10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended June 27, 2003.
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period                          to

Commission File Number 1-10441

SILICON GRAPHICS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 94-2789662
(I.R.S. Employer
Identification Number)

1600 Amphitheatre Parkway, Mountain View, California 94043-1351
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (650) 960-1980

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered:
Common Stock, $0.001 par value	New York Stock Exchange
51/4% Senior Convertible Notes	New York Stock Exchange

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form "10-K." ý

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on December 27, 2002 on the New York Stock Exchange, was approximately $216 million. Shares of voting stock held by each executive officer and director and by each person who owns 5% or more of any class of registrant's voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of August 29, 2003, the registrant had 210,589,850 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Parts of the Proxy Statement for registrant's Annual Meeting of Stockholders to be held December 2, 2003 are incorporated by reference into Part III of this Report on Form 10-K.

PART I

        This Form 10-K includes forward-looking statements regarding our business, objectives, financial condition and future performance. These forward-looking statements include, among others, statements relating to expected levels of revenue, gross margin, operating expense, future profitability, our expectations for new product introductions and market conditions, our liquidity and capital resources, our belief that we have sufficient capital to meet our requirements for fiscal 2004, headcount reductions and the expected impact on our business of legal proceedings and government actions. We have based these forward-looking statements on our current expectations about future events. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions.

        These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Such risks and uncertainties include, among other things: adverse changes in general economic or business conditions; adverse changes in the specific markets for our products, including expected rates of growth and decline in our current markets; risks related to liquidity and the adequacy of our capital resources; ability to achieve profitable operations or limit losses; adverse business conditions; changes in customer order patterns; the impact of employee attrition rates; heightened competition, reflecting rapid technological advances and constantly improving price/performance, which may result in significant discounting and lower gross profit margins; continued success in technological advancements and new product introduction, including timely development and successful introduction of strategic products for specific markets; risks related to the acceptance of new products, including the SGI® Altix™ family of servers and superclusters, and storage offerings based on our CXFS™ shared file system; risks related to dependence on our partners and suppliers; risks related to market perceptions regarding proprietary versus open standard technologies; risks related to foreign operations (including weak or disrupted economies, unfavorable currency movements and export compliance issues); risks associated with implementation of new business practices, processes and information systems; uncertainties arising from claims and litigation; and other factors including those listed under the heading "Risks That Affect Our Business."

        We undertake no obligation to publicly update or revise any forward-looking statements, whether changes occur as a result of new information, future events or otherwise. The matters addressed in this discussion, with the exception of the historical information presented, are forward-looking statements involving risks and uncertainties, including business transition and other risks discussed under the heading "Risks That Affect Our Business" and elsewhere in this report. Our actual results may differ significantly from the results discussed in the forward-looking statements.

ITEM 1. BUSINESS

General

        SGI is a leading provider of products, services and solutions for use in high-performance computing, storage and visualization. We sell highly scalable servers, advanced visualization systems, desktop workstations, storage solutions and a range of software products which enable our customers in the scientific, technical and creative communities to solve their most challenging problems and provide them with strategic and competitive advantages in their marketplace. We also offer a range of services and solutions, including professional services, Reality Center® immersive visualization centers, customer support and education. These products and services are targeted primarily towards five market segments: Government and Defense, Science, Manufacturing, Energy, and Media.

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Products

        SGI® systems are designed specifically to meet the needs of the scientific, technical and creative marketplaces. SGI systems utilize either the IRIX® operating system, which is a proprietary enhanced version of UNIX® based upon the MIPS® RISC microprocessor, or the Linux® operating system based upon Intel® Itanium® 2 microprocessors. Both the MIPS/IRIX and Intel/Linux-based product lines feature our innovative SGI NUMA™ architecture and provide unique levels of performance and scalability to our customers.

