8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 29, 2002

CRAY INC.
(Exact name of registrant as specified in its charter)

Washington
(State or other jurisdiction of
incorporation or organization) 0-26820
(Commission
File Number) 93-0962605
(I.R.S. Employer
Identification No.)

411 First Avenue South, Suite 600
Seattle, WA 98104-2860
(Address of principal executive offices)

     Registrant’s telephone number, including area code:      (206) 701-2000

     Registrant’s facsimile number, including area code:        (206) 701-2500

None
(Former name or former address, if changed since last report)

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TABLE OF CONTENTS

	Item 5. Other Events.
	Item 7. Financial Statements and Exhibits.
SIGNATURES
EXHIBIT 4.4
EXHIBIT 4.5
EXHIBIT 5.1
EXHIBIT 10.1

Item 5. Other Events.

Amendment to 5% Convertible Subordinated Debentures

     In November, 2001, in a private placement under the Securities Act of 1933, as amended, we sold to six accredited investors (i) 5% convertible subordinated debentures in the aggregate original principal amount of $9,300,000, convertible into shares of our common stock (the “Debentures”) and (ii) common stock purchase warrants for an aggregate of 367,590 shares of our common stock at an initial exercise price of $4.4275 per share, subject to adjustment, exercisable until November 6, 2004.

     On August 29, 2002, we entered into an amendment with the holders of the Debentures, which provided as follows:

     •     the right of the holders to convert the Debentures into common stock at a floating conversion price based on an average market price of our common stock prior to conversion was deleted; and

     •     we shall have the right to redeem the Debentures at 110% of outstanding principal plus accrued interest if the volume weighted average prices of our common stock for each of any 20 consecutive trading days exceeds $6.00 per share, subject to adjustment for stock splits, combinations and similar transactions.

     As a result of deletion of the floating conversion price, the Debentures may be converted into shares of our common stock at the option of the holders only at the fixed conversion price, which remains unchanged at $2.35 per share, subject to adjustment for stock splits, combinations and similar transactions.

New Financing

     On September 3, 2002, we received $10,000,000 from nine purchasers in return for 2,941,176 shares of our common stock and four-year warrants to purchase an aggregate of 294,117 shares of common stock at an exercise price of $4.50 per share. We estimate that the net proceeds from this transaction will be approximately $9,275,000. We expect to use the net proceeds for working capital and general corporate purposes.

     We sold these shares of common stock and warrants under our shelf registration statement on Form S-3 (No. 333-89134), as supplemented (the “Registration Statement”), directly to the purchasers in a privately-negotiated transaction in which no party acted as underwriter. The purchasers in this transaction were: Riverview Group, LLC; Omicron Partners, LP; Laterman & Co.; Forevergreen Partners; Clarion Capital Corporation; Clarion Partners, L.P.; Clarion Offshore Fund, Ltd.; Dynamic Equity Hedge Fund; and Guarantee & Trust Co. TTEE FBO Morton A. Cohen GTC IRA SEP.

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     We are filing a legal opinion regarding the validity of the shares and warrants sold to the purchasers as Exhibit 5.1 to the Registration Statement.

FACTORS THAT COULD AFFECT FUTURE RESULTS

     The following factors should be considered in evaluating our business, operations and prospects and may affect our future results and financial condition.

OUR INABILITY TO OVERCOME THE TECHNICAL CHALLENGES OF COMPLETING THE DEVELOPMENT OF OUR SYSTEMS COULD CAUSE OUR BUSINESS TO FAIL. We expect that our success in the remainder of 2002 and following years will depend largely upon completing the development of the Cray X1 system. Our development efforts are lengthy and technically challenging processes, and require a significant investment of capital, engineering and other resources. Delays in completing the design of the hardware components or software of these systems or in integrating the full systems would make it difficult for us to develop and market these systems. We are dependent on our vendors to manufacture components for our systems, and few companies can meet our design requirements. If our vendors are unable to manufacture our components to our design specifications on a timely basis, the completion of our products will be delayed. During the development process we have had, and in the future we may have, to redesign components because of previously unforeseen design flaws. We also may find flaws in our system software, which require correction. Redesign work may be costly and cause delays in the development of these systems, and could make it more difficult for these systems to be successful as commercial products.

LACK OF CUSTOMER ORDERS FOR OUR EXISTING PRODUCTS AND OUR INABILITY TO SELL OUR PRODUCTS AT EXPECTED PRICES WOULD LIMIT OUR REVENUE AND OUR ABILITY TO BE PROFITABLE. We will depend on sales of our current products — the Cray SV1ex series, T3E systems, Cray SX-6 and cluster systems — for significant product revenue in 2002. To obtain these sales, we need to assure our customers of product performance and cost effectiveness and overcome market difficulties applicable to each system. Most of our potential customers already own or lease very high-performance computer systems. Some of our competitors may offer trade-in allowances or substantial discounts to potential customers, and we may not be able to match these sales incentives. We may be required to provide discounts to make sales or to provide lease financing for our products, which would result in a deferral of our receipt of cash for these systems. These developments would limit our revenue and resources and would reduce our ability to be profitable.

LACK OF SALES OF THE SX-6 SYSTEM COULD DECREASE OUR REVENUE AND DELAY PROFITABILITY. Cray SX-6 systems from Japan first became available for delivery in North America in the first quarter of 2002, which has delayed our sales efforts. These sales would be adversely affected if NEC does not develop a follow-on product to the SX-6. Supercomputers from Japan have not been available for sale in the United States since 1997, and there is reluctance among traditional customers, such as governmental agencies and research organizations and industrial users, to purchase supercomputers from non-U.S. sources. In addition, we must appropriately place the

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SX-6 system within our own product line to avoid customer and market confusion. If we do not obtain certain volumes of sales of Cray SX-6 systems through March 2003, NEC could terminate the right to our North American exclusive distribution rights for this product. Competing successfully with NEC with respect to sales of the SX-6 system outside of North America is difficult primarily due to price pressure.

WE MAY NOT BE SUCCESSFUL IN CONTRACTING TO PROVIDE OUR PROFESSIONAL SERVICES, WHICH WOULD DECREASE REVENUE AND AFFECT PROFITABILITY. Our entry into the professional services market is new. We will be using our employees with subject matter expertise, led by experienced professional services leaders we have recently hired, to staff professional services projects on a project-by-project basis. We need to refine our approach and develop methodologies that change the way we have conducted business in the past. We compete with companies with larger staffs and more experience in the marketing and provision of professional services. For these reasons our entry into the professional services market may not be successful.

LACK OF SALES OF CLUSTER SYSTEMS WOULD REDUCE OUR REVENUE AND DELAY PROFITABILITY. We expect that sales of cluster systems will begin in the second half of 2002. There are many competitive cluster solutions, and pressure on margins is severe. We expect to compete based on increasingly differentiated software, pre-sales integration services, our reputation for excellent post-sales maintenance and support services and our professional services assisting cluster customers finding solutions for their problems. If we cannot develop commercially acceptable software solutions or our services are not sufficiently well-received, then we will have difficulty selling cluster solutions at prices that generate appropriate margins.

GENERAL ECONOMIC AND MARKET CONDITIONS COULD DECREASE OUR REVENUE, INCREASE OUR NEED FOR CASH AND DELAY PROFITABILITY. While much of our business is related to the government sector, which is less affected by short-term economic cycles, a slow-down in the overall U.S. and global economy and resultant decreases in capital expenditures has affected sales to our industrial customers and may continue to do so. Cancellations or delays in purchases would decrease our revenue, increase our need for working capital and delay profitability.

LACK OF GOVERNMENT SUPPORT FOR SUPERCOMPUTER SYSTEMS WOULD INCREASE OUR CAPITAL REQUIREMENTS AND DECREASE OUR ABILITY TO CONDUCT RESEARCH AND DEVELOPMENT. We have targeted U.S. and foreign government agencies and research laboratories as important sales prospects for all of our products. A few of these agencies fund a portion of our development efforts. The U.S. government historically has facilitated the development of, and has constituted a market for, new and enhanced very high-performance computer systems. The failure of U.S. and foreign government agencies to continue to fund these development efforts, due to lack of funding, change of priorities or for any other reason, or continued delays in funding, would cause us to increase our need for capital and reduce our research and development expenditures.

PROPOSALS AND PURCHASES BASED ON THEORETICAL PEAK PERFORMANCE REDUCE OUR ABILITY TO MARKET OUR SYSTEMS. Our high-

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performance systems are designed to provide high actual sustained performance on difficult computational problems. Many of our competitors offer systems with higher theoretical peak performance numbers, although their actual sustained performance frequently is a small fraction of their theoretical peak performance. Nevertheless, many requests for proposals, primarily from governmental agencies in the U.S. and elsewhere, have criteria based on theoretical peak performance. Until these criteria are changed, we are foreclosed from bidding or proposing our systems on such proposals, which will limit our revenue potential.

IF THE U.S. GOVERNMENT PURCHASES FEWER SUPERCOMPUTERS, OUR REVENUE WOULD BE REDUCED. Historically, sales to the U.S. government and customers primarily serving the U.S. government have been a significant market for supercomputers. In the twelve months ended December 31, 2001, approximately 85% of our product revenue was derived from sales to various agencies and departments of the U.S. government. In the six months ended June 30, 2002, approximately 50% of our product revenue was derived from sales to various agencies and departments of the U.S. government. Sales to the U.S. government may be affected by factors outside our control, such as changes in procurement policies and budget considerations. If the U.S. government were to stop or reduce its use and purchases of supercomputers, our revenue would be reduced.

