | $ | 202,500 | | | $ | 810,000 | | | $ | 1,620,000 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Brian C. Henry | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 14,000 |
| (4) | | 14,000 |
| (5) | | $ | 31.45 |
| | $ | 434,700 |
| | $ | 177,022 |
|
| | | — | | — | | $ | 65,000 | | | $ | 260,000 | | | $ | 520,000 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Charles A. Morreale | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 8,000 |
| (4) | | 8,000 |
| (5) | | $ | 31.45 |
| | $ | 248,400 |
| | $ | 101,156 |
|
| | | — | | — | | $ | 52,813 | | | $ | 211,250 | | | $ | 422,500 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Michael C. Piraino | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 8,000 |
| (4) | | 8,000 |
| (5) | | $ | 31.45 |
| | $ | 248,400 |
| | $ | 101,156 |
|
| | | — | | — | | $ | 52,813 | | | $ | 211,250 | | | $ | 422,500 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Margaret A. Williams | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | | — | | — | | $ | 61,750 | | | $ | 247,000 | | | $ | 494,000 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Steven L. Scott | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 10,000 |
| (4) | | 10,000 |
| (5) | | $ | 31.45 |
| | $ | 310,500 |
| | $ | 126,445 |
|
| | | — | | — | | $ | 61,750 | | | $ | 247,000 | | | $ | 494,000 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| | Ryan W. J. Waite | | 05/19/16 | | 05/19/16 | | — | | | — | | | — |
| | 8,000 |
| (4) | | 8,000 |
| (5) | | $ | 31.45 |
| | $ | 248,400 |
| | $ | 101,156 |
|
| | | — | | — | | $ | 52,813 | | | $ | 211,250 | | | $ | 422,500 |
| | — |
| | | — |
| | | — |
| | — |
| | — |
|
| |
| (1) | The threshold payout level represents the minimum aggregate balanced scorecard percentage payout that would result from achieving at least the threshold attainment (25%) for certain components. The target and |
| maximum payout levels represent, respectively, the target attainment (100%) and maximum attainment (200%). Additional information regarding the annual cash incentive plan for 20132016 Executive Bonus Plan is included under “Analyses of 2013“2016 Compensation Determinations —- Annual Cash Incentive Compensation Plan”Plans” in the Compensation Discussion and Analysis above. |
| |
| (2) | In determining the grant date fair market value,exercise price, we use the most recent closing price per share for our common stock as reported by NASDAQ prior to the applicable Committee or Board meeting at whichgrant date of the grants are to be approved. The exercise price of $19.64 per share represents the closing price on June 28, 2013.stock option. |
| |
| (3) | The grant date fair value of the restricted stock awardsunits and stock option grants is computed in accordance with ASC 718 and represents our total projected expense for financial reporting purposes of those awardsunits and grants. See the sectionsections entitled “Share-Based Compensation” and “Shareholders’ Equity” in NoteNotes 2 and 15 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013,2016, for a description of the valuation of these restricted stock awardsunits and stock option grants, including key assumptions under the Black-Scholes pricing model for determining values of stock options; the values determined by the Black-Scholes model are highly dependent on these assumptions, particularly regarding volatility of the market price for our common stock and expected life of the stock options. There is no assurance that the stock 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 restricted stock awardsunits and stock option grants depends on the market value of our common stock in the future when the Named Executive Officer sells the restricted sharesstock units or the shares underlying the stock options, as the case may be, and there is no assurance that the Named Executive Officers will realize amounts at or near the values shown. |
The valuation methodology for restricted stock units as described in footnote (3) assumes full vesting.
| |
| (4) | Reflects the number of restricted stock awardsunits granted on July 1, 2013,May 19, 2016, pursuant to our shareholder-approved 2013 Equity Incentive Plan. Twenty-five percent of the restricted stock awardsunits vest on each of the first, second, third and fourth anniversaries of July 1, 2013.May 19, 2016. Restricted stock awardsunits are forfeitable upon certain events and also vest in full upon the death or disabilityDisability of the recipient and upon certain other events.events, as discussed below in “Termination of Employment and Change of Control Arrangements - Narrative to the Termination of Employment and Change of Control Payments Table.” |
| |
| (5) | Reflects the number of stock options granted on July 1, 2013,May 19, 2016, pursuant to our shareholder-approved 2013 Equity Incentive Plan. Twenty-five percent of the stock options vest on July 1, 2014,May 19, 2017, with the remaining balance vesting monthly over the next 36 months, so that all options will be vested on July 1, 2017.May 19, 2020. Vesting of stock options is accelerated upon the death or disabilityDisability of the optionee, and may be accelerated upon certain other events.events, as discussed below in “Termination of Employment and Change of Control Arrangements - Narrative to the Termination of Employment and Change of Control Payments Table.” Additional information regarding the design and terms of these long-term equity awards is included under “Analyses of 2013“2016 Compensation Determinations —- Long-Term Equity Awards” and “Severance“2016 Compensation Determinations - Severance Policy and Change of Control Agreements — Stock Option Plans and Restricted Stock Agreements” in the Compensation Discussion and Analysis above. |
(6) | Reflects the number of restricted stock awards granted on July 1, 2013, pursuant to our shareholder-approved 2013 Equity Incentive Plan. These performance-based restricted stock awards vest upon the achievement of certain operational and strategic performance criteria related to our YarcData business and a change of control of Cray. |
Outstanding Equity Awards on December 31, 20132016 The following table sets forth certain information with respect to outstanding equity awards at December 31,
2013,2016, held by
ourthe Named Executive
Officers.Officers listed below.
Outstanding Equity Awards at Fiscal Year-End
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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(4) | | | Market Value
of Shares
That Have
Not Vested(5) | |
Name | | Exercisable(1) | | | Unexercisable(2) | | | | | |
Peter J. Ungaro | | | 80,000 | | | | — | | | $ | 6.63 | | | | 05/16/18 | | | | 50,000 | (6) | | $ | 1,373,000 | |
| | | 150,000 | | | | — | | | $ | 3.74 | | | | 05/13/19 | | | | 50,000 | (8) | | $ | 1,373,000 | |
| | | 89,583 | | | | 10,417 | (7) | | $ | 5.47 | | | | 05/12/20 | | | | 48,750 | (10) | | $ | 1,338,675 | |
| | | 52,083 | | | | 47,917 | (9) | | $ | 6.08 | | | | 11/16/21 | | | | 47,500 | (16) | | $ | 1,304,350 | |
| | | 23,020 | | | | 41,980 | (11) | | $ | 12.08 | | | | 07/01/22 | | | | 20,000 | (14) | | $ | 549,200 | |
| | | — | | | | 53,000 | (15) | | $ | 19.64 | | | | 07/01/23 | | | | | | | | | |
Brian C. Henry | | | 938 | | | | — | | | $ | 6.63 | | | | 05/16/18 | | | | 25,000 | (6) | | $ | 686,500 | |
| | | 21,667 | | | | — | | | $ | 3.74 | | | | 05/13/19 | | | | 27,500 | (8) | | $ | 755,150 | |
| | | 20,833 | | | | 5,209 | (7) | | $ | 5.47 | | | | 05/12/20 | | | | 26,250 | (10) | | $ | 720,825 | |
| | | 28,645 | | | | 26,355 | (9) | | $ | 6.08 | | | | 11/16/21 | | | | 26,000 | (16) | | $ | 713,960 | |
| | | 12,395 | | | | 22,605 | (11) | | $ | 12.08 | | | | 07/01/22 | | | | 10,000 | (14) | | $ | 274,600 | |
| | | — | | | | 29,000 | (15) | | $ | 19.64 | | | | 07/01/23 | | | | | | | | | |
William C. Blake | | | — | | | | 17,000 | (15) | | $ | 19.64 | | | | 07/01/23 | | | | 52,500 | (12) | | $ | 1,441,650 | |
| | | | | | | | | | | | | | | | | | | 16,000 | (16) | | $ | 439,360 | |
| | | | | | | | | | | | | | | | | | | 7,000 | (14) | | $ | 192,220 | |
Arvind Parthasarathi | | | 8,854 | | | | 16,146 | (11) | | $ | 12.08 | | | | 07/01/22 | | | | 75,000 | (13) | | $ | 2,059,500 | |
| | | — | | | | 5,000 | (15) | | $ | 19.64 | | | | 07/01/23 | | | | 18,750 | (10) | | $ | 514,875 | |
| | | | | | | | | | | | | | | | | | | 110,000 | (14) | | $ | 3,020,600 | |
| | | | | | | | | | | | | | | | | | | 5,000 | (16) | | $ | 137,300 | |
| | | | | | | | | | | | | | | | | | | 74,000 | (14) | | $ | 2,032,040 | |
Michael C. Piraino | | | 100,000 | | | | — | | | $ | 8.33 | | | | 10/01/19 | | | | 7,500 | (6) | | $ | 205,950 | |
| | | 13,437 | | | | 1,563 | (7) | | $ | 5.47 | | | | 05/12/20 | | | | 20,000 | (8) | | $ | 549,200 | |
