Document:

EX-10.1:

 

Exhibit 10.1

SECOND AMENDMENT TO

AMENDED AND RESTATED LETTER OF CREDIT

REIMBURSEMENT AND PLEDGE AGREEMENT

Dated as of May 26, 2005

among

MONTPELIER REINSURANCE LTD.,

MONTPELIER RE HOLDINGS LTD.

THE LENDERS PARTY HERETO

and

BANK OF AMERICA, N.A.,

as Administrative Agent for itself and the

other lending institutions party hereto

Banc of America Securities LLC

as Sole Lead Arranger and Book Manager

 

 

SECOND AMENDMENT TO AMENDED AND RESTATED 

LETTER OF CREDIT REIMBURSEMENT AND PLEDGE AGREEMENT

     THIS SECOND AMENDMENT TO AMENDED AND RESTATED LETTER OF CREDIT REIMBURSEMENT AND PLEDGE
AGREEMENT, dated as of May 26, 2005 (this “Amendment”), amends the Amended and Restated
Letter of Credit Reimbursement and Pledge Agreement, dated as of May 27, 2004 (as amended to date,
the “Credit Agreement”), among MONTPELIER REINSURANCE LTD., MONTPELIER RE HOLDINGS LTD.,
the various financial institutions parties thereto (collectively, the “Lenders”) and BANK
OF AMERICA, N.A., as administrative agent (the “Administrative Agent”) for the Lenders.
Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise
requires, used herein as defined therein.

     WHEREAS, the parties hereto have entered into the Credit Agreement, which provides for the
Lenders to extend certain credit facilities to the Borrowers from time to time; and

     WHEREAS, the parties hereto desire to amend the Credit Agreement to extend the Tranche A
Commitment Date thereunder;

     NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as
follows:

     SECTION 1. AMENDMENT. Effective as of May 26, 2005, clause (a) of the definition of “Tranche
A Commitment Termination Date” is amended in its entirety to read as follows: “(a) May 25, 2006
and”.

     SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective when each of the
conditions precedent set forth in this Section 2 shall have been satisfied, and notice
thereof shall have been given by the Administrative Agent to the Borrowers and the Lenders.

     2.1 Receipt of Documents. The Administrative Agent shall have received this
Amendment, duly executed by the Borrowers, the Administrative Agent and the Tranche A Lenders
increasing their Commitments.

     2.2 Compliance with Warranties, No Default, etc. Both before and after giving effect
to the effectiveness of this Amendment, the following statements by the Borrowers shall be true and
correct (and each Borrower, by its execution of this Amendment, hereby represents and warrants to
the Administrative Agent and each Lender that such statements are true and correct as at such
times):

     (a) the representations and warranties set forth in Article 5 of the Credit Agreement
shall be true and correct with the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations and warranties shall be true
and correct as of such earlier date); and

 

 

     (b) no Event of Default or Default shall have then occurred and be continuing.

     SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce the Lenders and the Administrative Agent
to enter into this Amendment, each Borrower hereby represents and warrants to the Administrative
Agent and each Lender as follows:

     3.1 Due Authorization, Non-Contravention, etc. The execution, delivery and
performance by such Borrower of this Amendment are within such Borrower’s corporate powers, have
been duly authorized by all necessary corporate action, and do not

     (a) contravene such Borrower’s Governing Documents;

     (b) contravene any contractual restriction, law or governmental regulation or court
decree or order binding on or affecting such Borrower; or

     (c) result in, or require the creation or imposition of, any Lien on any of such
Borrower’s properties.

     3.2 Government Approval, Regulation, etc. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or regulatory body or other
Person is required for the due execution, delivery or performance by such Borrower of this
Amendment.

     3.3 Validity, etc. This Amendment constitutes the legal, valid and binding obligation
of such Borrower enforceable in accordance with its terms.

     SECTION 4. MISCELLANEOUS.