OUR RELIANCE ON THIRD-PARTY SUPPLIERS POSES SIGNIFICANT RISKS TO OUR BUSINESS AND PROSPECTS. We subcontract the manufacture of substantially all of our hardware components for all of our products, including integrated circuits, printed circuit boards, flex circuits and power supplies, on a sole or limited source basis to third-party suppliers. We also use a contract manufacturer to assemble our SV1ex and T3E components, and plan to do so for our Cray X1 and MTA-2 systems also. We are exposed to substantial risks because of our reliance on these and other limited or sole source suppliers. For example:

• if a reduction or an interruption of supply of our components occurred, it could take us a considerable period of time to identify and qualify alternative suppliers to redesign our products as necessary and to begin manufacture of the redesigned components;

• if we were ever unable to locate a supplier for a component, we would be unable to assemble and deliver our products;

• one or more suppliers may make strategic changes in their product lines, which may result in the delay or suspension of manufacture of our components or systems; and

• some of our key suppliers are small companies with limited financial and other resources, and consequently may be more likely to experience financial difficulties than larger, well-established companies.

We have experienced delays in obtaining circuit boards, integrated circuits and flex circuits on a timely basis from our suppliers, which have resulted in delays in the development of our products.

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OUR QUARTERLY PERFORMANCE MAY VARY SIGNIFICANTLY AND COULD CAUSE OUR STOCK PRICE TO BE VOLATILE. One or a few system sales may account for a substantial percentage of our quarterly and annual revenue. This is due to the high average sales price of our products, particularly the Cray T3E system, and the expected high average sales prices for our Cray X1, MTA-2 and SX-6 systems, and the timing of purchase orders and product acceptances. Because a number of our prospective customers receive funding from the U.S. or foreign governments, the timing of orders from such customers may be subject to the appropriation and funding schedules of the relevant government agencies. The timing of orders and shipments also could be affected by other events outside our control, such as:

• changes in levels of customer capital spending;

• the introduction or announcement of competitive products;

• the availability of components;

• timing of the receipt of necessary export licenses; or

• currency fluctuations and international conflicts or economic crises.

Because of these factors, revenue, net income or loss and cash flow are likely to fluctuate significantly from quarter to quarter.

ADDITIONAL FINANCINGS MAY BE DILUTIVE TO EXISTING SHAREHOLDERS. Over the next twelve months our significant cash requirements relate to operational expenses, primarily for personnel, inventory and third-party engineering services, and acquisition of capital goods. We expect to have positive cash flow from our anticipated product sales, professional services, maintenance services and government funding of research and development expenses over the next twelve months. At any time, given the high average selling price of our products, our cash position is impacted by the timing of product sales, receipt of prepaid maintenance and receipt of government funding of research and development activities. Delays in the development of the Cray X1 system may require additional capital earlier than planned. While we believe our cash resources will be adequate for the next twelve months, we may need to raise additional equity and/or debt capital if we experience lower than anticipated product sales due to delays in product availability, general economic conditions and/or failure to receive sufficient governmental support for our products and research activities. In addition, we may raise additional funds to enhance our working capital position. Financings may not be available to us when needed or, if available, may not be available on satisfactory terms and may be dilutive to our shareholders.

OUR UNCERTAIN PROSPECTS FOR EARNINGS COULD CAUSE OUR STOCK PRICE TO DECLINE. While we have had a substantial increase in revenue with the acquisition of the business operations of Cray Research at the end of March 2000, and have had three profitable quarters since that acquisition, whether we will achieve earnings on a consistent basis will depend on a number of factors, including:

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• our ability to market and sell the Cray SV1ex, T3E, SX-6 and cluster systems, engage professional services clients and complete the development of the Cray X1system;

• the level of revenue in any given period;

• the cost of servicing the T90 installed base;

• the terms and conditions of sale or lease for our products; and

• our expense levels, particularly for research and development and manufacturing and service costs.

FAILURE TO OBTAIN RENEWAL OF MAINTENANCE SERVICE CONTRACTS WILL REDUCE OUR REVENUE AND EARNINGS. High-performance computer systems are typically sold with maintenance service contracts. These contracts generally are for annual periods, although some are for multi-year periods. In 2000 and 2001, we performed maintenance services under existing SGI maintenance contracts as a subcontractor to SGI; we now have been successful in having practically all of these contracts assigned to us. As these contracts expire, however, we need to sell new maintenance service contracts to these customers. Revenue from maintenance service contracts has declined from approximately $125 million in 1999 to approximately $83 million in 2001 and approximately $68 million in 2002 and is expected to further decline until we develop, sell and install new products. If customers do not renew their maintenance service contracts with us, our revenue and earnings will be reduced.

THE ABSENCE OF THIRD-PARTY APPLICATION SOFTWARE COULD MAKE IT MORE DIFFICULT FOR US TO SELL OUR SYSTEMS TO COMMERCIAL CUSTOMERS. To make sales in the automotive, aerospace, chemistry and other engineering and commercial markets, we must be able to attract independent software vendors to port their software application programs so that they will run on our systems. The relatively low volume of supercomputer sales makes it difficult for us to attract these vendors. We also modify and rewrite third-party software applications to run on our systems and so facilitate the expansion of our potential markets. There can be no assurance that we will be able to induce independent software vendors to rewrite their applications, or that we will successfully rewrite third-party applications for use on our systems.

FAILURE TO OBTAIN CREDIT FACILITIES MAY RESTRICT OUR OPERATIONS. While we have obtained a $15 million secured credit facility based on domestic accounts receivables and maintenance revenue, we are seeking additional credit facilities of up to approximately $4 million, such as bank lines of credit, vendor credit and capitalized equipment lease lines. The absence of a consistent record of revenue and earnings makes obtaining such facilities more difficult; if we obtain such facilities, they may have high interest rates, contain restrictions on our operations and require security. Failure to obtain such credit facilities may limit our planned operations and our ability to acquire needed infrastructure and other capital items would reduce or eliminate our cash reserves and increase our need for capital.

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THE COST OF SERVICE OF THE T90 INSTALLED BASE WILL REDUCE OUR EARNINGS. Some of the components in the T90 vector computers have an unusually high failure rate. The cost of servicing the T90 computers exceeds the related service revenue. We are continuing to take action that commenced before the acquisition to address this problem, and have recorded a warranty reserve, with a balance of $8.5 million as of June 30, 2002, to provide for anticipated future losses on the T90 maintenance service contracts.

IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, OUR PRODUCTS WILL NOT BE COMPETITIVE. Our market is characterized by rapidly changing technology, accelerated product obsolescence and continuously evolving industry standards. Our success will depend upon our ability to sell our current products, to complete development of the X1 and MTA-2 systems and to develop successor systems in the future. We will need to introduce new products and features in a timely manner to meet evolving customer requirements. We may not succeed in these efforts. Even if we succeed, products or technologies developed by others may render our products or technologies noncompetitive or obsolete. If we incur delays in developing our products or if such products do not gain broad market acceptance or become obsolete, our ability to develop and market our products will be reduced.

IF WE CANNOT ATTRACT, RETAIN AND MOTIVATE KEY PERSONNEL, WE MAY BE UNABLE TO IMPLEMENT EFFECTIVELY OUR BUSINESS PLAN. Our success also depends in large part upon our ability to attract, retain and motivate highly skilled management, technical and marketing and sales personnel. Competition for highly skilled management, technical, marketing and sales personnel is intense, and we may not be successful in attracting and retaining such personnel. We have no employment contracts with any of our employees.

A SUBSTANTIAL NUMBER OF OUR SHARES ARE ELIGIBLE FOR FUTURE SALE AND COULD DEPRESS MARKET PRICES OF OUR STOCK AND HINDER OUR ABILITY TO OBTAIN ADDITIONAL FINANCING. Sale of a substantial number of our shares of common stock in the public market or the prospect of sales could cause the market price of our common stock to decline. As of September 3, 2002, we had outstanding:

• 51,279,802 shares of common stock;

• 3,125,000 shares of Series A preferred stock convertible into 3,136,763 shares of common stock;

• warrants to purchase 9,230,873 shares of common stock;

• debentures convertible into 3,957,448 shares; and

• stock options to purchase an aggregate of 11,585,958 shares of common stock, of which 6,399,535 options were then exercisable.

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     Almost all of our outstanding shares of common stock may be sold without substantial restrictions. All of the shares purchased under the warrants and exercisable options are available for sale in the public market, subject in some cases to volume and other limitations. The shares of common stock underlying the Series A preferred stock are not available for public sale until May 2003. Sales in the public market of substantial amounts of our common stock, including sales of common stock issuable upon the exercise of warrants, debentures and options, could depress prevailing market prices for the common stock. Even the perception that sales could occur may impact market prices. The existence of outstanding warrants, debentures and options may prove to be a hindrance to our future equity financings. Further, the holders of the debentures may convert and the holders of the warrants and options may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us. Such factors could impair our ability to meet our capital needs.

OUR STOCK PRICE MAY BE VOLATILE. The trading price of our common stock is subject to significant fluctuations in response to:

• changes in analysts’ estimates;

• our future capital raising activities;

• announcements of technological innovations by us or our competitors; and

• general conditions in our industry.

The stock market has been and is subject to price and volume fluctuations that particularly affect the market prices for small capitalization, high technology companies like ourselves.

IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN THE HIGH-PERFORMANCE COMPUTER MARKET, OUR REVENUE WILL DECLINE. The performance of our products may not be competitive with the computer systems offered by our competitors, and we may not compete successfully over time against new entrants or innovative competitors at the lower end of the market. Periodic announcements by our competitors of new high-performance computer systems and price adjustments may reduce customer demand for our products. Our competitors are established companies that are well known in the high-performance computer market, including IBM, Sun Microsystems, Hewlett-Packard, Silicon Graphics, NEC Corporation (outside of North America), Fujitsu and Hitachi. Each of these competitors has broader product lines and substantially greater research, engineering, manufacturing, marketing and financial resources than we do. We also compete with new entrants capitalizing on developments in parallel processing and increased computer performance through networking and clustering systems. Currently, these products are limited in applicability and scalability and can be difficult to program. A breakthrough in architecture or software technology could make parallel systems more attractive to potential customers. Such a breakthrough would impair our ability to sell our products and reduce our revenue.