| | | 5,333 | | | | 19,167 | (9) | | $ | 6.08 | | | | 11/16/21 | | | | 18,750 | (10) | | $ | 514,875 | |
| | | 8,854 | | | | 16,146 | (11) | | $ | 12.08 | | | | 07/01/22 | | | | 16,000 | (16) | | $ | 439,360 | |
| | | — | | | | 17,000 | (15) | | $ | 19.64 | | | | 07/01/23 | | | | 7,000 | (14) | | $ | 192,220 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | 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 (4) | | Market Value of Shares That Have Not Vested (5) |
| | | |
| Name | | Exercisable (1) | | Unexercisable (2) | |
| Peter J. Ungaro | | 80,000 |
| | — |
|
| | $ | 6.63 |
| | 05/16/18 | | | 20,000 |
| (6) | | $ | 414,000 |
|
| | | 150,000 |
| | — |
|
| | $ | 3.74 |
| | 05/13/19 | | | 11,875 |
| (7) | | $ | 245,813 |
|
| | | 100,000 |
| | — |
|
| | $ | 5.47 |
| | 05/12/20 | | | 18,000 |
| (8) | | $ | 372,600 |
|
| | | 100,000 |
| | — |
|
| | $ | 6.08 |
| | 11/16/21 | | | 133,200 |
| (9) | | $ | 2,757,240 |
|
| | | 65,000 |
| | — |
|
| | $ | 12.08 |
| | 07/01/22 | | | 22,500 |
| (10) | | $ | 465,750 |
|
| | | 45,270 |
| | 7,730 |
| (11) | | $ | 19.64 |
| | 07/01/23 | | | 28,000 |
| (12) | | $ | 579,600 |
|
| | | 23,249 |
| | 12,751 |
| (13) | | $ | 26.58 |
| | 05/21/24 | | |
|
|
| |
|
|
| | | 11,874 |
| | 18,126 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | |
|
|
| |
|
|
| | | — |
| | 28,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | | | | |
| | | | | | | | | | | | | | | | |
| Brian C. Henry | | 21,667 |
| | — |
| | | $ | 3.74 |
| | 05/13/19 | | | 10,000 |
| (6) | | $ | 207,000 |
|
| | | 35,000 |
| | — |
| | | $ | 12.08 |
| | 07/01/22 | | | 6,500 |
| (7) | | $ | 134,550 |
|
| | | 24,770 |
| | 4,230 |
| (11) | | $ | 19.64 |
| | 07/01/23 | | | 8,500 |
| (8) | | $ | 175,950 |
|
| | | 10,979 |
| | 6,021 |
| (13) | | $ | 26.58 |
| | 05/21/24 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | 5,937 |
| | 9,063 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | | 11,250 |
| (10) | | $ | 232,875 |
|
| | | — |
| | 14,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | 14,000 |
| (12) | | $ | 289,800 |
|
| | | | | | | | | | | | | | | | |
| Charles A. Morreale | | 16,797 |
| | — |
| | | $ | 12.08 |
| | 07/01/22 | | | 7,000 |
| (6) | | $ | 144,900 |
|
| | | 14,520 |
| | 2,480 |
| (11) | | $ | 19.64 |
| | 07/01/23 | | | 4,000 |
| (7) | | $ | 82,800 |
|
| | | 7,104 |
| | 3,896 |
| (13) | | $ | 26.58 |
| | 05/21/24 | | | 5,500 |
| (8) | | $ | 113,850 |
|
| | | 3,958 |
| | 6,042 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | — |
| | 8,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | 7,500 |
| (10) | | $ | 155,250 |
|
| | | | | | | | | | | | | 8,000 |
| (12) | | $ | 165,600 |
|
| | | | | | | | | | | | | | | | |
| Michael C. Piraino | | 85,000 |
| | — |
| | | $ | 8.33 |
| | 10/01/19 | | | 7,000 |
| (6) | | $ | 144,900 |
|
| | | 10,000 |
| | — |
| | | $ | 5.47 |
| | 05/12/20 | | | 4,000 |
| (7) | | $ | 82,800 |
|
| | | 13,570 |
| | — |
| | | $ | 6.08 |
| | 11/16/21 | | | 4,750 |
| (8) | | $ | 98,325 |
|
| | | 25,000 |
| | — |
| | | $ | 12.08 |
| | 07/01/22 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | 14,520 |
| | 2,480 |
| (11) | | $ | 19.64 |
| | 07/01/23 | | | 7,500 |
| (10) | | $ | 155,250 |
|
| | | 6,135 |
| | 3,365 |
| (13) | | $ | 26.58 |
| | 05/21/24 | | | 8,000 |
| (12) | | $ | 165,600 |
|
| | | 3,958 |
| | 6,042 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | | | | | |
| | | — |
| | 8,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | | | | |
| | | | | | | | | | | | | | | | |
| Margaret A. Williams | | 5,626 |
| | — |
| | | $ | 6.08 |
| | 11/16/21 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | 35,000 |
| | — |
| | | $ | 12.08 |
| | 07/01/22 | | | 4,000 |
| (16) | | $ | 82,800 |
|
| | | 7,000 |
| | — |
|
| | $ | 26.27 |
| | 08/06/24 | | |
|
|
| |
|
|
| | | 4,000 |
| | 4,000 |
| (17) | | $ | 27.83 |
| | 05/06/25 | | |
|
|
| |
|
|
| | | | | | | | | | | | | | | | |
| Steven L. Scott | | 4,354 |
| | 6,646 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | | 40,000 |
| (18) | | $ | 828,000 |
|
| | | — |
| | 10,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | | | | | | | | | | | 8,250 |
| (10) | | $ | 170,775 |
|
| | | | | | | | | | | | | 10,000 |
| (12) | | $ | 207,000 |
|
| | | | | | | | | | | | | | | | |
| Ryan W. J. Waite | | 3,166 |
| | 4,834 |
| (14) | | $ | 27.83 |
| | 05/06/25 | | | 12,500 |
| (19) | | $ | 258,750 |
|
| | | — |
| | 8,000 |
| (15) | | $ | 31.45 |
| | 05/19/26 | | | 66,600 |
| (9) | | $ | 1,378,620 |
|
| | | | | | | | | | | | | 6,000 |
| (10) | | $ | 124,200 |
|
| | | | | | | | | | | | | 8,000 |
| (12) | | $ | 165,600 |
|
| |
| (1) | All stock options listed in this column are fully vested and exercisable. |
| |
| (2) | Vesting of stock options granted prior to 2013 areis accelerated upon the death or Disability (“Disability” means that, at the time optionee is terminated, optionee has been unable to perform the duties of optionee’s position for a period of six consecutive months as a result of optionee’s incapacity due to physical or mental illness) of the optionee, and may be accelerated upon certain other events. Vestingevents, as discussed below in “Termination of options underEmployment and Change of Control Arrangements - Narrative to the 2013 Equity Incentive Plan upon the death or Disability (“Disability” means in the caseTermination of incentive stock options, totalEmployment and permanent disability as defined in Section 22(e)(3)Change of the IRC and in the case of other awards, as determined by Cray policies) of the optionee is as follows:Control Payments Table.” |
If the optionee is terminated because of the optionee’s death (or the optionee dies within three (3) months after a termination other than for Cause (“Cause” means (i) the violation by the optionee of any reasonable rule or policy of the Board or the optionee’s superiors or the chief executive officer or the president of Cray, parent or subsidiary that results in damage to Cray, parent or subsidiary or which, after notice to do so, the optionee fails to correct within a reasonable time; (ii) any willful misconduct or gross negligence by the optionee in the responsibilities assigned to him or her; (iii) any
willful failure to perform his or her job as required to meet the objectives of Cray, parent or subsidiary; (iv) any wrongful conduct of an optionee which has an adverse impact on Cray, parent or subsidiary or which constitutes a misappropriation of the assets of Cray, parent or subsidiary; (v) unauthorized disclosure of confidential information; (vi) the optionee’s performing services for any other Cray, parent or subsidiary or person which competes with Cray, parent or subsidiary while he or she is employed by or provides services to Cray, without the prior written approval of the chairman or president of Cray; or (vii) a resignation by an optionee of employment with or service to Cray, parent or subsidiary if (A) Cray, parent or subsidiary has given prior notice to such optionee of its intent to dismiss the optionee for circumstances that constitute cause, or (B) within two months of the optionee’s resignation, the chairman or president of Cray or the Board determines, which determination shall be final and binding, that such resignation was related to an act which would have led to a termination for cause) or because of the optionee’s Disability)), then the optionee’s stock options may be exercised only to the extent that such stock options would have been exercisable by the optionee on the termination date and must be exercised by the optionee’s legal representative, or authorized assignee, no later than twelve (12) months after the termination date (or such shorter time period not less than six (6) months or longer time period not exceeding five (5) years as may be determined by the Compensation Committee), but in any event no later than the expiration date of the options.
If the optionee is terminated because of the grantee’s Disability, then the optionee’s stock options may be exercised only to the extent that such stock options would have been exercisable by the optionee on the termination date and must be exercised by the optionee (or the optionee’s legal representative or authorized assignee) no later than twelve (12) months after the termination date (or such shorter time period not less than six (6) months or longer time period not exceeding five (5) years as may be determined by the Compensation Committee), with any exercise beyond (a) three (3) months after the termination date when the termination is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the IRC, or (b) twelve (12) months after the termination date when the termination is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the IRC, deemed to be exercise of an non-qualified stock option, but in any event no later than the expiration date of the stock options.