     4.1 Continuing Effectiveness, etc. This Amendment shall be deemed to be an amendment
to the Credit Agreement, and the Credit Agreement, as amended hereby, shall remain in full force
and effect and is hereby ratified, approved and confirmed in each and every respect. After the
effectiveness of this Amendment in accordance with its terms, all references to the Credit
Agreement in the Loan Documents or in any other document, instrument, agreement or writing shall be
deemed to refer to the Credit Agreement as amended hereby.

     4.2 Payment of Costs and Expenses. The Borrowers, jointly and severally, agree to pay
on demand all expenses of the Administrative Agent (including the fees and out-of-pocket expenses
of counsel to the Administrative Agent) in connection with the negotiation, preparation, execution
and delivery of this Amendment.

     4.3 Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions
of this Amendment or affecting the validity or enforceability of such provision in any other
jurisdiction.

2

 

     4.4 Headings. The various headings of this Amendment are inserted for convenience
only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof.

     4.5 Execution in Counterparts. This Amendment may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement.

     4.6 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.

     4.7 Successors and Assigns. This Amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.

3

 

     IN WITNESS WHEREOF, the undersigned have duly executed this Second Amendment to Amended and
Restated Letter Of Credit Reimbursement and Pledge Agreement as of the date first set forth above.

	 	 	 	 	 
	 	MONTPELIER REINSURANCE LTD.

 	 
	 	By:  	/s/ NEIL MCCONACHIE
 	 
	 	Name:  	Neil McConachie 	 
	 	Title:  	Treasurer and Chief Accounting Officer 	 
	 

	 	 	 	 	 
	 	MONTPELIER RE HOLDINGS LTD.

 	 
	 	By:  	/s/ NEIL MCCONACHIE
 	 
	 	Name:  	Neil McConachie 	 
	 	Title:  	Treasurer and Chief Accounting Officer 	 
	 

S-1

 

	 	 	 	 	 
	 	BANK OF AMERICA, N.A., individually as a Tranche A
Lender and as Administrative Agent and as Issuing
Bank

 	 
	 	By:  	/s/ TIMOTHY CASSIDY
 	 
	 	Name:  	Timothy Cassidy 	 
	 	Title:  	Vice President 	 
	 

S-2

 

	 	 	 	 	 
	 	FLEET NATIONAL BANK, as Issuing Bank

 	 
	 	By:  	/s/ TIMOTHY CASSIDY
 	 
	 	Name:  	Timothy Cassidy 	 
	 	Title:  	Vice President 	 
	 

S-3

 

	 	 	 	 	 
	 	JP MORGAN CHASE BANK, N.A. (f/k/a) BANK ONE, NA, as
Tranche A Lender
 	 
	 
	 	By:  	/s/ HELEN L. NEWCOMB
 	 
	 	Name:  	Helen L. Newcomb 	 
	 	Title:  	Vice President 	 
	 

S-4

 

	 	 	 	 	 
	 	BARCLAYS BANK PLC, as Tranche A Lender

 	 
	 	By:  	/s/ RICHARD ASKEY
 	 
	 	Name:  	Richard Askey 	 
	 	Title:  	Director - Insurance 	 
	 

S-5

 

	 	 	 	 	 
	 	CREDIT SUISSE FIRST BOSTON, ACTING THROUGH ITS CAYMAN
ISLANDS BRANCH, as Tranche A Lender

 	 
	 	By:  	/s/ JAY CHALL
 	 
	 	Name:  	Jay Chall 	 
	 	Title:  	Director 	 

	 	 	 	 	 
	 	 	 
	 	By:  	                                              /s/ MIKHAIL FAYBUSOVICH
 	 
	 	Name:  	Mikhail Faybusovich 	 
	 	Title:  	Associate 	 

S-6

 

	 	 	 	 	 
	 	HSBC BANK USA, NATIONAL ASSOCIATION, as Tranche A
Lender

 	 
	 	By:  	/s/ LAWRENCE M. KARP
 	 
	 	Name:  	Lawrence M. Karp 	 
	 	Title:  	Senior Vice President 	 

S-7

 

