-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qx0tDk3RiUomUdkRDyUkUIAEahF6Th4td4Ni4xk+oV8MsnwuZ7dGMASWh6Wo9fIy zPsRgbLtmVpVF7TnPa6tTA== 0000950123-06-008206.txt : 20060627 0000950123-06-008206.hdr.sgml : 20060627 20060627173002 ACCESSION NUMBER: 0000950123-06-008206 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060623 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060627 DATE AS OF CHANGE: 20060627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON GRAPHICS INC CENTRAL INDEX KEY: 0000802301 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 942789662 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10441 FILM NUMBER: 06927941 BUSINESS ADDRESS: STREET 1: 1500 CRITTENDEN LANE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6509601980 MAIL ADDRESS: STREET 1: 1500 CRITTENDEN LANE STREET 2: - CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 FORMER COMPANY: FORMER CONFORMED NAME: SILICON GRAPHICS INC /CA/ DATE OF NAME CHANGE: 19920703 8-K 1 y22712e8vk.txt FORM 8-K - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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): JUNE 23, 2006 ---------------------------- SILICON GRAPHICS, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) DELAWARE 001-10441 94-2789662 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 1500 CRITTENDEN LANE MOUNTAIN VIEW, CA 94043-1351 - -------------------------------------------------------------------------------- (Address of Principal Executive (Zip Code) Offices) Registrant's telephone number, including area code: (650) 960-1980 -------------------------- N/A - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. On June 23, 2006, Silicon Graphics, Inc. ("SGI") entered into a Global Settlement Agreement (the "Settlement Agreement") with representatives of (i) the official committee of unsecured creditors in the SGI's chapter 11 cases (the "Creditors' Committee"), (ii) the lenders under SGI's DIP Facility (the "DIP Lenders") and certain holders of Senior Secured Convertible Notes (the "6.50% Plan Sponsors"), and (iii) Lampe Conway & Co., LLC ("Lampe Conway"), the largest holder of the 6 1/8% Convertible Subordinated Debentures due 2011 (the "Subordinated Debentures"). Pursuant to the Settlement Agreement, SGI will settle certain claims and disputes relating to SGI's previously announced financial reorganization process (the "Global Settlement") and the Creditors' Committee, the DIP Lenders, the 6.50% Plan Sponsors and Lampe Conway will support the Global Settlement. The Settlement Agreement requires the parties to support and not object to an amended plan of reorganization (the "Plan") to be filed with the Court on the terms and subject to the conditions set forth in the term sheet ("Plan Term Sheet") annexed to the Settlement Agreement, as it may be amended. Specifically, subject to the term of the Settlement Agreement and the Plan, the 6.50% Plan Sponsors and Lampe Conway will vote in favor of the Plan. In addition, Lampe Conway and the Creditors' Committee will withdraw their respective objections to SGI's DIP Facility. The Plan Term Sheet provides, among other things, that under the Plan SGI's unsecured creditors will collectively receive $9 million in cash. Holders of SGI's Subordinated Debentures will receive $1.2 million of cash in the aggregate and will have the opportunity to acquire, in exchange for claims and cash, their pro rata share of 700,000 shares of new equity to be issued by SGI upon emergence from chapter 11 by participating in a previously announced $50 million rights offering (the "Rights Offering"), as detailed in the Plan Term Sheet. Lampe Conway shall have the option to purchase the shares not otherwise acquired by those holders of the Subordinated Debentures who fail to participate in the Rights Offering. The Plan Term Sheet does not contain a complete description of all of the terms and conditions that will be contained in the Plan that will be filed by SGI. Accordingly, the foregoing description of the anticipated terms of the Plan is subject to, and qualified in its entirety by reference to the Plan, which SGI anticipates filing with the United States Bankruptcy Court for the Southern District of New York on or about June 30, 2006. The Settlement Agreement may be terminated by the written consent of the parties, if the Plan has not been confirmed by October 31, 2006, or upon the material breach of the Settlement Agreement. 2 The foregoing description of the Settlement Agreement and the Plan Term Sheet is qualified in its entirety by reference to the Settlement Agreement and Plan Term Sheet, which are incorporated herein by reference and attached hereto as Exhibit 10.1. On June 27, 2006, the Company issued a press release announcing that it had entered into the Global Settlement. A copy of the press release is incorporated herein by reference and attached hereto as Exhibit 99.1. In addition to historical information, this Current Report on Form 8-K contains "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements involve risks and uncertainties that could cause the Company's actual results to differ materially from the future results expressed or implied by the forward-looking statements. All statements other than statements of historical facts included in this Current Report on Form 8-K, including statements regarding the Company's future financial position and results, are forward-looking statements. Factors that might cause such a difference in results include, but are not limited to: the effects of our chapter 11 filing; our ability to maintain adequate liquidity; our ability to obtain and maintain normal terms with customers, suppliers and service providers; our ability to continue as a going concern; our