        Scalable Servers    The SGI Origin® family of high-performance servers includes the Origin 3000 and Origin 300 series of systems. The Origin family of servers features the SGI NUMA architecture and IRIX operating system, as well as SGI® NUMAflex™, which allows customers to configure systems to meet their unique needs by constructing systems of modular components or "bricks". These bricks can be CPU, storage, or input/output ("I/O") components, which can be configured independently within each system. The modularity of the NUMAflex approach enables the computer system to meet the exact requirements of the customer, while maintaining optimum flexibility in meeting changing needs over time. The SGI® Altix™ 3000 family of superclusters and servers also features the SGI NUMA architecture and is based on the Linux operating system. Altix systems achieve high performance through the combination of the proven NUMAflex approach, the flexibility of open source computing and the power of up to 64 Itanium 2 processors in a single node. Altix systems of up to 128 processors each can be clustered together, a supercluster, to create supercomputers that are among the most powerful in the world today.

        Advanced Graphics Systems    For more than 20 years, Silicon Graphics has been synonymous with the most powerful and advanced computer graphics capabilities in the industry. Today, the SGI® Onyx® family of products continues that tradition, providing the greatest resolution, the most realism and the highest levels of performance in the industry. The Onyx family of systems is built on the same high-bandwidth SGI NUMA architecture as the Origin and Altix servers and features our industry-leading SGI® Onyx4™ UltimateVision™ graphics. Onyx series systems integrate high-performance computing, data management, and high-performance visualization into a single system.

SGI® Reality Center® environments are powered by SGI Onyx family systems and enable groups of decision makers to visualize complex data in an interactive manner. Customers around the world have used Reality Center environments to increase production from oil reserves, design safer cars, interpret complex scientific data and generally enable real-time decision support by immersing decision-makers in high quality, high-resolution and interactive environments.

        Visual Area Networking    In January 2002, SGI introduced a new concept called Visual Area Networking that enables customers to access, manipulate and visualize data over a standard network on their client computer using the massive I/O, compute and real-time rendering capabilities of an SGI Onyx. This means that individuals or teams can visualize data using "thin clients" that would not normally be able to access or display such a large amount of data. Visual Area Networking also facilitates collaboration between teams of remote users, since all the data is located at a central point, but multiple users can interactively manipulate and visualize the data. This new technology is particularly applicable to oil and gas discovery, manufacturing and defense applications.

        Desktop Systems    Our Silicon Graphics Fuel™ and Tezro™ families of MIPS processor and IRIX operating system-based desktop workstations each feature advanced 3D graphics and powerful integrated imaging capabilities. Silicon Graphics Fuel workstations are cost-effective single-processor systems, while the single-, dual- or quad-processor Tezro systems are targeted at users who require advanced visualization capability and the most powerful 64-bit computing available in a desktop system.

        SAN and Data Management    Customers across the high-performance computing ("HPC") markets desire ever increasing performance from their servers, creating a parallel need to manage massive

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amounts of data generated by these servers. To address the problem of managing such large amounts of complex data, SGI has developed a series of products and solutions to help customers access and utilize their data in a more efficient manner, resulting in better workflow management, faster cycle times, and higher levels of access, availability, and security.

        SGI offers a broad range of disks and disk subsystems, ranging from entry-level disk arrays to complex enterprise-class storage systems, in either direct- or fabric-attached configurations. SGI offers storage area network solutions based on tightly integrating our CXFS shared filesystem, along with SGI's FailSafe® high-availability software and Data Migration Facility ("DMF") for hierarchical storage management. SGI also offers network-attached storage through a range of file-serving solution bundles.

        Alias    Our Alias subsidiary (formerly, Alias/Wavefront) develops award-winning solutions for the film and video, game, interactive media, industrial design, and visualization markets. These solutions, Maya® software for the entertainment industry and Alias Studio™ tools for design, give artists a distinct creative advantage, no matter what their discipline. These industry-leading solutions run on the IRIX, Linux, Windows®, and Macintosh® operating systems. Alias is based in Toronto, Canada, with sales offices and distribution worldwide.

Marketing, Sales, and Distribution

        We sell our system products and solutions through both a direct sales force and indirect channel partners. In fiscal year 2003 direct sales accounted for more than half of our product revenues. The direct sales and support organization operates throughout the United States and in all significant international markets. We also have channel partners in almost all the countries in which we have a presence; in other countries, we work through an SGI authorized distributor.