| |
| (3) | The option exercise prices were set at 100% of fair market value of our common stock using the most recent closing price per share for our common stock as reported by NASDAQ prior to the applicable Committee or Board meeting at whichgrant date of the grants are to be approved.stock option award. |
| |
| (4) | Restricted sharesstock awards and restricted stock units are forfeitable upon certain events. Restricted sharesTime-based vesting restricted stock awards and time-based vesting restricted stock units also vest in full upon the death or Disability of the recipient, and upon certain other events. Additional information regarding the design and terms of these long-term equity awards is included under “Analyses of 2013“2016 Compensation Determinations —- Long-Term Equity Awards” in the Compensation Discussion and Analysis above and in the “Termination of Employment and Change of Control Arrangements —- Narrative to the Termination of Employment and Change of Control Payments Table —- Restricted Stock Agreements” below. |
| |
| (5) | Determined by multiplying the closing price of $27.46$20.70 per share for our common stock on December 31, 2013, as reported by Nasdaq,NASDAQ on December 30, 2016, the last trading day of the year, by the number of unvested restricted shares then held by the Named Executive Officer. Additional information regarding the design and terms of these long-term equity awards are included under “Analyses of 2013“2016 Compensation Determinations —- Long-Term Equity Awards” in the Compensation Discussion and Analysis above and in the “Termination of Employment and Change of Control Arrangements — Narrative to the Termination of Employment- Equity Plans and Change of Control Payments Table — Restricted StockEquity Award Agreements” below. |
| |
| (6) | These restricted shares will vest on May 12, 2014. |
(7) | Twenty-five percent of the options from this grant vested on May 12, 2011, and the remaining balance will vest monthly over the following 36 months so that allThe vesting of these options will be vested on May 12, 2014. |
(8) | These restricted shares will vest on August 3, 2015. |
(9) | Twenty-five percent of the options from this grant vested on August 3, 2012, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on August 3, 2015. |
(10) | Twenty-five percent of the restricted shares from this grant vested on July 1, 2013, and the remaining balance will vest on July 1, 2014, July 1, 2015 and July 1, 2016. |
(11) | Twenty-five percent of the options from this grant vested on July 1, 2013, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on July 1, 2016. |
(12) | Twenty-five percent of the restricted shares from this grant vested on April 30, 2013, and the remaining balance will vest on April 30, 2014, April 30, 2015 and April 30, 2016. |
(13) | Twenty-five percent of the restricted shares from this grant vested on February 6, 2013, and the remaining balance will vest on February 6, 2014, February 6, 2015 and February 6, 2016. |
(14) | These performance-based restricted stock awards vest uponPerformance Vesting RSAs was tied to the achievement of certain operational and strategic performance criteria related to our YarcDatabig data analytics business andor a change of control of Cray. These performance-basedNone of the targets for these Performance Vesting RSAs were achieved and therefore these Performance Vesting RSAs expired in their entirety the calendar day immediately following that date on which we filed our Annual Report Form 10‑K with the SEC for the fiscal year ended December 31, 2016. |
| |
| (7) | Twenty-five percent of the restricted stock awards from this grant vested on each of July 1, 2014, July 1, 2015, and July 1, 2016, and the remaining balance will vest on July 1, 2017. |
| |
| (8) | Twenty-five percent of the restricted stock awards from this grant vested on each of May 21, 2015 and May 21, 2016, and twenty-five percent of the restricted stock awards from this grant will vest on each of May 21, 2017 and May 21, 2018. |
| |
| (9) | These Performance Vesting RSUs vest, if at all, upon the achievement of certain revenue and operating income milestones, both of which must be met, in either fiscal year 2016, 2017, 2018 or 2019 (with achievement to be determined, generally, no later than July 1 of each subsequent calendar year), or upon a change in control of Cray. Upon a change of control of Cray, the number of shares subject to the Performance Vesting RSU that may be earned depends on the size of the change of control, and such earned shares will be subject to an additional one-year vesting cliff. Vesting is subject to the executive officers’ provision of services to us on the applicable determination or vesting dates. These Performance Vesting RSUs will expire completely if the operational and strategic performance vesting criteriamilestones are not satisfied, or a change of control has not occurred, by the calendar day immediately following that date on which we file our Annual Report Form 10-K with the SEC for the fiscal year ended December 31, 2019. No milestones were achieved and no shares vested in 2016. |
(15) | |
| (10) | Twenty-five percent of the restricted stock units from this grant vested on May 6, 2016, and twenty-five percent of the restricted stock units from this grant will vest on each of May 6, 2017, May 6, 2018 and May 6, 2019. |
| |
| (11) | Twenty-five percent of the options will vestfrom this grant vested on July 1, 2014, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on July 1, 2017. |
(16) | |
| (12) | Twenty-five percent of the restricted sharesstock units from this grant will vest on July 1, 2014, Julyeach of May 19, 2017, May 19, 2018, May 19, 2019 and May 19, 2020. |
| |
| (13) | Twenty-five percent of the options from this grant vested on May 21, 2015, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on May 21, 2018. |
| |
| (14) | Twenty-five percent of the options from this grant vested on May 6, 2016 and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on May 6, 2019. |
| |
| (15) | Twenty-five percent of the options from this grant will vest on May 19, 2017 and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on May 19, 2020. |
| |
| (16) | Fifty percent of the restricted stock units from this grant vested on May 6, 2016, and the remaining balance will vest on May 6, 2017. |
| |
| (17) | Fifty percent of the options from this grant vested on May 6, 2016, and the remaining balance will vest on May 6, 2017. |
| |
| (18) | Twenty-five percent of the restricted stock awards from this grant vested on each of September 15, 2015 and September 15, 2016, and twenty-five percent of the restricted stock awards from this grant will vest on each of September 15, 2017 and September 15, 2018. |
| |
| (19) | Twenty-five percent of the restricted stock awards from this grant vested on each of December 1, 2015 Julyand December 1, 2016, and Julytwenty-five percent of the restricted stock awards from this grant will vest on each of December 1, 2017.2017 and December 1, 2018. |
2013
2016 Option Exercises and Stock Vested
The following table provides information regarding options exercised by and
restricted stock awards vested for the Named Executive Officers during the year ended December 31,
2013. | | | | | | | | | | | | | | | | |
| | | Option Awards | | | Stock Awards | |
Name | | Number of Shares
Acquired on Exercise
(#)(1) | | | Value Realized
on Exercise
($)(2) | | | Number of Shares
Acquired on Vesting
(#)(3) | | | Value Realized
on Vesting
($)(4) | |
Peter J. Ungaro | | | — | | | | — | | | | 141,250 | | | $ | 2,978,173 | |
Brian C. Henry | | | — | | | | — | | | | 76,250 | | | $ | 1,612,689 | |
William C. Blake | | | 5,000 | | | $ | 59,405 | | | | 20,594 | | | $ | 427,856 | |
Arvind Parthasarathi | | | — | | | | — | | | | 31,250 | | | $ | 583,963 | |
Michael C. Piraino | | | 15,500 | | | $ | 327,583 | | | | 26,250 | | | $ | 669,163 | |
|
| | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#)(1) | | Value Realized on Exercise ($)(2) | | Number of Shares Acquired on Vesting (#)(3) | | Value Realized on Vesting ($)(4) |
| Peter J. Ungaro | | — | | — |
| | 44,625 | | $ | 1,376,858 |
|
| Brian C. Henry | | 55,348 | | $ | 1,937,932 |
| | 23,250 | | $ | 716,373 |
|
| Charles A. Morreale | | — | | — |
| | 15,500 | | $ | 477,465 |
|
| Michael C. Piraino | | 15,000 | | $ | 204,527 |
| | 15,125 | | $ | 465,623 |
|
| Margaret A. Williams | | — | | — |
| | 16,250 | | $ | 499,745 |
|
| Steven L. Scott | | — | | — |
| | 22,750 | | $ | 555,803 |
|
| Ryan W. J. Waite | | — | | — |
| | 2,000 | | $ | 65,020 |
|
| |
| (1) | Represents the number of shares acquired upon exercise of vested options. |
| |
| (2) | Represents the value of options exercised calculated by determining the difference between the market price of our common stock as reported by NasdaqNASDAQ at exercise and the exercise price of the options. |
| |
| (3) | Represents the number of shares acquired upon vesting of restricted shares.shares and restricted stock units. |
| |
| (4) | Represents the value of vested restricted stock awards and vested restricted stock units calculated by multiplying the number of vested restricted stock awards and vested restricted stock units by the market value of our common stock as reported by NasdaqNASDAQ on the vesting date or, if the vesting occurred on a day on which NasdaqNASDAQ was closed for trading, the trading day immediately prior to the vesting date. |
Termination of Employment and Change of Control Arrangements
We have adopted an Executive Severance Policy and entered into certain change of control agreements (titled Management Retention Agreements (as defined below)), 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. In addition, stock option, restricted stock and restricted stock unit agreements, including those held by our Named Executive Officers, provide for certain accelerated vesting rights. 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. We have a policy that prohibits the inclusion of any new provisions related to 280G gross-up payments and 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 any such arrangement or agreement are amended in a manner that is materially favorable to the executive. Each of these policies is described in detail in the “Narrative to the Termination of Employment and Change of Control Payments Table” below.
The following discussion and table summarize the compensation that would have been payable to each Named Executive Officer under the various scenarios assuming termination of his
or her employment at the close of business on December 31,
2013.2016. The payments summarized in the following table are governed by the various agreements and arrangements described below.
No special payments are due if any of the Named Executive Officers terminates his
or her employment voluntarily without Good Reason,
or is terminated for Cause,
or retires.as those terms are defined in our policies and agreements. For all terminations, a terminated employee receives accrued and unpaid salary and the balance in his or her Cray 401(k) Plan account. We do not accrue vacation pay for the Named Executive Officers or other senior officers.
As part of and onOn 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,
restricted stock and restricted stock
units 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.