ability to operate pursuant to the terms of our credit agreement; our ability to obtain Court approval and any other required approvals with respect to motions in the chapter 11 case prosecuted by us from time to time; our ability to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to our chapter 11 case; risks associated with third parties seeking and obtaining Court approval to either terminate or shorten the exclusivity period that we have to propose and confirm one or more plans of reorganization; risks associated with third parties seeking and obtaining Court approval to appoint a chapter 11 trustee; risks, although not likely, associated with third parties seeking and obtaining Court approval to convert the chapter 11 filing to a chapter 7 filing; our ability to maintain contracts that are critical to our operation; our ability to conclude our exploration of strategic alternatives; risks associated with the volatility of our stock price; risks associated with the timely development, production and acceptance of new products and services; increased competition; dependence on third party partners and suppliers; the failure to achieve expected product mix and revenue levels; failure to manage costs and generate improved operating results and cash flows; failure to maintain compliance with debt covenants; and failure to maintain adequate cash resources for the operation of the business. Additionally, due to material uncertainties, it is not possible to predict the length of time we will operate under chapter 11 protection, the outcome of the proceeding in general, whether we will continue to operate under our current organizational structure, or the effect of the proceeding on our businesses and the interests of various creditors and security holders. All information set forth herein is current as of the date of this Current Report on Form 8-K. The Company undertakes no duty to update any statement in light of new information or future events. For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Risk Factors" section of the 3 Company's SEC filings, including, but not limited to, its Form 10-Q for the quarter ended December 30, 2005. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (d) Exhibits
Exhibit No. Description --- ----------- 10.1 Global Settlement Agreement dated June 23, 2006. 99.1 Press Release dated June 27, 2006.
4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Silicon Graphics, Inc. Dated: June 27, 2006 By: /s/ Barry Weinert --------------------------------- Barry Weinert Vice President and General Counsel 5 EXHIBIT INDEX
Exhibit No. Description --- ----------- 10.1 Global Settlement Agreement dated June 23, 2006. 99.1 Press Release dated June 27, 2006.
6 EX-10.1 2 y22712exv10w1.txt EX-10.1: GLOBAL SETTLEMENT AGREEMENT GLOBAL SETTLEMENT AGREEMENT June 23, 2006 David Neier, Esq. Allan S. Brilliant, Esq. Steven Schwartz, Esq. Goodwin Procter LLP Winston & Strawn LLP 599 Lexington Avenue 200 Park Avenue New York, New York 10022 New York, New York 10166-4193 Dennis Dunne, Esq. Susheel Kirpalani, Esq. Milbank, Tweed, Hadley & McCloy LLP One Chase Manhattan Plaza New York, New York 10005-1413 Re: In re Silicon Graphics, Inc. et al. (Case No. 06-10977) Gentlemen: This letter agreement (the "Agreement") is made and entered into as of the date hereof and sets forth certain terms and conditions pursuant to which Silicon Graphics, Inc., a debtor-in-possession in a chapter 11 case pending in the Southern District of New York, and its debtor subsidiaries1 (collectively, the "Debtors") will settle certain claims and disputes, and upon which (i) the statutory committee of unsecured creditors in the Debtors' chapter 11 cases (the "Creditors' Committee"); (ii) Quadrangle Master Funding Ltd., Watershed Technology Holdings, LLC and Encore Fund, L.P., as lenders under the Debtors' DIP Facility (the "DIP Lenders"), (iii) the holders of Senior Secured Convertible Notes party to that certain Restructuring Agreement with Silicon Graphics, Inc., dated May 7, 2006 (the "6.50% Plan Sponsors") and (iv) Conway & Co., LLC ("Lampe Conway") will support such settlement (the "Global Settlement"). - -------------------------------- (1) Silicon Graphics Federal, Inc., Cray Research, L.L.C., Silicon Graphics Real Estate, Inc., Silicon Graphics World Trade Corporation, Silicon Studio, Inc., Cray Research America Latina Ltd., Cray Research Eastern Europe Ltd., Cray Research India Ltd., Cray Research International, Inc., Cray Financial Corporation, Cray Asia/Pacific, Inc., Paragraph International, Inc., and WTI Development, Inc. The Global Settlement will be implemented through confirmation of a plan of reorganization in accordance with the term sheet attached hereto (as it may be amended as provided herein, the "Plan")2: During the period commencing on the date of this Agreement and continuing until the termination of this Agreement as provided for in paragraph 3 hereof, the Debtors, the Creditors' Committee, the DIP Lenders, the 6.50% Plan Sponsors and Lampe Conway (collectively, the "Parties") agree as follows: 1. The Parties will use their reasonable and diligent efforts to seek prompt confirmation and consummation of the Plan and will take such other actions (in addition to those contemplated by the Plan and related documents) and execute such other documents (in addition to the Plan and related documents) as may be reasonably necessary to consummate the Plan, subject to the terms and conditions of the Plan and related documents (the "Plan Documents"), which documents shall include with respect to the 6.50% Plan Sponsors, the Restructuring Agreement filed with the Bankruptcy Court on May 9, 2006 (as amended from time to time, the "Restructuring Agreement"), and the Rights