	 	 	 	 	 
	 	ING BANK N.V., LONDON BRANCH, as Tranche A Lender

 	 
	 	By:  	/s/ M.E.R. SHARMAN
 	 
	 	Name:  	M.E.R. Sharman 	 
	 	Title:  	Managing Director 	 

	 	 	 	 	 
	 	 	 
	 	By:  	                                              /s/ N.J. MARCHANT
 	 
	 	Name:  	N.J. Marchant 	 
	 	Title:  	Director 	 

S-8

 

	 	 	 	 	 
	 	ROYAL BANK OF SCOTLAND PLC, as Tranche A Lender

 	 
	 	By:  	/s/ RICHARD KERTON
 	 
	 	Name:  	Richard Kerton 	 
	 	Title:  	Relationship Director 	 
	 

S-9<PAGE>

                                                                     Exhibit 4.1

        THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
      THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR
             INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
        TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED
         UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
                             PROMULGATED THEREUNDER.

                                    CRAY INC.

Warrant                                                Right to Purchase 200,000
Certificate No. F-2005             May   , 2005        Shares of Common Stock
                                                       of Cray Inc.

                               WARRANT TO PURCHASE
                             SHARES OF COMMON STOCK

      CRAY INC., a Washington corporation (the "Company"), hereby certifies
that, for value received, WELLS FARGO FOOTHILL, INC., a California corporation,
or registered assigns (the "Holder"), is entitled to purchase, subject to the
terms and conditions set forth herein, Two Hundred Thousand (200,000) fully paid
and non-assessable shares of Common Stock of the Company, at an initial purchase
price per share determined in accordance with the provisions set forth in
Section 1 below (the "Purchase Price"), at any time or from time to time after
June , 2005 [the "Issuance "Date" as defined in Section 1] and on or prior to
5:00 P.M. Pacific Standard Time on June , 2009 (the "Expiration Date"). The
Purchase Price and the number and kind of securities of the Company purchasable
upon the exercise of this Warrant are subject to modification and adjustment as
provided herein. The Purchase Price shall be payable in cash or by check in
lawful funds of the United States of America. Upon presentation and surrender of
this Warrant Certificate, together with payment of the Purchase Price of the
shares of Common Stock thereby purchased and the Form of Notice of Exercise duly
executed, at the principal office of the Company, the Holder shall be entitled
to receive a certificate or certificates for the shares of Common Stock so
purchased (the "Shares").

      1. Purchase Price. The Purchase Price of the shares of Common Stock
issuable upon the exercise of the Warrants shall the per share closing price as
quoted on the Nasdaq National Market System for the Company's Common Stock on
the Issuance Date. For purposes of this Warrant, the "Issuance Date" shall be
the second business day after the Company has issued publicly by press release
all material inside information so that officers and directors of the Company
would not be restricted from trading in shares of the Company's Common Stock.

                                       1

<PAGE>

      2. Registration and Transfer.

            2.1 General. The Company shall maintain books for the registration
and transfer of Warrant Certificates. Prior to due presentment for registration
of transfer of this Warrant Certificate, the Company may deem and treat the
registered Holder as the absolute owner thereof.

            2.2 Compliance with Securities Laws. Notwithstanding the foregoing,
the Warrant may not be assigned or transferred unless a Registration Statement
is in effect covering these Warrants and the shares of Common Stock issuable
hereunder pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or an opinion of counsel reasonably satisfactory to the Company to the
effect that such registration is not required has been received by the Company
prior to such transfer; provided, however, that such opinion of counsel shall
not be required for a transfer to an Affiliate (as hereinafter defined) in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act. For purposes of this Section 2(a), an "Affiliate" of any
person is any other person which controls, is controlled by or is under common
control with such person.

            2.3 Registration. Subject to the foregoing, the Company shall
register upon its books any transfer of a Warrant Certificate upon surrender of
the same to the Company accompanied (if so required by the Company) by a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney-in-fact. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrant Certificate shall be cancelled by the Company.