        Our indirect channel partners include service providers, systems integrators, value-added resellers, independent software vendors, distributors and master resellers.

        We maintain active programs to encourage independent software development for our systems. Through our Global Developer Program we provide hardware, software, service, and marketing support benefits to attract and retain software developers and enable these developers to deliver the highest quality software and hardware products on both our IRIX and Linux platforms.

        Our Solutions Finance organization works with customers to arrange third party financing for products and services, and assists its financial partners in the remarketing of off-lease systems.

        Information with respect to international operations and export sales may be found in Note 7 to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. See also "Risks That Affect Our Business" included in Part II, Item 7 of this Form 10-K.

        No single end-user customer accounted for 10% or more of our revenues for each of the last three fiscal years.

Technology Solutions

        The quality and reliability of our products and our understanding of our customer's technical and business challenges is critical to our success. SGI's Technology Solutions portfolio offers system solution engineering services, professional and managed services, and traditional customer support and education. We provide customer support services online, through SGI global support centers and through authorized local service providers in countries where SGI does not have a local office. International distributors also provide training and support for products sold by them. We typically provide a standard hardware warranty against defects in materials and workmanship for periods of up to three years.

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Research and Development

        We are concentrating our research and development efforts on products and technologies that we believe hold the highest growth potential, including global shared memory system architectures, visualization and storage. Our strategy is to derive maximum leverage from these efforts by using a foundation of industry-standard components such as the Intel Itanium family of microprocessors and the Linux operating systems. We also continue to invest, although at a lower rate than in the past, both on a percentage and absolute dollar basis, in our own MIPS microprocessors and IRIX operating system. There are no assurances that we will maintain or create sufficient differentiation to achieve and sustain a competitive advantage.

        During fiscal 2003, 2002 and 2001, we spent approximately $171 million, $177 million and $236 million, respectively, on research and development that represented approximately 18% of total revenue in fiscal 2003 and 13% of total revenue in both fiscal 2002 and 2001. We are committed to continuing innovation and differentiation and as a result will most likely continue to make research and development investments that are above average for the computer industry as a percentage of revenue. However, declines in total revenue over the last several fiscal years have led us to reduce the absolute level of our investment in research and development.

Manufacturing

        Our manufacturing operations primarily involve assembling high level subassemblies and systems and testing major purchased subassemblies. Products are subjected to substantial environmental stress and electronic testing prior to shipment.

        During fiscal 2002, we closed our manufacturing facility located in Switzerland and relocated these manufacturing activities in our main manufacturing facility located in Chippewa Falls, Wisconsin. We continually evaluate the allocation of manufacturing activities among our own operations and those of suppliers and subcontractors.

        Most of our products incorporate components that are available from only one or limited sources. Key components that are sole-sourced include application specific integrated circuits ("ASICs"), microprocessors, storage products, especially RAID-based products, and certain cable and memory products. We have chosen to deal with sole sources in these cases because of unique technologies, economic advantages or other factors. But reliance on single or limited source vendors involves several risks, including the possibility of shortages of key components. Risks also include limited bargaining flexibility, long lead times, reduced control over delivery schedules, and the possibility of charges for excess and obsolete inventory.

        We also have single sources for less critical components, such as peripherals, communications controllers and power supplies, and monitors and chassis. We believe that in most cases we could develop alternative sources for these components if necessary. However, unexpected reductions, interruptions or price increases would, at least in the short term, adversely affect our operating results.

        Certain of our suppliers are located outside the United States. Pricing from these suppliers can be strongly affected by such factors as trade protection measures and changes in currency exchange rates. In addition, the markets for memory chips (DRAMs and SRAMs), which are a significant component of our overall systems cost, can be volatile both in terms of pricing and availability.

Competition

        The computer industry is highly competitive and is known for rapid technological advances. These advances result in frequent new product introductions, short product life cycles and increased new product capabilities, typically representing significant price/performance improvements. The principal competitive factors for us are product features, price/performance, product quality and reliability, ease

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of use, capabilities of the system software, availability of third party applications software, customer support, product availability, corporate reputation and price. Significant discounting from list price has been the norm in the industry.