Termination of Employment and Change of Control Payments
| | | | | | | | | | | | | | | | | | | | |
Name and Termination Event | | Severance
Payment(1) | | | Accelerated
Restricted
Stock
Award(2) | | | Accelerated
Stock
Options(3) | | | Continued
Benefit Plan
Coverage(4) | | | Total(5) | |
Peter J. Ungaro | | | | | | | | | | | | | | | | | | | | |
Death/Disability | | | — | | | $ | 5,389,025 | | | $ | 2,313,648 | | | | — | | | $ | 7,702,673 | |
Resignation for Good Reason or Termination without Cause | | $ | 1,250,000 | | | $ | 1,144,148 | | | | — | | | $ | 38,194 | | | $ | 2,432,342 | |
After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 2,500,000 | | | $ | 5,389,025 | | | $ | 2,313,648 | | | $ | 52,329 | | | $ | 10,255,002 | |
Brian C. Henry | | | | | | | | | | | | | | | | | | | | |
Death/Disability | | | — | | | $ | 2,876,435 | | | $ | 1,252,461 | | | | — | | | $ | 4,128,896 | |
Resignation for Good Reason or Termination without Cause | | $ | 602,300 | | | $ | 574,957 | | | | — | | | $ | 50,690 | | | $ | 1,227,947 | |
After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,204,600 | | | $ | 2,876,435 | | | $ | 1,252,461 | | | $ | 75,121 | | | $ | 5,408,617 | |
William C. Blake | | | | | | | | | | | | | | | | | | | | |
Death/Disability | | | — | | | $ | 1,881,010 | | | $ | 132,940 | | | | — | | | $ | 2,013,950 | |
Resignation for Good Reason or Termination without Cause | | $ | 400,500 | | | $ | 240,225 | | | | — | | | $ | 39,074 | | | $ | 679,799 | |
After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 891,000 | | | $ | 1,881,010 | | | $ | 132,940 | | | $ | 76,474 | | | $ | 2,981,424 | |
Arvind Parthasarathi | | | | | | | | | | | | | | | | | | | | |
Death/Disability | | | — | | | $ | 2,711,675 | | | $ | 287,425 | | | | — | | | $ | 2,999,100 | |
Resignation for Good Reason or Termination without Cause | | $ | 459,833 | | | $ | 514,875 | | | | — | | | $ | 35,052 | | | $ | 1,009,760 | |
After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,023,000 | | | $ | 2,711,675 | | | $ | 287,425 | | | $ | 75,121 | | | $ | 4,097,221 | |
Michael C. Piraino | | | | | | | | | | | | | | | | | | | | |
Death/Disability | | | — | | | $ | 1,709,385 | | | $ | 825,426 | | | | — | | | $ | 2,534,811 | |
Resignation for Good Reason or Termination without Cause | | $ | 377,000 | | | $ | 185,932 | | | | — | | | $ | 33,186 | | | $ | 596,118 | |
After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 899,000 | | | $ | 1,709,385 | | | $ | 825,426 | | | $ | 62,237 | | | $ | 3,496,048 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Termination Event | | Severance Payment (1) | | Accelerated Restricted Stock Awards and Restricted Stock Units (2) | | Accelerated Stock Options (3) | | Accelerated Performance Vesting Restricted Stock Awards and Performance Vesting Restricted Stock Units (4) | | Continued Benefit Plan Coverage (5) | | Total (6) |
| Peter J. Ungaro | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 1,663,763 |
| | $ | 8,194 |
| | — |
| | — |
| | $ | 1,671,957 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 1,350,000 |
| | $ | 301,640 |
| | — |
| | — |
| | $ | 55,086 |
| | $ | 1,706,726 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 2,700,000 |
| | $ | 1,663,763 |
| | $ | 8,194 |
| | $ | 3,171,240 |
| | $ | 57,762 |
| | $ | 7,600,959 |
|
| Retirement | | — |
| | $ | 301,640 |
| | — |
| | — |
| | — |
| | $ | 301,640 |
|
| Brian C. Henry | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 833,175 |
| | $ | 4,484 |
| | — |
| | — |
| | $ | 837,659 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 660,000 |
| | $ | 152,642 |
| | — |
| | — |
| | $ | 70,932 |
| | $ | 883,574 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,320,000 |
| | $ | 833,175 |
| | $ | 4,484 |
| | $ | 1,585,620 |
| | $ | 80,394 |
| | $ | 3,823,673 |
|
| Retirement | | — |
| | $ | 152,642 |
| | — |
| | — |
| | — |
| | $ | 152,642 |
|
| Charles A. Morreale | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 517,500 |
| | $ | 2,629 |
| | — |
| | — |
| | $ | 520,129 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 536,250 |
| | $ | 97,870 |
| | — |
| | — |
| | $ | 68,676 |
| | $ | 702,796 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,072,500 |
| | $ | 517,500 |
| | $ | 2,629 |
| | $ | 1,523,520 |
| | $ | 75,882 |
| | $ | 3,192,031 |
|
| Retirement | | — |
| | $ | 97,870 |
| | — |
| | — |
| | — |
| | $ | 97,870 |
|
| Michael C. Piraino | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 501,975 |
| | $ | 2,629 |
| | — |
| | — |
| | $ | 504,604 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 536,250 |
| | $ | 93,336 |
| | — |
| | — |
| | $ | 56,811 |
| | $ | 686,397 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,072,500 |
| | $ | 501,975 |
| | $ | 2,629 |
| | $ | 1,523,520 |
| | $ | 61,212 |
| | $ | 3,161,836 |
|
| Retirement | | — |
| | $ | 93,336 |
| | — |
| | — |
| | — |
| | $ | 93,336 |
|
| Margaret A. Williams | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 82,800 |
| | — |
| | — |
| | — |
| | $ | 82,800 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 647,000 |
| | $ | 48,293 |
| | — |
| | — |
| | $ | 46,267 |
| | $ | 741,560 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,294,000 |
| | $ | 82,800 |
| | — |
| | $ | 1,378,620 |
| | $ | 53,473 |
| | $ | 2,808,893 |
|
| Retirement | | — |
| | $ | 48,293 |
| | — |
| | — |
| | — |
| | $ | 48,293 |
|
| Steven L. Scott | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 1,205,775 |
| | — |
| | — |
| | — |
| | $ | 1,205,775 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 595,333 |
| | $ | 136,703 |
| | — |
| | — |
| | $ | 50,677 |
| | $ | 782,713 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,254,000 |
| | $ | 1,205,775 |
| | — |
| | $ | 1,378,620 |
| | $ | 55,078 |
| | $ | 3,893,473 |
|
| Retirement | | — |
| | $ | 136,703 |
| | — |
| | — |
| | — |
| | $ | 136,703 |
|
| Ryan W. J. Waite | | | | | | | | | | | | |
| Death/Disability | | — |
| | $ | 548,550 |
| | — |
| | — |
| | — |
| | $ | 548,550 |
|
| Resignation for Good Reason or Termination without Cause | | $ | 509,167 |
| | $ | 24,136 |
| | — |
| | — |
| | $ | 45,502 |
| | $ | 578,805 |
|
| After Change of Control, Resignation for Good Reason or Termination without Cause | | $ | 1,072,500 |
| | $ | 548,550 |
| | — |
| | $ | 1,378,620 |
| | $ | 48,178 |
| | $ | 3,047,848 |
|
| Retirement | | — |
| | $ | 24,136 |
| | — |
| | — |
| | — |
| | $ | 24,136 |
|
| |
| (1) | Except for termination events following a Change of Control, the amounts shown in this column for the Named Executive Officers are the salary and bonus cash severance amounts due under the Executive Severance Policy. The amounts due under the Executive Severance Policy are to be paid in a single lump sum payment. For a termination within two years following a Change of Control due to a resignation for Good Reason or a termination without Cause, including a termination by Mr. Ungaro or by Mr. Henry pursuant to their election in the seventh month following a Change of Control 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, the amounts shownThe bonus cash severance amount included in this column are the amounts dueassumes 100% achievement under our Management Retention Agreements and are payable in a lump sum payment.2016 Executive Bonus Plan. |
For a termination within two years following a Change of Control due to a resignation for Good Reason or a termination without Cause, including a termination by Mr. Ungaro or by Mr. Henry pursuant to their election in the seventh month following a Change of Control 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, the amounts shown in this column are the salary and bonus cash severance amounts due under our Management Retention Agreements and are payable in a lump sum payment. The bonus cash severance amount included in this column assumes 100% achievement under our 2016 Executive Bonus Plan.
| |
| (2) | Except for Performance Vesting Restricted Stock Awards,RSAs and Performance Vesting RSUs, all unvested restricted stock vestsawards and restricted stock units vest in full upon (x) death or Disability or (y) 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 employment is terminated for any reason other than Cause, then the Named Executive Officer receives a pro-rata portion ofis terminated without Cause or resigns for Good Reason (each as defined in the unvested shares based on the time period he 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, 2013. The value of the unvested shares of restricted stock held by each Named Executive Officer was calculated based upon the aggregate market value of such shares. We used a price of $27.46 per share to determine market value, which was the closing market price of our common stock on December 31, 2013, as reported by Nasdaq. See the “Outstanding Equity Awards at Fiscal Year-End” table above for a description of the unvested restricted stock then held by each Named Executive Officer.applicable equity agreement). |
Except for Performance Vesting RSAs and Performance Vesting RSUs, if (x) a Named Executive Officer has held restricted stock awards or restricted stock units for 18 months and his or her employment is terminated for any reason other than Cause, or (y) a Named Executive Officer retires after the age of 65, 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 award or restricted stock unit compared to the applicable vesting period.
The amounts shown in this column reflect the value of the Named Executive Officer’s unvested restricted stock awards and/or restricted stock units with vesting accelerated in full as of December 31, 2016 based on these terms, and assuming for purposes of disclosure that each Named Executive Officer was of the age to be eligible for the pro-rata retirement benefit as of December 31, 2016. The value of the unvested restricted stock awards and/or restricted stock units held by each Named Executive Officer was calculated based upon the aggregate market value of such shares. We used a price of $20.70 per share to determine market value, which was the closing market price of our common stock as reported by NASDAQ on December 30, 2016, the last trading day of the year. See the “Outstanding Equity Awards at Fiscal Year-End” table above for a description of the unvested restricted stock then held by each Named Executive Officer.
| |
| (3) | Under our stock option plans, inIn the event of death or Disability (each as defined in the applicable equity agreement or plan), all unvested options vest in full and become exercisable and all option holders have a 12-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, 2013. 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 $27.46 per share to determine market value, which was the closing market price of our common stock on December 31, 2013, as reported by Nasdaq.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 options or, if earlier, until the expiration date of the options.Named Executive Officer’s unvested stock options with vesting accelerated in full as of December 31, 2016. 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 $27.46$20.70 per share to determine market value, which was the closing market price of our common stock on December 31, 2013, as reported by Nasdaq.
