0000949158-19-000040.txt : 20190418 0000949158-19-000040.hdr.sgml : 20190418 20190418061942 ACCESSION NUMBER: 0000949158-19-000040 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20190611 FILED AS OF DATE: 20190418 DATE AS OF CHANGE: 20190418 EFFECTIVENESS DATE: 20190418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAY INC CENTRAL INDEX KEY: 0000949158 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 930962605 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26820 FILM NUMBER: 19754467 BUSINESS ADDRESS: STREET 1: 901 FIFTH AVENUE STREET 2: SUITE 1000 CITY: SEATTLE STATE: WA ZIP: 98164 BUSINESS PHONE: 2067012000 MAIL ADDRESS: STREET 1: 901 FIFTH AVENUE STREET 2: SUITE 1000 CITY: SEATTLE STATE: WA ZIP: 98164 FORMER COMPANY: FORMER CONFORMED NAME: TERA COMPUTER CO \WA\ DATE OF NAME CHANGE: 19950809 DEF 14A 1 a2019def14a.htm DEF 14A Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.    )
Filed by the Registrant þ
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨
Preliminary Proxy Statement
¨
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material Pursuant to §240.14a-12
Cray Inc.
 
 
 
 
 
(Name of Registrant as Specified In Its Charter)
 
 
 
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ
No fee required.
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
 
(2)
Aggregate number of securities to which transaction applies:
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
(4)
Proposed maximum aggregate value of transaction:
 
(5)
Total fee paid:
 
¨
Fee paid previously with preliminary materials.
¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)
Amount Previously Paid:
 
(2)
Form, Schedule or Registration Statement No.:
 
(3)
Filing Party:
 
(4)
Date Filed:
 





imagecray01.jpg


NOTICE OF 2019 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 Tuesday, June 11, 2019, at 3:00 p.m. Pacific Time for the following purposes:
1.    To vote on the election of nine 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 the amendment and restatement of our 2013 Equity Incentive Plan, as amended and restated; and
4.    To ratify the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2019.
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. Only shareholders of record on April 5, 2019, the record date for the Annual Meeting, are entitled to the notice of, and to vote on, these matters.
We look forward to seeing you. Thank you for your ongoing support of and interest in Cray.

Sincerely,
image1a03.jpg
Peter J. Ungaro
President and Chief Executive Officer
Seattle, Washington
April 18, 2019
 




PROXY STATEMENT
TABLE OF CONTENTS
 
Page
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 the internet or by telephone or, if this Proxy Statement was mailed to you, by completing the enclosed proxy card and returning it by mail using the addressed envelope enclosed for which no postage is required if mailed in the United States.
Voting via the internet, 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 11, 2019
 
 
 
 
 
The Cray Inc. Notice and Proxy Statement for the 2019 Annual Meeting of Shareholders
and the 2018 Annual Report to Shareholders are available online
at https://materials.proxyvote.com/225223 and www.cray.com/proxy





CRAY INC.
901 Fifth Avenue, Suite 1000
Seattle, WA 98164

PROXY STATEMENT FOR ANNUAL
MEETING OF SHAREHOLDERS
to be Held at:
901 Fifth Avenue, Fifth Avenue Conference Room
Seattle, Washington 98164
June 11, 2019
3:00 p.m. Pacific Time

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why am I receiving these materials?
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 18, 2019, in connection with its solicitation of proxies for use at our 2019 annual meeting of shareholders (2019 Annual Meeting or Annual Meeting). The Annual Meeting will take place on Tuesday, June 11, 2019, at 3:00 p.m. Pacific Time, in the Fifth Avenue Conference Room at our corporate headquarters located at 901 Fifth Avenue, Seattle, Washington 98164.
While we have included links to our website, the contents of our website are not incorporated by reference into this Proxy Statement or our other SEC reports and filings.
What is included in these materials?
These materials include:
Our Notice of 2019 Annual Meeting of Shareholders and our Proxy Statement for Annual Meeting of Shareholders (Proxy Statement), which summarize the information regarding the matters to be voted on at the Annual Meeting;
Our 2018 Annual Report to Shareholders, which includes our Annual Report on Form 10-K and audited consolidated financial statements for the year ended December 31, 2018 (Annual Report); 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.
What items will be voted on at the 2019 Annual Meeting?
There are four known matters that will come before the shareholders at the 2019 Annual Meeting:
The election of nine 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 amendment and restatement of our 2013 Equity Incentive Plan, as amended and restated (2013 Equity Incentive Plan or the Plan); and
The ratification of the appointment of Peterson Sullivan LLP as our independent registered public accounting firm for the year ending December 31, 2019.
It is possible that other business may come before the Annual Meeting, although we currently are not aware of any such matters.
What are the voting recommendations of our Board?
Our Board of Directors recommends that you vote your shares “FOR” each of the named nominees to the Board; “FOR” the approval of the compensation of our Named Executive Officers; “FOR” the amendment and restatement of our 2013 Equity Incentive Plan; and “FOR” the ratification of the appointment of Peterson Sullivan LLP as our


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independent registered public accounting firm for the year ending December 31, 2019. In this Proxy Statement, the terms Board of Directors or 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 have 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.
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?
As permitted by the U.S. Securities and Exchange Commission (SEC), we are making this Proxy Statement and the Annual Report available via the internet. On or about April 18, 2019, we mailed a Notice of Internet Availability of Proxy Materials (Notice) to our shareholders as of the record date and certain beneficial owners. We then posted this Proxy Statement and the Annual Report on the internet at https://materials.proxyvote.com/225223 and www.cray.com/proxy. The Notice contains instructions on how to access this Proxy Statement and the Annual Report and to vote online.
Why did I receive a full set of proxy materials rather than the Notice?
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 (Cray 401(k) Plan) paper copies of the proxy materials instead of the Notice.
Who may vote at the Annual Meeting?
If you owned shares of our common stock at the close of business on April 5, 2019, the record date for the Annual Meeting, you are entitled to vote those shares. On the record date, there were 41,096,468 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.
What is the difference between holding shares as a shareholder of record and holding shares as a beneficial owner of shares held in street name?
Shareholder of 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. 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.
How can I vote?
If You Are a Shareholder of 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 Monday, June 10, 2019, the day before the Annual Meeting.
If you received 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 the day before the Annual Meeting.


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If You Are a Beneficial Owner of Shares Held in Street Name:
A number of brokerage firms, banks, broker-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 similar organization, then you may vote by completing and signing the voting form and mailing it to that organization in the self- addressed envelope it provided.
How do I vote in person?
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 “street 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.
May I change my vote or revoke my proxy?
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.
How do I vote if I hold shares in my Cray 401(k) Plan account?
Shares of our 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 (Trustee). 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 Thursday, June 6, 2019. 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.
What happens if I do not give specific voting instructions?
Shareholders of 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 you 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.


3



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.
Which ballot measures are considered “discretionary” or “non-discretionary”?
Proposal 1 (election of nine directors), Proposal 2 (advisory and non-binding vote on the compensation of our Named Executive Officers), and Proposal 3 (amendment and restatement of our 2013 Equity Incentive Plan) 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 4 (ratification of the appointment of our independent registered public accounting firm) is considered a “discretionary” item and your broker may vote on this proposal.
How are abstentions treated?
Abstentions are counted for purposes of determining whether a quorum is present. For Proposal 1 (election of nine 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), Proposal 3 (amendment and restatement of our 2013 Equity Incentive Plan), and Proposal 4 (ratification of the appointment of our 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, Proposal 3, or Proposal 4.
What is the quorum requirement for the Annual Meeting?
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.
What vote is required to approve each proposal?
Proposal 1: To Elect Nine Directors, Each to Serve a One-Year Term.
We have adopted a majority voting standard for the election of directors in non-contested elections. A director nominee 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. If 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, do not instruct your broker how to vote, or abstain from voting, it will not have any effect on the outcome of the advisory vote, assuming the presence of a quorum.
Proposal 3: To Amend and Restate Our 2013 Equity Incentive Plan, as Amended and Restated.
To be approved, the number of votes cast in favor must exceed the number of votes cast against. If you do not vote, do not instruct your broker how to 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.
Proposal 4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31, 2019.
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.


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Who will count the votes?
Representatives of Broadridge will serve as the inspector of elections (Inspector of Elections) and count the votes.
Is voting confidential?
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.
Who pays the costs of soliciting proxies for the Annual Meeting?
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, and other similar organizations for the expenses they incur in forwarding the proxy materials to you.
Can I view future proxy statements, annual reports, and other documents via the internet and not receive any paper copies through the mail?
Yes. If you wish to view future proxy statements, annual reports, and other documents only via the internet, please visit the Broadridge proxy delivery preferences webpage, http://enroll.icsdelivery.com/cray, and follow the instructions for obtaining your documents electronically. The Notice contains instructions about how to elect to obtain the proxy materials via e-mail. Your election will remain in effect until you revoke it.
How do I receive paper copies of the proxy materials, if I so wish?
The Notice contains instructions about how to elect to obtain paper copies of the proxy materials through www.proxyvote.com or by calling Broadridge at 1-800-579-1639. Please have the Notice in hand when accessing the site or telephoning.
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.
I received multiple copies of the Notice and/or proxy materials. What does that mean and can I reduce the number of copies that I receive?
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 proxy 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 similar organization. As a result of householding, only one Notice 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” and would like to start householding, or if you participate in householding and would like to receive a separate Notice or Proxy Statement and Annual Report, please call 1-866-540-7095 and provide the name of your broker, bank, or other similar organization and your account number(s), or contact Zanne Rhyder, at Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164.


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Unfortunately, householding is only possible for shares held through the same brokerage firm, bank, or other 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 proxy materials to a shareholder at a shared address to which a single copy of such materials has been delivered.
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?
You may contact our transfer agent, Computershare, by calling: 877-522-7762 (for foreign investors, 201-680-6578), 800-490-1493 (TDD for hearing-impaired in the United States) or 781-575-2394 (TDD for foreign investors), visiting its website at www.computershare.com/investor, or writing to Computershare Inc., c/o Shareholder Services, P.O. Box 505000, Louisville, KY 40233.
How can I find the voting results of the Annual Meeting?
The voting results will be announced at the Annual Meeting. We will also 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.
Whom should I call if I have any questions?
If you have any questions about the Annual Meeting or voting or about your ownership of our common stock, please contact Zanne Rhyder at (206) 701-2000.