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WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY INFORMATION AND RIGHTS ADEQUATELY. We rely on a combination of patent, copyright and trade secret protection, non-disclosure agreements and licensing arrangements to establish, protect and enforce our proprietary information and rights. We have a number of patents and have additional applications pending. There can be no assurance, however, that patents will be issued from the pending applications or that any issued patents will protect adequately those aspects of our technology to which such patents will relate. Despite our efforts to safeguard and maintain our proprietary rights, we cannot be certain that we will succeed in doing so or that our competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technologies. Third parties may assert intellectual property claims against us and claims, if proved, could require us to pay substantial damages or redesign our existing products. Even meritless claims would require management attention and would cause us to incur significant expense to defend. The laws of some countries do not protect intellectual property rights to the same extent or in the same manner as do the laws of the United States. Although we continue to implement protective measures and intend to defend our proprietary rights vigorously, these efforts may not be successful.

OUR ABILITY TO BUILD SOME PRODUCTS IS LIMITED BY OUR AGREEMENT WITH SILICON GRAPHICS, WHICH MAY LIMIT OUR ABILITY TO COMPETE WITH SILICON GRAPHICS AND OTHER COMPANIES. The technology agreement through which we acquired and licensed patent, know-how and other intellectual property rights from Silicon Graphics contains restrictions on our ability to develop some products, including specified successors to the T3E system, and restrictions on the use of other technology, such as SGI’s IRIX operating system to the Cray X1.

IT MAY BECOME MORE DIFFICULT TO SELL OUR STOCK IN THE PUBLIC MARKET. Our common stock is listed for quotation on the Nasdaq National Market. To keep our listing on this market, Cray must meet Nasdaq’s listing maintenance standards. If the bid price of our common stock falls below $1.00 for an extended period, or we are unable to continue to meet Nasdaq’s listing maintenance standards for any other reason, our common stock could be delisted from the Nasdaq National Market. If our common stock were delisted, we likely would seek to list the common stock on the Nasdaq SmallCap Market, the American Stock Exchange or on a regional stock exchange. Listing on such other market or exchange could reduce the liquidity for our common stock. If our common stock were not listed on the SmallCap Market or an exchange, trading of our common stock would be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities or directly through market makers in our common stock. If our common stock were to trade in the over-the-counter market, an investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, the common stock. A delisting from the Nasdaq National Market and failure to obtain listing on such other market or exchange would subject our securities to so-called penny stock rules that impose additional sales practice and market-making requirements on broker-dealers who sell or make a market in such securities. Consequently, removal from the Nasdaq National Market and failure to obtain listing on another market or exchange could affect the ability or willingness of broker-dealers to sell or make a market in our common stock and the ability of purchasers of our common stock to sell their securities in the secondary market. In

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addition, when the market price of our common stock is less than $5.00 per share, we become subject to penny stock rules even if our common stock is still listed on the Nasdaq National Market. While the penny stock rules should not affect the quotation of our common stock on the Nasdaq National Market, these rules may further limit the market liquidity of our common stock and the ability of investors to sell our common stock in the secondary market.

U.S. EXPORT CONTROLS COULD HINDER OUR ABILITY TO MAKE SALES TO FOREIGN CUSTOMERS AND OUR FUTURE PROSPECTS. The U.S. government regulates the export of high-performance computer systems such as our products. Occasionally we have experienced delays in receiving appropriate approvals necessary for certain sales, which has delayed the shipment of our products. Delay or denial in the granting of any required licenses could make it more difficult to make sales to foreign customers, eliminating an important source of potential revenue.

PROVISIONS IN OUR AGREEMENT WITH SILICON GRAPHICS MAKE IT MORE DIFFICULT FOR SPECIFIED COMPANIES TO ACQUIRE US. The terms of our purchase of the assets of Cray Research contain provisions restricting our ability to transfer the assets of Cray Research. Sales of these assets to Hewlett-Packard, Sun Microsystems, IBM, NEC or Gores Technology Group, or their affiliates, are prohibited until the earlier of March 31, 2003, or if Silicon Graphics were sold.

PROVISIONS OF OUR ARTICLES AND BYLAWS COULD MAKE A PROPOSED ACQUISITION THAT IS NOT APPROVED BY OUR BOARD OF DIRECTORS MORE DIFFICULT. Provisions of our restated articles of incorporation and restated bylaws could make it more difficult for a third party to acquire us. These provisions could limit the price that investors might be willing to pay in the future for our common stock. For example, our articles of incorporation and bylaws provide for:

• a staggered board of directors, so that only two or three of eight directors are elected each year;

• removal of a director only in limited circumstances and only upon the affirmative vote of not less than two-thirds of the shares entitled to vote to elect directors;

• the issuance of preferred stock, without shareholder approval, with rights senior to those of the common stock;

• no cumulative voting of shares;

• calling a special meeting of the shareholders only upon demand by the holders of not less than 30% of the shares entitled to vote at such a meeting;

• amendments to our restated articles of incorporation require the affirmative vote of not less than two-thirds of the outstanding shares entitled to vote on the amendment, unless the amendment was approved by a majority of our continuing directors, who are defined as directors who have either served as a director since August 31, 1995 or were nominated to be a director by the continuing directors;

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• special voting requirements for mergers and other business combinations, unless the proposed transaction was approved by a majority of continuing directors;

• special procedures must be followed to bring matters before our shareholders at our annual shareholders’ meeting; and

• special procedures must be followed in order for nominating members for election to our board of directors.

WE DO NOT ANTICIPATE DECLARING ANY DIVIDENDS. We have never paid any dividends on our common stock and we intend to continue our policy of retaining any earnings to finance the development and expansion of our business.

Item 7. Financial Statements and Exhibits.

(c)      Exhibits

4.1	Convertible Subordinated Debentures and Warrants Purchase Agreement, dated as of November 6, 2001, between Cray Inc. and the investors. (1)
4.2	Form of 5% Convertible Subordinated Debenture, due November 6, 2004, issued to the investors. (1)
4.3	Amendment No. 1 to the Convertible Subordinated Debentures and Warrants Purchase Agreement and Other Transaction Documents, dated as of November 15, 2001, between Cray Inc. and the investors. (1)
4.4	Amendment No. 2 to the Convertible Subordinated Debentures and Purchase Agreement, dated as of August 29, 2002, between Cray Inc. and the investors.
4.5	Form of Warrants issued in the new financing.
5.1	Opinion of Kenneth W. Johnson, General Counsel, on the legality of the shares and the Warrants issued in the new financing.
10.1	Subscription Agreement between Cray Inc. and the purchasers in the new financing.
23.1	Consent of Kenneth W. Johnson (included as part of opinion filed as Exhibit 5.1)

(1) Incorporated by reference from the Company’s Current Report on Form 8-K for the event of November 6, 2001.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CRAY INC.