      3. Loss or Mutilation. Upon receipt by the Company of reasonable evidence
of the ownership of and the loss, theft, destruction or mutilation of any
Warrant Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants.

      4. Adjustments.

            4.1 Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Purchase Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.

            4.2 Common Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to Common
Stock payable in, or make any other distribution with respect to the, shares of
Common Stock, then the Purchase Price shall be adjusted, from and after the date
of determination of the shareholders

                                       2

<PAGE>

entitled to receive any dividend or distribution, to that price determined by
multiplying the Purchase Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution.

            4.3 Other Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend or make any other distribution
with respect to Common Stock payable in stock (other than Common Stock) or other
securities or property, the Holder hereof shall be entitled to receive, upon
exercise of the Warrants, in addition to the shares of Common Stock otherwise
receivable upon exercise hereof, the same number and kind of stock other
securities and property which the Holder would have received had the holder then
held the shares of Common Stock receivable on exercise hereof on and before the
record date for such dividend or distribution.

            4.4 Reclassifications and Recapitalizations. In the event of any
reclassification or recapitalization of the Common Stock, the Purchase Price
shall be appropriately adjusted in good faith by the Board of Directors of the
Company to reflect such reclassification or recapitalization and to protect the
rights of Holders of the Warrants to receive upon the exercise thereof the same
amount of securities or property that they would have received had they
exercised their Warrants immediately prior to the date for determination of
holders of Common Stock entitled to receive securities or property as a result
of such reclassification or recapitalization, and their rights to appropriate
adjustments upon any further stock dividend, stock split, reclassification or
recapitalization.

            4.5 Adjustment of Number of Shares. Upon each adjustment in the
Purchase Price pursuant to Section 4.1 or Section 4.2 above, the Holder shall
thereafter, on the exercise of this Warrant, be entitled to receive that number
of shares of Common Stock which would be issuable on such exercise as of
immediately prior to such adjustment multiplied by a fraction of (i) the
numerator of which shall be the Purchase Price immediately prior to such
adjustment, and (ii) the denominator of which shall be the Purchase Price
immediately after such adjustment.

            4.6 Capital Reorganization, Merger or Sale of Assets. If at any time
or from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties and assets to any other person, after receiving
a thirty (30) day prior written notice from the Company of such an event, the
Holder of this Warrant Certificate shall thereafter be entitled to purchase (and
it shall be a condition to the consummation of any such reorganization, merger,
consolidation or sale, that appropriate provision be made so that the holders of
the Warrants shall thereafter be entitled to purchase), upon exercise of the
Warrants, the kind and amount of shares of stock or other securities or property
of the Company, or of the successor corporation resulting from such merger,
consolidation or sale, to which a holder of Common Stock issuable upon exercise
would have been entitled on such capital reorganization, merger, consolidation,
or sale. In any such case,

                                       3

<PAGE>

appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Warrants after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 4 (including adjustment of the Purchase Price then in effect and
the number of shares purchasable upon exercise of the Warrants) shall be
applicable after that event in as nearly equivalent a manner as may be
practicable.

            4.7 Certificate as to Adjustment. Upon the occurrence of each
adjustment or readjustment of the Purchase Price pursuant to this Section 4, the
Company, at its expense, shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and cause its chief financial officer to
verify such computation and prepare and furnish to each Holder of the Warrants a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any Holder of the Warrants,
furnish or cause to be furnished to such Holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Purchase Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other securities and/or property which at the time would be receivable upon the
exercise of a Warrant. Such certificate shall set forth in reasonable detail
such facts as may be necessary to show the reason for and manner of computing
such adjustment. If demanded by the Holders of more than 10% of the total
outstanding Warrants, the Company shall provide the Holders of the Warrants a
verification or confirmation of the calculation of such adjustment signed by an
independent certificate public accountant, which may be the firm of independent
certified public accountants servicing the Company.

            4.8 No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
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 to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the Holders
against impairment.