        Our principal competitors are IBM, Hewlett-Packard, NEC, Cray, Sun Microsystems and, in some markets, Dell. Our unique market focus on technical and creative users provides advantages in being able to design our systems specifically for these users. Our competitors, however, are generally far larger companies with much greater resources. As our Linux-based systems business grows, the list of competitors may grow commensurate with the increased market opportunity. Specifically, Dell and other PC vendors market products that can be clustered together to produce systems that may compete with our mid-range products.

Proprietary Rights and Licenses

        We own and have applied for more than 500 U.S. patents, and will continue to protect our inventions with patents in the United States and abroad. We also hold various U.S. and foreign trademarks.

        As is customary in our industry, we license from third parties a wide range of software, including the UNIX operating system, for internal use and use by our customers.

        Our business will be affected by our success in protecting proprietary information and obtaining necessary licenses. Litigation or changes in the interpretation of intellectual property laws could expand or reduce the extent to which we or our competitors are able to protect intellectual property or could require significant changes in product design. The computer industry has seen a substantial increase in litigation with respect to intellectual property matters, and we have been engaged in several intellectual property lawsuits both as plaintiff and defendant. Although no such proceedings were pending as of June 27, 2003, we are in discussions with several parties that have asserted intellectual property infringement claims and we expect that litigation of this sort will reoccur from time to time. See "Risks That Affect Our Business".

Employees

        As of June 27, 2003, we had 3,714 regular employees compared with 4,443 at June 28, 2002. In August 2003, we effected a reduction in force that is expected to eliminate about 600 positions. Our future success will depend, in part, on our ability to continue to retain and motivate highly qualified technical, marketing and management personnel. We have never had a work stoppage, and no employees are represented by a labor union. We have workers' councils where required by European Union or other applicable laws. We believe that our employee relations are good.

Corporate Data

        SGI was originally incorporated as a California corporation in November 1981, and reincorporated as a Delaware corporation in January 1990.

ITEM 2. PROPERTIES

        SGI owns and leases sales, service, R&D, and administrative offices worldwide and has its principal facilities in California, Wisconsin and Minnesota. Our corporate headquarters and certain R&D operations are located in Mountain View, California, where we lease a total of about 868,000 square feet. Our primary manufacturing facility is located in Chippewa Falls, Wisconsin, where we own and lease about 449,000 square feet for manufacturing, service and R&D activities. We also have leased sales, administrative and R&D facilities of about 85,000 square feet in Eagan, Minnesota.

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        As a result of restructuring over the last several years, we also own and lease additional space that we do not currently expect to use in our operations. We own a facility consisting of about 170,000 square feet in Cortaillod, Switzerland that was used until December 2001 as our European manufacturing site. This property is currently being offered for sale. A portion of this facility (about 87,000 square feet) is leased to a third party company with an option to purchase. We also lease 3 other buildings near our Mountain View headquarters (about 154,000 square feet) and an additional 31 facilities worldwide (about 231,000 square feet), under leases that expire through fiscal 2010. The anticipated costs associated with these facilities, net of estimated sublease income, have been accrued in prior restructuring charges. See Note 3 to the Consolidated Financial Statements.

        On July 10, 2003, we announced that we had entered into an arrangement to sublease our Amphitheatre Technology Center campus in Mountain View, California. We will relocate our headquarters to our nearby Crittenden Technology Center campus, where we will lease additional space. In combination, these actions will substantially reduce our facilities occupancy costs beginning in fiscal 2005. For additional information regarding this sublease agreement and further restructuring actions that affect leased facilities see Note 23 to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

        Information regarding legal proceedings is set forth in Note 22 to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, which information is hereby incorporated by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

Executive Officers of the Registrant

        The executive officers of SGI and their ages as of August 31, 2003 are as follows:

Name	Age	Position and Principal Occupation	Executive Officer Since
Robert R. Bishop	60	Chairman, Chief Executive Officer and Director	1999
Warren Pratt	50	Executive Vice President and Chief Operating Officer	2000
Steve Coggins	54	Senior Vice President, Europe, Middle East & Africa	2001
Sandra M. Escher	43	Senior Vice President and General Counsel	1999
Eng Lim Goh, PhD.	43	Senior Vice President and Chief Technology Officer	2000
Kathy Lanterman	43	Vice President and Corporate Controller	2002
Bill La Rosa	57	Senior Vice President, Intercontinental Field Operations	2002
Anthony K. Robbins	43	Senior Vice President, North American Field Operations	2002
Jan Silverman	53	Senior Vice President, Strategic Technology Initiatives	2001
Jeffrey Zellmer	43	Senior Vice President and Chief Financial Officer	2000

        Executive officers of SGI are elected annually by the Board of Directors and serve at the Board's discretion. There are no family relationships among any directors, nominees for director or executive officers of SGI.

        Mr. Bishop was appointed Chairman and Chief Executive Officer of SGI in the fall of 1999. From July 1995 to February 1999, he was the Chairman of the Board of Silicon Graphics World Trade Corporation. From 1986 to 1995, he was President of Silicon Graphics World Trade Corporation.

        Mr. Pratt was appointed Chief Operating Officer of SGI in May of 2001. He has held a variety of general and engineering management positions at SGI since 1991 and was made Executive Vice

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President of Engineering and Manufacturing in May of 2000. Prior to that and beginning in 1998, he served as President and General Manager of Alias.

        Mr. Coggins was appointed Senior Vice President, Europe, the Middle East and Africa, of SGI in July 2001. Prior to joining SGI, he was senior vice president and general manager of Amdahl Europe. He had been employed by Amdahl Corporation, including five years as the marketing director of Amdahl Europe, since 1977.

        Ms. Escher was made Senior Vice President and General Counsel in May of 2001. She was appointed Vice President and General Counsel in April 1999. She joined SGI in July 1993 as Securities Counsel and served as the Director of Corporate Legal Services between September 1996 and April 1999.

        Dr. Goh was appointed Senior Vice President and Chief Technology Officer in May of 2001. He was made Vice President and Chief Technology Officer in October 2000, Vice President of global systems engineering in October of 1999, and a Chief Scientist in December 1998. He joined SGI in September 1989 and has held a variety of systems engineering positions since that time.

        Ms. Lanterman became Vice President, Corporate Controller in April 2002. She joined SGI in July 2001 as Assistant Controller. Prior to joining SGI, she consulted as a project manager at various high-tech companies including Hewlett-Packard, SGI, Fujitsu PC and Logitech. She was a consultant to SGI from April 1999 until she was hired in 2001, working on projects including the implementation of our global Enterprise Resource Planning ("ERP") system and the Cray divestiture.

        Mr. La Rosa joined SGI in September 2001 as Senior Vice President, Intercontinental (Asia Pacific and Latin America) Field Operations. Prior to joining SGI, he was senior vice president, worldwide sales, of CommVault Systems, Inc. in 2001. Prior to that, Mr. La Rosa held several executive positions in U.S. and international sales and marketing with IBM between 1992 and 2000. Before joining IBM, he was President of American Motion Systems, CEO of Lead Group International and held a number of US- and internationally-based executive management and technical positions at GE from 1967 to 1986.

        Mr. Robbins was made Senior Vice President, North American Field Operations of SGI in July 2001. He was appointed Vice President, U.S. Federal Systems in 1997 and President of SGI's Silicon Graphics Federal subsidiary upon its formation in September 1999. He has held a variety of sales and sales management positions at SGI since 1991.

        Mr. Silverman was appointed Senior Vice President, Strategic Technology Initiatives in August 2003. Prior to that, he was appointed Senior Vice President, Marketing in April of 2001. He joined SGI in May of 1999 as Vice President of server marketing. Prior to joining SGI, he held a number of marketing director and product management positions, including the head of marketing for Internet imaging operations at Hewlett-Packard from September 1996 through April 1999.

        Mr. Zellmer became Senior Vice President and Chief Financial Officer of SGI in July of 2001. He was made Vice President, Corporate Controller in July 2000. He has held a variety of financial management positions at SGI and its predecessor MIPS Computer Systems since 1988.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        SGI's common stock is traded on the New York Stock Exchange under the symbol SGI. The following table sets forth, for the periods indicated, the high, low, and close prices for the Common Stock as reported on the NYSE.