NASDAQ on December 30, 2016, the last trading day of the year. Stock options with an exercise price above $20.70 are not included in the calculations.
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 vest in full and 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.
See the “Outstanding Equity Awards at Fiscal Year-End” table above for a description of the options vested and unvested as of December 31,
2013.2016. | |
| (4) | Under our Performance Vesting RSAs granted on July 1, 2013, the Performance Vesting RSAs vest, if at all, only upon the achievement of certain operational and strategic performance criteria exclusively related to the operation of our big data analytics business or upon a change of control of Cray. Upon a change of control of Cray, the number of shares subject to the Performance Vesting RSA that will be earned will depend upon the value of the change in control. Any such earned shares will vest upon the change in control. The amounts shown in this column reflect 100% of the shares subject to the Performance Vesting RSA being earned upon a change |
of control and 100% of such shares accelerating to December 31, 2016. We used a price of $20.70 per share to determine market value, which was the closing market price of our common stock as reported by NASDAQ on December 30, 2016, the last trading day of the year. The value of the Performance Vesting RSAs is included because this column assumes acceleration on December 31, 2016, however, these Performance Vesting RSAs expired without vesting on the calendar day immediately following that date on which we filed our Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2016.
Under our Performance Vesting RSUs granted on March 4, 2015, the Performance Vesting RSUs vest, if at all, only upon the achievement of certain revenue and operating income milestones, if such milestones are both met in either fiscal year 2016, 2017, 2018 or 2019, or upon a change in control of Cray (as defined in the Performance Vesting RSU agreement). Upon a change of control of Cray, 50% of the shares subject to the Performance Vesting RSU will be earned if the change of control is of a certain level and 100% of the shares subject to the Performance Vesting RSU will be earned if the change of control is of a certain higher level, and such earned shares will be subject to an additional one-year vesting cliff. If, following a change of control, a Named Executive Officer is terminated without Cause or resigns for Good Reason (each, as defined in the Performance Vesting RSU agreement), all of the earned shares will accelerate in full. The amounts shown in this column reflect 100% of the shares subject to the Performance Vesting RSU being earned upon a change of control and 100% of such shares accelerating to December 31, 2016. We used a price of $20.70 per share to determine market value, which was the closing market price of our common stock as reported by NASDAQ on December 30, 2016, the last trading day of the year.
| |
| (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 (benefits that the individual and any of herhis or hisher dependents were receiving immediately prior to close of business on December 31, 2013)2016) and the premiums for $500,000 of term life insurance for 18 months (for resignation for good reason or termination without cause) and the premiums for $500,000 of term life insurance for 24 months (for after a change of control event, resignation for good reason or termination without cause), based on the costs for such benefits in January 2014,2017, plus $14,500$12,000 for executive outplacement services for each Named Executive Officer. The COBRA expense is based on monthly cost for such coverage based on 20142017 enrollment for 18 months and assumes a 10.0%5% inflationary trend; the life insurance premiums are based on January 20142017 expense with no assumed increase. In all cases, these payments would cease if, before the applicable time periods were completed, a Named Executive Officer becomes employed with another employer that offers such benefits. |
(5) | |
| (6) | The actual amounts to be paid to, and the value of stock options, and restricted stock awards, restricted stock units, Performance Vesting RSAs and Performance Vesting RSUs 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. |
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 “Analyses of 2013 Compensation Determinations — Severance Policy and Change of Control Agreements” in the Compensation Discussion and Analysis and more fully below, ourOur senior officers, including
all of theour 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,
(other than the restricted stock
unit agreements,
reflecting the Performance Vesting
Restricted Stock Awards)RSA agreements and Performance Vesting RSU agreements contain provisions that apply to terminations of employment.
Executive Severance Policy. In December 2010, weOctober 2002, our Board adopted a revisedan Executive Severance Policy orthat covered, in addition to other employees, our then senior executive officers. We updated the “Policy,” thatExecutive 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, and eliminate unnecessarily complex provisions. The Executive Severance Policy covers our officers, including the Named Executive Officers, to the extent that he or she is not otherwise covered by his or her Management Retention Agreement described below.
Under the
Executive Severance Policy, if a Named Executive Officer is terminated without Cause or if he
or she resigns with Good Reason,
as such terms are defined in the Executive Severance Policy, then, among other things, such Named Executive Officer is entitled to the following benefits:
aA single lump sum payment equal to his or her per pay period base salary rate multiplied by the Applicable Severance Period;
Period (“Applicable Severance Period” means, for Messrs. Ungaro and Henry, 12 months; and for Messrs. Morreale, Piraino and Waite and Drs. Scott and Williams, nine months plus one month for each year of service as an officer, up to a maximum of 12 months);aA single lump sum payment equal to his or her Incentive Compensation;
Compensation (“Incentive Compensation” means, for Messrs. Ungaro and Henry, 100% of their respective target award under our annual cash incentive plan for executive officers; and for Messrs. Morreale, Piraino and Waite, and Drs. Scott and Williams, the pro-rata portion (based on the time period served during the fiscal year) of his or her respective target incentive award under our annual cash incentive plan for executive officers));continuationContinuation of coverage under COBRA for medical, dental, vision and orthodontia benefits and life insurance benefits, in each case, during the Applicable Severance Period (or up to 18 months in the Company’s discretion) or until such time as he or she is offered these benefits by a subsequent employer; and
executiveExecutive 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. We also have the right to modify, terminate or add or delete individuals covered by the
Executive Severance 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
Executive Severance 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, for Messrs. Blake and Parthasarathi, nine months, plus one month for each year of service as an officer, up to a maximum of 12 months, for Mr. Piraino, six months, plus one month for each year of service as an officer, up to a maximum of nine 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, Blake, Parthasarathi and Piraino 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 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 title such that he is no longer covered by the Policy; or a request to relocate, except for office relocations that would not increase his 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 Messrs. Blake, Parthasarathi and Piraino, the pro-rata portion (based on the time period served during the fiscal year) of his target incentive award under our annual cash incentive plans.
Management Retention Agreements. OurIn 2008, we began entering into change of control agreements with Named Executive Officers haveand certain other senior officers. In 2011, we amended the form of management retention agreement, which modified the earlier agreements to comply with Section 409A of the IRC (the “Management Retention Agreements”). Payments are made under the Management Retention Agreements that provide for specified termination benefitsonly if we terminate histwo events occur (often referred to as a “double-trigger” form of agreement): first, there must be a Change of Control; and, second, within 24 months after the Change of Control, the officer’s employment is terminated without Cause or if hethe officer resigns for Good Reason, as such terms are defined in each case, during the period commencing after a Potential Change of Control and ending 24 months after a Change of Control (this is often referred to as a “double trigger” form of agreement).agreement. Additionally, Messrs. Ungaro and Henry each have a provision that provides that, for a one-month period beginning six months following a Change of Control, he can resign and receive the benefits under his Management Retention 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 position 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 the their respective positions, if any, with the new controlling entity. If the Management Retention Agreement applies, then, among other things, such Named Executive Officer is entitled to the following benefits:
aA single lump sum cash payment equal to two times his compensation;
or her Compensation (“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 plan for executive officers that he or she was eligible to receive in that 12-month period);accelerationAcceleration of the vesting of all of his or her stock options, and he or she would have 12 months to exercise the stock options after termination or, if earlier, until the options expire;
reimbursementReimbursement for all COBRA payments for medical benefits for 18 months;
reimbursementReimbursement of the premiums for a term life insurance policy for 24 months following termination; and
inIn certain circumstances, if he or she incurs excise tax due to the application of Section 280G of the IRC, an additional cash payment so that he or she will be in the same position as if the excise tax were not applicable, 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:“Compensation” means one year of base salary,prior agreements, we provided for a tax gross-up payment if payments are subject to an “excess parachute payment” excise tax. We believed at the highest base salary ratetime these agreements were entered into that he or she was paid intax gross-up payments were an appropriate component of executive compensation so that the12-month period prior recipient could receive the benefit of the intended
compensation without regard to the datecomplexity of his or her termination, plus 100%the calculations of his or her target award under our“excess parachute payments” and because the payment would be limited to two times annual cashcompensation and benefits, rather than the higher levels generally permitted by IRC before the excise tax is imposed. We have a policy that mandates any future amendments to these retention agreements meeting specific criteria must remove these gross-up payments and that no gross-up payments be included in any new retention agreements.
Equity Plans and Equity Award Agreements
Our equity 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 plansgenerally provide that upon termination of employment, other than for Cause, death or permanent and total disability (as defined in the IRC), theoutstanding stock 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, as defined in the applicable equity incentive plan, 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, except for the 2013 Equity Incentive Plan in which case if an optionee is terminated for Cause, the option will terminate on the optionee’s termination date. Upon termination for death or disability, the options vest
Under our equity incentive plans, if a change in
wholecontrol occurs and the
optionee (or his successor) has 12 months to exercise theoutstanding stock options,
or, if earlier, until the options expire. In the event of a merger, consolidation, sale of all or substantially all of the assets or liquidation, unless the existing optionstime-based vesting restricted stock awards and time-based vesting restricted stock units are
not continued or assumed by the successor entity,
if any, with appropriate adjustments,or paid out in an amount equal to the excess of the fair market value over the exercise price or purchase price, then
theour stock options,
terminate upon the effective date of such transaction,time-based vesting restricted stock units and time-based vesting restricted stock awards (other than our performance vesting awards) would vest in full and each optionee would
be providedhave the opportunity to exercise his
or her options in full, including any portion not then vested.