Offering Common Stock Purchase Agreement, and with respect to Lampe Conway, the Lampe Conway Rights Offering Common Stock Purchase Agreement; provided, however, that with respect to the Restructuring Agreement, the Debtors and the 6.50% Plan Sponsors agree that the Agreement Termination Event in section 7(b)(vii) thereof as to filing the Disclosure Statement has been extended to June 30, 2006 and that the Agreement Termination Event in section 7(b)(viii) thereof as to Bankruptcy Court approval of the Disclosure Statement has been extended to August 1, 2006; and further provided, however, that notwithstanding section 7(c) of the Restructuring Agreement, the Debtors agree that they will not terminate the Restructuring Agreement without Bankruptcy Court approval. The Parties agree that they will not object to the Plan or take any action directly or indirectly inconsistent with the terms and conditions of this Agreement or that would unreasonably delay confirmation or consummation of the Plan or approval of the disclosure statement for the Plan subject to the terms and conditions of the Plan and the Plan Documents. The Parties further agree that this Agreement or the terms herein will be presented to the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") prior to or at the final hearing for approval of the Debtors' postpetition credit facility currently scheduled for June 26, 2006 (the "DIP Facility"). 2. The Creditors' Committee will, and the 6.50% Plan Sponsors shall use their reasonable best efforts to cause the Ad Hoc Committee of Senior Secured Note holders (the "Ad Hoc Committee") to, include in the solicitation materials accompanying the disclosure statement for the Plan letters supporting the Plan. The 6.50% Plan Sponsors and Lampe Conway agree that subject to prior receipt of a disclosure statement approved by the Bankruptcy Court in respect of the Plan, that they will vote in favor of the Plan subject to the terms and conditions of this Agreement, the Plan, and the Plan Documents. No provision of this Agreement obligates the individual members of the Creditors' Committee to vote for or against the Plan. The Creditors' Committee agrees, and the 6.50% Plan Sponsors shall use their reasonable best efforts to cause - ------------------------------- (2) Capitalized terms not defined herein shall have the meanings ascribed to such terms in the term sheet attached hereto. 2 the Ad Hoc Committee, to provide a copy of the solicitation letters to the other Parties prior to its incorporation into any solicitation package for reasonable comment. 3. This Agreement and the rights and obligations of the Parties hereunder (other than any liability for breach prior to termination) shall (i) terminate if (a) all of the Parties consent in writing to such termination or (b) the Plan has not been confirmed by October 31, 2006 or (ii) be terminable by any non-breaching Party upon the material breach of this Agreement, the Plan, or the Plan Documents by any other Party. 4. The Debtors' Motion Pursuant to Section 1122 of the Bankruptcy Code and Bankruptcy Rule 3013 for Order Determining Classification of Certain Claims for Purposes of Debtors' Joint Plan of Reorganization dated June 15, 2006 (the "3013 Motion") is settled as part of this Agreement; provided, however, that in the event that the Plan is not confirmed or this Agreement is terminated under paragraph 3 hereof, the Parties reserve all rights with respect to the 3013 Motion. 5. The Creditors' Committee shall withdraw the Motion and Memorandum of Law of the Official Committee of Unsecured Creditors to Transfer Venue, dated June 19, 2006 without prejudice. 6. The Creditors' Committee and Lampe Conway shall withdraw their respective objections to the Debtors' motion to approve the DIP Facility. 7. The Plan shall not be modified or amended in any materially adverse way to Lampe Conway or the holders of the Debtors' Convertible Subordinated Debentures, which bear interest at the rate of 6.125% per annum (the "Cray Unsecured Debentures") without the prior written consent of Lampe Conway and the Creditors' Committee (which consent of the latter shall not be unreasonably withheld or delayed) unless each of the following conditions is satisfied: (1) such modification or amendment is to provide for a Permitted Transaction (as defined below); and (2) notwithstanding such Permitted Transaction, the capital structure of Reorganized SGI shall not consist of more than one class of common stock; and (3) notwithstanding such Permitted Transaction, Reorganized SGI shall emerge from bankruptcy as a public reporting company; and (4) if the Permitted Transaction involves the issuance of New Common Stock or securities convertible or exchangeable for New Common Stock, holders of claims on account of the Cray Unsecured Debentures shall be diluted pro rata based upon the number of shares outstanding on the effective date of the Plan and assuming full issuance of any shares based on the Rights Offering and the actual number of Overallotment Shares issued; and 3 (5) if the Permitted Transaction involves the sale, repurchase or redemption of New Common Stock to be issued under the Plan, holders of claims on account of the Cray Unsecured Debentures shall have the pro rata right to participate in such sale, repurchase or redemption based upon the number of shares outstanding on the effective date of the Plan and assuming full issuance of any shares based on the Rights Offering and the actual number of Overallotment Shares issued; and (6) if the Permitted Transaction involves the payment of any dividend or distribution on account of New Common Stock, holders of claims on account of the Cray Unsecured Debentures shall receive the pro rata share of such