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OUR COMMON STOCK OWNERSHIP
The following table shows, as of April 5, 2019, the number of shares of our common stock beneficially owned by the following persons:
All persons we know to be beneficial owners of at least 5% of our common stock;
Our directors;
Our Named Executive Officers for 2018; and
All current directors and executive officers as a group.
As of April 5, 2019, there were 41,096,468 shares of our common stock outstanding.
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
 
6,035,363

 

 
6,035,363

(3)
14.7%
 
 
 
 
 
 
 
 
 
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
 
4,178,677

 

 
4,178,677

(4)
10.2%
 
 
 
 
 
 
 
 
 
Dimensional Fund Advisors LP
Building One, 6300 Bee Cave Road
Austin, TX 78746
 
2,064,868

 

 
2,064,868

(5)
5.0%
 
 
 
 
 
 
 
 
 
Independent Directors
 
 
 
 
 
 
 
 
Prithviraj Banerjee
 
14,697

 
20,000

 
34,697

(6)
*
Catriona M. Fallon
 
4,067

 
20,000

 
24,067

(7)
*
Stephen E. Gold
 

 
20,000

 
20,000

(8)
*
Stephen C. Kiely
 
20,853

 

 
20,853

(9)
*
Sally G. Narodick
 
49,808

 

 
49,808

 
*
Daniel C. Regis
 
51,208

 

 
51,208

(10)
*
Max L. Schireson
 
12,579

 
20,000

 
32,579

(11)
*
Brian V. Turner
 
10,353

 
20,000

 
30,353

(12)
*
 
 
 
 
 
 
 
 
 
Named Executive Officers
 
 

 
 

 
 

 
 
Peter J. Ungaro
 
286,063

 
526,898

 
812,961

(13)
2.0%
Brian C. Henry
 
69,272

 
155,748

 
225,020

(14)
*
Charles A. Morreale
 
47,288

 
52,998

 
100,286

(15)
*
Efstathios Papaefstathiou
 
16,284

 
36,749

 
53,033

(16)
*
Michael C. Piraino
 
48,805

 
111,318

 
160,123

(17)
*
All current directors and executive officers as a group (13 persons)
 
652,940

 
1,046,210

 
1,699,150

 
4.0%
 * 
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 5, 2019, or within 60 days thereafter.
(3)
The information under the column “Common Shares Owned” with respect to BlackRock, Inc. is based on a Schedule 13G/A filed with the SEC on January 24, 2019, regarding beneficial ownership as of December 31,


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2018. In that Schedule 13G/A, BlackRock, Inc. reported beneficial ownership of 6,035,363 shares, with sole voting power of 5,919,347 shares, without shared voting power, sole dispositive power of 6,035,363 shares, and without shared dispositive power.
(4)
The information under the column “Common Shares Owned” with respect to The Vanguard Group is based on a Schedule 13G/A filed with the SEC on February 11, 2019, regarding beneficial ownership as of December 31, 2018. In that Schedule 13G/A, The Vanguard Group reported beneficial ownership of 4,178,677 shares, with sole voting power of 47,305 shares, with shared voting power of 11,400 shares, sole dispositive power of 4,124,172 shares, and with shared dispositive power of 54,505 shares.
(5)
The information under the column “Common Shares Owned” with respect to Dimensional Fund Advisors LP is based on a Schedule 13G/A filed with the SEC on February 8, 2019, regarding beneficial ownership as of December 31, 2018. Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the Funds). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional Fund Advisors LP or its subsidiaries (collectively, Dimensional) may possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Issuer held by the Funds. However, all securities reported in this schedule are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. Dimensional Fund Advisors LP holds sole voting power as to 1,965,262 shares and sole dispositive power of 2,064,868 shares.
(6)
Represents (i) 14,697 shares held by Mr. Banerjee and (ii) 20,000 options exercisable within 60 days of April 5, 2019.
(7)
Represents (i) 4,067 shares held by Ms. Fallon and (ii) 20,000 options exercisable within 60 days of April 5, 2019.
(8)
Represents 20,000 options exercisable by Mr. Gold within 60 days of April 5, 2019.
(9)
Represents (i) 4,067 shares held by Mr. Kiely and (ii) 16,786 shares held by The Kiely Trust dtd 9/24/18. Mr. Kiely is one of the trustees of The Kiely Trust dtd 9/24/18 and has voting and dispositive power over the shares held by The Kiely Trust dtd 9/24/18.
(10)
Represents (i) 4,067 shares held by Mr. Regis and (ii) 47,141 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.
(11)
Represents (i) 12,579 shares held by Mr. Schireson and (ii) 20,000 options exercisable within 60 days of April 5, 2019.
(12)
Represents (i) 10,353 shares held by Mr. Turner and (ii) 20,000 options exercisable within 60 days of April 5, 2019.
(13)
Represents (i) 282,620 shares held by Mr. Ungaro, (ii) 3,443 shares held in the Cray 401(k) Plan, (iii) 471,198 options exercisable within 60 days of April 5, 2019, and (iv) 55,700 shares of restricted stock units that are expected to vest within 60 days of April 5, 2019.
(14)
Represents (i) 69,272 shares held by Mr. Henry, (ii) 132,498 options exercisable within 60 days of April 5, 2019, and (iii) 23,250 shares of restricted stock units that are expected to vest within 60 days of April 5, 2019.
(15)
Represents (i) 45,229 shares held by Mr. Morreale, (ii) 2,059 shares held in the Cray 401(k) Plan, (iii) 40,248 options exercisable within 60 days of April 5, 2019, and (iv) 12,750 shares of restricted stock units that are expected to vest within 60 days of April 5, 2019.
(16)
Represents (i) 16,284 shares held by Dr. Papaefstathiou, (ii) 22,749 options exercisable within 60 days of April 5, 2019, and (iii) 14,000 shares of restricted stock units that are expected to vest within 60 days of April 5, 2019.
(17)
Represents (i) 48,230 shares held by Mr. Piraino, (ii) 575 shares held in the Cray 401(k) Plan, (iii) 97,068 options exercisable within 60 days of April 5, 2019, and (iv) 14,250 shares of restricted stock units that are expected to vest within 60 days of April 5, 2019.


8



Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (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 2018.


9



THE BOARD OF DIRECTORS
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 Committee 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 who 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 on our website at www.cray.com under “Company – Investors – Corporate Governance.” To 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 Nasdaq Global Market (Nasdaq), the laws of the state of Washington, and practices suggested by recognized corporate governance authorities. In 2017, we 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 every other year.
Independence
As of April 18, 2019, our Board has nine members. The Board has determined that all of our directors serving on our Board as of April 18, 2019, except for Mr. Ungaro, our President and Chief Executive Officer, meet the Nasdaq and SEC standards for independence and that all members of the Audit Committee meet the heightened independence standards required for Audit Committee members under Nasdaq and SEC standards. Only independent directors may serve on our Audit, Compensation, and Corporate Governance Committees.
As set forth in our Corporate Governance Guidelines, the Board believes that at least two-thirds of the Board should consist of independent directors and that, absent compelling circumstances, the Board should not contain more than two members from our management. As of April 18, 2019, eight of our nine directors were considered independent and one member of our management, Mr. Ungaro, our President and Chief Executive Officer, was on the Board.
In determining the independence of our directors, the Board affirmatively decides whether a non-management director has a relationship that would interfere with that director’s exercise of independent judgment in carrying out the responsibilities of being a director. In making that decision, the Board is informed of the Nasdaq and SEC rules that disqualify a person from being considered as independent, considers the responses from each director in an annual questionnaire, and reviews the applicable standards with each Board member.
Meetings and Attendance
During 2018, the Board met 13 times and the Board’s standing committees held a total of 26 meetings. The rate of attendance in 2018 for all directors at Board and Committee meetings was 100%.


10



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 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 committees is, or has ever been, one of our employees.
Audit Committee
The current members of the Audit Committee are Mr. Regis (Chair), Ms. Fallon, Ms. Narodick, and Mr. Turner. The Audit Committee and the Board have determined that each individual who currently is, and who in 2018 was, a member of the Audit Committee is “independent,” as that term is defined in SEC and Nasdaq rules and regulations, and that Messrs. Regis and Turner and Ms. Fallon are each an “audit committee financial expert,” as that term is defined in SEC regulations. The Audit Committee met nine times during 2018. As noted above, the Audit Committee’s charter is available at www.cray.com under “Company – 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 4: To Ratify the Appointment of Peterson Sullivan LLP as Our Independent Registered Public Accounting Firm for the Year Ending December 31, 2019 – 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.
Compensation Committee
The current members of the Compensation Committee are Mr. Schireson (Chair), Mr. Kiely, and Mr. Turner. The Compensation Committee and the Board have determined that each individual who currently is, and who in 2018 was, a member of the Compensation Committee is “independent” as that term is defined in Nasdaq rules and regulations, an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code (IRC), and a “non-employee director” as defined in Rule 16b-3 under the Exchange Act. The Compensation Committee met six times during 2018. As noted above, the Compensation Committee’s charter is available at www.cray.com under “Company – 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 officers;
The administration of our cash- and equity-based compensation plans; and
Evaluation 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 the compensation of certain executive officers. The Compensation Committee Report on the Compensation Discussion and Analysis and related matters is set forth below.


11



Corporate Governance Committee
The current members of the Corporate Governance Committee are Mr. Kiely (Chair), Ms. Narodick, and Mr. Regis. The Corporate Governance Committee and the Board have determined that each individual who currently is, and who in 2018 was, a member of the Corporate Governance Committee is “independent,” as that term is defined in Nasdaq rules and regulations. The Corporate Governance Committee met six times during 2018. As noted above, the Corporate Governance Committee’s charter is available at www.cray.com under “Company – Investors – Corporate Governance.” The Corporate Governance Committee has the responsibility to:
Develop and recommend to the Board a set of corporate governance 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.
See “Shareholder Communications, Director Candidate Recommendations and Nominations, and Other Shareholder Proposals” below regarding the Corporate Governance Committee’s processes for evaluating potential Board members and how shareholders can nominate director candidates, propose matters to come before the shareholders, and communicate with the Board.
Strategic Technology Assessment Committee
The current members of the Strategic Technology Assessment Committee are Dr. Banerjee (Chair), Mr. Gold, and Mr. Schireson. Ms. Fallon, a director of our Board, also served on the Strategic Assessment Committee between February 21, 2018 and February 23, 2019. Mr. Gold was appointed to the Strategic Technology Assessment Committee on February 20, 2019. The Strategic Technology Assessment Committee and the Board have determined that each individual who currently is, and who in 2018 was, a member of the Strategic Technology Assessment Committee is “independent,” as that term is defined in Nasdaq rules and regulations, although such independence is not a requirement for membership on this committee. The Strategic Technology Assessment Committee met five times during 2018. As noted above, the Strategic Technology Assessment Committee’s charter is available at www.cray.com under “Company – Investors – Corporate Governance.” The Strategic Technology Assessment Committee has the responsibility to:
Assist the Board in its oversight of our technology strategy and product 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, provides feedback and mentoring to the Chief Executive Officer on behalf of the independent directors, 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, and the operational efficiencies that currently result from separating the roles. 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 (ERM System) to assist us in tracking and mitigating risks. In addition to periodic review, evaluation, and