Price Range for Common Stock

	Fiscal 2003						Fiscal 2002
	Low		High		Close		Low		High		Close
First Quarter	$	0.82	$	2.82	$	0.89	$	0.32	$	1.28	$	0.46
Second Quarter	$	0.57	$	1.72	$	1.22	$	0.44	$	2.40	$	2.14
Third Quarter	$	1.12	$	1.65	$	1.65	$	2.10	$	4.61	$	4.25
Fourth Quarter	$	1.06	$	1.54	$	1.10	$	2.50	$	4.16	$	2.94

        SGI had 6,173 stockholders of record as of June 27, 2003. We have not paid any cash dividends on our common stock. As a result of our accumulated deficit position and restrictions in certain debt instruments, we do not anticipate paying cash dividends to common stockholders.

ITEM 6. SELECTED FINANCIAL DATA

        The following selected financial information has been derived from the audited consolidated financial statements. The information set forth in the table below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related footnotes included in Item 8 of this Form 10-K in order to fully understand factors that may affect the comparability of the information presented below.

		Years ended
		June 27, 2003			June 28, 2002			June 30, 2001			June 30, 2000(3)			June 30, 1999
		(in thousands, except per share amounts)
Operating Data:
Total revenue		$	961,748		$	1,341,385		$	1,854,461		$	2,331,134		$	2,748,957
Costs and expenses:
	Cost of revenue		572,814			770,412			1,247,713			1,503,525			1,603,250
	Research and development		170,937			176,893			236,240			301,248			380,346
	Selling, general and administrative		319,360			450,365			716,591			785,196			907,612
	Other operating expense (recovery)(1)		30,046			44,476			102,052			102,861			(15,107	)
Operating loss			(131,409	)		(100,761	)		(448,135	)		(361,696	)		(127,144	)
Interest and other income (expense), net(2)			(24,558	)		18,502			(18,020	)		(20,188	)		252,865
(Loss) income before income taxes		$	(155,967	)	$	(82,259	)	$	(466,155	)	$	(381,884	)	$	125,721
Net (loss) income		$	(129,704	)	$	(46,323	)	$	(493,043	)	$	(829,544	)	$	53,829

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Net (loss) income per share:
	Basic	$	(0.64	)	$	(0.24	)	$	(2.59	)	$	(4.52	)	$	0.29
	Diluted	$	(0.64	)	$	(0.24	)	$	(2.59	)	$	(4.52	)	$	0.28
Shares used in the calculation of net (loss) income per share:
	Basic		201,424			194,974			190,338			183,528			186,374
	Diluted		201,424			194,974			190,338			183,528			189,427
Balance Sheet Data:
Cash, cash equivalents and unrestricted investments		$	141,276		$	218,180		$	126,107		$	258,081		$	688,143
Restricted investments			36,728			44,689			76,853			126,408			94,226
Working capital (deficiency)			1,489			94,665			(41,884	)		58,781			869,980
Total assets			649,854			910,119			1,283,029			1,839,211			2,788,257
Long-term debt and other			383,341			427,812			412,720			385,133			387,005
Stockholders' (deficit) equity			(164,891	)		(54,641	)		(25,283	)		592,550			1,424,199
Statistical Data:
Number of employees			3,714			4,443			5,956			6,726			9,191

(1)

Fiscal 2003 amounts include net restructuring charges ($27 million) and asset impairment charges ($3 million). Fiscal 2002 amounts include net restructuring charges ($33 million) and asset impairment charges ($12 million). Fiscal 2001 amounts include net restructuring charges ($82 million) and asset impairment charges ($20 million). Fiscal 2000 amounts include net restructuring charges ($65 million) and asset impairment charges ($38 million). Fiscal 1999 amount includes a reduction in previously estimated restructuring charges ($14 million).