By:	/s/ Kenneth W. Johnson
	Kenneth W. Johnson General Counsel

September 3, 2002

13 EX-4.4 3 v84192exv4w4.txt EXHIBIT 4.4 Exhibit 4.4 AMENDMENT NO. 2 TO CONVERTIBLE SUBORDINATED DEBENTURES AND PURCHASE AGREEMENT THIS AMENDMENT NO. 2 TO THE CONVERTIBLE SUBORDINATED DEBENTURES AND PURCHASE AGREEMENT, dated as of August 29, 2002 (this "Amendment No. 2"), is by and between the Investors (as such term is defined below) and Cray Inc., a corporation organized and existing under the laws of the State of Washington (the "Company"). WHEREAS, the Company and Riverview Group, LLC, Omicron Partners, LP, Laterman & Co., Forevergreen Partners, Clarion Capital Corporation and Morton A. Cohen TTEE FBO The Morton A. Cohen Revocable Living Trust (together, the "Investors") are parties to a Convertible Subordinated Debentures and Warrant Purchase Agreement, dated as of November 6, 2001, as amended by Amendment No. 1 dated as of November 15, 2001 thereto ("Amendment No. 1") (such agreement, as amended by Amendment No. 1, is referred to herein as the "Purchase Agreement") pursuant to which the Company issued the Investors an aggregate of $9,300,000 principal amount of 5% Convertible Subordinated Debentures (the "Debentures") and Warrants to purchase an aggregate of 367,590 shares of the Company's Common Stock, $.01 par value per share (the "Common Stock"), and WHEREAS, all capitalized terms used but not defined herein shall be as defined in the Debentures or the Purchase Agreement, and WHEREAS, the Company and the Investors want to amend the Debentures and the Purchase Agreement to delete the right of the holders to convert the Debentures at the Alternate Conversion Price and to restore the right of the Company to make an optional redemption of the Debentures under certain circumstances as set forth herein, NOW THEREFORE, in consideration of the foregoing premises, and the promises and covenants herein contained, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, and acknowledging that each party intends to and is entitled to rely on provisions herein in its favor, the parties, intending to be legally bound, hereby agree as follows: 1. Amendments to the Debentures. The parties hereto hereby amend each of the Debentures as follows: Section 4(a)(ii) of each Debenture is deleted, and the Set Price shall be the sole conversion price at which each Debenture is convertible into Common Stock at the option of the Holder. In the first sentence of Section 4(a)(i) of each Debenture, the parenthetical "(subject to the limitations on conversion set forth in Section 4(a)(ii) hereof)" is amended 14 to "(subject to the limitations on conversion set forth in Section 4(d) hereof)". 2. Amendment to the Purchase Agreement. Section 1(d) of Amendment No. 1 to the Purchase Agreement is hereby amended to add the following at the end of that section: ; provided, however, that, notwithstanding any of the foregoing, if the VWAPs for each of any twenty (20) consecutive Trading Days exceeds $6.00 per share (adjusted proportionately for stock splits or other subdivisions or combinations of the outstanding Common Stock), the Company shall have the right to redeem the Debentures as set forth in Sections 5(a) and (b) of the Debentures, subject to all of the terms and conditions therein, if the Company gives an Optional Redemption Notice within 30 days after any such 20 Trading Day period. 3. Entire Amendment. This Amendment No. 2 sets forth all of the amendments being made to the Debentures and the Purchase Agreement at this time. [Signature Page to Amendment No. 2] IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be executed by the undersigned, thereunto duly authorized, as of the date first written above. CRAY INC. By /s/ James E. Rottsolk ------------------------------------------ James E. Rottsolk, President INVESTORS: RIVERVIEW GROUP, LLC By /s/ Terry Feeney ------------------------------------------ Name: Terry Feeney Title: Chief Administrative Officer 15 OMICRON PARTNERS, LP By: Omicron Capital L.P., as subadvisor By: Omicron Capital Inc., general partner By /s/ Bruce Bernstein ------------------------------------------ Bruce Bernstein, President LATERMAN & CO. By /s/ Bernard Laterman ------------------------------------------ Bernard Laterman, Managing Partner FOREVERGREEN PARTNERS By /s/ Bernard Laterman ------------------------------------------ Bernard Laterman, Managing Partner CLARION CAPITAL CORPORATION By /s/ Morton A. Cohen ------------------------------------------ Morton A. Cohen, President MORTON A. COHEN TTEE FBO THE MORTON A COHEN REVOCABLE LIVING TRUST By /s/ Morton A. Cohen ------------------------------------------ Morton A. Cohen, Trustee 16 EX-4.5 4 v84192exv4w5.txt EXHIBIT 4.5 Exhibit 4.5 COMMON STOCK PURCHASE WARRANT To Purchase _______________ Shares of Common Stock of CRAY INC. THIS CERTIFIES that, for value received, _____________ (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after August 30, 2002 (the "Initial Exercise Date") and on or prior to the close of business on the fourth anniversary of the Initial Exercise Date (the "Termination Date") but not thereafter, to subscribe for and purchase from Cray Inc., a corporation incorporated in the State of Washington (the "Company"), up to ____________ shares (the "Warrant Shares") of Common Stock, par value $.01 per share, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $4.50. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the Holder shall be entitled to receive a certificate for the number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of 17 such shares for all purposes, as of the date the Warrant has been exercised by delivery of the Warrant and the duly executed Notice of Exercise and payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. Notwithstanding anything herein to the contrary, in no event shall the Holder be permitted to exercise this Warrant for Warrant Shares to the extent that (i) the number of shares of Common Stock owned by such Holder (other than Warrant Shares issuable upon exercise of this Warrant) plus (ii) the number of Warrant Shares issuable upon exercise of this Warrant, would be equal to or exceed 4.999% of the number of shares of Common Stock then issued and outstanding, including shares issuable upon exercise of this Warrant held by such Holder after application of this Section 3(c). As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 3(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. Nothing contained herein shall be deemed to restrict the right of a Holder to exercise this Warrant into Warrant Shares at such time as such exercise will not violate the provisions of this Section 3(c). The provisions of this Section 3(c) may be waived by the Holder upon, at the election of the Holder, not less than 61 days' prior notice to the Company, and the provisions of this Section 3(c) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). No exercise of this Warrant in violation of this Section 3(c) but otherwise in accordance with this Warrant shall affect the status of the Warrant Shares as validly issued, fully-paid and nonassessable. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be 18 directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant. Transfer, Division and Combination. Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. Notwithstanding the above, the Holder shall not transfer this Warrant or any rights hereunder to any person or entity which is then engaged in a business that is in the reasonable judgement of the Company is in direct competition with the Company. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. No Rights as Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof pursuant to Section 3(a). 19 Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of Common Stock of the successor 20 or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the Holder notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger (where the Company is not the surviving corporation) of the 21 Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such 22 authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. Miscellaneous. Jurisdiction. This Warrant shall constitute a contract under the laws of New York, without regard to its conflict of law, principles or rules. Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and 23 be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: September __, 2002 CRAY INC. By: ----------------------------------------- James E. Rottsolk, President 24 NOTICE OF EXERCISE To: Cray Inc. (1) The undersigned hereby elects to purchase ________ Warrant Shares (the "Common Stock"), of Cray Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: -------------------------------------- The Warrant Shares shall be delivered to the following: -------------------------------------- -------------------------------------- -------------------------------------- [PURCHASER] By: ----------------------------------------- Name: Title: Dated: --------------------------- Page 25 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to whose address is - ----------------------------------------------- - ---------------------------------------------------------------. - --------------------------------------------------------------- Dated: --------------, -------- Holder's Signature: ------------------------------------ Holder's Address: ------------------------------------ ------------------------------------ Signature Guaranteed: ----------------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. Page 26 EX-5.1 5 v84192exv5w1.txt EXHIBIT 5.1 Exhibit 5.1 September 3, 2002 The Board of Directors of Cray Inc. Dear Sirs: I refer to my opinion dated May 24, 2002, and included as Exhibit 5 to the Registration Statement on Form S-3 (Commission File No. 333-89134) (the "Registration Statement") filed on May 24, 2002 by Cray Inc. (the "Company"), a Washington corporation, with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). I am rendering this supplemental opinion in connection with the prospectus supplement (the "Prospectus Supplement") to the base prospectus (the "Base Prospectus") filed on or about September 3, 2002, by the Company with the Commission pursuant to Rule 424 under the Securities Act. The Prospectus Supplement relates to the sale by the Company of 2,941,176 shares (the "Shares") of the Company's Common Stock, $0.01 par value per share (the "Common Stock"), warrants to purchase 294,117 shares of Common Stock (the "Warrants"), and 294,117 shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"), all of which are covered by the Registration Statement. The Shares and the Warrants were offered and sold in the manner described in the Prospectus Supplement and the Base Prospectus. I have acted as your counsel in connection with the preparation of the Registration Statement, the Prospectus Supplement and the Base Prospectus. I am familiar with the proceedings of the Board of Directors of the Company in connection with the authorization, issuance and sale of the Shares. I have examined such other documents as I consider necessary to render this opinion. Based upon the foregoing, I am of the opinion that: 1. The Shares have been duly authorized and are validly issued, fully paid and nonassessable. 2. The Warrants have been duly authorized and are legal, valid and binding obligations of the Company (subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting creditors' rights generally from to time in effect and subject to general principles of equity, regardless of whether such is considered in a proceeding in equity or at law). 3. The Warrant Shares have been duly authorized and, when issued and delivered upon exercise of the Warrants in exchange for payment therefor in Page 27 accordance with the terms thereof, will be validly issued, fully paid and nonassessable. I hereby consent to the filing of this opinion as a part of the Registration Statement and to the reference to me under the caption "Legal Matters" in the Base Prospectus. Very truly yours, /s/ Kenneth W. Johnson Kenneth W. Johnson, Esquire General Counsel Page 28 EX-10.1 6 v84192exv10w1.txt EXHIBIT 10.1 Exhibit 10.1 SUBSCRIPTION AGREEMENT This subscription agreement (this "Agreement") is dated as of August 30, 2002 between the buyers signatory hereto (each a "Buyer" and collectively the "Buyers") and Cray Inc., a Washington corporation (the "Seller"), whereby the parties agree as follows: 1. Subscription. a) Each Buyer, severally and not jointly, agrees to buy, and the Seller agrees to sell and issue to each Buyer, the number of shares of the Seller's common stock set forth on the signature page hereof opposite the name of each Buyer (collectively, the "Shares"), on the date hereof, at a price equal to $3.40 per share, or a total purchase price for each Buyer as set forth on the signature page hereof opposite the name of such Buyer (the "Purchase Price") along with warrants in the form of Exhibit B attached hereto, to purchase up to, in the aggregate, 294,117 shares of the sellers common stock (the "Warrants"), which Warrants shall be exercisable for a period of 4 years and have an exercise price equal to $4.50, subject to adjustment therein. The Warrants shall be issued to the investors pro-rata in proportion to their purchases hereunder. b) The Shares and Warrants have been registered on a Form S-3 registration statement, SEC File No. 333-89134, which registration statement (the "Registration Statement") has been declared effective by the Securities and Exchange Commission (the "SEC"), has remained effective since such date and is effective on the date hereof. c) On the date hereof, the Seller shall deliver to each Buyer the Shares purchased by such Buyer via the Depository Trust Company's ("DTC") Deposit Withdrawal Agent Commission ("DWAC") system via the DTC instructions for such Buyer set forth on the signature page hereof and shall deliver the respective Warrants to the Buyers at the address set forth on the signature page hereto. The total Purchase Price payable by each Buyer as set forth on the signature page hereof shall be paid by wire transfer to the Seller on the date hereof pursuant to wire instructions that have been provided to each Buyer. The Shares must be unlegended and free of any resale restrictions. All parties hereby agree and acknowledge that delivery of the Shares via DTC's DWAC system is a material obligation of the Seller and furthermore, with respect to the obligations of each party hereunder, time is of the essence. Page 29 d) Pursuant to SEC Rule 424(b)(2), the Seller agrees to file with the SEC a prospectus supplement in the form of Exhibit A hereto regarding the sale of the Shares and the Warrants to the Buyers. 2. Seller Representations and Warranties. The Seller represents and warrants to each Buyer that: (a) it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder; (b) this Agreement has been duly authorized and executed by the Seller and constitutes a valid and binding agreement of the Seller enforceable against the Seller in accordance with its terms, subject to general principles of equity and subject to bankruptcy, insolvency, fraudulent transfer, moratorium and other similar laws affecting the enforcement of creditors' right generally; (c) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not result in a breach of (i) the Seller's articles of incorporation or by-laws, or (ii) any agreement to which the Seller is a party or by which any of its property or assets is bound; (d) upon issuance of the Shares and Warrants to the Buyers for the total Purchase Price payable hereunder, the Shares and Warrants will be duly and validly issued and outstanding and fully paid and non-assessable, and, with respect to the Shares and the shares underlying the Warrants upon exercise, each Buyer will be entitled to all rights accorded to a holder of common stock of the Seller; and (e) the Registration Statement and the final prospectus included therein do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading in light of the circumstances under which they were made. 3. Buyer Representations and Warranties. Each Buyer, severally and not jointly, represents and warrants to the Seller that: (a) it has full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder; (b) this Agreement has been duly authorized and executed by such Buyer and constitutes a valid and binding agreement of such Buyer enforceable against such Buyer in accordance with its terms, subject to general principles of equity and subject to bankruptcy, insolvency, fraudulent transfer, moratorium and other similar laws affecting the enforcement of creditors' right generally; (c) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not result in a breach of any agreement to which such Buyer is a party or by which any of its property or assets is bound; (d) such Buyer is, and since November 16, 2001 has been, a holder of securities of the Seller, or such Buyer is an affiliate (as defined in SEC Rule 405 under the Securities Act of 1933, as amended) of a person or entity that is, and since November 16, 2001 has been, a holder of securities of the Seller; and (e) any sale of the Shares by such Buyer will be in compliance with all applicable state and federal securities laws. 4. Condition of the Seller. It shall be a condition of the obligations of the Seller hereunder that the Seller receive not less than $10,000,000 in aggregate gross proceeds from the sale of the Shares and Warrants to the Buyers pursuant to this Agreement. Page 30 5. Notice. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and shall be mailed, hand delivered, sent by a recognized overnight courier service such as Federal Express, or sent via facsimile and confirmed by letter, to the party to whom it is addressed at the following addresses or such other address as such party may advise the other in writing: To the Seller: Cray Inc. 411 First Avenue South, Suite 600 Seattle, WA 98104 Tel.: (206) 701-2000 Fax: (206) 701-2218 Attn: General Counsel To any Buyer: as set forth on the signature page hereto. All notices hereunder shall be effective upon receipt by the party to which it is addressed. 6. Jurisdiction. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdiction. To the extent determined by such court, the prevailing party shall reimburse the other party for any reasonable legal fees and disbursements incurred in enforcement of, or protection of any of its rights under this Agreement. 7. Miscellaneous. a) This Agreement constitutes the entire understanding and agreement between the parties with respect to its subject matter, and there are no agreements or understandings with respect to the subject matter hereof which are not contained in this Agreement. This Agreement may be modified only in writing signed by the party to be charged hereunder. b) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. Page 31 c) The provisions of this Agreement are severable and, in the event that any court or officials of any regulatory agency of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible, so long as such construction does not materially adversely effect the economic rights of any party hereto. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] Page 32 [Signature Pages to Subscription Agreement (pages 5-7)] SELLER: CRAY INC. By: /s/ James E. Rottsolk ---------------------------------------- James E. Rottsolk, President BUYERS: RIVERVIEW GROUP, LLC Number of Common Shares: 1,772,533 Total Purchase Price: $6,026,613 By /s/ Terry Feeney Warrant Shares: 177,253 -------------------------------------- Name: Terry Feeney DTC Instructions: Title: Chief Administrative Officer Solomon Smith Barney Acct Name: Riverview Group, LLC Broker DTC #: 418 DTC Acct #: 52239606 Address for Notice: 666 5th Avenue, 8th Floor New York, New York 10103 Attn: Daniel Cardella OMICRON PARTNERS, LP Number of Common Shares: 632,511 By: Omicron Capital L.P., as subadvisor Total Purchase Price: $2,150,538 By: Omicron Capital Inc., general partner Warrant Shares: 63,251 By /s/ Bruce Bernstein DTC Instructions: -------------------------------------- Bruce Bernstein, President Address for Notice: 153 East 53rd Street, 48th Floor New York, NY 10022 Page 33 LATERMAN & CO. Number of Common Shares: 62,500 Total Purchase Price: $212,500 Warrant Shares: 6,250 By /s/ Bernard Laterman -------------------------------------- DTC Instructions: Bernard Laterman, Managing Partner DTC Broker #: 551 (Merrill Lynch) Account #: 082-43003-DO Acct Name: Laterman & Co. Address for Notice: 5 East 59th Street New York, New York 10022 FOREVERGREEN PARTNERS Number of Common Shares: 62,500 Total Purchase Price: $212,500 Warrant Shares: 6,250 By /s/ Bernard Laterman -------------------------------------- Bernard Laterman, Managing Partner DTC Instructions: DTC Broker #: 551 (Merrill Lynch) Acct #: 187-23077-D2 Acct Name: Forevergreen Partners Address for Notice: 5 East 59th Street New York, New York 10022 CLARION CAPITAL CORPORATION Number of Common Shares: 101,132 Total Purchase Price: $343,848.80 Warrant Shares: 10,113 By /s/ Morton A. Cohen -------------------------------------- DTC Instructions: Morton A. Cohen, President DTC Broker #: 773 DTC A/C: 11811651 Address for Notice: 1801 East Ninth Street, Suite 1120 Cleveland, Ohio 44144 Page 34 CLARION PARTNERS, L.P. Number of Common Shares: 105,000 Total Purchase Price: $357,000 Warrant Shares:10,500 By /s/ Morton A. Cohen -------------------------------------- DTC Instructions: Name: Morton A. Cohen DTC Broker #: 773 Title: Manager DTC A/C: 11810005 Address for Notice: Same as above CLARION OFFSHORE FUND, LTD. Number of Common Shares: 105,000 Total Purchase Price: $357,000 Warrant Shares:10,500 By /s/ Morton A. Cohen -------------------------------------- DTC Instructions: Name: Morton A. Cohen DTC Broker #: 773 Title: President DTC A/C: 31311266 Address for Notice: Same as above DYNAMIC EQUITY HEDGE FUND Number of Common Shares: 50,000 Total Purchase Price: $170,000 Warrant Shares:5,000 By /s/ Morton A. Cohen -------------------------------------- DTC Instructions: Name: Morton A. Cohen DTC Broker #: 773 Title: Manager DTC A/C: 313315691 Address for Notice: Same as above GUARANTEE & TRUST CO TEE MORTON A. COHEN GTC IRA SEP Number of Common Shares: 50,000 Total Purchase Price: $170,000 Warrant Shares:5,000 By /s/ Morton A. Cohen -------------------------------------- DTC Instructions: Name: Morton A. Cohen DTC Broker #: 773 Title: Trustee DTC A/C: 1126083 Address for Notice: same as above Page 35 Exhibit A Prospectus Supplement Page 36 -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.4