            4.9 Notices of Record Date. In the event of any taking by the
Company of a record of the Holders of any class of securities for the purpose of
determining the Holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any rights to subscribe for,
purchase or otherwise acquire any shares of stock of any class or for any
securities or property, or to receive any other right, this Company shall mail
to each Holder, at least thirty (30) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.

            4.10 No Fractional Shares. No fractional shares shall be issued upon
exercise of the Warrants, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share. Such rounding shall be determined
on the basis of the total number of Warrants the Holder is at the time
exercising and the number of shares of Common Stock issuable upon such aggregate
exercise.

                                       4

<PAGE>

      5. Registration Rights. For purposes of this Section 5, the shares of
Common Stock issuable upon exercise of these Warrants are referred to herein as
the "Warrant Shares."

            5.1 Piggyback Registration. If the Company proposes to register its
common stock, or other type of the security purchasable upon exercise hereof,
under the Act, other than a registration statement covering an employee benefit
plan or a merger or acquisition or pursuant to registration rights in effect on
the date hereof, it will give written notice, at least twenty (20) days prior to
the filing of each such registration statement, to the Holder and the holders of
any Warrant Shares. If the Holder and/or any holder of Warrant Shares notifies
the Company within ten (10) days after receipt of any such notice of its desire
to include the Warrant Shares in such proposed registration statement, the
Company shall afford the Holder and/or the holders of Warrant Shares the
opportunity to have the Warrant Shares registered under such registration
statement; provided, however, if the offering is underwritten, the underwriter
shall have the right to limit the number of Warrant Shares to be included in the
registration statement, but only pro rata to the extent that the registration of
all other shares is reduced by the underwriter.

            Notwithstanding the provisions of this Section 5.1, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 5.1 (irrespective of whether a written request for
inclusion of Warrant Shares shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.

            5.2 Demand Registration. Twelve months after the Issuance Date the
Holder shall have a right to request that the Company effect any registration
with respect to the resale by the Holders of its Warrant Shares. The Company
shall as soon as practicable, effect such registration (including, without
limitation, appropriate qualification under applicable state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act, and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution by the
Holders of all or such portion of such Warrant Shares as are specified in such
request.

            5.3 Covenants of the Company with respect to Registration. In
connection with any registration under Sections 5.1 and 5.2 hereof, the Company
covenants and agrees as follows:

                  (a) The Company shall use its best efforts to have any
registration statement declared effective at the earliest possible time, and
shall furnish such number of prospectuses as shall reasonably be requested.

                  (b) The Company shall pay all costs, fees and expenses in
connection with all registration statements including, without limitation, the
Company's legal and accounting fees, printing expenses, blue sky fees and
expenses, except that the Company shall not pay for any of the following costs,
fees or expenses: (i) underwriting discounts and commissions allocable to the
Warrant Shares, (ii) state transfer taxes, and (iii) brokerage commissions.

                                       5

<PAGE>

                  (c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of the Warrant Shares,
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.

                  (d) The Company shall keep such registration effective for a
period of 120 days or until the holders of Warrant Shares have completed the
distribution described in the registration statement relating thereto, whichever
first occurs.

                  (e) In the event of any underwritten public offering, the
Company shall perform its obligations under the underwriting agreement.

                  (f) The Company shall notify each holder of Warrant Shares
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.

                  (g) In connection with any sale of securities involving an
underwriter, the Company shall furnish, at the request of any holder of Warrant
Shares on the date that such Warrant Shares are delivered to the underwriters
for sale in connection with a registration, (i) an opinion dated such date, of
the counsel representing the Company for the purposes of such registration,
addressed to the underwriters and, if such counsel is also representing the
holders requesting registration of Warrant Shares, to such holders, and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, addressed to the underwriters and such holders. The Holder shall not
negotiate the foregoing opinion or letter, but shall accept the opinion and
letter in the form acceptable to the Company.