dividend or distribution based upon the number of shares outstanding on the effective date of the Plan and assuming full issuance of any shares based on the Rights Offering and the actual number of Overallotment Shares issued; and (7) if the Permitted Transaction involves the sale or transfer (including a license) of assets, the proceeds of such sale or transfer, including without limitation any ownership interests in a separate legal entity, shall be distributed pro rata based upon the number of shares outstanding on the effective date of the Plan and assuming full issuance of any shares based on the Rights Offering and the actual number of Overallotment Shares issued. The Parties hereto agree that the Debtors, with the prior consent of the 6.50% Plan Sponsors, and upon notice to the Creditors' Committee and Lampe Conway, may make non-material and non-adverse changes to the Plan. "Permitted Transaction" shall mean any of the following: i. the sale or transfer (including by means of merger, consolidation or other business combination) of non-core assets to a separate legal entity, or the dissolution of legal entities; ii. the sale or transfer of New Common Stock for cash to an unaffiliated third party including, without limitation, any such sale or transfer resulting in a Change of Control (as defined below); iii. the repurchase or redemption of New Common Stock or Rights to be issued under the Plan; iv. the payment of any dividend in cash or stock or the making of any other cash distributions to holders of New Common Stock; v. the issuance of any securities to an unaffiliated third party including, without limitation, warrants or securities convertible or exchangeable for New Common Stock; provided, however, that the liquidation preference of any preferred stock, the face value of any debt securities, the indebtedness and guarantee of indebtedness (excluding the guarantee by a Debtor of one or more Debtor's indebtedness 4 or coborrowing by a Debtor with one or more Debtors) referenced in (vi) below, and the outstanding amount of the Exit Facility shall not exceed, in the aggregate, $100,000,000; vi. the incurrence of indebtedness, guarantee of indebtedness or creation of liens in favor of an unaffiliated third party; provided, however, that the amount of such incurrence or guarantee (excluding the guarantee by a Debtor of one or more Debtor's indebtedness or coborrowing by a Debtor with one or more Debtors), the liquidation preference of any preferred stock, the face value of any debt securities, and the outstanding amount of the Exit Facility shall not exceed, in the aggregate, $100,000,000; vii. the sale or transfer of assets for cash to an unaffiliated third party or separate legal entity, including, without limitation, any such sale or transfer resulting in a Change of Control, provided, however, that such sale or transfer is not for substantially all of the assets of the Debtors; viii. the sale, transfer, license of any intellectual property or the purchase or license of any intellectual property, in each case involving an unaffiliated third party or separate legal entity; ix. any merger, consolidation or other business combination (a) between or among the Debtors, or (b) with any unaffiliated third party, including without limitation, any merger, consolidation or other business combination resulting in a Change of Control, provided, however that the entity used by the unaffiliated third party in connection with such merger, consolidation or other business combination shall have been formed solely for the purpose of engaging in such transaction and shall not have engaged in other business activities or other operations; x. any increase or decrease in the number of directors on the board; xi. any change in the means of appointing directors; and xii. the entry into a management contract or other agreement customarily used in connection with the transactions contemplated in clauses (i) - (xi) above with an unaffiliated third party. "Change of Control" shall mean the sale, exchange or transfer by holders, in a single transaction or series of related transactions, of New Common Stock representing a majority of the voting power to elect the directors of Reorganized SGI. In the event of any modification or amendment to the Plan to provide for a Permitted Transaction, the Debtors shall reimburse the reasonable fees and expenses of legal and financial advisors to Lampe Conway up to an additional $100,000 for costs incurred in connection with the review and documentation of such modification or amendment. 8. This Agreement shall be governed by and construed in accordance with the federal bankruptcy laws and the internal laws of the State of New York, without regard to any conflicts of law provision which would require the application of the law of any other jurisdiction. By its execution and delivery of this Agreement, each of the Parties hereby 5 irrevocably and unconditionally agrees for itself that any legal action, suit, or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit, or proceeding, may be brought in the Bankruptcy Court. By execution and delivery of this Agreement, each of the Parties irrevocably accepts and submits itself to the nonexclusive jurisdiction of such court, generally and unconditionally, with respect to any such action, suit, or proceeding. 9. This Agreement is intended to bind and inure to the benefit of the Parties and their respective successors, permitted assigns, heirs, executors, administrators, and representatives. 10. No provision in this Agreement is intended to benefit any entity not a party to the Agreement, and there shall be no third party beneficiaries to the Agreement. 