12



modification of risks maintained in the ERM System by management, we provide periodic reports of risks tracked in the ERM System to the Audit Committee. The Audit 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 the Audit Committee receives the report, the Chairman of the Audit Committee reports on the discussion to the full Board during the committee reports portion of the next Board meeting, which enables the Board and the 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.
Risk Considerations in Our Compensation Program
Our Compensation Committee discussed the concept of risk as it related to our 2018 compensation program. The Compensation Committee engaged an independent compensation consultant, Mercer (US) Inc., a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (Mercer), to assess the risks of our 2018 compensation program. The Compensation Committee does not believe our 2018 compensation program encouraged excessive or inappropriate risk-taking for the following reasons:
Base salaries are aligned with employee responsibilities so employees 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 two key Company performance measures, described under “Compensation Discussion and Analysis – 2018 Compensation Determinations,” promoting accountability and line of sight to executives and employees in driving business success. Our cash incentive plans for 2018 include specific caps on the target awards, which 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, which helps to diversify the executive officers’ interests and limit excessive risk taking;
The vesting periods for our time-based equity awards are designed to encourage executives and other participants to focus on sustained stock price appreciation;
Our outstanding performance-based restricted stock units 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 interests;
Our system of internal controls over financial reporting, standards of business conduct, and compliance programs 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 Elements 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 performance-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 either in person or telephonically. In 2018, six of our directors who were directors at the time of our annual meeting of shareholders attended the 2018 annual meeting.


13



Shareholder Communications, Director Candidate Recommendations and Nominations, and Other Shareholder Proposals
Communications
The Corporate Governance Committee has established a procedure for our shareholders to communicate with the Board. Communications should be in writing 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
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 considers 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-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 appoint the new director.
The Corporate Governance Committee will consider candidates for director recommended by shareholders and will evaluate those candidates using the criteria set forth above. Shareholders should accompany their recommendations with a sufficiently detailed description of the candidate’s background and qualifications to allow the Corporate Governance Committee to evaluate the candidate in light of the criteria described above, a document signed by the candidate indicating his or her willingness to serve if elected, and evidence of the nominating shareholder’s ownership of our common stock. Such recommendation and documents should be submitted in writing to Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164, and addressed to the attention of the Corporate Governance Committee.
Director Nominations by Shareholders
Our Bylaws permit shareholders to nominate directors at a shareholders’ meeting. In order to nominate a director at a shareholders’ meeting, a shareholder making a nomination must notify us not fewer than 60 nor more than 90 days in advance of the meeting or, if less than 60 days’ notice or prior public disclosure of the date of the meeting is given or made to the shareholders, by the 10th business day following the first public announcement of the meeting. In addition, the proposal must contain the information required in our Bylaws for director nominations, including:
The nominating shareholder’s name and address;
A representation that the nominating shareholder is entitled to vote at such meeting;
The number of shares of our common stock that the nominating shareholder owns and when the nominating shareholder acquired such shares;
A representation that the nominating shareholder intends to appear at the meeting, in person or by proxy;


14



The nominee’s name, age, address, and principal occupation or employment;
All information concerning the nominee that must be disclosed about nominees in proxy solicitations under the SEC proxy rules; and
The nominee’s executed consent to serve as a director if so elected.
The Chairman of the Board, in his discretion, may determine that a proposed nomination was not made in accordance with the required procedures and, if so, disregard the nomination.
Shareholder Proposals
2019 Annual Meeting. For a shareholder proposal to be raised from the floor during the Annual Meeting, written notice of the proposal must be received by us not less than 60 days nor more than 90 days prior to the Annual Meeting or, if less than 60 days’ notice or prior public disclosure of the date of the Annual Meeting is given or made to the shareholders, by the 10th business day following the first public announcement of the Annual 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
A 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.
2020 Proxy Statement. In order for a shareholder proposal to be considered for inclusion in our proxy statement and form of proxy for the 2020 annual meeting, we must receive the written proposal no later than December 20, 2019. Shareholder proposals also must comply with SEC regulations regarding the inclusion of shareholder proposals in company-sponsored proxy materials.
If you wish to obtain a free copy of our Articles of Incorporation, Bylaws, or any of our corporate governance documents, please contact Michael C. Piraino, Corporate Secretary, Cray Inc., 901 Fifth Avenue, Suite 1000, Seattle, WA 98164. These documents also are available on our website, www.cray.com under “Company – 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 in one year.
The Corporate Governance Committee reviews director compensation annually and recommends changes to the Board when appropriate. The Corporate Governance Committee considers the information, analysis, and recommendations provided by our independent compensation consultant, Mercer, including data regarding compensation paid to non-employee directors by companies in our Peer Group (as described in “Compensation Discussion and Analysis – Compensation Program Elements and Purposes – Competitive Market Data”), as well as publicly available professional compensation surveys, proxy data, and the individual experiences of the Corporate Governance Committee members when it evaluates the appropriate level and form of compensation for non-employee directors.


15



Cash Compensation
The following table sets forth the cash compensation policy in 2018 for our non-employee directors:
Annual retainer for service on the:
 
Board
$
50,000

Audit Committee
$
10,000

Compensation Committee (through June 30, 2018)
$
5,000

Compensation Committee (effective July 1, 2018) (1)
$
10,000

Corporate Governance Committee
$
5,000

Strategic Technology Assessment Committee
$
5,000

Annual retainer for service as the Chair of the:
 

Board
$
40,000

Audit Committee
$
15,000

Compensation Committee
$
10,000

Corporate Governance Committee
$
5,000

Strategic Technology Assessment Committee
$
5,000

(1)
Based on the recommendations of Mercer and the Corporate Governance Committee, the Board approved an increase to the annual retainer for members of the Compensation Committee from $5,000 to $10,000 effective as of July 1, 2018, so as to remain competitive with Cray’s Peer Group.
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. Members 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. In addition, we pay for any applicable Washington State and City of Seattle business and occupation taxes and Seattle business license fees incurred by our directors.
Equity Compensation
Stock Options. Each non-employee director, upon his or her first appointment or election to the Board, is granted a fully vested stock option, with a 10-year term, for 20,000 shares with an exercise price equal to the closing price of our common stock as reported by Nasdaq on the trading date immediately prior to the date of the first appointment or election.
Restricted Stock Awards. Each continuing director first elected or reelected by our shareholders at the annual meeting of our shareholders is granted restricted shares of common stock with such award granted on or immediately following each annual meeting of our shareholders. The number of shares subject to the restricted stock award is determined based on the closing price of our common stock as reported by Nasdaq on the trading day immediately prior to the date of our annual meeting of shareholders. Each continuing director first elected or reelected by our shareholders at the 2018 annual meeting of our shareholders was granted restricted shares of common stock with a value equal to $110,000 and such awards will vest 100% on the earlier of June 12, 2019, or the date that is immediately prior to the date of our 2019 Annual Meeting. Based on the recommendation of Mercer and the Corporate Governance Committee, the Board approved an increase in the annual stock grant to non-employee directors from $110,000 in value to $140,000 in value so as to remain competitive with Cray’s Peer Group, effective as of the 2019 Annual Meeting.
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) or upon a Corporate Transaction (as defined in our 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. Currently, under our 2013 Equity Incentive Plan, a non-employee director may receive awards of no more than 150,000 shares per calendar year. If the amendment and restatement of our 2013 Equity Incentive Plan is approved pursuant to Proposal 3, the 2013 Equity Incentive Plan will provide that a non-employee director may receive compensation (including cash and equity awards) representing no more than $500,000 total value in any calendar year; provided that a newly appointed non-employee director may receive compensation (including cash and equity awards) representing no more than $1,000,000 for the calendar year of his or her appointment. See “Discussion of Proposals Recommended by the Board – Proposal 3: To Amend and Restate Our 2013 Equity Incentive Plan, as Amended and Restated” below for additional detail.


16



Stock Ownership Guidelines. Our Board instituted the following stock ownership guidelines for non-employee directors:
Directors are expected to own shares of our common stock, the value of which equals at least $250,000 based on the average closing price per share for our common stock as reported by Nasdaq over the 90 trading days prior to the end of each fiscal year.
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 2018
The following table sets forth information regarding compensation earned by our non-employee directors for the year ended December 31, 2018. Mr. Ungaro is not included in this table as he is an employee and he receives no compensation for his service as a director. His compensation as an employee is shown in the “Summary Compensation Table” set forth under “Compensation of the Executive Officers – Compensation Tables” below.
Name
 
Annual Retainer
($)
 
Board and Committee Chair Fees ($)
 
Committee Fees
($)(1)
 
Total Cash Fees Earned
($)
 
Stock Awards
($)(2)(3)
 
Option Awards
($)(3)
 
All Other Compensation (4)
 
Total
($)
Prithviraj Banerjee
 
$
50,000

 
$
5,000

 
$
5,000

 
$
60,000

 
$
110,216

 

 
$
2,354

 
$
172,570

Catriona M. Fallon
 
$
50,000

 

 
$
4,292

(5)
$
54,292

 
$
110,216

 

 
$
110

 
$
164,618

Stephen C. Kiely
 
$
50,000

 
$
45,000

 
$
12,500

 
$
107,500

 
$
110,216

 

 
$
2,996

 
$
220,712

Sally G. Narodick
 
$
50,000

 

 
$
15,000

 
$
65,000

 
$
110,216

 

 
$
3,577

 
$
178,793

Daniel C. Regis
 
$
50,000

 
$
15,000

 
$
15,000

 
$
80,000

 
$
110,216

 

 
$
3,730

 
$
193,946

Max L. Schireson
 
$
50,000

 
$
10,000

 
$
12,500

 
$
72,500

 
$
110,216

 

 
$
2,447

 
$
185,163

Brian V. Turner
 
$
50,000

 

 
$
17,500

 
$
67,500

 
$
110,216

 

 
$
1,509

 
$
179,225

(1)
The annual retainer for members of the Compensation Committee was increased from $5,000 to $10,000 effective July 1, 2018. Payments of prorated increases were issued to Messrs. Kiely, Schireson, and Turner, as discussed above.
(2)
Amounts in this column represent the fair value of the restricted stock awards granted on June 12, 2018, calculated in accordance with ASC 718 by multiplying the closing price of our common stock as reported by Nasdaq on the date of the grant ($27.10) 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 2018 may be found in Note 2 of the Notes to the Financial Statements in our Annual Report on Form 10‑K for the year ended December 31, 2018.
(3)
The following table provides additional information about non-employee director equity awards, including the stock awards made to non-employee directors during 2018 and the number of stock options and shares of restricted stock held by each non-employee director on December 31, 2018:
Name
 
Restricted Shares
Granted in 2018
(a)
 
Stock Options
Granted in 2018
 
Restricted Shares Outstanding
December 31, 2018
 
Stock Options Outstanding December 31, 2018
Prithviraj Banerjee
 
4,067
 
 
4,067
 
20,000
Catriona M. Fallon
 
4,067
 
 
4,067
 
20,000
Stephen C. Kiely
 
4,067
 
 
4,067
 
Sally G. Narodick
 
4,067
 
 
4,067
 
Daniel C. Regis
 
4,067
 
 
4,067
 
Max L. Schireson
 
4,067
 
 
4,067
 
20,000
Brian V. Turner
 
4,067
 
 
4,067
 
20,000
(a)
Pursuant to the policy described under “Equity Compensation – Restricted Stock Awards” above, on June 12, 2018, we granted to each non-employee director shares of restricted stock, all of which vest


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on the earlier of June 12, 2019 and the date that is immediately prior to the date of our 2019 Annual Meeting.
(4)
Consists of applicable Washington State and City of Seattle business and occupation taxes and Seattle business license fees paid by us.
(5)
Ms. Fallon was appointed to the Strategic Technology Assessment Committee effective February 21, 2018 and received a prorated payment for her service on that committee.