                                                                     Exhibit 4.4

                               AMENDMENT NO. 2 TO
                       CONVERTIBLE SUBORDINATED DEBENTURES
                             AND PURCHASE AGREEMENT


               THIS AMENDMENT NO. 2 TO THE CONVERTIBLE SUBORDINATED DEBENTURES
AND PURCHASE AGREEMENT, dated as of August 29, 2002 (this "Amendment No. 2"), is
by and between the Investors (as such term is defined below) and Cray Inc., a
corporation organized and existing under the laws of the State of Washington
(the "Company").

               WHEREAS, the Company and Riverview Group, LLC, Omicron Partners,
LP, Laterman & Co., Forevergreen Partners, Clarion Capital Corporation and
Morton A. Cohen TTEE FBO The Morton A. Cohen Revocable Living Trust (together,
the "Investors") are parties to a Convertible Subordinated Debentures and
Warrant Purchase Agreement, dated as of November 6, 2001, as amended by
Amendment No. 1 dated as of November 15, 2001 thereto ("Amendment No. 1") (such
agreement, as amended by Amendment No. 1, is referred to herein as the "Purchase
Agreement") pursuant to which the Company issued the Investors an aggregate of
$9,300,000 principal amount of 5% Convertible Subordinated Debentures (the
"Debentures") and Warrants to purchase an aggregate of 367,590 shares of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), and

               WHEREAS, all capitalized terms used but not defined herein shall
be as defined in the Debentures or the Purchase Agreement, and

               WHEREAS, the Company and the Investors want to amend the
Debentures and the Purchase Agreement to delete the right of the holders to
convert the Debentures at the Alternate Conversion Price and to restore the
right of the Company to make an optional redemption of the Debentures under
certain circumstances as set forth herein,

               NOW THEREFORE, in consideration of the foregoing premises, and
the promises and covenants herein contained, the receipt and sufficiency of
which are hereby acknowledged by the parties hereto, and acknowledging that each
party intends to and is entitled to rely on provisions herein in its favor, the
parties, intending to be legally bound, hereby agree as follows:

        1.      Amendments to the Debentures. The parties hereto hereby amend
                each of the Debentures as follows:

                        Section 4(a)(ii) of each Debenture is deleted, and the
                        Set Price shall be the sole conversion price at which
                        each Debenture is convertible into Common Stock at the
                        option of the Holder. In the first sentence of Section
                        4(a)(i) of each Debenture, the parenthetical "(subject
                        to the limitations on conversion set forth in Section
                        4(a)(ii) hereof)" is amended



                                       14


                        to "(subject to the limitations on conversion set forth
                        in Section 4(d) hereof)".