11. This Agreement, including the Term Sheet annexed hereto, supersedes all prior negotiations with respect to this Global Settlement Agreement; provided, however, that nothing in this Agreement shall affect the terms and conditions of the Restructuring Agreement, which shall remain unchanged except the Plan Term Sheet (as defined in the Restructuring Agreement) shall be replaced with the plan term sheet attached hereto. 12. Lampe Conway represents and warrants to the other Parties that (i) Lampe Conway either (A) is the beneficial owner of not less than $30,000,000 aggregate principal amount (the "Lampe Conway Debentures") of Cray Unsecured Debentures (as defined in the Term Sheet) or (B) has investment and voting discretion with respect to such Lampe Conway Debentures and has the power and authority to bind the beneficial owners of such Lampe Conway Debentures to the terms of this Agreement and (ii) such Lampe Conway Debentures are beneficially owned free and clear of any mortgage, deed of trust, security interest, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), or other security agreement, option, warrant, attachment, right of first refusal, preemptive, put, call or other claim or right, limitation or restriction on transfer (other than restrictions imposed by federal and state securities laws) or preferential arrangement of any kind or nature whatsoever. 13. Before any transfer or sale of any Lampe Conway Debentures by Lampe Conway shall be effective, the transferee thereof must agree in writing to be bound by this Agreement by executing a counterpart signature page to this Agreement. This Agreement shall in no way preclude Lampe Conway from acquiring additional Cray Unsecured Debentures; however any such Cray Unsecured Debentures so acquired shall automatically be deemed to be subject to the terms of this Agreement. 14. The Debtors will provide drafts of the Plan, the Plan Documents and the disclosure statement relating to the Plan to the Parties hereto, and, if requested, the Debtors will respond to reasonable requests for information concerning the Debtors' business or assets. All information furnished to Lampe Conway pursuant to this section shall furnished to Lampe Conway's advisors only, and Lampe Conway's advisors shall be subject to the provisions of the existing protective order between SGI and Lampe Conway. 15. Nothing in this Agreement is intended to, or does, in any manner amend, modify, waive, limit, impair or restrict, or consent to the amendment, modification, waiver, limitation, 6 impairment or restriction of, the rights and remedies of the DIP Lenders under (i) the Post-Petition Loan and Security Agreement, dated as of May 8, 2006 (as amended, supplemented or otherwise modified from time to time, the "Interim DIP Loan Agreement"), by and among the DIP Lenders and the Debtors, (ii) the DIP Facility, (iii) any documents or agreements entered into in connection with the Interim DIP Loan Agreement or the DIP Facility or (iv) any order approving the documents referenced in clauses (i) through (iii) of this paragraph Section 15, all of which are hereby reserved. Pursuant to Sections 8.12(a) and (b) of the Interim DIP Loan Agreement and Sections 8.10(a) and (b) of the DIP Facility, the DIP Lenders agree that the Plan contemplated hereby is acceptable to the DIP Lenders. 16. Except as otherwise expressly provided in this Agreement, nothing herein is intended to, or does, in any manner waive, limit, impair or restrict the ability of Lampe Conway to protect and preserve any of its rights, remedies, and interests, including without limitation its claims against the Debtors, or its full participation in the Debtors' bankruptcy cases. If the Plan is not consummated, or if this Agreement is terminated in accordance with its terms, the Parties hereto reserve any and all of their respective rights. Pursuant to Federal Rule of Evidence 408 and any applicable state rules of evidence, neither this Agreement, the Plan, nor the Plan Documents shall be admitted into evidence in any proceeding other than to enforce their terms. 17. This Agreement is not and shall not be deemed to be a solicitation for votes in favor of the Plan. No vote will be solicited until each Party entitled to vote has received the disclosure statement approved by the Bankruptcy Court. 18. Each of the signatories to this Agreement has the authority to execute this Agreement and to bind its client(s) to the terms and conditions hereof. 7 19. This Agreement, including the Term Sheet annexed hereto, may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. 20. The Debtors will seek Bankruptcy Court approval of this Agreement in connection with confirmation of the Plan. Sincerely, /s/ Gary T. Holtzer, Esq ----------------------------------- Gary T. Holtzer, Esq. Weil, Gotshal & Manges LLP for the Debtors AGREED AND ACCEPTED /s/ David Neier, Esq. - --------------------------------- David Neier, Esq. Steven Schwartz, Esq. Winston & Strawn LLP for the Creditors' Committee /s/ Allan S. Brilliant, Esq. - --------------------------------- Allan S. Brilliant, Esq. Goodwin Procter LLP for the The DIP Lenders and the 6.50% Plan Sponsors /s/ Dennis Dunne, Esq. - --------------------------------- Dennis Dunne, Esq. Susheel Kirpalani, Esq. Milbank, Tweed, Hadley & McCloy LLP for Lampe Conway & Co., LLC 8 SILICON GRAPHICS, INC. Plan Term Sheet June 23, 2006 This term sheet describes the material terms of a financial restructuring of Silicon Graphics, Inc. ("SGI" and, as reorganized, "Reorganized SGI") and certain of its subsidiaries (together with SGI, the "Company" and, as reorganized with Reorganized SGI, the "Reorganized Company"). The transactions contemplated by this term sheet are subject to conditions to be set forth in definitive documents. Reference is