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EXECUTIVE OFFICERS
The following table lists, as of April 5, 2019, our executive officers, who will serve in the capacities noted until their successors are duly appointed, and their respective ages:
Name
 
Age
 
Position
Peter J. Ungaro
 
50
 
President and Chief Executive Officer
Brian C. Henry
 
62
 
Executive Vice President and Chief Financial Officer
Charles D. Fairchild
 
50
 
Vice President, Corporate Controller and Chief Accounting Officer
Charles A. Morreale
 
57
 
Senior Vice President, Field Operations
Michael C. Piraino
 
51
 
Senior Vice President Administration, General Counsel and Corporate Secretary
Efstathios Papaefstathiou
 
51
 
Senior Vice President, Research 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 March 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 internet consulting company focused on e-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.
Charles D. Fairchild has served as our 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.
Charles A. Morreale has served as our Senior Vice President, Field Operations since 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.
Michael C. Piraino has served as our Senior Vice President Administration, General Counsel and Corporate Secretary since 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 teams. From October 2009 to September 2011, he served as Vice President, General Counsel and Corporate Secretary and was responsible for legal and since August 2010, he was responsible for human resources as well. From October 2007 to September 2009, he was an attorney at Fenwick


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& 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” Papaefstathiou has served as our Senior Vice President of Research and Development since January 2017. Mr. Papaefstathiou is responsible for leading the software and hardware engineering efforts for all of Cray’s research and development projects. From 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 2014, he served as the Vice President of Product Development - Cloud Technology with F5 Networks, an application delivery controller company. Previously, Mr. Papaefstathiou held a number of technical and senior management positions at Microsoft Corporation from August 1999 through December 2011 in the areas of distributed operating systems, data center automation, and robotics, specifically as General Manager from February 2008 through December 2011 and Software Architect from March 2006 through February 2008. Mr. Papaefstathiou holds a Ph.D. in Computer Science from the University of Warwick, United Kingdom, and a B.Sc. in Computer Science from North College, Greece.


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COMPENSATION OF THE EXECUTIVE OFFICERS
Compensation Discussion and Analysis
Our Compensation Discussion and Analysis (CD&A) describes the material elements of our compensation for 2018 for (i) the individuals who served as our chief executive officer (Mr. Ungaro) and our chief financial officer (Mr. Henry) during 2018, and (ii) our three most highly compensated executive officers, other than our chief executive officer and chief financial officer, who served as executive officers as of December 31, 2018 (Messrs. Morreale and Piraino and Dr. Papaefstathiou). We refer to these individuals, shown in the table below, as our Named Executive Officers or NEOs for 2018. Our CD&A and other sections of this Proxy Statement provide details on the compensation program, including specific policies and plans applicable to our NEOs, and also demonstrates a strong link between pay and performance for our NEOs.
Name
Position
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
Efstathios Papaefstathiou
Senior Vice President, Research and Development
Michael C. Piraino
Senior Vice President Administration, General Counsel and Corporate Secretary
This CD&A is structured as follows:
An overview of our compensation program’s guiding principles, compensation philosophy, and objectives
A review of the pay elements we consider when structuring executive compensation
A detailed discussion of our 2018 executive compensation program determinations
A summary of our key policies and pay practices used to ensure effective governance and risk mitigation
Guiding Principles of our Compensation Program
The Compensation Committee believes that executive compensation should be strongly linked to performance and the creation of long-term value for our shareholders. Based on these principles, the Compensation Committee has taken into consideration the unique business aspects of Cray, the perspective of our shareholders, the advice and guidance from our Compensation Committee’s independent compensation consultant, Mercer, market data and experience relating to the competitive employment environment in which we need to attract and retain talent, and input from our executive management team to develop our compensation program for our executives. The structure of our executive compensation program is intended to enable us to attract, retain, and motivate a talented management team to achieve our business objectives.
2018 Paying for Performance
We believe it is critical to our short- and long-term success that our compensation program be closely correlated with performance against our corporate goals, objectives, and results. We experienced a significant industry downturn in the segments of the high-end of the supercomputing market that we target in 2016 and 2017, and while we were not profitable in 2018 we grew our revenue by 16% over the prior year. We strategically invested in R&D to bring our next-generation supercomputing systems code-named “Shasta” to market and the importance of those investments is reflected in the selection of a Shasta-related development goal for our annual cash incentive plan. Our compensation philosophy and objectives for 2018 leveraged three primary pay elements to compensate our NEOs: base salary, short-term cash incentives, and long-term equity incentives. Based on our operational and financial performance, and in light of the analysis from our compensation consultant and other factors described in this Proxy Statement, the Compensation Committee made the following compensation decisions for 2018:


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Pay Element
2018 Compensation
Base Salary
Maintained base salaries at the same levels as in 2017 for our NEOs.
Annual Cash Incentive Plan
Target Bonuses: Maintained the target bonus awards as a percentage of base salary at the same levels as 2017 for our NEOs.
Performance Goals and Achievement: For 2018, the annual cash incentive plan for our NEOs was based on two distinct measures: bookings and a subjective Shasta-related product development goal. For the bookings measure, a minimum level of achievement was required to receive any payment for this measure and attainment was based on step-based targets with no interpolation between steps. The Shasta-related product development measure was a binary “meet or miss” measure with payout for meeting that measure determined by the level of attainment against the bookings measure (higher attainment against the bookings measure provided for a higher payout percentage for meeting the Shasta-related development measure). As in the past, the Compensation Committee’s approach has been to set “stretch” goals such that attainment at much less than 100% can reflect a significant accomplishment. The level of achievement of our bookings metric and meeting our product development metric resulted in a combined payout percentage of 40%. The Compensation Committee elected to pay a discretionary bonus of approximately 7% of each NEO’s bonus target to recognize the effective execution and significant progress made on certain critical business goals which established Cray’s strong competitive position in a slowly recovering market.
See “2018 Compensation Determinations – Annual Cash Incentive Compensation Plan” below.
Long-Term Equity Awards
Granted long-term equity awards in the form of:
Stock options: Generally, with four-year vesting schedules dependent on continued employment and with exercise prices equal to the closing price of our common stock as reported by Nasdaq on the trading date immediately prior to the grant date.
Restricted stock units: Generally, with four-year vesting schedules dependent on continued employment.
See “2018 Compensation Determinations – Long-Term Equity Awards” below.
For fiscal year 2018, approximately 86% of our Chief Executive Officer’s and 72% of our other NEOs’ total direct compensation consisted of short-term and long-term incentives and was variable and “at-risk” which means that this component can vary depending on the performance of the Company and our stock price performance.
 
CEO
 
Other NEOs
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-Term
Incentives
65%
 
Long-Term
Incentives
54%
 
 
At-Risk
Variable
Pay
 
 
 
 
 
 
 
 
Short-Term
Incentives
18%
 
 
 
 
Short-Term
Incentives
21%
 
 
 
 
 
 
Base
Salary
28%
 
 
Fixed
Pay
 
 
Base
Salary
14%
 
 
 
 
 
 
 
 
 


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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 a program that is designed to attract, retain, and motivate executives in a competitive employment environment and which is required for us to achieve our strategic and tactical goals and create long-term value for our shareholders.
To assist in these efforts, our executive compensation program focuses on the following objectives:
Provide effective compensation and benefit programs that are competitive both within our industry and with other relevant organizations with which we compete for executive talent;
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;
Align the interests of our organization and our executives with the long-term interests of our shareholders;
Provide a retention incentive; and
Provide a work environment that promotes integrity, innovation, excellence, teamwork, and respect for the individual.
Compensation Program Elements and Purposes
We believe our executive compensation program provides the appropriate mix of fixed and variable pay, balancing incentives between short-term operational performance and long-term increases in shareholder value. The executive compensation program encourages the recruitment and retention of executives critical in driving long-term success for the Company in a competitive employment environment. Our executive compensation program reinforces an innovative, high-performance culture while creating alignment with our shareholders by providing equity ownership in Cray. Our NEOs assume greater levels of responsibility for delivering company results than other employees and, therefore, have a more significant portion of their total compensation linked directly to variable pay (pay-at-risk). We revisit our competitive pay mix periodically and in connection with the annual review of our executives’ compensation packages and adjust the mix as needed or appropriate to meet our objectives. We describe below the components of our compensation program and the purpose and key features of the components.
The Compensation Committee believes that the overall compensation structure for our NEOs supports our compensation philosophy and objectives and provides, in light of our industry and competitive employment environment, (i) competitive total target compensation, (ii) sufficient base salaries, (iii) a significant proportion of the total target compensation based on performance and variable or at-risk, and (iv) a meaningful proportion that is equity-based, all to align the NEOs’ interests with those of our shareholders and provide a strong retention and performance incentive.
Pay Element
Purpose
Key Features
Base Salaries
To provide fixed compensation to attract and retain the best executives
Base pay opportunities for all positions are determined based on:
Competitive market data, including global compensation and rewards surveys and other sources, that represent industries and geographies where we compete for talent.
Internal responsibilities and each executive’s experience, qualifications, performance, and potential impact within our Company.
Short-Term Incentives
To motivate and reward achievement of and significant progress related to critical, tactical, strategic, and financial goals in the short term
Our NEOs have a portion of targeted total compensation at risk, contingent on company performance during the year measured against corporate objectives.