Our Board may extend We believe that acceleration of vesting of options, restricted stock awards and restricted stock units is appropriate when the periodstock option, restricted stock award or restricted stock unit are not continued or assumed by the successor company or paid out in whichan amount equal to the excess of the fair market value over the exercise an option, butprice or purchase price, as the recipient has not received the full contemplated benefit of the equity award due to circumstances beyond the original expiration daterecipient’s control.
Our stock option agreements generally provide that if the holder’s employment is terminated due to death or disability, all of the
option.Under our stock option plans, “Cause” means the violation of any reasonable rule or policy that resultsoptions not then vested shall immediately vest 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 responsibilities; willful failure to perform his 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 of the Chairman or President of Cray.
Restricted Stock Agreements. Except for the restricted stock agreement reflecting Performance Vesting Restricted Stock Awards, underfull.
In addition, our restricted stock unit agreements with each of the Named Executive Officers, theand our restricted stock vests in full upon death or Disability oraward agreements (other than our Performance Vesting RSA agreements and Performance Vesting RSU agreements) generally provide that if following(x) a Change of Control, the Named Executive Officerholder’s employment is terminated without Cause or terminates for Good Reason. If the Named Executive OfficerReason following a change of control or (y) a holder dies or suffers a Disability, all restricted shares not then vested shall immediately vest. In addition, if (x) a holder has held the restricted stock units or restricted stock awards for at least 18 months and his or her employment is terminated for any reason other than Cause or if(y) a holder retires (after reaching age 65), the Named Executive Officer retires, then the Named Executive Officerholder receives a pro-rata portion of the unvested shares based on the time period he or she has held the restricted stock units or restricted stock compared to the four-yeartotal vesting period. In addition, in
Under our Performance Vesting RSA agreements, such Performance Vesting RSAs vest, if at all, only upon the eventachievement of certain operational and strategic performance criteria exclusively related to the operation of our big data analytics business or upon a merger, consolidation, salechange of all or substantially allcontrol of Cray. The Performance Vesting RSAs expired on the assets or liquidation,calendar day immediately following the restricted stock vestsdate on which the Company filed its Annual Report on Form 10-K with the SEC for the fiscal year ended December 31, 2016.
Under our Performance Vesting RSU agreements, such Performance Vesting RSUs will be earned and vest in full,
if we failupon the achievement of certain revenue and operating income milestones, both of which must be met, in either fiscal year 2016, 2017, 2018 or 2019, subject to
have the
restricted stock agreements continued or assumed by the successor entity. The restricted shares are forfeited if a Named Executive Officer’s
employment is terminated for any other reason.continued service to Cray on such date. In such restricted stock agreements, “Cause” meansaddition, upon a terminationchange of employment resulting from a good faith determination by our Compensation Committee that there has been a willful failure or refusalcontrol of Cray (as defined 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 misappropriation of our assets; the unauthorized disclosure of confidential information; 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 such restricted stock agreement or any other agreement with us.
In such restricted stock agreements, except for the 2013 restricted stock agreements, “Change of Control” means a merger or consolidation between us and any other entity (other than a merger or consolidation where the holders of our voting securities immediately prior to such transaction own at leastPerformance Vesting RSU agreement), 50% of the voting powershares subject to the Performance Vesting RSU will be earned if the change of control is of a certain level and 100% of the outstanding securitiesshares subject to the Performance Vesting RSU will be earned if the change of the surviving entity); the sale or dispositioncontrol is of all or substantially all of our assets; our shareholders approve a 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 a majority of the Board is replaced during a 36-month period (other than by voluntary resignation of individual directors in the ordinary course of business)certain higher level, and such replacement was not initiated byearned shares will be subject to an additional one-year vesting cliff, subject to the Board as constituted at the beginning of such 36-month period. In the 2013 restricted stock agreements,Named Executive Officer’s continued service to Cray. If, following a change of control, a “Corporate Transaction,”Named Executive Officer is terminated without Cause or resigns for Good Reason (each, as defined asin the occurrence of anyPerformance Vesting RSU agreement), all of the following events: (i) any person becomesearned shares will accelerate in full. Likewise, if the beneficial owner, directly or indirectly, of our securities representing fifty percent (50%) or morePerformance Vesting RSUs are not assumed, the earned shares will accelerate in full. None of the total voting power represented by our then-outstanding voting securities; (ii) the consummation of the sale or disposition by us of all or substantially all of our assets; (iii) the consummation of a merger or consolidation with any other corporation, other than a merger or consolidation which would resultPerformance Vesting RSUs were vested in our voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities Cray or such surviving entity or its parent outstanding immediately after such merger or consolidation; (iv) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the IRC, and the regulations promulgated thereunder, wherein our stockholders give up all of their equity interest; or (v) any liquidation or dissolution of Cray.
In such restricted stock agreements, except for the 2013 restricted stock agreements, “Disability” means that, at the time his employment is terminated, he has been unable to perform the duties of his position for a period of six consecutive months as a result of his incapacity due to physical or mental illness. In the 2013 restricted stock agreements, “Disability” is determined by Company policies.
In such restricted stock agreements, except for the 2013 restricted stock agreements, “Good Reason” means a reduction in salary or benefits (other than reductions applicable to employees generally); a materially adverse change in job responsibilities; a request to relocate, except for office relocations that would not increase his
one-way commute by more than 25 miles; or our failure to obtain the assumption of such restricted stock agreement by a successor to all or substantially all of our business or assets. In the 2013 restricted stock agreements, “Good Reason” means a reduction in salary by more than 5%, target cash bonus by more than 5% or benefits (other than reductions applicable to employees generally); a materially diminution in job status, title, position or responsibilities; a request to relocate, except for office relocations that would not increase his one-way commute by more than 25 miles; a change of customary office location which results in substantially increased travel.
2016.
Compensation Committee Interlocks and Insider Participation
The current members of the
In 2016, Mr. Schireson (Chair), Mr. Kiely, Mr. Turner (effective April 18, 2016) and Ms. Narodick (through August 4, 2016) served on our Compensation
Committee are Frank L. Lederman (Chair), John B. Jones, Jr., Stephen C. Kiely and Stephen C. Richards.Committee. No member of the Compensation Committee was an officer or employee of ours or any of our subsidiaries in
20132016 or
formerly.formerly or had any relationship that is required to be disclosed under Item 404 of Regulation S‑K. In addition, none of our executive officers currently serves or has served on the board of directors or
compensation committeeCompensation Committee of any entity whose executive officers included any of our directors.
TRANSACTIONS WITH RELATED PERSONS
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 atwww.cray.com under “About Cray —“Company - Company Information - Investors —- Corporate Governance —- Governance Documents.”We did not enter into any transaction in 20132016 requiring Audit Committee approval or ratification under our Related Person Transaction Policy.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
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 of Regulation S-K) or to the liabilities of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Exchange Act.
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 “About Cray —“Company - Company Information - 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 2013.2016. 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
2013.2016. The Company included the
20132016 report and opinion in its Annual Report on Form 10-K for the year ended December 31,
2013.2016. The Audit Committee met in person or by telephone seven times in
2013.2016. 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
20122015 or
2013.2016. See “Discussion of Proposals Recommended by the Board
—- Proposal
2:4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31,
2014”2017” below.
The Audit Committee engaged Peterson Sullivan LLP as the Company’s independent registered public accounting firm for
2013,2016, 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
2014.2017. 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
2:4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31,
2014”2017” below.
The Audit Committee has reviewed and discussed the audited consolidated financial statements for
20132016 with our management, including a discussion of the quality and acceptability of the financial reporting, the reasonableness of significant accounting judgments and estimates and the clarity of disclosures in the consolidated financial statements.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended December 31,
2013,2016, for filing with the SEC.
Sally G. Narodick
Stephen C. Richards
Brian V. Turner
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: To Elect
SevenEight Directors
forEach to Serve a One-Year
TermsTerm
Our Bylaws provide that our Board shall consist of no less than five and no more
than nine members, with the exact number of members within the variable range to be fixed from time to time by resolution of the Board.
Currently,On April 18, 2016, our Board
is fixed atauthorized an increase in the size of the Board from seven to eight members
however, since John B. Jones, Jr. is not standing for re-election toand, upon the recommendation of our
Board and his termCorporate Governance Committee, appointed Mr. Turner as a director
concludes at the Annual Meeting, our Board decided inof Cray effective as of April
2014, to decrease the size of our Board from eight members to seven members, with such reduction in the number of members to become effective immediately prior to the commencement of the Annual Meeting.18, 2016. As of April
23, 2014,21, 2017, all eight directors on our Board serve with terms ending at the Annual Meeting. The Board has nominated Dr. Banerjee, Mr.
Homlish, Mr. Kiely,
Dr. Lederman, Ms. Narodick, Mr. Regis, Mr.
RichardsSchireson, Mr. Turner and Mr. Ungaro for re-election to the Board, each to hold office until the
Annual Meetingannual meeting of shareholders in
2015.2018.
We know of no reason why any nominee
maywould 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.
Majority Vote Standard for Director Election
Our Bylaws require that in a non-contested election each director will be elected by the vote of the majority of the votes cast. A majority of votes cast means that the number of shares cast “FOR” a director’s election exceeds the number of votes cast “AGAINST” that director. The following shall not be considered a vote cast: a share whose ballot is marked as withheld; a share otherwise present at the meeting but for which there is an abstention; or a share otherwise present at the meeting as to which a shareholder gives no authority or direction. In a contested election, the directors will be elected by the vote of a plurality of the votes cast. A contested election is one in which the number of nominees exceeds the number of directors to be elected.