            5.4 Indemnification.

                  (a) The Company shall indemnify the holders of Warrant Shares
to be sold pursuant to any registration statement and each person, if any, who
controls such holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all attorneys'
fees and expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration or based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of the Act or any rule or regulation promulgated under the Act
applicable to the Company in

                                       6

<PAGE>

connection with any such registration.

                  (b) Each holder of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all attorneys' fees and expenses reasonably incurred in investigating, preparing
or defending against any claim whatsoever) to which they may become subject
under the Act, the Exchange Act or otherwise, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case only to the extent that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such holder of Warrant Shares and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each holder of Warrant Shares under this subsection (b) shall be
limited in an amount equal to the proceeds received by the Holder from the sale
of the shares sold by such Holder, unless such liability arises out of or is
based on willful misconduct by such Holder.

                  (c) Each party entitled to indemnification under this Section
5.3 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5.3 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which the Indemnified Party shall reasonably conclude that
there is a conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.

      6. Exercise of Warrants. The purchase rights represented by this Warrant
are exercisable by the Holder, in whole or in part, at any time and from time to
time on or after the Issuance Date (as defined in Section 1) and on or prior to
the Expiration Date. The Warrants may be exercised by surrender of this Warrant
Certificate, with the Notice of Exercise attached hereto duly executed, to the
principal executive office of the Company, which presently is

                                       7

<PAGE>

located at 411 First Avenue South, Suite 600, Seattle, WA 98104-2860 (Attention:
General Counsel) (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder hereof at the address of
such Holder appearing on the books of the Company), and shall be accompanied by
payment in cash, check or bank draft, payable to the Company, in an amount equal
to the full Purchase Price of such shares. The Company shall deliver a
certificate or certificates representing the shares subject to such exercise as
soon as practicable, and in any event within ten (10) days, after the notice
shall be received. The certificate or certificates for the shares as to which
the Warrants shall have been so exercised shall be registered in the name of the
person or persons so exercising the Warrants and shall be delivered, as provided
above, to or upon the written order of the person or persons exercising the
Warrants. In the event the Warrants shall be exercised by any person or persons
other than the Holder in accordance with the terms hereof, such notice shall be
accompanied by appropriate proof of the right of such person or persons to
exercise the Warrants. All shares of Common Stock which may be issued upon the
exercise of the Warrants as provided herein shall be fully paid and
non-assessable and free from all taxes, liens and charges with respect thereto.
The holder of this Warrant Certificate shall not be entitled to the privileges
of share ownership as to any shares of Common Stock not actually issued and
delivered to it. The Holder hereby certifies that all shares of Common Stock in
the Company purchased or to be purchased by it pursuant to the exercise of this
Warrant Certificate are being, or are to be, acquired by it for investment, and
not with a view to the distribution thereof.

            6.1 Cashless Exercise. At the election of the Holder, in lieu of
paying some or all of the Purchase Price in cash, this Warrant may be exercised
by reducing the number of shares of Common Stock received upon such exercise (a
"Cashless Exercise"). The number of shares of Common Stock delivered upon a
Cashless Exercise shall be determined based on the formula:

                  N =   E
                      -----
                       FMV

            where:

            N     =     the number of Shares which would otherwise have been
                        received but are not to be received upon a Cashless
                        Exercise

            E     =     the aggregate Purchase Price for the number of Warrants
                        being exercised that would have been paid without the
                        Cashless Exercise.

            FMV   =     the average closing bid price of the Common Stock on the
                        principal market for the ten trading days prior to the
                        date of the Notice of Exercise.

            For example, if the Holder is exercising 100 Warrants with a per
      Warrant Purchase Price of $2.00 per share through a Cashless Exercise when
      the Common Stock's FMV is $4.00 per share, upon such Cashless Exercise the
      Holder will receive 50 Shares rather than 100.