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Pay Element
Purpose
Key Features
Long-Term Incentives
To encourage executives to focus on creating long-term shareholder value and to provide significant retention incentives for highly educated, specialized, and sought-after leaders in the face of companies competing for this talent, particularly those who have significantly greater resources
Our NEOs have a meaningful portion of their total compensation opportunity linked to our success in or progress toward meeting our long-term objectives and increasing shareholder value. Long-term equity is used for both incentive and retention purposes. The size of each award is based on, among other things, the individual’s role and contributions. Long-term equity encourages our NEOs to focus on performance and initiatives that should lead to a long-term increase in the market price of our common stock, which benefits our shareholders.
Severance Policy and Change in Control (CIC) Agreements
To attract and retain executives and to encourage them to remain focused and engaged during a rumored or actual fundamental corporate change and during any corporate transition
We provide certain severance and vesting acceleration benefits to our NEOs if they are terminated without Cause or resign for Good Reason as those terms are defined in the applicable policies, plans, agreements, or equity grants. We also provide vesting acceleration in the event of death, disability, and a limited amount of vesting acceleration in the event of a termination without Cause or retirement in certain circumstances. For change of control related situations, acceleration benefits are subject to a double trigger. See “Termination of Employment and Change of Control Arrangements” below for additional detail.
Employee Benefits
To meet the health and welfare needs of our employees and their dependents
Our NEOs participate in the standard benefits programs offered to all employees in the US. We do not provide the NEOs or our other executive officers any deferred compensation or special retirement or pension plans or any benefits or perquisites that are not available to our employees generally.
Competitive Market Data
For its 2018 compensation decisions, the Compensation Committee considered the recommendations of its independent compensation consultant, Mercer, to contextualize our overall total compensation approach and general market competitiveness and compared our compensation approach to our peer group companies.
To assist the Compensation Committee in its deliberations on executive compensation, the Compensation Committee annually reviews and, when necessary, updates our list of peer companies (Peer Group) to ensure that the Peer Group companies are appropriate. When considering companies for inclusion in our Peer Group, the Compensation Committee considers companies that are generally:
In our industry or similar industries such as application software, systems software, communications equipment, electronic components, electronic equipment and instruments, technology hardware, storage, and peripherals;
Similar to us with respect to elements such as operating results, research and development investments and product solutions, size of revenue (currently 0.8x to 2.5x our target revenue for year-end 2018), and market capitalization; and
Those with whom we compete in the recruitment of executive officers.
We increased the revenue measurement point in determining our Peer Group from a range of 0.5x to 2x our target revenue for year-end 2017 to 0.8x to 2.5x our target revenue for year-end 2018 because we are building an executive team capable of supporting an organization with greater revenue than our current levels, which have been impacted by a market downturn, and we often compete for key talent with companies that are much larger than Cray.
Based on these factors, Mercer’s evaluation of our independent peer group analysis and its recommendations, as well as executive management’s input, the Compensation Committee approved the following companies to comprise our Peer Group for 2018: Acacia Communications*, ADTRAN*, Axcelis Technologies*, CalAmp*, Commvault Systems, Comtech Communications*, Electronics For Imaging*, Extreme Networks, F5 Networks, Formfactor*, Harmonic*, Infinera*, Mellanox Technologies, Mercury Systems*, Netgear, Progress Software*, Quantum, and Veeco Instruments*. The Compensation Committee used data from this Peer Group to inform its decisions about each NEO’s compensation for 2018. However, the Compensation Committee does not benchmark compensation to any particular level or against any specific member of the Peer Group; rather, it used Peer Group


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information as data points, along with other data points from Aon Hewitt’s Compensation Governance Pro proxy survey tool, the 2018 Radford Global Technology Survey, and Salary.com’s International Pay Analysis System, in determining, with the assistance of Mercer, the appropriate overall total compensation. Companies noted with asterisks above were added to our Peer Group for 2018 based on an evaluation of industry, revenue size, business description, R&D investment, and other metrics that provide for a meaningful peer comparison. ANSYS, Avid Technology, Barracuda Networks, Cavium, Fortinet, and Super Micro Computer were removed because they are no longer considered appropriate comparisons to Cray.
Determining Named Executive Officer Pay
As in previous years and in addition to the market data described above, in making specific decisions regarding each NEO’s (other than Mr. Ungaro’s) compensation, the Compensation Committee considered Mr. Ungaro’s recommendations. The committee also considered 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. We have a relatively flat salary structure for our executive officers with the significant differences in total compensation among the executive officers reflected in short-term cash and long-term equity incentive awards. This approach helps us provide a market competitive base salary and provides the potential for higher compensation levels based on performance-dependent, short- and long-term incentives.
The Compensation Committee recognizes that we compete for our NEOs, including Mr. Ungaro, with a variety of organizations in the high-performance computing industry and other high-tech sectors, including much larger companies. The Compensation Committee factors in each NEO’s impact and delivery of results for the organization, their unique industry expertise, experiences, skills, role, competitive data, and market conditions. The Compensation Committee also supplemented specific compensation information with its collective experience, judgment, and observations of trends to establish the 2018 compensation for our NEOs and other executive officers.
Results of the 2018 Say-on-Pay Vote
We value the input of our shareholders on our compensation program. We hold an advisory vote on executive compensation on an annual basis. When designing our 2018 executive compensation program for our NEOs, 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, with over 96% of votes cast in favor of our executive pay program. We also engage in conversations with our large, active shareholders on an ongoing basis, which provides them with an opportunity to raise any concerns or questions relating to our executive compensation program. Given that the 2018 say-on-pay vote reflected strong support for our compensation practices, and that we did not receive any significant shareholder feedback requiring compensation changes during 2018, we have maintained our existing compensation policies and practices. The Compensation Committee will continue to consider the results of our say-on-pay votes and shareholder feedback when making future compensation decisions for our NEOs.
Pay and Governance Policies and Practices
We have adopted the following pay and governance policies and practices to ensure that our pay program supports our compensation philosophy and mitigates compensation risk:
Key Pay Policies and Practices
Stock ownership guidelines: 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.
Hedging and pledging: Our insider trading policy prohibits transactions that involve pledging, hedging, or short sales of our equity.
Clawback policy: We have a clawback or recoupment policy for certain performance-based incentive compensation.
No special perquisites or benefits: We do not provide the NEOs or our other executive officers any deferred compensation or special retirement or pension plans or any benefits or perquisites that are not available to our employees generally.
No “single trigger” change in control equity vesting: We provide for “double trigger” change in control equity vesting.
Independent compensation consultant: The Compensation Committee has engaged an independent compensation consultant for advice on executive compensation.


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Key Pay Policies and Practices
No excise tax gross-ups upon change of control: Since 2011, we have eliminated excise tax gross-ups upon change of control in new agreements or those amended in a way that is materially favorable to the executive.
No liberal recycling of shares: Our equity plan does not provide for the liberal recycling of shares subject to equity awards.
No repricing. Our equity plans do not permit repricing of our SARs or stock options without shareholder approval.
Minimum vesting. If our equity plan is amended and restated pursuant to Proposal 3 of this Proxy Statement, the plan will provide that equity awards will be subject to an initial vesting period of no less than 12 months from the date of grant (subject to certain exceptions).
Annual limit on director compensation. Our equity plan establishes a reasonable compensation limit that may be granted or paid to a non-employee director in any fiscal year.
2018 Compensation Determinations
Base Salary
The Compensation Committee uses market data to set competitive base salaries. With Mr. Ungaro’s assistance (except with respect to his salary), the salary of each NEO is evaluated relative to market for each respective role, and according to the experience, qualifications, performance, and the particular impact each role has within Cray. Our NEOs’ salaries are reviewed annually. However, salary adjustments are typically infrequent regardless of performance, with the most recent increase occurring in 2016. We believe that nominal increases are unlikely to provide significant motivation or retention value for senior executives. Therefore, our approach is to hold any base salary increases necessary to maintain base salaries within a range associated with our desired position-to-market for each respective role (generally, below the median when comparing to our competitive industry groups) until those increases will be significant. None of the base salaries of our NEOs were increased in 2018 (or in 2017).
Annual Cash Incentive Compensation Plan
Our 2018 executive bonus plan (2018 Executive Bonus Plan) is an important element of the compensation program for our NEOs. It was designed to create incentives for participants to attain two key corporate objectives: bookings and a subjective Shasta-related product development goal. When the Compensation Committee established the 2018 Executive Bonus Plan measures, it was designed with stretch goals in mind to reinforce a performance-based culture. The Compensation Committee was aware that while the measures were achievable, they would be particularly challenging given the state of the Company’s market. As in the past, the Compensation Committee’s approach has been to set “stretch” goals such that attainment at much less than 100% can reflect a significant accomplishment. In addition, the Compensation Committee was mindful that the Company expected a net loss for 2018 and of the need to set performance measures that would motivate and incentivize our NEOs.
Compensation Targets
Based on an analysis of our NEOs’ compensation compared to our Peer Group and the compensation survey data points, for 2018, the target awards as a percentage of base salary for Messrs. Ungaro, Morreale, and Piraino, and Dr. Papaefstathiou were above the 75th percentile and the target award for Mr. Henry was slightly above the 50th percentile. Our Compensation Committee does not benchmark the target awards to any particular level or against any specific member of the Peer Group. Rather, it uses the Peer Group information as a data point in determining, with the assistance of Mercer, the appropriate target awards. The Compensation Committee believes that the NEOs should have a significant proportion of their 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 performance hurdles that must be met before the target awards can be earned. We maintained all target awards as a percentage of base salary at the same levels as in 2017.