(2)

Fiscal 2003 amounts include net interest expense of $23 million and a $3 million other than temporary decline in the value of an investment. Fiscal 2002 amounts include a $64 million gain on sale of 60% interest in SGI Japan, Ltd. ("SGI Japan") and $24 million in class action lawsuit settlement expense. Fiscal 2001 amounts include an $83 million write-off of our investment in a private company and $50 million in gains from the sale of marketable investments. Fiscal 2000 amounts include a $8 million loss on the sale of the Cray product line. Fiscal 1999 amount includes a $273 million gain on the sale of a portion of SGI's interest in MIPS Technologies, Inc. ("MTI").

(3)

Amounts reflect the March 31, 2000 sale of our Cray product line.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        The following tables and discussion present certain financial information on a comparative basis. SGI has had declining revenue and has been unprofitable on an operating basis for each of the past six fiscal years as we have felt the impact of the slowdown in the economy, strong competition from much larger companies, technologies and product families in transition and management and employee turnover. As part of our plan to restore growth and profitability to SGI, we have restructured our overall operations, sustained gross margin levels despite a decline in revenue and significantly reduced our on-going operating expenses. Although we made some progress in fiscal 2003, we have continued to

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experience lower revenues and significant operating losses. We will continue to focus on actions intended to improve revenue levels, reduce expenses and restore long-term growth and profitability.

Results of Operations

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
	(in millions)
Total revenue	$	962		$	1,341		$	1,854
Cost of revenue		573			770			1,247
Gross profit		389			571			607
Gross profit margin		40.4	%		42.6	%		32.7	%
Total operating expenses		520			672			1,055
Operating loss		(131	)		(101	)		(448	)
Interest and other (expense) income, net		(25	)		19			(18	)
Loss before income taxes		(156	)		(82	)		(466	)
Net loss	$	(130	)	$	(46	)	$	(493	)
Net loss per share-basic and diluted	$	(0.64	)	$	(0.24	)	$	(2.59	)

Revenue

        The following discussion of revenue is based on the results of our reportable segments as described in Note 18 to the Consolidated Financial Statements. Total revenue is principally derived from three reportable segments: Servers, Workstations and Global Services, which were determined based on factors including customer base, homogeneity of products, technology, delivery channels and other factors. Effective for fiscal 2002, we reorganized our Global Services segment and removed the remanufactured systems sales from this segment. Revenue from remanufactured systems is included in the servers and workstations segments. Fiscal 2001 amounts have been reclassified to conform to the fiscal 2003 and 2002 presentation.

        Total revenue in fiscal 2003 decreased $379 million or 28% compared with fiscal 2002, and fiscal 2002 revenue decreased $513 million or 28% compared with fiscal 2001. The decline in revenue from both fiscal 2002 to fiscal 2003 and from fiscal 2001 to fiscal 2002 reflected the continued economic slowdown, a significant downturn in IT spending, strong competition from much larger companies, the impact of changing SGI Japan's status to a distribution model and other factors discussed below that affected particular product families. The decline in revenue from fiscal 2001 to fiscal 2002 also reflected the impact of discontinuing certain visualization workstations based on Pentium® III microprocessors. Revenue for fiscal 2002 included a one-time receipt of $63 million from Microsoft resulting from an agreement involving a patent cross-license and the transfer of certain of SGI's intellectual property rights. We expect certain of the factors mentioned above to continue to have an adverse impact on our future revenue levels. See "Risks That Affect Our Business."

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        The following table presents total revenue by reportable segment:

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
	(in millions)
Servers	$	367		$	517		$	748
% of total revenue		38	%		38	%		40	%
Workstations	$	151		$	237		$	397
% of total revenue		16	%		18	%		22	%
Global Services	$	383		$	457		$	598
% of total revenue		40	%		34	%		32	%
Other	$	61		$	130		$	111
% of total revenue		6	%		10	%		6	%