hereby made to the following agreements: (i) Third Amended and Restated Credit Agreement, dated as of October 24, 2005 among SGI, Silicon Graphics Federal, Inc., Silicon Graphics World Trade Corporation, Wells Fargo Foothill, Inc., as Agent and Lender, and Ableco Finance LLC, as Lender (the "Loan Agreement"); (ii) Indenture, dated as of December 24, 2003 among SGI and U.S. Bank National Association, as Trustee, regarding 6.50% Senior Secured Convertible Notes due 2009 (the "6.50% Secured Notes"); (iii) Indenture, dated as of December 24, 2003 among SGI and U.S. Bank National Association, as Trustee, regarding 11.75% Senior Secured Notes due 2009 (the "11.75% Secured Notes"); and (iv) First Supplemental Indenture, dated as of June 30, 1996 among SGI, Cray Research, Inc. and JPMorgan Chase (formerly known as Manufacturers Hanover Trust Company), as Trustee, regarding 6-1/8% Convertible Subordinated Debentures due 2011 (the "Cray Unsecured Debentures") (which supplements the Indenture dated as of February 1, 1986 between Cray Research, Inc. and Manufacturers Hanover Trust Company, as Trustee). On May 8, 2006, SGI and certain of its direct and indirect subsidiaries (collectively, the "Debtors") filed with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") cases (the "Chapter 11 Cases") under chapter 11 of Title 11 of the United States Code (11 U.S.C. SectionSection 101 et seq. (as amended, the "Bankruptcy Code")). SGI shall restructure its capital structure through a joint chapter 11 plan of reorganization (as amended, modified or supplemented from time to time, the "Plan") consistent with the terms below, which are agreed to by (i) the ad hoc committee (the "Ad Hoc Committee") of certain holders of the 6.50% Secured Notes, (ii) the Official Committee of Unsecured Creditors (the "Creditors' Committee"), and (iii) Lampe, Conway & Co. LLC ("Lampe Conway"). TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN DIP Financing Any Debtor in Possession financing (the "DIP Financing") shall be paid in full on the effective date of the Plan. $50 million of DIP Financing provided by the holders of the 6.50% Secured Notes (the "Senior Note Lenders") shall be repaid on the effective date of the Plan by the Rights Offering (as defined below). Loan Agreement Claims Subject to review of the validity and perfection of liens and security interests of the lenders under the Loan Agreement (the "Senior Credit Lenders") by the Creditors' Committee, the claims arising from the Loan Agreement shall, to the extent not repaid during the pendency of the Chapter 11 Cases be paid in full in cash on the effective date of a Plan. 6.50% Secured Notes and 11.75% Holders of claims on account of the 6.50% Secured Notes Claims Secured Notes and the 11.75% Secured Notes shall receive their pro rata share of (a) 2,500,000 shares of newly issued common stock of Reorganized SGI (the "Distribution Common Stock") constituting 25% of the New Common Stock (as defined below), (b) 6,800,000 rights to purchase one share of New Common Stock ("Rights" and each, a "Right") at the Rights Offerings Price (as defined below), and (c) 100% of the beneficial interests in a trust or other entity that will liquidate any potential claims held by the Debtors in the DRAM price fixing litigation and the Debtors shall contribute $250,000 cash to such trust or other entity. The aggregate shares (the "New Common Stock") of the Distribution Common Stock and the Rights Offering Common Stock (as defined below) shall constitute 100% of the outstanding equity of Reorganized SGI, subject to dilution for the Overallotment Shares (as defined below) and the Management Incentive Plan (as defined below). The aggregate number of shares of New Common Stock of Reorganized SGI shall initially be 10,000,000 without dilution for the Overallotment Shares and 11,125,000 shares assuming exercise of 100% of the Overallotment Shares. General Unsecured Claims "General Unsecured Claims" means allowed general unsecured claims against the Debtors, excluding (i) claims on account of the Cray Unsecured Debentures and (ii) any deficiency claims on account of the 6.50% Secured Notes and the 11.75% Secured Notes. Holders of General Unsecured Claims against SGI shall receive their pro rata share of $9.0 million. Holders of General 2 Unsecured Claims against Silicon Graphics Federal, Inc. ("Federal") and Silicon Graphics World Trade Corporation ("World Trade") shall be paid in full or otherwise be treated as unimpaired provided, however, that a condition to the effectiveness of the Plan shall be that allowed General Unsecured Claims against Federal and World Trade shall not exceed $1 million in the aggregate (not including cure claims). Cray Unsecured Debentures Holders of Claims on account of the Cray Unsecured Debentures shall receive their pro rata share of (a) 700,000 Rights at the Rights Offering Price and (b) $1.2 million (less the reasonable fees and expenses (including reasonable fees and expenses of counsel) of the Indenture Trustee for the Cray Unsecured Debentures). The record date for holders of Cray Unsecured Debentures to be eligible to participate in the Rights Offering shall be ten (10) days after notice of the Rights Offering in respect of such holders is received by the NASD. The Debtors will send notice of such record date to the NASD within one (1) business day after the Global Settlement Agreement is announced by the Debtors in open court before the Bankruptcy Court. Equity Interests Holders of equity interests in SGI shall receive no recovery and all equity interests in SGI shall be cancelled. ADDITIONAL PROVISIONS OF PLAN Rights Offering Rights Offering. Pursuant to an election to be made on or with the ballot in conjunction with voting