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Under our 2018 Executive Bonus Plan, each NEO was eligible to receive a cash bonus amount equal to the annual target bonus amount multiplied by the payout percentage for the year. Our executive bonus plans generally have a cap on payout of 200% of the NEO’s bonus target, but in 2018 our performance measures were structured in a way that limited payouts to 100% of the NEO’s bonus target at maximum performance. The following table sets forth the 2018 target award as a percentage of base salary for our NEOs:
Named Executive Officer
 
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%
Efstathios Papaefstathiou
 
Senior Vice President, Research and Development
 
65%
Michael C. Piraino
 
Senior Vice President Administration, General Counsel and Corporate Secretary
 
65%
Performance Metrics
The 2018 Executive Bonus Plan was based on two performance measures focused on delivering future company growth and increased value for our customers and shareholders: bookings and a subjective Shasta-related product development goal. Bookings generally includes binding contracts for our products or services. Our Compensation Committee chose bookings as a performance metric because it believes that we should reward achievement of our critical initiative of driving growth in our markets. Focusing our business on bookings encourages our executives to continue to grow our revenue streams. Our Shasta-related product development goal focused on progress towards the development of our next-generation supercomputing systems code-named “Shasta” such that, if such goal was met by the end of 2018, we would be in a good position to meet the Company’s plans for delivery of Shasta supercomputing systems in 2019. Our Compensation Committee chose this product development goal to emphasize the importance of meeting key development milestones for our next-generation system to create long-term revenue streams for the Company. Likewise, this product development goal was aligned with our strategic investment in R&D with respect to the development of Shasta supercomputing systems. Our Compensation Committee considered both bookings and this Shasta-related product development goal to be the best indicators of business performance in 2018, representing major steps in preparing the organization for future growth and creating shareholder value.
The bookings attainment was based on step-based targets with no interpolation between steps. A minimum achievement threshold of $100 million was required for the bookings goal in order for any payment to be made and for maximum attainment resulting in a 75% payout percentage, bookings had to be at least $1.5 billion. The Shasta-related product development measure was a binary “meet or miss” measure with payout determined by the level of attainment of the bookings measure (higher attainment of the bookings measure provided for a higher payout percentage for meeting the Shasta-related development measure). The payout percentage for meeting the Shasta-related product development measure ranged from 10% to 25% depending on the level of bookings attainment. It was possible to receive a bonus payout based on meeting either measure regardless of whether the other measure was achieved. We attained $606 million on the bookings measure and met our Shasta-related development measure, which resulted in a combined bonus payout percentage of 40% of bonus target.
The Compensation Committee elected to pay a discretionary bonus equivalent to approximately 7% of the target bonus of each NEO to recognize the effective execution and significant progress made on certain important business goals in a recovering but ultimately challenging market. The Compensation Committee determined it was important to recognize the strong execution by the team in difficult market conditions, where quantitative measures in an extended market downturn have led to low or no bonuses for three consecutive years. The actual amounts of these additional cash bonuses are included in the Summary Compensation Table below.
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. When the Compensation Committee established the 2018 Executive Bonus Plan measures, it was aware that while the bookings measure was achievable it would be particularly challenging given the state of our market. In the past


27



five years, we paid above-target awards for 2015, paid below-target awards for 2014, 2016, and 2018, and did not pay any awards for 2017.
Long-Term Equity Awards
Our long-term incentive plan is intended to align individual financial interests with those of the business, creating incentives for our NEOs to be invested in the future of Cray and aligned with the interests of our shareholders. In 2018, we granted equity in the form of stock options and restricted stock units to our NEOs to:
Align NEOs’ interests with those of our shareholders
Provide a significant portion of total target compensation that is at risk, subject to future stock price performance
Motivate and retain the necessary talent to lead the Company toward attainment of our goals and objectives
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
In determining the size of our NEOs’ equity awards, the Compensation Committee considered market data provided by Mercer, additional market data provided by the Company, the recommendations of Mercer, and the NEOs’ (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 stock option grants and restricted stock awards and/or restricted stock units, and (iv) 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 2018 equity grants to the NEOs expressed as a multiple of their respective base salary:
Named Executive Officers
 
Title
 
Total Equity Award Value as a Multiple of Base Salary
(1)
Peter J. Ungaro
 
President and Chief Executive Officer
 
4.55x
Brian C. Henry
 
Executive Vice President and Chief Financial Officer
 
2.28x
Charles A. Morreale
 
Senior Vice President, Field Operations
 
1.52x
Efstathios Papaefstathiou
 
Senior Vice President, Research and Development
 
2.28x
Michael C. Piraino
 
Senior Vice President Administration, General Counsel and Corporate Secretary
 
1.63x
(1)
The multiples are based on the closing price per share of our common stock on the date of grant for restricted stock units and 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.
For additional information regarding equity grants in 2018 and prior years, see the tables and associated footnotes and narratives under “Compensation Tables” below.
To provide longer-term performance and retention incentives, we generally grant stock options and restricted stock units. Our stock options typically have 10-year terms and four-year vesting schedules, with the exercise price equaling 100% of the closing price for our common stock as reported by Nasdaq on the trading day prior to the date of grant. Our time-based vesting restricted stock units typically have four-year vesting schedules. Equity awards are typically granted each year to our executive officers. Whether grants are made and the number of shares granted varies based on many factors, including financial performance and retention concerns, as discussed above. As financial gain from stock options depends on increases in the 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. 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.


28



In 2018, we granted time-based vesting restricted stock units and stock options to each of our NEOs. For restricted stock unit awards, 25% of such awards vest on each of May 17, 2019, May 17, 2020, May 17, 2021, and May 17, 2022. For stock option awards, 25% of such awards vest on May 17, 2019, with the remaining balance vesting monthly over the next 36 months so that all options will be vested by May 17, 2022. None of the outstanding performance-based restricted stock units granted in years prior to 2018 were earned or vested in 2018.
Other Compensation Elements
Severance Policy and Change of Control Arrangements
To enable us to attract talented executives, as well as ensure ongoing retention when considering potential corporate transactions that may create uncertainty as to future employment, we offer certain post-employment payments and benefits to our NEOs. The Company’s Executive Severance Policy, management retention agreements, equity incentive 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 NEOs, is a qualified 401(k) plan under which employees may contribute a portion of their salary on a pre-tax basis (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 2018, we matched 20% of each participant’s total 2018 contributions in cash.
We do not have a pension plan for any of our U.S. employees, including our NEOs. We do not have any plan for any of our NEOs or other employees that provides for the deferral of compensation on a qualified or non-qualified basis under the IRC other than the Cray 401(k) Plan.
Additional Benefits and Perquisites
We offer health and welfare plans on a non-discriminatory basis to all U.S. employees designed to meet the health and welfare needs of our employees and their families and to provide a total competitive compensation package. We do not provide benefits or perquisites for the NEOs or other executive officers that are not available on the same terms to our employees generally.
Compensation Risk Assessment and Mitigation and Additional Compensation Practices
The Compensation Committee reviews our compensation policies and practices to determine areas of potential risk and the actions that we have taken, or should take, to mitigate any identified risks. Based on the Compensation Committee’s review of our compensation policies and practices, we do not believe that our compensation policies and practices for our employees create any risks that are reasonably likely to have a material adverse effect on our Company. 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.” The Company has also adopted the risk mitigating features described below.
Chief Executive Officer Stock Ownership Guidelines
We have stock ownership guidelines for our Chief Executive Officer in furtherance of our goal of aligning his interests with those of our shareholders. Under the guidelines, our Chief Executive Officer is required to hold shares that are equal in value to at least 3x his annual base salary. Mr. Ungaro satisfies this requirement.
Compensation Recovery
We have a recoupment or “clawback” policy for cash incentive awards and equity incentive awards paid to executive officers, including all of our NEOs. The policy provides that if an executive officer’s actual incentive-based compensation was based on 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 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 in April 2011 (whether or not granted under 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 incentive-based compensation granted or received after the adoption of the policy in April 2011.


29



The policy applies only to individuals who were serving as an executive officer when the compensation was paid, granted, or received. The clawback or recoupment would be limited to the amount that the executive received that exceeded the amount they would have received under the restated financials.
The Executive Compensation Process
The Compensation Committee determines base salaries, the target level of awards under our annual cash incentive plan, and the number and type of equity grants to be awarded under our long-term equity incentive plans for our executive officers each 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 2018 compensation decisions, the Compensation Committee, with support from Mercer, considered the analyses described below to contextualize our overall total compensation approach and general market competitiveness. The Compensation Committee also analyzed compensation payable by companies in our Peer Group and by other companies with which we generally compete for executive talent. The Compensation Committee also considered the roles, responsibilities, and specialized expertise of the NEOs, including our Chief Executive Officer, and that competition for our NEOs 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 Mr. Schireson (Chair), Mr. Kiely, and Mr. Turner. The Board has determined that each individual who served on the Compensation Committee in 2018 and each current member of the Compensation Committee is “independent,” as that term is defined in Nasdaq rules and regulations, and an “outside director” within the meaning of Section 162(m) of the IRC and a “non-employee director” as defined in Rule 16b-3 under the Exchange Act. During 2018, the Compensation Committee met in person or by telephone six 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 executive officers, and the administration of our equity compensation plans. After reviewing competitive market data, expectations for the applicable position, our corporate goals, business plan, and objectives for the year, and our prior performance, the Compensation Committee determines base salaries, the target level of awards under our annual cash incentive plan, and the number and type of equity grants to be awarded under our long-term equity incentive plans for our executive officers during that year. The Compensation Committee has the authority to determine the annual compensation for our executive officers, subject to approval by the full Board if the Compensation Committee or legal counsel determines Board approval is desirable or required by applicable law or by Nasdaq rules and regulations.
The Compensation Committee also: determines the policies for awarding stock options and/or restricted stock units to new hires who are not executive 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 the Cray 401(k) Plan; periodically reviews our key leadership staffing, including open positions and turnover in general; 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 executive officers and members of our human resources department regarding the structure and effectiveness of our compensation plans and proposals for changes to our compensation programs. As members of our Board, Compensation Committee members have access to information relating to 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 executive officers, including the other NEOs, and his recommendations for their compensation. 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 executive officer, and the level and form of equity grants.


30



The Compensation Committee believes that under Mr. Ungaro’s leadership, we have made great strides in a very competitive market. The Compensation Committee has worked with Mr. Ungaro to develop a strong “performance culture” at Cray. One aspect of that process has been an 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.
Role of Compensation Consultants
The Compensation Committee retained Mercer to review our compensation programs for executive 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 reports 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. During 2018, 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 its engagement did not present any conflicts of interest.
Securities Trading Policies
Our securities trading policy states 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 states 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.
Tax Deductibility and Accounting Implications of Executive Compensation
Section 162(m) of the IRC generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to certain executive officers. While our Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, our Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by us for tax purposes.
Recent changes to Section 162(m) in connection with the passage of the Tax Cuts and Jobs Act repealed exceptions to the deductibility limit that were previously available for “qualified performance-based compensation,” including stock option grants, effective for taxable years after December 31, 2017. As a result, any compensation paid to certain of our executive officers in excess of $1 million will be non-deductible unless it qualifies for transition relief afforded to compensation payable pursuant to certain binding arrangements in effect on and not modified after November 2, 2017. Because of uncertainties in the interpretation and implementation of the changes to Section 162(m), including the scope of the transition relief, we can offer no assurance of deductibility.
In addition to considering the tax consequences, the Compensation Committee considers the accounting consequences of its decisions.