        2.      Amendment to the Purchase Agreement. Section 1(d) of Amendment
                No. 1 to the Purchase Agreement is hereby amended to add the
                following at the end of that section:

                        ; provided, however, that, notwithstanding any of the
                        foregoing, if the VWAPs for each of any twenty (20)
                        consecutive Trading Days exceeds $6.00 per share
                        (adjusted proportionately for stock splits or other
                        subdivisions or combinations of the outstanding Common
                        Stock), the Company shall have the right to redeem the
                        Debentures as set forth in Sections 5(a) and (b) of the
                        Debentures, subject to all of the terms and conditions
                        therein, if the Company gives an Optional Redemption
                        Notice within 30 days after any such 20 Trading Day
                        period.

        3.      Entire Amendment. This Amendment No. 2 sets forth all of the
                amendments being made to the Debentures and the Purchase
                Agreement at this time.



                       [Signature Page to Amendment No. 2]

               IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 2 to be executed by the undersigned, thereunto duly authorized, as of the
date first written above.

                                    CRAY INC.


                                    By     /s/ James E. Rottsolk
                                      ------------------------------------------
                                           James E. Rottsolk, President



                                    INVESTORS:

                                    RIVERVIEW GROUP, LLC


                                    By     /s/  Terry Feeney
                                      ------------------------------------------
                                           Name:  Terry Feeney
                                           Title: Chief Administrative Officer



                                       15


                                    OMICRON PARTNERS, LP


                                    By:    Omicron Capital L.P., as subadvisor
                                    By:    Omicron Capital Inc., general partner


                                    By     /s/ Bruce Bernstein
                                      ------------------------------------------
                                           Bruce Bernstein, President



                                    LATERMAN & CO.


                                    By     /s/  Bernard Laterman
                                      ------------------------------------------
                                           Bernard Laterman, Managing Partner



                                    FOREVERGREEN PARTNERS


                                    By     /s/ Bernard Laterman
                                      ------------------------------------------
                                           Bernard Laterman, Managing Partner



                                    CLARION CAPITAL CORPORATION


                                    By     /s/ Morton A. Cohen
                                      ------------------------------------------
                                           Morton A. Cohen, President



                                    MORTON A. COHEN TTEE FBO
                                    THE MORTON A COHEN REVOCABLE
                                    LIVING TRUST


                                    By     /s/   Morton A. Cohen
                                      ------------------------------------------
                                           Morton A. Cohen, Trustee



                                       16

EX-4.5

                                                                     Exhibit 4.5

                          COMMON STOCK PURCHASE WARRANT


              To Purchase _______________ Shares of Common Stock of

                                    CRAY INC.

THIS CERTIFIES that, for value received, _____________ (the "Holder"), is
        entitled, upon the terms and subject to the limitations on exercise and
        the conditions hereinafter set forth, at any time on or after August 30,
        2002 (the "Initial Exercise Date") and on or prior to the close of
        business on the fourth anniversary of the Initial Exercise Date (the
        "Termination Date") but not thereafter, to subscribe for and purchase
        from Cray Inc., a corporation incorporated in the State of Washington
        (the "Company"), up to ____________ shares (the "Warrant Shares") of
        Common Stock, par value $.01 per share, of the Company (the "Common
        Stock"). The purchase price of one share of Common Stock (the "Exercise
        Price") under this Warrant shall be $4.50. The Exercise Price and the
        number of Warrant Shares for which the Warrant is exercisable shall be
        subject to adjustment as provided herein.

Title to Warrant. Prior to the Termination Date and subject to compliance with
applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the Holder in person
or by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.

Authorization of Shares. The Company covenants that all Warrant Shares which may
be issued upon the exercise of the purchase rights represented by this Warrant
will, upon exercise of the purchase rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

Exercise of Warrant.

                Except as provided in Section 4 herein, exercise of the purchase
        rights represented by this Warrant may be made at any time or times on
        or after the Initial Exercise Date and on or before the Termination Date
        by the surrender of this Warrant and the Notice of Exercise Form annexed
        hereto duly executed, at the office of the Company (or such other office
        or agency of the Company as it may designate by notice in writing to the
        registered Holder at the address of such Holder appearing on the books
        of the Company) and upon payment of the Exercise Price of the shares
        thereby purchased by wire transfer or cashier's check drawn on a United
        States bank, the Holder shall be entitled to receive a certificate for
        the number of Warrant Shares so purchased. Certificates for shares
        purchased hereunder shall be delivered to the Holder within three (3)
        Trading Days after the date on which this Warrant shall have been
        exercised as aforesaid. This Warrant shall be deemed to have been
        exercised and such certificate or certificates shall be deemed to have
        been issued, and Holder or any other person so designated to be named
        therein shall be deemed to have become a holder of record of



                                       17


        such shares for all purposes, as of the date the Warrant has been
        exercised by delivery of the Warrant and the duly executed Notice of
        Exercise and payment to the Company of the Exercise Price and all taxes
        required to be paid by the Holder, if any, pursuant to Section 5 prior
        to the issuance of such shares, have been paid.

                If this Warrant shall have been exercised in part, the Company
        shall, at the time of delivery of the certificate or certificates
        representing Warrant Shares, deliver to Holder a new Warrant evidencing
        the rights of Holder to purchase the unpurchased Warrant Shares called
        for by this Warrant, which new Warrant shall in all other respects be
        identical with this Warrant.

                Notwithstanding anything herein to the contrary, in no event
        shall the Holder be permitted to exercise this Warrant for Warrant
        Shares to the extent that (i) the number of shares of Common Stock owned
        by such Holder (other than Warrant Shares issuable upon exercise of this
        Warrant) plus (ii) the number of Warrant Shares issuable upon exercise
        of this Warrant, would be equal to or exceed 4.999% of the number of
        shares of Common Stock then issued and outstanding, including shares
        issuable upon exercise of this Warrant held by such Holder after
        application of this Section 3(c). As used herein, beneficial ownership
        shall be determined in accordance with Section 13(d) of the Exchange
        Act. To the extent that the limitation contained in this Section 3(c)
        applies, the determination of whether this Warrant is exercisable (in
        relation to other securities owned by the Holder) and of which a portion
        of this Warrant is exercisable shall be in the sole discretion of such
        Holder, and the submission of a Notice of Exercise shall be deemed to be
        such Holder's determination of whether this Warrant is exercisable (in
        relation to other securities owned by such Holder) and of which portion
        of this Warrant is exercisable, in each case subject to such aggregate
        percentage limitation, and the Company shall have no obligation to
        verify or confirm the accuracy of such determination. Nothing contained
        herein shall be deemed to restrict the right of a Holder to exercise
        this Warrant into Warrant Shares at such time as such exercise will not
        violate the provisions of this Section 3(c). The provisions of this
        Section 3(c) may be waived by the Holder upon, at the election of the
        Holder, not less than 61 days' prior notice to the Company, and the
        provisions of this Section 3(c) shall continue to apply until such 61st
        day (or such later date, as determined by the Holder, as may be
        specified in such notice of waiver). No exercise of this Warrant in
        violation of this Section 3(c) but otherwise in accordance with this
        Warrant shall affect the status of the Warrant Shares as validly issued,
        fully-paid and nonassessable.

No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall
be made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be



                                       18


directed by the Holder; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

Closing of Books. The Company will not close its stockholder books or records in
any manner which prevents the timely exercise of this Warrant.

Transfer, Division and Combination.

                Subject to compliance with any applicable securities laws,
        transfer of this Warrant and all rights hereunder, in whole or in part,
        shall be registered on the books of the Company to be maintained for
        such purpose, upon surrender of this Warrant at the principal office of
        the Company, together with a written assignment of this Warrant
        substantially in the form attached hereto duly executed by the Holder or
        its agent or attorney and funds sufficient to pay any transfer taxes
        payable upon the making of such transfer. Upon such surrender and, if
        required, such payment, the Company shall execute and deliver a new
        Warrant or Warrants in the name of the assignee or assignees and in the
        denomination or denominations specified in such instrument of
        assignment, and shall issue to the assignor a new Warrant evidencing the
        portion of this Warrant not so assigned, and this Warrant shall promptly
        be cancelled. A Warrant, if properly assigned, may be exercised by a new
        holder for the purchase of Warrant Shares without having a new Warrant
        issued. Notwithstanding the above, the Holder shall not transfer this
        Warrant or any rights hereunder to any person or entity which is then
        engaged in a business that is in the reasonable judgement of the Company
        is in direct competition with the Company.

                This Warrant may be divided or combined with other Warrants upon
        presentation hereof at the aforesaid office of the Company, together
        with a written notice specifying the names and denominations in which
        new Warrants are to be issued, signed by the Holder or its agent or
        attorney. Subject to compliance with Section 7(a), as to any transfer
        which may be involved in such division or combination, the Company shall
        execute and deliver a new Warrant or Warrants in exchange for the
        Warrant or Warrants to be divided or combined in accordance with such
        notice.

                The Company shall prepare, issue and deliver at its own expense
        (other than transfer taxes) the new Warrant or Warrants under this
        Section 7.

                The Company agrees to maintain, at its aforesaid office, books
        for the registration and the registration of transfer of the Warrants.

No Rights as Shareholder until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof pursuant to Section 3(a).



                                       19


Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.

Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall be
a Saturday, Sunday or a legal holiday, then such action may be taken or such
right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.

Adjustments of Exercise Price and Number of Warrant Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time upon the happening of any
of the following. In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which it
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.

Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets. In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving corporation or where there is a change in or distribution
with respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("Other Property"), are to be received by
or distributed to the holders of Common Stock of the Company, then the Holder
shall have the right thereafter to receive upon exercise of this Warrant, the
number of shares of Common Stock of the successor



                                       20


or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

Voluntary Adjustment by the Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.

Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of
securities or other property purchasable upon the exercise of this Warrant or
the Exercise Price is adjusted, as herein provided, the Company shall promptly
mail by registered or certified mail, return receipt requested, to the Holder
notice of such adjustment or adjustments setting forth the number of Warrant
Shares (and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares (and other securities or
property) after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.

Notice of Corporate Action.  If at any time:

                (a) the Company shall take a record of the holders of its Common
        Stock for the purpose of entitling them to receive a dividend or other
        distribution, or any right to subscribe for or purchase any evidences of
        its indebtedness, any shares of stock of any class or any other
        securities or property, or to receive any other right, or

                (b) there shall be any capital reorganization of the Company,
        any reclassification or recapitalization of the capital stock of the
        Company or any consolidation or merger (where the Company is not the
        surviving corporation) of the



                                       21


        Company with, or any sale, transfer or other disposition of all or
        substantially all the property, assets or business of the Company to,
        another corporation or,

                (c) there shall be a voluntary or involuntary dissolution,
        liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

Authorized Shares. The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the Common
Stock may be listed.

        The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such



                                       22


authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

        Before taking any action which would result in an adjustment in the
number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

Miscellaneous.

                Jurisdiction. This Warrant shall constitute a contract under the
        laws of New York, without regard to its conflict of law, principles or
        rules.

                Restrictions. The Holder acknowledges that the Warrant Shares
        acquired upon the exercise of this Warrant, if not registered, will have
        restrictions upon resale imposed by state and federal securities laws.

                Nonwaiver and Expenses. No course of dealing or any delay or
        failure to exercise any right hereunder on the part of Holder shall
        operate as a waiver of such right or otherwise prejudice Holder's
        rights, powers or remedies, notwithstanding all rights hereunder
        terminate on the Termination Date. If the Company willfully and
        knowingly fails to comply with any provision of this Warrant, which
        results in any material damages to the Holder, the Company shall pay to
        Holder such amounts as shall be sufficient to cover any costs and
        expenses including, but not limited to, reasonable attorneys' fees,
        including those of appellate proceedings, incurred by Holder in
        collecting any amounts due pursuant hereto or in otherwise enforcing any
        of its rights, powers or remedies hereunder.

                Notices. Any notice, request or other document required or
        permitted to be given or delivered to the Holder by the Company shall be
        delivered in accordance with the notice provisions of the Purchase
        Agreement.

                Limitation of Liability. No provision hereof, in the absence of
        affirmative action by Holder to purchase Warrant Shares, and no
        enumeration herein of the rights or privileges of Holder, shall give
        rise to any liability of Holder for the purchase price of any Common
        Stock or as a stockholder of the Company, whether such liability is
        asserted by the Company or by creditors of the Company.

                Remedies. Holder, in addition to being entitled to exercise all
        rights granted by law, including recovery of damages, will be entitled
        to specific performance of its rights under this Warrant. The Company
        agrees that monetary damages would not be adequate compensation for any
        loss incurred by reason of a breach by it of the provisions of this
        Warrant and hereby agrees to waive the defense in any action for
        specific performance that a remedy at law would be adequate.

                Successors and Assigns. Subject to applicable securities laws,
        this Warrant and the rights and obligations evidenced hereby shall inure
        to the benefit of and



                                       23


        be binding upon the successors of the Company and the successors and
        permitted assigns of Holder. The provisions of this Warrant are intended
        to be for the benefit of all Holders from time to time of this Warrant
        and shall be enforceable by any such Holder or holder of Warrant Shares.

                Amendment. This Warrant may be modified or amended or the
        provisions hereof waived with the written consent of the Company and the
        Holder.

                Severability. Wherever possible, each provision of this Warrant
        shall be interpreted in such manner as to be effective and valid under
        applicable law, but if any provision of this Warrant shall be prohibited
        by or invalid under applicable law, such provision shall be ineffective
        to the extent of such prohibition or invalidity, without invalidating
        the remainder of such provisions or the remaining provisions of this
        Warrant.

                Headings. The headings used in this Warrant are for the
        convenience of reference only and shall not, for any purpose, be deemed
        a part of this Warrant.


        IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.


Dated: September __, 2002
                                    CRAY INC.



                                    By:
                                       -----------------------------------------
                                       James E. Rottsolk, President



                                       24


                               NOTICE OF EXERCISE

To:     Cray Inc.


        (1) The undersigned hereby elects to purchase ________ Warrant Shares
(the "Common Stock"), of Cray Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.

        (2) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:


                     --------------------------------------


The Warrant Shares shall be delivered to the following:



                     --------------------------------------

                     --------------------------------------

                     --------------------------------------




                                    [PURCHASER]



                                    By:
                                       -----------------------------------------
                                       Name:
                                       Title:


                                    Dated:
                                          ---------------------------



                                     Page 25


                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)



        FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to



                                               whose address is
- -----------------------------------------------


- ---------------------------------------------------------------.




- ---------------------------------------------------------------

                                                 Dated:
                                                        --------------, --------


                         Holder's Signature:
                                            ------------------------------------

                         Holder's Address:
                                            ------------------------------------


                                            ------------------------------------



Signature Guaranteed:
                      -----------------------------------------




NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.



                                    Page 26

EX-5.1

                                                                     Exhibit 5.1


                                                        September 3, 2002



The Board of Directors of Cray Inc.

Dear Sirs:

I refer to my opinion dated May 24, 2002, and included as Exhibit 5 to the
Registration Statement on Form S-3 (Commission File No. 333-89134) (the
"Registration Statement") filed on May 24, 2002 by Cray Inc. (the "Company"), a
Washington corporation, with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). I am rendering this supplemental opinion in connection with the
prospectus supplement (the "Prospectus Supplement") to the base prospectus (the
"Base Prospectus") filed on or about September 3, 2002, by the Company with the
Commission pursuant to Rule 424 under the Securities Act. The Prospectus
Supplement relates to the sale by the Company of 2,941,176 shares (the "Shares")
of the Company's Common Stock, $0.01 par value per share (the "Common Stock"),
warrants to purchase 294,117 shares of Common Stock (the "Warrants"), and
294,117 shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares"), all of which are covered by the Registration Statement. The
Shares and the Warrants were offered and sold in the manner described in the
Prospectus Supplement and the Base Prospectus.

I have acted as your counsel in connection with the preparation of the
Registration Statement, the Prospectus Supplement and the Base Prospectus. I am
familiar with the proceedings of the Board of Directors of the Company in
connection with the authorization, issuance and sale of the Shares. I have
examined such other documents as I consider necessary to render this opinion.

Based upon the foregoing, I am of the opinion that:

        1.      The Shares have been duly authorized and are validly issued,
             fully paid and nonassessable.

        2.      The Warrants have been duly authorized and are legal, valid and
             binding obligations of the Company (subject to applicable
             bankruptcy, insolvency, reorganization, fraudulent conveyance,
             moratorium or other similar laws affecting creditors' rights
             generally from to time in effect and subject to general
             principles of equity, regardless of whether such is considered
             in a proceeding in equity or at law).


        3.      The Warrant Shares have been duly authorized and, when issued
             and delivered upon exercise of the Warrants in exchange for
             payment therefor in



                                    Page 27


             accordance with the terms thereof, will be validly issued, fully
             paid and nonassessable.

I hereby consent to the filing of this opinion as a part of the Registration
Statement and to the reference to me under the caption "Legal Matters" in the
Base Prospectus.

                                         Very truly yours,

                                         /s/   Kenneth W. Johnson

                                         Kenneth W. Johnson, Esquire
                                         General Counsel



                                    Page 28

EX-10.1

                                                                    Exhibit 10.1



                             SUBSCRIPTION AGREEMENT



        This subscription agreement (this "Agreement") is dated as of August 30,
2002 between the buyers signatory hereto (each a "Buyer" and collectively the
"Buyers") and Cray Inc., a Washington corporation (the "Seller"), whereby the
parties agree as follows:

1. Subscription.


        a)      Each Buyer, severally and not jointly, agrees to buy, and the
                Seller agrees to sell and issue to each Buyer, the number of
                shares of the Seller's common stock set forth on the signature
                page hereof opposite the name of each Buyer (collectively, the
                "Shares"), on the date hereof, at a price equal to $3.40 per
                share, or a total purchase price for each Buyer as set forth on
                the signature page hereof opposite the name of such Buyer (the
                "Purchase Price") along with warrants in the form of Exhibit B
                attached hereto, to purchase up to, in the aggregate, 294,117
                shares of the sellers common stock (the "Warrants"), which
                Warrants shall be exercisable for a period of 4 years and have
                an exercise price equal to $4.50, subject to adjustment therein.
                The Warrants shall be issued to the investors pro-rata in
                proportion to their purchases hereunder.


        b)      The Shares and Warrants have been registered on a Form S-3
                registration statement, SEC File No. 333-89134, which
                registration statement (the "Registration Statement") has been
                declared effective by the Securities and Exchange Commission
                (the "SEC"), has remained effective since such date and is
                effective on the date hereof.


        c)      On the date hereof, the Seller shall deliver to each Buyer the
                Shares purchased by such Buyer via the Depository Trust
                Company's ("DTC") Deposit Withdrawal Agent Commission ("DWAC")
                system via the DTC instructions for such Buyer set forth on the
                signature page hereof and shall deliver the respective Warrants
                to the Buyers at the address set forth on the signature page
                hereto. The total Purchase Price payable by each Buyer as set
                forth on the signature page hereof shall be paid by wire
                transfer to the Seller on the date hereof pursuant to wire
                instructions that have been provided to each Buyer. The Shares
                must be unlegended and free of any resale restrictions. All
                parties hereby agree and acknowledge that delivery of the Shares
                via DTC's DWAC system is a material obligation of the Seller and
                furthermore, with respect to the obligations of each party
                hereunder, time is of the essence.