on the Plan (the "Rights Offering"), (i) the holders of the 6.50% Secured Notes and the 11.75% Secured Notes shall have the right to purchase on the effective date of a Plan, on a ratable basis, 6,800,000 shares of New Common Stock (the "Rights Offering Common Stock") in consideration for such claims and $6.67 per share (the "Rights Offering Price") and (ii) the holders of the Cray Unsecured Debentures shall have Rights to purchase 700,000 shares of the New Common Stock in consideration for such claims and the Rights Offering Price (the "Cray Rights Offering Shares"). Senior Note Lenders Rights Offering Commitment. In 3 accordance with the terms and subject to the conditions of a purchase agreement in form and substance acceptable to the Senior Note Lenders in their sole discretion (the "Rights Offering Common Stock Purchase Agreement"), the Senior Note Lenders shall commit (the "Rights Offering Commitment") to purchase at the Rights Offering Price, the aggregate shares of the Rights Offering Common Stock not otherwise purchased in the Rights Offering or pursuant to the Lampe Conway Rights Offering Stock Purchase Agreement (defined below), the allocation of which shall be agreed upon among the Senior Note Lenders. Lampe Conway Rights Offering Option. In accordance with the terms and subject to the conditions of a purchase agreement in form and substance reasonably satisfactory to Lampe Conway (the "Lampe Conway Rights Offering Common Stock Purchase Agreement"), Lampe Conway shall have the option to purchase at the Rights Offering Price, the aggregate shares of the Cray Rights Offering Shares not otherwise purchased in the Rights Offering by the holders of Cray Unsecured Debentures. Lampe Conway shall notify the Debtors in writing on or before five (5) days after the deadline to exercise such Rights of its determination to purchase the Cray Rights Offering Shares not otherwise purchased by the holders of Cray Unsecured Debentures and the amount thereof. Commitment Fee. In exchange for the Rights Offering Commitment, the Senior Note Lenders shall receive a commitment fee equal to $1,000,000. Over-Allotment Rights. In exchange for the Rights Offering Commitment, the Senior Note Lenders shall receive the right (but shall have no obligation) to purchase at the Rights Offering Price 1,125,000 shares comprising 15% of the Rights Offering Common Stock (the "Overallotment Shares"), the allocation of which shall be agreed upon among the Senior Note Lenders. Lampe Conway Expense Reimbursement. Lampe Conway shall receive an amount up to $315,000 for reimbursement of expenses (including the reasonable fees and expenses of counsel and financial advisors) incurred in connection with these chapter 11 cases. Chapter 5 Causes of Action The Reorganized Company may pursue any causes of 4 action under Chapter 5 of the Bankruptcy Code in their sole discretion. Prior to the time of filing the plan supplement to the Plan, the Debtors will meet and confer with the professionals for the 6.50% Plan Sponsors and the professionals for the Creditors' Committee regarding potential causes of action under section 547 of the Bankruptcy and potential defendants thereunder. The Debtors will file as part of the plan supplement to the Plan a list of potential defendants under section 547 of the Bankruptcy Code. Public Company Reorganized SGI will emerge from chapter 11 as a public reporting company. Trading/Registration Rights - Newly-issued common stock of Reorganized SGI issued in exchange for claims shall be freely-tradable pursuant to section 1145 of the Bankruptcy Code, unless any such holder is deemed an "underwriter," as that term is defined in section 1145(b)(1) of the Bankruptcy Code. - Registration Rights. On the effective date of the Plan, Reorganized SGI shall enter into a registration rights agreement (the "Registration Rights Agreement") with any holders that will own greater than 7.5% of the outstanding New Common Stock upon the effective date of the Plan pursuant to which Reorganized SGI shall agree, subject to the terms and conditions set forth in the Registration Rights Agreement, to register the resale of the shares of New Common Stock issued to any such holders in accordance with the requirements of the Securities Act of 1933, as amended. The Registration Rights Agreement shall provide that any holder owning greater than 7.5% of the outstanding New Common Stock upon the effective date of the Plan shall be entitled to two (2) demand rights and unlimited piggyback registration rights. - In the event any New Common Stock is not entitled to exemption from registration, then the holders thereof shall be entitled to unlimited piggyback registration rights. Exit Facility A term loan facility and a revolving loan/letter of credit facility (the "Exit Facility"), the total of which shall not exceed $100 million or such other amount as the Company and the Ad Hoc Committee deem appropriate and necessary on the effective date of the Plan, shall be made available to 5 the Reorganized Company by one or more lenders on terms and conditions acceptable to the Reorganized Company and the Ad Hoc Committee; provided, however, that the consent of Lampe Conway, which consent shall not be unreasonably withheld, shall be required if the amount of borrowings outstanding under such facility exceed $100 million on the effective date of the Plan. Management Incentive Plan On or as soon as reasonably practicable after the effective date of the Plan, a management incentive plan (the "Management Incentive Plan") shall be implemented to reserve for designated members of senior management of the Reorganized Company equity interests (including restricted common stock and/or options) in Reorganized SGI in an amount not