In a non-contested election, a nominee who does not receive a majority vote will not be elected. Except as explained in the next paragraph, an incumbent director who is not elected because he or she does not receive a majority vote will continue to serve as a holdover director until the earliest of: (a) 90 days after the date on which an inspector determines the voting results as to that director; (b) the date on which the Board Recommendation:appoints an individual to fill the office held by that director; or (c) the date of the director’s resignation.
The Board may fill any vacancy resulting from the non-election of a director as provided in our Bylaws. The Corporate Governance Committee will consider promptly whether to fill the office of a nominee who fails to receive a majority vote in a non-contested election and make a recommendation to the Board about filling the office. The Board will act on the Corporate Governance Committee’s recommendation within 90 days after the certification of the shareholder vote. No director who fails to receive a majority vote in a non-contested election will participate in the Corporate Governance Committee’s recommendation or the Board’s decision about filling his or her office.
Board Recommendation: The Board recommends that you vote “FOR” the election of all nominees for director.
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.
Prithviraj (Prith) Banerjee
Dr. Banerjee, 53,56, joined our Board in 2013. Since May 2013,September 2015, Dr. Banerjee has served asbeen Executive Vice President and Chief Technology Officer of Schneider Electric, a global specialist in energy management and automation. Previously, between 2013 and 2015, Dr. Banerjee was Managing Director of Global Technology Research and Development ofat Accenture. FromPrior to Accenture, from 2012 to 2013, he led the technology direction of ABB Ltd., a power and automation company, as its Executive Vice President and Chief Technology Officer. From 2007 until 2012, he served as Senior Vice President of Research at the Hewlett-Packard Company and served as the Director of HP Labs, the company’s central research organization. Throughout his career, Dr. Banerjee has held several academic positions, including Dean of the College of Engineering at the University of Illinois at Chicago, Professor and Chairman of electricalElectrical and computer engineeringComputer Engineering at Northwestern University, and the Director of the Computational Science and Engineering program and Professor of electricalElectrical and computer engineeringComputer Engineering at the University of Illinois at Urbana-Champaign. Additionally, Dr. Banerjee founded two electronic design automation companies, BINACHIP Inc. and AccelChip Inc. Dr. Banerjee currently serves on the technical advisory board of Cypress Semiconductor Corporation and previously served on the ComputerScience Advisory Board of the National Academy of Engineering, the advisory board for the Anita Borg Institute for Women and Technology and on the technical advisory boards of several private companies, including Ambit Design Systems, Inc., Atrenta Inc. and Calypto Design Systems, Inc. He is a Fellow of the American Association for the Advancement of Science, the Association for Computing Machinery and the Institute of Electrical and Electronics Engineers. He received a B.Tech from the Indian Institute of Technology and an M.S. and Ph.D. in electrical engineeringElectrical Engineering from the University of Illinois at Urbana-Champaign. We believe Dr. Banerjee’s qualifications to sit on our Board of Directors include his vast experience with high-technology, his deep technical expertise and his significant experience developing technology strategies.
Martin J. Homlish
Mr. Homlish, 64, joined our Board in 2015. Mr. Homlish previously ran marketing for iconic high-tech brands such as Sony Corporation, SAP AG and Hewlett-Packard, and is currently the Chief Executive Officer of AMP, an end-to-end marketing agency within the holding company Omnicom Group. As Chief Executive Officer of AMP, Mr. Homlish works with senior executive clients to get the most out of their marketing investment. Prior to AMP, he was most recently a member of the HP Executive Committee. In his tenure at HP he held the roles of Executive Vice President and Chief Customer Officer, and also served as Executive Vice President and Chief Marketing Officer. Prior to HP, Mr. Homlish spent 11 years at SAP, where he held various executive leadership positions, including Global Chief Marketing Officer, Chief Operating Officer and Corporate Officer. He also spent 15 years at Sony, holding several executive leadership positions there, and led the launch of the Sony PlayStation in North America. He received a B.A. in communications from Goddard College in Vermont. We believe Mr. Homlish’s qualifications to sit on our Board of Directors include his more than 40 years of experience in marketing and executive leadership positions.
Mr. Kiely, 68,71, joined our Board in 1999, was appointed Lead Director in January 2005 and non-executive 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 2005. 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 has beenwas a member of the board of directors of Stratus Technologies since 1999.from 1999 to 2014. 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, 64, joined our Board in 2004. From 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 aluminum (primary, fabricated and alumina), where he had overall responsibility for global research, development, and engineering, including the 950-member Alcoa Technical Center. He was also a member of the Corporate Executive Council, Alcoa’s internal board for conducting quarterly reviews of the results and plans of each business unit. From 1988 to 1995, Dr. Lederman served as Senior Vice President of Technology for Toronto-based Noranda Inc., formerly a diversified natural resources conglomerate. His responsibilities included directing the Noranda Technology Center in Montreal. Dr. Lederman was with General Electric Company from 1976 to 1988, beginning as a physicist, where 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, as well as an M.S. and Ph.D. in Physics from the University of Illinois, 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. Dr. Lederman’s qualifications to sit on our Board of Directors include over four decades of experience in computing and mathematical modeling. He has a deep understanding of computing from the perspective of customers and end users, and he 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. He consults with universities and 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.
Ms. Narodick, 68,71, joined our Board in 2004. She is a retired educational technology and e-learning consultant. From 2000 to 2004, Ms. Narodick was President of Narodick Consulting, an e-learning consulting firm. From 1998 to 2000, she served as Chief Executive Officer of Apex Online Learning, an Internet educational software company. Previously, Ms. Narodick served as an education technology consultant, both independently and for the Consumer Division of IBM from 1996 to 1998. From 1989 to 1996, Ms. Narodick served as Chairman and Chief Executive Officer of Edmark Corporation, an educational software company sold to IBM in 1996. From 1973 to 1987, she served
in a variety of financial management capacities at Seafirst Corporation and Seafirst Bank, and was a securities analyst at Paine Webber from 1970 to 1973.
Since 1993, Ms. Narodick
has served as a member of the board of directors of Penford Corporation and previously served as a member on the boards of
Penford Corporation from 1993 to 2015, SumTotal Systems from 1999 to 2009, Puget Energy, Inc. from 1989 to 2009 and Solutia Inc. from 2000 to 2008. A graduate of Boston University, Ms. Narodick received an M.A. in Teaching from Teachers College, Columbia University, and an M.B.A. from New York University. We believe Ms. Narodick’s qualifications to sit on our Board of Directors include her years of experience as a technology consultant and Chief Executive Officer of a technology company combined with her Board and financial management expertise.
Mr. Regis, 74,77, joined our Board in 2003. He is currently the General Partner of Regis Investments, LP and has served in this role since 1998. He was Chairman of the advisory board for Fluke Venture Partners II, LP, a Northwest venture capital partnership, from 2004 to 2011. From 2000 to 2009, he was 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 more than 30 years with Price Waterhouse LLP, including serving as Managing Partner of the Seattle office and previously of the Northwest and Portland, Oregon offices. SinceFrom 2003 to 2015, Mr. Regis has served as a member of the board of directors of Columbia Banking Systems, Inc., was a member of its audit committee and chaired its Risk Management Committee from 2010 to 2015. In 2004, Mr. Regis was a member of the audit committee of Art Technology Group, Inc. and also joined their board and became Chairman of the board of directors in 2005, where he served in this role until January 2011 when Art Technology Group merged with Oracle Corporation. Since 2003, he has also been a member of the audit committee of Columbia Banking Systems, Inc. and has chaired its risk management committee since 2010. From 2003 to 2004, Mr. Regis was a member of the board of directors of Primus Knowledge Solutions, Inc. until its merger with 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. Max L. Schireson
Stephen C. RichardsMr. RichardsSchireson, 60,46, joined our Board in 2004. He2014. Mr. Schireson is currently a private investor. From 2000consultant to 2004, when he retired, hea variety of technology companies and has served as Executive in Residence at Battery Ventures, a technology focused investment firm, since August 2016. Prior to his consulting work, Mr. Schireson was at MongoDB, Inc. from February 2011 to December 2014, where he was Chief Executive Officer from January 2013 to September 2014, President from February 2011 to January 2013 and Vice Chairman from August 2014 to December 2014. Fortune 500 companies and startups alike are using MongoDB to create new types of applications, improve customer experience, accelerate time to market and reduce costs. Prior to MongoDB, Mr. Schireson spent over seven years at MarkLogic, provider of a database for unstructured information, where he played a variety of executive roles including Chief Operating OfficerOfficer. Before MarkLogic, Mr. Schireson spent nine years at Oracle where he held a number of roles including Chief Applications Architect 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 DevelopmentE-Commerce 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 has been a member of the board of directors of Guidance Software, Inc. since February 2008. From June 2007 to July 2010, he served as a member of the board of directors of BigFix, Inc. and from 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 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.Self Service Applications. We believe Mr. Richards’Schireson’s qualifications to sit on our Board of Directors include his extensive experience as a financetechnology executive and operational executive, including as aChief Executive Officer, his deep experience in software and his technical expertise.