31



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 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 “Company – 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 2018.
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 2018 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. 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. 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

Max L. Schireson, Chair
Stephen C. Kiely
Brian V. Turner


32



Compensation Tables
The tables on the following pages describe, with respect to our Named Executive Officers (NEOs), the 2018, 2017, and 2016 salaries, bonuses, incentive awards, and other compensation reportable under SEC rules, plan-based awards granted in 2018, values of outstanding equity awards as of year-end 2018, exercises of stock options and vesting of restricted stock unit awards in 2018, and potential payments upon termination of employment and following a Change of Control.
Summary Compensation
The following table summarizes the compensation for the indicated years for our NEOs for the year ended December 31, 2018.
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
 
2018
 
$
540,000

 
 
$
56,198

(7)
 
$
1,736,720

 
 
$
721,257

 
$
324,000

 
 
$
3,240

 
$
3,381,415

President and Chief Executive Officer
 
2017
 
$
540,000

 
 

 
 
$
1,790,000

 
 
$
776,000

 
$

 
 
$
3,572

 
$
3,109,572

 
2016
 
$
520,000

(8)
 

 
 
$
869,400

 
 
$
354,045

 
$
55,333

 
 
$
3,600

 
$
1,802,378

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brian C. Henry
 
2018
 
$
400,000

 
 
$
18,039

(7)
 
$
643,200

 
 
$
267,120

 
$
104,000

 
 
$
4,900

 
$
1,437,259

Executive Vice President and Chief Financial Officer
 
2017
 
$
400,000

 
 

 
 
$
716,000

 
 
$
310,400

 
$

 
 
$
4,800

 
$
1,431,200

 
2016
 
$
382,500

(9)
 

 
 
$
434,700

 
 
$
177,022

 
$
17,761

 
 
$
4,800

 
$
1,016,783

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charles A. Morreale
 
2018
 
$
325,000

 
 
$
14,657

(7)
 
$
348,400

 
 
$
144,690

 
$
84,500

 
 
$
4,900

 
$
922,147

Senior Vice President, Field Operations
 
2017
 
$
325,000

 
 

 
 
$
358,000

 
 
$
155,200

 
$

 
 
$
4,800

 
$
843,000

 
2016
 
$
302,500

(10)
 

 
 
$
248,400

 
 
$
101,156

 
$
14,431

 
 
$
4,800

 
$
671,287

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efstathios Papaefstathiou
 
2018
 
$
350,000

 
 
$
15,784

(7)
 
$
562,800

 
 
$
233,730

 
$
91,000

 
 
$
4,764

 
$
1,258,078

Senior Vice President, Research and Development
 
2017
 
$
341,370

(11)
 
$
50,000

(12)
 
$
1,882,000

(13)
 
$
271,600

 
$
111,475

(14)
 
$
3,912

 
$
2,660,357

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael C. Piraino
 
2018
 
$
325,000

 
 
$
14,657

(7)
 
$
375,200

 
 
$
155,820

 
$
84,500

 
 
$
4,900

 
$
960,077

Senior Vice President Administration, General Counsel and Corporate Secretary
 
2017
 
$
325,000

 
 

 
 
$
447,500

 
 
$
194,000

 
$

 
 
$
3,694

 
$
970,194

 
2016
 
$
307,500

(15)
 

 
 
$
248,400

 
 
$
101,156

 
$
14,431

 
 
$
3,600

 
$
675,087

(1)
These amounts reflect the aggregate grant date fair value of restricted stock units, without reflecting forfeitures, computed in accordance with ASC 718 for 2018, 2017, or 2016, respectively. These amounts do not represent the actual amounts paid to or realized by the NEO for these awards during years 2018, 2017, or 2016. 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, 2018, for a description of the valuation of these restricted stock units. The amount any NEO realizes, if any, from these 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 NEO will realize amounts at or near the values shown.
(2)
The valuation methodology for 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 units (PVRSUs) granted in 2017 to Dr. Papaefstathiou described further in footnote (13), below.
(3)
These amounts represent the aggregate grant date fair value of stock option awards, without reflecting forfeitures, computed in accordance with ASC 718 for 2018, 2017, or 2016, respectively. These amounts do not represent the actual amounts paid to or realized by the NEO for these awards during years 2018, 2017, or 2016. 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, 2018, 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. The amount any NEO 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


33



options when the NEO exercises and sells the options, and there is no assurance that the NEO will realize amounts at or near the values shown.
(4)
The information in this column reflects payments to the NEOs under our annual cash incentive plan for the indicated year. Payments for amounts earned under our plan were paid in March of the year following the performance year. See the “Grants of Plan-Based Awards in 2018” table below and “2018 Compensation Determinations – Annual Cash Incentive Compensation Plan” in the Compensation Discussion and Analysis above for a description of the 2018 Executive Bonus Plan, including the conditions to payments of awards.
(5)
The amounts shown in this column includes matching contributions under the Cray 401(k) Plan:
Officer
 
Cray 401(k) Plan Match
Peter J. Ungaro
 
$3,240
Brian C. Henry
 
$4,900
Charles A. Morreale
 
$4,900
Efstathios Papaefstathiou
 
$4,764
Michael C. Piraino
 
$4,900
(6)
The amounts shown in this column are the sum of the amounts shown in the columns for salary, bonus, restricted stock units, PVRSUs, 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 NEOs with amounts not earned by or paid to the NEOs but rather amounts reflecting the grant date fair value of restricted stock units, options, or PVRSUs held by the NEOs, the actual total amount earned in any year by a NEO depends on future events and, for the reasons described in footnotes (1), (2), and (3) above, there is no assurance that the NEOs will realize a total sum at or near the values shown.
(7)
The amounts shown in this column reflect discretionary payments to the NEOs approved by the Compensation Committee as described in “2018 Compensation Determinations – Annual Cash Incentive Compensation Plan” in the Compensation Discussion and Analysis above.
(8)
Mr. Ungaro’s annual salary was increased to $540,000 effective July 2, 2016.
(9)
Mr. Henry’s annual salary was increased to $400,000 effective July 2, 2016.
(10)
Mr. Morreale’s annual salary was increased to $325,000 effective July 2, 2016.
(11)
Dr. Papaefstathiou was appointed as our Senior Vice President, Research and Development on January 9, 2017. His salary reflects his partial service during 2017. Dr. Papaefstathiou was compensated based on an annual salary of $350,000.
(12)
This amount represents a one-time signing bonus received by Dr. Papaefstathiou.
(13)
This amount includes Dr. Papaefstathiou’s initial new hire equity awards, the size of which was determined as part of the negotiation of his total compensation package. 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 PVRSUs included in the value of the restricted stock units. The PVRSUs 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 2018 or 2019, or upon a change of control of Cray. The PVRSUs will expire completely on July 2, 2020 if the milestones are not satisfied, or a change of control has not occurred by the deadlines set forth in the PVRSU. No milestones were achieved and no shares vested in 2017 or 2018.
(14)
As an inducement for Dr. Papaefstathiou to join Cray, this amount reflects a one-time target award amount equal to 65% of his annual base salary and was guaranteed at a minimum of 50% for 2017, prorated for the portion of 2017 that he was employed by the Company.
(15)
Mr. Piraino’s annual salary was increased to $325,000 effective July 2, 2016.


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Grants of Plan-Based Awards in 2018
The following table sets forth certain information with respect to the cash incentive awards and equity awards granted to the NEOs for the year ended December 31, 2018. See “2018 Compensation Determinations – Annual Cash Incentive Compensation Plan” and “2018 Compensation Determinations – Long-Term Equity Awards” in the Compensation Discussion and Analysis above.
Grants of Plan-Based Awards
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)
Target
 
Maximum
 
 
 
 
Units
 
Options
Peter J. Ungaro
 
05/17/18
 
05/17/18
 
 
 

 
64,803

(4)
 
64,803

(5)
 
$
27.10

 
$
1,736,720

 
$
721,257

 
 
 
$
810,000
 
 
$
1,620,000

 

 
 

 
 

 

 

Brian C. Henry
 
05/17/18
 
05/17/18
 
 
 

 
24,000

(4)
 
24,000

(5)
 
$
27.10

 
$
643,200

 
$
267,120

 
 
 
$
260,000
 
 
$
520,000

 

 
 

 
 

 

 

Charles A. Morreale
 
05/17/18
 
05/17/18
 
 
 

 
13,000

(4)
 
13,000

(5)
 
$
27.10

 
$
348,400

 
$
144,690

 
 
 
$
211,250
 
 
$
422,500

 

 
 

 
 

 

 

Efstathios Papaefstathiou
 
05/17/18
 
05/17/18
 
 
 

 
21,000

(4)
 
21,000

(5)
 
$
27.10

 
$
562,800

 
$
233,730

 
 
 
$
227,500
 
 
$
455,000

 

 
 

 
 

 

 

Michael C. Piraino
 
05/17/18
 
05/17/18
 
 
 

 
14,000

(4)
 
14,000

(5)
 
$
27.10

 
$
375,200

 
$
155,820

 
 
 
$
211,250
 
 
$
422,500

 

 
 

 
 

 

 

(1)
The target and maximum payout levels represent, respectively, the target attainment (100%) and maximum attainment (200%). Additional information regarding the 2018 Executive Bonus Plan is included under “2018 Compensation Determinations – Annual Cash Incentive Compensation Plan” in the Compensation Discussion and Analysis above.
(2)
In determining the exercise price, we use the closing price per share for our common stock as reported by Nasdaq on the trading date prior to the grant date of the stock option.
(3)
The grant date fair value of the restricted stock units and stock option grants is computed in accordance with ASC 718 and represents our total projected expense for financial reporting purposes of those units and grants. 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, 2018, for a description of the valuation of these restricted stock units 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 pricing 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. The amount any NEO realizes, if any, from these restricted stock units and stock option grants depends on the market value of our common stock in the future when the NEO sells the restricted stock units or the shares underlying the stock option grants, and there is no assurance that the NEO will realize amounts at or near the values shown. The valuation methodology for restricted stock units as described in this footnote assumes full vesting.
(4)
Reflects the number of restricted stock units granted on May 17, 2018, pursuant to our 2013 Equity Incentive Plan. Twenty-five percent of the restricted stock units vest on each of the first, second, third, and fourth anniversaries of May 17, 2018. Restricted stock units are forfeitable upon certain events and also vest in full upon the death or Disability (as defined in our 2013 Equity Incentive Plan) of the recipient and upon certain other 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 “2018 Compensation Determinations – Long-Term Equity Awards” and “2018 Compensation Determinations – Other Compensation Elements – Severance Policy and Change of Control Arrangements” in the Compensation Discussion and Analysis above.
(5)
Reflects the number of stock options granted on May 17, 2018, pursuant to our 2013 Equity Incentive Plan. Twenty-five percent of the stock options vest on May 17, 2019, with the remaining balance vesting monthly over the next 36 months so that all options will be vested on May 17, 2022. Vesting of stock options is accelerated upon the death or Disability of the optionee and may be accelerated upon certain other 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 “2018 Compensation Determinations – Long-Term Equity Awards” and “2018 Compensation Determinations – Other Compensation Elements – Severance Policy and Change of Control Arrangements” in the Compensation Discussion and Analysis above.