                                       8

<PAGE>

      As soon as practicable after the Company shall have received such Notice
of Exercise and any required payment, the Company shall execute and deliver or
cause to be executed and delivered, in accordance with such Notice of Exercise,
to the Holder at the address set forth in such Notice of Exercise a certificate
or certificates representing the number of shares of Common Stock specified in
such Notice of Exercise. The Warrant shall be deemed to have been exercised and
such share certificate or certificates shall be deemed to have been issued, and
the Holder shall be deemed for all purposes to have become a holder of record of
shares of Common Stock, as of the date that such Notice of Exercise and any
required payment shall have been received by the Company.

      The Holder shall surrender this Warrant certificate of the Company when it
delivers the Notice of Exercise, and in the event of a partial exercise of the
Warrant, the Company shall execute and deliver to the Holder, at the time the
Company delivers the share certificate or certificates issued pursuant to such
Notice of Exercise, a new Warrant certificate for the unexercised portion of the
Warrant, but in all other respect identical to this Warrant certificate.

      The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of certificates for the
Shares and any new Warrant certificates.

      7. General. The Company shall at all times during the term of the Warrants
reserve and keep available out of its authorized but unissued shares of Common
Stock such number of shares of Common Stock as will be sufficient to satisfy the
requirements of this Warrant Certificate; and if at any time the number of
authorized but unissued shares of Common Stock shall be insufficient to effect
the exercise of all then outstanding Warrants, in addition to such other
remedies as shall be available to any Holder of such Warrants, the Company shall
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number as
shall be sufficient for such purposes. The Company shall pay all original issue
and transfer taxes with respect to the issue and transfer of shares pursuant
hereto and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will from time to time use its best efforts to comply
with all laws and regulations, which, in the opinion of counsel for the Company,
shall be applicable thereto.

      8. Legends. It is understood that the certificates evidencing the Common
Stock purchased upon exercise of this Warrant Certificate may bear the following
legend:

            "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED
            BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED,
            SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE
            AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND
            REGULATIONS PROMULGATED THEREUNDER."

      9. Notices. Any notice required by the provisions of this Warrant
Certificate to be given

                                       9

<PAGE>

to the Holders shall be deemed given three (3) days after it is deposited in the
United States mail, certified or registered, return receipt requested, and
addressed to each Holder of record at its address appearing on the books of this
Company or on the date actually delivered in person.

      10. Governing Law. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Washington.

[SIGNATURES ON THE FOLLOWING PAGE]

                                       10

<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed by its officer thereunto duly authorized as of the day and year
first above written.

                                     CRAY INC., a Washington corporation

                                     By:

                                     Name: James E. Rottsolk
                                     Title: Chairman and Chief Executive Officer

                                       11

<PAGE>

                                     ANNEX A

                               NOTICE OF EXERCISE
                  (To be signed only upon exercise of Warrant)

Cray Inc.
411 First Avenue South, Suite 600
Seattle, WA 98104-2860
Attention: General Counsel

1. The undersigned Holder of Warrant No. _______ dated __________________ hereby
elects to exercise its purchase right under such Warrant with respect to
___________ shares of Common Stock of Cray Inc., a Washington corporation (the
"Company").

2. The undersigned Holder (check one):

______ (a) elects to pay the aggregate purchase price for such shares of Common
Stock (i) by lawful money of the United States or the enclosed certified or
official bank check payable in United States dollars to the order of the Company
in the amount of $ _________________, or (ii) by wire transfer of United States
funds to the account of the Company in the amount of $ ________________ which
transfer has been made before or simultaneously with the delivery of this Notice
of Exercise;

______(b) elects to receive shares of Common Stock having a value equal to the
value of the Warrant calculated in accordance with Section 6.1 of the Warrant.

3. Please issue a stock certificate or certificates representing the appropriate
number of shares of Common Stock in the name of the undersigned or in such other
names as is specified below:

Name: ___________________________

Address: ________________________
      ___________________________

Dated: __________________________   ____________________________________________
                                    (Signature must conform to name of Holder as
                                    specified on the face of the Warrant)

                                    ____________________________________________
                                    ____________________________________________
                                    (Address)

                                       12

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