to exceed 10% of the New Common Stock. The Management Incentive Plan shall be in form and substance acceptable to both the Company and the Ad Hoc Committee. The Management Incentive Plan shall be disclosed prior to the deadline for voting on the Plan. Corporate Governance On the effective date of the Plan, the Board of Directors of Reorganized SGI shall be comprised of five (5) members which shall be selected by the Ad Hoc Committee. The identities of the members of the Board of Directors shall be disclosed prior to the commencement of the hearing to consider confirmation of the Plan. Affiliate Transactions Other than as contemplated by the Plan, for a period of two years from and after the effective date of the Plan, in the event that Reorganized SGI consummates any transaction with any holder of 10% or more of the New Common Stock or any of such holder's affiliates (each, an "SGI Affiliate") pursuant to which Reorganized SGI sells assets to, issues New Common Stock or any right to acquire New Common Stock to, repurchases stock from, or borrows from or lends to such SGI Affiliate in a private transaction, in each such case, in an amount greater than $25,000,000 (each an "Affiliate Transaction") Reorganized SGI shall obtain a written opinion from an independent nationally recognized financial advisor as to the fairness to Reorganized SGI of the Affiliate Transaction. 6 EX-99.1 3 y22712exv99w1.txt EX-99.1: PRESS RELEASE Exhibit 99.1 (SGI LETTERHEAD) NEWS RELEASE 1200 Crittenden Lane Mountain View, CA 94043 Telephone 650.960.1980 sgi.com MEDIA CONTACT Lisa Pistacchio pistacchio@sgi.com 650.933.5683 SGI PR HOTLINE 650.933.7777 SGI PR FACSIMILE 650.933.0317 FOR IMMEDIATE RELEASE SGI REACHES GLOBAL AGREEMENT WITH OFFICIAL COMMITTEE OF UNSECURED CREDITORS AS REORGANIZATION MOVES ON ACCELERATED PATH COMPANY ALSO RECEIVES APPROVAL FOR $130 MILLION FINANCING FACILITY, PROVIDING THE LIQUIDITY AND FLEXIBILITY NEEDED TO COMPLETE REORGANIZATION MOUNTAIN VIEW, Calif. (June 27, 2006)--Silicon Graphics (OTC: SGID) today announced it has gained the support of its Official Committee of Unsecured Creditors and the largest holder of its Subordinated Debentures on a proposed reorganization plan. This is important milestone in SGI's reorganization process. The development paves the way for a speedy exit from Chapter 11 as a public company. The Company anticipates filing an amended Plan of Reorganization together with a Disclosure Statement by June 30, 2006. "Our pre-negotiated plan reflected an agreement with an ad-hoc committee of our Secured Noteholders," said Dennis McKenna, chairman and CEO of SGI. "Through the diligent efforts of all parties, we have now won the additional support of our Official Committee of Unsecured Creditors, which is made up of representative trade creditors and holders of our Subordinated Debentures. We have also reached a settlement with the largest holder of our Subordinated Debentures. Such agreements are crucial to a successful reorganization. Our exit timeline remains on track. We are grateful to our employees, customers, vendors and partners who have remained loyal to us throughout this process." Also today, SGI announced that it received Court approval for the $130 million financing facility with Morgan Stanley that was announced June 1, 2006. The financing agreement will fund day-to-day operations during SGI's reorganization process, providing the enhanced liquidity and flexibility needed to complete the Company's reorganization. More information about SGI's reorganization is available on the Internet at www.sgi.com/reorg. Details of the agreement with the Official Committee of Unsecured Creditors are available in the Form 8-K filed today with the SEC. --more-- (SGI LOGO) SGI REACHES GLOBAL AGREEMENT WITH OFFICIAL COMMITTEE OF UNSECURED CREDITORS AS REORGANIZATION MOVES ON ACCELERATED PATH/2 Forward-Looking Statements This news release contains forward-looking statements relating to future events or expected financial performance that involve risks and uncertainties. Factors that might cause such a difference include, but are not limited to: the effects of our chapter 11 filing; our ability to maintain adequate liquidity; and our ability to obtain and maintain normal terms with customers, suppliers and service providers. These and other risks are or will be detailed from time to time in SGI's periodic reports that are filed with the Securities and Exchange Commission, including the Form 8K filed on June 27, 2006 and SGI's quarterly report on Form 10-Q for the quarter ended December 30, 2005. Silicon Graphics is under no obligation to publicly update or revise any forward-looking statements, whether changes occur as a result of new information, future events or otherwise. SILICON GRAPHICS | THE SOURCE OF INNOVATION AND DISCOVERY(TM) SGI, also known as Silicon Graphics, Inc. (OTC: SGID), is a leader in high-performance computing. SGI helps customers solve their computing challenges, whether it's sharing images to aid in brain surgery, designing and manufacturing safer and more efficient cars and airplanes, studying global climate, providing technologies for homeland security and defense, enabling the transition from analog to digital broadcasting, or helping enterprises manage large data. With offices worldwide, the company is headquartered in Mountain View, Calif., and can be found on the Web at www.sgi.com. -- end -- Silicon Graphics, SGI, the SGI cube and the SGI logo are registered trademarks, and The Source of Innovation and Discovery is a trademark of Silicon Graphics, Inc., in the United States and/or other countries worldwide. All other trademarks mentioned herein are the property of their respective owners. -----END PRIVACY-ENHANCED MESSAGE-----