Brian V. Turner
Mr. Turner, 57, was appointed to our Board on April 18, 2016. He was the Chief Financial Officer of multiple technology-based, publicly-traded companies.Coinstar Inc. from 2003 until June 2009. Prior to Coinstar, from 2001 to 2003, he served as Senior Vice President of Operations, Chief Financial Officer and Treasurer of RealNetworks, Inc., a digital media and technology company. Prior to RealNetworks, from 1999 to 2001, Mr. Turner was employed by BSquare Corp., a software company, where he initially served as Senior Vice President of Operations, Chief Financial Officer and Secretary, before being promoted to President and Chief Operating Officer. From 1995 to 1999, Mr. Turner was Chief Financial Officer and Vice President of Administration of Radisys Corporation, an embedded software company. Mr. Turner’s experience also includes 13 years at PricewaterhouseCoopers LLP where he held several positions including Director, Corporate Finance. Mr. Turner has served as a Director of Microvision, Inc. since 2006 and currently serves as the Chairman of the Board and Lead Independent Director, and also serves on its Compensation and Audit Committees. Mr. Turner sits on various private company boards. We believe Mr. Turner’s qualifications to sit on our Board of Directors include his financing expertise and knowledge of operational finance and accounting.
Mr. Ungaro, 45,48, has served as Chief Executive Officer and as a member of our Board since August 2005 and as President since March 2005. From September 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 Computing Sales for IBM beginning in April 2003 and as IBM’s Vice President, Worldwide HPC Sales beginning in February 1999. He also held a variety of other sales leadership positions at IBM beginning in 1991. Mr. Ungaro received a B.A. from Washington State University. We believe Mr. Ungaro’s qualifications to sit on our Board of Directors include his many years of experience as a leader in the high performance computing industry as both a sales and operational executive, including more than eight10 years as our Chief Executive Officer, and his extensive sales and marketing expertise.
Proposal 2: Advisory and Non-Binding Vote on the Compensation of Our Named Executive Officers
We are asking our shareholders to vote, on an advisory and non-binding basis, to approve the compensation of our Named Executive Officers as disclosed pursuant to the “Compensation Discussion and Analysis,” 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. As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation programs are designed to align the interests of our executive officers with those of our shareholders, as well as attract, motivate, and retain key employees who are critical to our success. Under these programs, our executive officers, including our Named Executive Officers, are motivated to achieve specific financial and strategic objectives that are expected to increase shareholder value. Please read the “Compensation Discussion and Analysis” and the accompanying tables and narrative discussion for additional details about our executive compensation programs, including information about the 2016 compensation of our Named Executive Officers. We currently provide this advisory vote to our shareholders on an annual basis. If the Board elects to continue to hold this advisory vote on an annual basis, as currently recommended to shareholders in Proposal 3, the next such vote will occur at our 2018 annual meeting of shareholders.
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 an advisory and 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 2017 Annual Meeting of Shareholders.”
Even though this say-on-pay vote is advisory and therefore will not be binding on us, 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” Proposal 2 to approve of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement.
Proposal 3: Advisory and Non-Binding 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 and 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 and non-binding 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 set forth in the Proxy Statement relating to the Company’s 2017 Annual Meeting of Shareholders.”
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 “1 YEAR” as the frequency with which shareholders are provided an advisory vote on the compensation of our Named Executive Officers.
Proposal 4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31, 20142017 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
2014,2017, 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.
Board Recommendation:Recommendation: The Board recommends that you vote “FOR” Proposal 24 to ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2014.2017. Selection of our independent registered public accounting firm is not required to be submitted to a vote of the shareholders 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. The Board is, however, 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 firm 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 a different independent registered public accounting firm 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.
The following table lists the fees for services rendered by Peterson Sullivan LLP for
20122015 and
2013: | | | | | | | | |
Services | | 2012 | | | 2013 | |
Audit Fees(1) | | $ | 475,500 | | | $ | 470,775 | |
Audit-Related Fees(2) | | | — | | | | — | |
Tax Fees(3) | | | — | | | | — | |
All Other Fees(4) | | | — | | | | — | |
| | | | | | | | |
Total | | $ | 475,500 | | | $ | 470,775 | |
| | | | | | | | |
|
| | | | | | | | |
| Services | | 2015 | | 2016 |
| Audit Fees (1) | | $ | 513,426 |
| | $ | 545,544 |
|
| Audit-Related Fees (2) | | — |
| | — |
|
| Tax Fees (3) | | — |
| | — |
|
| All Other Fees (4) | | — |
| | — |
|
| Total | | $ | 513,426 |
| | $ | 545,544 |
|
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| (1) | Audit services billed in 20122015 and 20132016 consisted of:of audits of our annual consolidated financial statements, audits of our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act, reviews of our quarterly consolidated financial statements, statutory and regulatory audits, consents, comfort letters and other services related to filings with the SEC and capital-raising offerings. |
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| (2) | No audit-related services were billed in 20122015 or 2013.2016. |
| |
| (3) | No tax services were billed in 20122015 or 2013.2016. |
| |
| (4) | There were no fees billed for other services in 20122015 or 2013.2016. |
| Peterson Sullivan LLP to date has not performed any non-audit services for us. |
Peterson Sullivan LLP to date has not performed any non-audit services for us.
Audit Committee Pre-Approval Policy
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
2013,2016, all services performed by Peterson Sullivan LLP were pre-approved by the Audit Committee in accordance with this policy.
Proposal 3: Advisory Vote on the Compensation of Our Named Executive OfficersWe are asking our shareholders to vote, on an advisory or non-binding basis, to approve the compensation of our Named Executive Officers as disclosed pursuant to the Compensation Discussion and Analysis beginning on page 24, 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 workforce required for us to achieve our strategic as well as tactical 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 on achieving 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, provide a critical retention incentive. As our key decision-makers, a substantial portion of our Named Executive Officers’ potential compensation is linked to our long-term objectives and increasing shareholder value.
Other Compensation Components: In line with our philosophy of linking our Named Executive Officers’ 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.
The short-term and long-term incentives constitute by far the largest portion of total target compensation for our Named Executive Officers. In 2013, for example, approximately 73% to 85% of the 2013 total target compensation for our Named Executive Officers was performance-based and at risk.
2013 Compensation
Given our operational and financial performance in 2012 and earlier, and in light of the compensation consultant analysis and other factors described in this Proxy Statement, the Compensation Committee:
Increased base salaries for three of the five Named Executive Officers in 2013;
Maintained the target bonus awards (as a percentage of base salary) for all of our Named Executive Officers under the balanced scorecard component of our annual cash incentive plan; and
Granted long-term equity awards in the form of stock options and restricted stock to each Named Executive Officer.
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 2014 Annual Meeting of Shareholders.”
Even though this say-on-pay vote is advisory and therefore will not be binding on us, 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” Proposal 3 to approve of the compensation of our Named Executive Officers, as disclosed in this Proxy Statement.
OTHER BUSINESS —- DISCRETIONARY AUTHORITY
While the Notice of
20142017 Annual Meeting of Shareholders provides for the transaction of all other business that 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.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2013,2016, including consolidated financial statements and schedules, forms a part of our 20132016 Annual Report that was provided to shareholders with this Proxy Statement. The Annual Report is available on our website:www.cray.com under“About Cray — “Company - Company Information - Investors — Financials — Annual Reports and- Proxy Statements.Materials.” Additional copies of the 20132016 Annual Report on Form 10-K10‑K may be obtained without charge by writing to Ruby H. Alexander, Assistant Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164. By order of the Board of Directors,
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CRAY INC. | | | | For
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| CRAY INC. | | | | | | | | | | |
| | | The Board of Directors recommends that you vote FOR the following nominees:
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| 1. | Election of Directors, each to serve a one-year term. | | | | | | | | | | | |
| | | 1.
Nominees: | For | Against | Abstain | | Election of Directors, each to serve a one-year term.
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| | | 1a. Prithviraj Banerjee | ¨ | ¨ | ¨ | | Nominees:
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| | | 1b. Martin J. Homlish | ¨ | ¨ | ¨ | | 01) Prithviraj Banerjee
| | 05)For | Against | Abstain | |
| | 1c. Stephen C. Kiely | ¨ | ¨ | ¨ | | 1f. Max L. Schireson | | ¨ | ¨ | ¨ | |
| | 1d. Sally G. Narodick | ¨ | ¨ | ¨ | | 1g. Brian V. Turner | | ¨ | ¨ | ¨ | |
| | 1e. Daniel C. Regis | ¨ | ¨ | ¨ | | 1h. Peter J. Ungaro | | ¨ | ¨ | ¨ | |
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| | | | | 02) Stephen C. Kiely | | 06) Stephen C. Richards | | | | | | | | | | |
| | | | 03) Frank L. Lederman | | 07) Peter J. Ungaro | | | | | | | | | | |
| | | | 04) Sally G. Narodick | | | | | | | | | | | | |
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| | The Board of Directors recommends that you vote FOR the following proposals:proposal 2: | | For | Against | For | | Against | | Abstain | | |
| | 2. | 2.
To vote, on an advisory and non-binding basis, to approve the compensation of our Named Executive Officers. | ¨ | ¨ | ¨ | |
| The Board of Directors recommends that you vote 1 YEAR for proposal 3: | 1 Year | 2 Years | 3 Years | Abstain | |
| 3. | To vote, on an advisory and non-binding basis, on the frequency of holding future advisory votes on the compensation of our Named Executive Officers. | ¨ | ¨ | ¨ | ¨ | |
| The Board of Directors recommends that you vote FOR proposal 4: | | For | Against | Abstain | |
| 4. | To ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014.2017. | | ¨ | ¨ | ¨ | | ¨
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| | | 3.
| | To approve, on an advisory or nonbinding basis, the compensation of our Named Executive Officers.
| | | | NOTE: ¨ | | ¨
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| | NOTE:Such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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| Annual Meeting of Shareholders June 12, 201413, 2017, 3:00 PMP.M. Pacific Time This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) Peter J. Ungaro and Brian C. Henry, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy, all of the shares of Common Stock of CRAY INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 3:00 PM, PDTP.M. Pacific Time on June 12, 2014,13, 2017, at 901 Fifth Avenue, Fifth Avenue Conference Room, Seattle, WA 98164, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. | | |
| | | Continued and to be signed on reverse | | |