                                    Page 29


        d)      Pursuant to SEC Rule 424(b)(2), the Seller agrees to file with
                the SEC a prospectus supplement in the form of Exhibit A hereto
                regarding the sale of the Shares and the Warrants to the Buyers.


2. Seller Representations and Warranties. The Seller represents and warrants to
each Buyer that: (a) it has full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder; (b) this Agreement
has been duly authorized and executed by the Seller and constitutes a valid and
binding agreement of the Seller enforceable against the Seller in accordance
with its terms, subject to general principles of equity and subject to
bankruptcy, insolvency, fraudulent transfer, moratorium and other similar laws
affecting the enforcement of creditors' right generally; (c) the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby do not result in a breach of (i) the Seller's articles of incorporation
or by-laws, or (ii) any agreement to which the Seller is a party or by which any
of its property or assets is bound; (d) upon issuance of the Shares and Warrants
to the Buyers for the total Purchase Price payable hereunder, the Shares and
Warrants will be duly and validly issued and outstanding and fully paid and
non-assessable, and, with respect to the Shares and the shares underlying the
Warrants upon exercise, each Buyer will be entitled to all rights accorded to a
holder of common stock of the Seller; and (e) the Registration Statement and the
final prospectus included therein do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading in light of
the circumstances under which they were made.


3. Buyer Representations and Warranties. Each Buyer, severally and not jointly,
represents and warrants to the Seller that: (a) it has full right, power and
authority to enter into this Agreement and to perform all of its obligations
hereunder; (b) this Agreement has been duly authorized and executed by such
Buyer and constitutes a valid and binding agreement of such Buyer enforceable
against such Buyer in accordance with its terms, subject to general principles
of equity and subject to bankruptcy, insolvency, fraudulent transfer, moratorium
and other similar laws affecting the enforcement of creditors' right generally;
(c) the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby do not result in a breach of any agreement to
which such Buyer is a party or by which any of its property or assets is bound;
(d) such Buyer is, and since November 16, 2001 has been, a holder of securities
of the Seller, or such Buyer is an affiliate (as defined in SEC Rule 405 under
the Securities Act of 1933, as amended) of a person or entity that is, and since
November 16, 2001 has been, a holder of securities of the Seller; and (e) any
sale of the Shares by such Buyer will be in compliance with all applicable state
and federal securities laws.


4. Condition of the Seller. It shall be a condition of the obligations of the
Seller hereunder that the Seller receive not less than $10,000,000 in aggregate
gross proceeds from the sale of the Shares and Warrants to the Buyers pursuant
to this Agreement.



                                    Page 30


5. Notice. All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and shall be mailed, hand delivered, sent
by a recognized overnight courier service such as Federal Express, or sent via
facsimile and confirmed by letter, to the party to whom it is addressed at the
following addresses or such other address as such party may advise the other in
writing:


        To the Seller:        Cray Inc.
                              411 First Avenue South, Suite 600
                              Seattle, WA 98104
                              Tel.:  (206) 701-2000
                              Fax:   (206) 701-2218
                              Attn:  General Counsel

        To any Buyer:         as set forth on the signature page hereto.


        All notices hereunder shall be effective upon receipt by the party to
which it is addressed.

6. Jurisdiction. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdiction. To the extent determined by such court, the prevailing party shall
reimburse the other party for any reasonable legal fees and disbursements
incurred in enforcement of, or protection of any of its rights under this
Agreement.


7. Miscellaneous.


        a)      This Agreement constitutes the entire understanding and
                agreement between the parties with respect to its subject
                matter, and there are no agreements or understandings with
                respect to the subject matter hereof which are not contained in
                this Agreement. This Agreement may be modified only in writing
                signed by the party to be charged hereunder.


        b)      This Agreement may be executed in any number of counterparts,
                all of which taken together shall constitute one and the same
                instrument and shall become effective when counterparts have
                been signed by each party and delivered to the other parties
                hereto, it being understood that all parties need not sign the
                same counterpart. Execution may be made by delivery by
                facsimile.



                                    Page 31


        c)      The provisions of this Agreement are severable and, in the event
                that any court or officials of any regulatory agency of
                competent jurisdiction shall determine that any one or more of
                the provisions or part of the provisions contained in this
                Agreement shall, for any reason, be held to be invalid, illegal
                or unenforceable in any respect, such invalidity, illegality or
                unenforceability shall not affect any other provision or part of
                a provision of this Agreement and this Agreement shall be
                reformed and construed as if such invalid or illegal or
                unenforceable provision, or part of such provision, had never
                been contained herein, so that such provisions would be valid,
                legal and enforceable to the maximum extent possible, so long as
                such construction does not materially adversely effect the
                economic rights of any party hereto.


               [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]



                                    Page 32


             [Signature Pages to Subscription Agreement (pages 5-7)]

                                     SELLER:

                                     CRAY INC.


                                     By:   /s/  James E. Rottsolk
                                        ----------------------------------------
                                           James E. Rottsolk, President


BUYERS:


RIVERVIEW GROUP, LLC                          Number of Common Shares:
                                              1,772,533
                                              Total Purchase Price:  $6,026,613
By  /s/  Terry Feeney                         Warrant Shares:  177,253
  --------------------------------------
    Name:  Terry Feeney                       DTC Instructions:
    Title: Chief Administrative Officer       Solomon Smith Barney
                                              Acct Name: Riverview Group, LLC
                                              Broker DTC #: 418
                                              DTC Acct #: 52239606

                                              Address for Notice:
                                              666 5th Avenue, 8th Floor
                                              New York, New York 10103
                                              Attn: Daniel Cardella



OMICRON PARTNERS, LP                          Number of Common Shares: 632,511
By:  Omicron Capital L.P., as subadvisor      Total Purchase Price:  $2,150,538
By:  Omicron Capital Inc., general partner    Warrant Shares:  63,251

By  /s/  Bruce Bernstein                      DTC Instructions:
  --------------------------------------
    Bruce Bernstein, President

                                              Address for Notice:
                                              153 East 53rd Street, 48th Floor
                                              New York, NY 10022



                                    Page 33


LATERMAN & CO.                                Number of Common Shares: 62,500
                                              Total Purchase Price:  $212,500
                                              Warrant Shares: 6,250
By  /s/  Bernard Laterman
  --------------------------------------      DTC Instructions:
    Bernard Laterman, Managing Partner        DTC Broker #: 551 (Merrill Lynch)
                                              Account #: 082-43003-DO
                                              Acct Name: Laterman & Co.

                                              Address for Notice:
                                              5 East 59th Street
                                              New York, New York 10022



FOREVERGREEN PARTNERS                         Number of Common Shares: 62,500
                                              Total Purchase Price:  $212,500
                                              Warrant Shares:  6,250
By   /s/  Bernard Laterman
  --------------------------------------
    Bernard Laterman, Managing Partner        DTC Instructions:
                                              DTC Broker #: 551 (Merrill Lynch)
                                              Acct #: 187-23077-D2
                                              Acct Name: Forevergreen Partners

                                              Address for Notice:
                                              5 East 59th Street
                                              New York, New York 10022



CLARION CAPITAL CORPORATION                   Number of Common Shares: 101,132
                                              Total Purchase Price:  $343,848.80
                                              Warrant Shares: 10,113
By  /s/ Morton A. Cohen
  --------------------------------------      DTC Instructions:
    Morton A. Cohen, President                DTC Broker #: 773
                                              DTC A/C: 11811651

                                              Address for Notice:
                                              1801 East Ninth Street, Suite 1120
                                              Cleveland, Ohio  44144



                                    Page 34


CLARION PARTNERS, L.P.                        Number of Common Shares: 105,000
                                              Total Purchase Price: $357,000
                                              Warrant Shares:10,500
By  /s/  Morton A. Cohen
  --------------------------------------      DTC Instructions:
    Name:  Morton A. Cohen                    DTC Broker #: 773
    Title: Manager                            DTC A/C: 11810005

                                              Address for Notice:
                                              Same as above



CLARION OFFSHORE FUND, LTD.                   Number of Common Shares: 105,000
                                              Total Purchase Price: $357,000
                                              Warrant Shares:10,500
By  /s/  Morton A. Cohen
  --------------------------------------      DTC Instructions:
    Name:  Morton A. Cohen                    DTC Broker #: 773
    Title: President                          DTC A/C: 31311266

                                              Address for Notice:
                                              Same as above



DYNAMIC EQUITY HEDGE FUND                     Number of Common Shares: 50,000
                                              Total Purchase Price: $170,000
                                              Warrant Shares:5,000
By   /s/  Morton A. Cohen
  --------------------------------------      DTC Instructions:
    Name:  Morton A. Cohen                    DTC Broker #: 773
    Title: Manager                            DTC A/C: 313315691

                                              Address for Notice:
                                              Same as above



GUARANTEE & TRUST CO TEE MORTON
A. COHEN GTC IRA SEP                          Number of Common Shares: 50,000
                                              Total Purchase Price: $170,000
                                              Warrant Shares:5,000
By  /s/ Morton A. Cohen
  --------------------------------------      DTC Instructions:
    Name:  Morton A. Cohen                    DTC Broker #: 773
    Title: Trustee                            DTC A/C: 1126083

                                              Address for Notice: same as above



                                    Page 35


                                    Exhibit A


                              Prospectus Supplement





                                    Page 36