35



Outstanding Equity Awards on December 31, 2018
The following table sets forth certain information with respect to outstanding equity awards at December 31, 2018, held by the NEOs 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 Stock Units That
Have Not
Vested
(4)
 
Market Value of Stock Units That Have Not Vested
(5)
 
 
 
Name
 
Exercisable
(1)
Unexercisable
(2)
 
Peter J. Ungaro
 
150,000

 

 
 
$
3.74

 
05/13/19
 
 
133,200

(6)
 
$
2,875,788

 
 
100,000

 

 
 
$
5.47

 
05/12/20
 
 
7,500

(7)
 
$
161,925

 
 
100,000

 

 
 
$
6.08

 
11/16/21
 
 
14,000

(8)
 
$
302,260

 
 
65,000

 

 
 
$
12.08

 
07/01/22
 
 
75,000

(9)
 
$
1,619,250

 
 
53,000

 

 
 
$
19.64

 
07/01/23
 
 
64,803

(10)
 
$
1,399,097

 
 
36,000

 

 
 
$
26.58

 
05/21/24
 
 


 
 


 
 
26,874

 
3,126

(11)
 
$
27.83

 
05/06/25
 
 


 
 


 
 
18,083

 
9,917

(12)
 
$
31.45

 
05/19/26
 
 


 
 


 
 
39,583

 
60,417

(13)
 
$
18.00

 
05/18/27
 
 
 
 
 
 
 
 

 
64,803

(14)
 
$
27.10

 
05/17/28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brian C. Henry
 
35,000

 

 
 
$
12.08

 
07/01/22
 
 
66,600

(6)
 
$
1,437,894

 
 
29,000

 


 
 
$
19.64

 
07/01/23
 
 
3,750

(7)
 
$
80,963

 
 
17,000

 

 
 
$
26.58

 
05/21/24
 
 
7,000

(8)
 
$
151,130

 
 
13,437

 
1,563

(11)
 
$
27.83

 
05/06/25
 
 
30,000

(9)
 
$
647,700

 
 
9,041

 
4,959

(12)
 
$
31.45

 
05/19/26
 
 
24,000

(10)
 
$
518,160

 
 
15,833

 
24,167

(13)
 
$
18.00

 
05/18/27
 
 


 
 


 
 

 
24,000

(14)
 
$
27.10

 
05/17/28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charles A. Morreale
 
11,000

 

 
 
$
26.58

 
05/21/24
 
 
66,600

(6)
 
$
1,437,894

 
 
8,958

 
1,042

(11)
 
$
27.83

 
05/06/25
 
 
2,500

(7)
 
$
53,975

 
 
5,166

 
2,834

(12)
 
$
31.45

 
05/19/26
 
 
4,000

(8)
 
$
86,360

 
 
7,916

 
12,084

(13)
 
$
18.00

 
05/18/27
 
 
15,000

(9)
 
$
323,850

 
 

 
13,000

(14)
 
$
27.10

 
05/17/28
 
 
13,000

(10)
 
$
280,670

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Efstathios Papaefstathiou
 
13,854

 
21,146

(13)
 
$
18.00

 
05/18/27
 
 
26,000

(6)
 
$
561,340

 
 

 
21,000

(14)
 
$
27.10

 
05/17/28
 
 
27,000

(15)
 
$
582,930

 
 
 
 
 
 
 
 
 
 
 
 
26,250

(9)
 
$
566,738

 
 
 
 
 
 
 
 
 
 
 
 
21,000

(10)
 
$
453,390

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael C. Piraino
 
15,000

 

 
 
$
8.33

 
10/01/19
 
 
66,600

(6)
 
$
1,437,894

 
 
10,000

 

 
 
$
5.47

 
05/12/20
 
 
2,500

(7)
 
$
53,975

 
 
13,570

 

 
 
$
6.08

 
11/16/21
 
 
4,000

(8)
 
$
86,360

 
 
25,000

 

 
 
$
12.08

 
07/01/22
 
 
18,750

(9)
 
$
404,813

 
 
17,000

 

 
 
$
19.64

 
07/01/23
 
 
14,000

(10)
 
$
302,260

 
 
9,500

 

 
 
$
26.58

 
05/21/24
 
 


 
 


 
 
8,958

 
1,042

(11)
 
$
27.83

 
05/06/25
 
 
 
 
 
 
 
 
5,166

 
2,834

(12)
 
$
31.45

 
05/19/26
 
 
 
 
 
 
 
 
9,895

 
15,105

(13)
 
$
18.00

 
05/18/27
 
 
 
 
 
 
 
 

 
14,000

(14)
 
$
27.10

 
05/17/28
 
 
 
 
 
 
(1)
All stock options in this column are fully vested and exercisable.
(2)
Vesting of stock options is accelerated upon the death or Disability of the optionee and may be accelerated upon certain other 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 “2018 Compensation Determinations – Long-Term Equity Awards” in the Compensation Discussion and Analysis above and in the “Termination of Employment and Change of Control Arrangements – Equity Plans and Equity Award Agreements” below.


36



(3)
The option exercise prices were set at 100% of fair market value of our common stock using the closing price per share for our common stock as reported by Nasdaq on the trading date prior to the grant date of the stock option award.
(4)
Restricted stock units are forfeitable upon certain events. Time-based vesting restricted stock units also vest in full upon the death or Disability (as defined in our 2013 Equity Incentive Plan) of the recipient and upon certain other 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 “2018 Compensation Determinations – Long-Term Equity Awards” in the Compensation Discussion and Analysis above and in the “Termination of Employment and Change of Control Arrangements – Equity Plans and Equity Award Agreements” below.
(5)
Determined by multiplying the closing price of $21.59 per share for our common stock as reported by Nasdaq on December 31, 2018, the last trading day of the year, by the number of unvested restricted stock units then held by the NEO. Additional information regarding the design and terms of these long-term equity awards are included under “2018 Compensation Determinations – Long-Term Equity Awards” in the Compensation Discussion and Analysis above and in the “Termination of Employment and Change of Control Arrangements – Equity Plans and Equity Award Agreements” below.
(6)
These PVRSUs vest, if at all, upon the achievement of certain revenue and operating income milestones, both of which must be met, in either fiscal year 2018 or 2019 (with achievement to be determined, generally, no later than July 1 of each subsequent calendar year) or upon a change of control of Cray. Upon a change of control of Cray, the number of shares subject to the PVRSU that may be earned depends on the size of such 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. The PVRSUs 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 2018 or 2019, or upon a change of control of Cray. The PVRSUs will expire completely on July 2, 2020 if the milestones are not satisfied, or a change of control has not occurred, by the deadlines set forth in the PVRSU.
(7)
Twenty-five percent of the restricted stock units from this grant vested on May 6, 2016, May 6, 2017, and May 6, 2018 and twenty-five percent of the restricted stock units from this grant will vest on May 6, 2019.
(8)
Twenty-five percent of the restricted stock units from this grant vested on May 19, 2017 and May 19, 2018 and twenty-five percent of the restricted stock units from this grant will vest on each of May 19, 2019 and May 19, 2020.
(9)
Twenty-five percent of the restricted stock units from this grant vested on May 18, 2018 and twenty-five percent of the restricted stock units from this grant will vest on each of May 18, 2019, May 18, 2020, and May 18, 2021.
(10)
Twenty-five percent of the restricted stock units from this grant will vest on each of May 17, 2019, May 17, 2020, May 17, 2021, and May 17, 2022.
(11)
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.
(12)
Twenty-five percent of the options from this grant vested 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.
(13)
Twenty-five percent of the options from this grant will vest on May 18, 2018, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on May 18, 2021.
(14)
Twenty-five percent of the options from this grant will vest on May 17, 2019, and the remaining balance will vest monthly over the following 36 months so that all of these options will be vested on May 17, 2022.
(15)
Twenty-five percent of the restricted stock units from this grant to Dr. Papaefstathiou vested on January 9, 2018 and January 9, 2019 and twenty-five percent of the restricted stock units from this grant will vest on each of January 9, 2020 and January 9, 2021.


37



2018 Option Exercises and Stock Vested
The following table provides information regarding options exercised by and stock awards vested for the NEOs during the year ended December 31, 2018.
 
 
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
 
80,000
 
$
1,240,411

 
48,500
 
$
1,296,500

Brian C. Henry
 
21,667
 
$
450,090

 
21,500
 
$
574,725

Charles A. Morreale
 
17,000
 
$
107,649

 
12,250
 
$
327,375

Efstathios Papaefstathiou
 
 

 
17,750
 
$
460,850

Michael C. Piraino
 
38,900
 
$
593,924

 
13,125
 
$
351,088

(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 Nasdaq at exercise and the exercise price of the options.
(3)
Represents the number of shares acquired upon vesting of restricted stock awards 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 Nasdaq on the vesting date or, if the vesting occurred on a day on which Nasdaq 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 NEOs, provide for certain accelerated vesting rights. We believe that these arrangements 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. These policies and agreements are described in the “Narrative to the Termination of Employment and Change of Control Payments Table” below.
The following discussion and table summarizes the compensation that would have been payable to each NEO under the various scenarios assuming termination of his employment at the close of business on December 31, 2018. 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 NEOs terminates his employment voluntarily without Good Reason or is terminated for Cause, 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 NEOs or other executive officers. On the same basis as we provide benefits to all of our U.S. employees, the NEOs 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 an NEO upon any termination of employment can be determined only at the time of such termination, and depend on the facts and circumstances then applicable.


38



Termination of Employment and Change of Control Payments
Name and Termination Event
 
Severance
Payment
(1)
 
Accelerated
Restricted Stock Units
(2)
 
Accelerated
Stock
Options
(3)
 
Accelerated Performance Vesting Restricted Stock Units
(4)
 
Continued Benefit Plan Coverage
(5)
 
Total
(6)
Peter J. Ungaro
 
 
 
 
 
 
 
 
 
 
 
 
Death/Disability
 

 
$
3,482,532

 
$
216,897

 

 

 
$
3,699,429

Resignation for Good Reason or Termination without Cause
 
$
1,350,000

 
$
497,455

 

 

 
$
64,853

 
$
1,912,308

After Change of Control, Resignation for Good Reason or Termination without Cause
 
$
2,700,000

 
$
3,482,532

 
$
216,897

 
$
2,875,788

 
$
73,282

 
$
9,348,499

Retirement
 

 
$
497,455