        Fiscal 2003 Server revenue (which includes visualization systems, high-performance servers and integrated storage solutions) decreased $150 million or 29% compared with fiscal 2002. The decline was primarily noted within the high-performance server family and to a lesser extent within the visualization systems product family. These declines reflect delays in the acquisition of technology by private sector businesses concerned about the economy as well as competitive factors including processor speeds, the suitability of low-cost cluster solutions for certain application segments, and the timing of releases of key software applications on the IRIX operating system. Reduced volumes, lower average selling prices caused by a mix shift away from richer configuration systems and the introduction of the Altix 3000 family of servers, sold at a lower price point than the Origin family of servers, contributed to the decline in high-performance server revenue compared with fiscal 2002. Although volumes increased slightly, a shift in mix from the high-end visualization systems to the lower-end visualization systems with a lower average selling price contributed to the decline in visualization system revenue. Fiscal 2002 Server revenue decreased $231 million or 31% compared with fiscal 2001. The decrease primarily reflected declines across all product families within this segment. This decline was primarily attributable to concerns about the slowdown in the economy that were causing private sector businesses to delay the acquisition of technology wherever possible. Fiscal 2002 Server revenue levels were also affected by competitive factors, including processor speeds, improvements in commodity graphics performance, the suitability of low-cost cluster solutions for certain application segments, and the late release of key software applications on the IRIX operating system. See "Risks That Affect Our Business."

        Fiscal 2003 Workstation revenue decreased $86 million or 36% compared with fiscal 2002. The decrease was primarily attributable to the continuing decline in the overall UNIX workstation market. The decline reflected reduced volumes as we completed the end of life of our O2® and Octane® families of visual workstations, partially offset by volume increases associated with the introduction of our Silicon Graphics Fuel® visual workstation in fiscal 2003. Declines in workstation revenue were also partially offset by increases in workstation overall average selling prices as the product mix shifted from the lower-end O2 workstations with lower average selling prices to Octane and Fuel workstations with higher average selling prices. Fiscal 2002 Workstation revenue decreased $160 million or 40% compared with fiscal 2001. The decrease was primarily attributable to the continuing decline in the overall UNIX workstation market. In addition, during the fourth quarter of fiscal 2001, we announced the discontinuance of certain workstations based upon Intel 32-bit microprocessors, the impact of which also contributed to the year over year decline in Workstation revenue.

        Global Services revenue is comprised of hardware and software support and maintenance and professional services. Fiscal 2003 Global Services revenue decreased $74 million or 16% compared with fiscal 2002. This decline was primarily attributable to a reduction in our traditional customer support revenue that is being affected by lower selling prices for new contracts compared with existing contracts, coupled with a decline in the overall installed base reflecting lower system sales volumes in

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recent periods. Professional Services revenue, which includes SGI product, third party product, SGI consulting services and SGI maintenance services, also declined slightly due to the same factors influencing the decline in Server, Workstation and Global Services revenue. Fiscal 2002 Global Services revenue decreased $141 million or 24% compared with fiscal 2001. This decrease was primarily attributable to declines in our Professional Services revenue as a result of the restructuring of our service organization as well as declines in traditional customer support revenue as a result of lower system sales.

        Other revenue is generally comprised of our operating units that are not reportable segments, including the product and service revenue of our application software subsidiary, Alias. Fiscal 2003 other revenue decreased $69 million or 53% principally due to the absence of a transaction similar to the fiscal 2002 receipt of $63 million from Microsoft resulting from an intellectual property agreement involving a patent cross-license and the transfer of certain of SGI's intellectual property rights. Revenue from Alias remained relatively consistent in fiscal 2003 compared to fiscal 2002. Fiscal 2002 other revenue increased $19 million or 17% compared with fiscal 2001. The increase was primarily due to the receipt of $63 million from Microsoft, offset in part by a decline in Alias revenue.

        Total revenue by geographic area for fiscal 2003, 2002 and 2001 was as follows (in millions):

	Years ended
	June 27, 2003		June 28, 2002		June 30, 2001
Area
Americas	$	609	$	839	$	1,008
Europe		238		306		437
Rest of World		115		196		409
Total revenue	$	962	$	1,341	$	1,854

        Geographic revenue as a percentage of total revenue for fiscal 2003, 2002, and 2001 was as follows:

	Years ended
	June 27, 2003		June 28, 2002		June 30, 2001
Area
Americas	63	%	63	%	54	%
Europe	25	%	23	%	24	%
Rest of World	12	%	14	%	22	%

        The fluctuation in geographic revenue as a percentage of total revenue between Europe and Rest of World business in fiscal 2003 compared with fiscal 2002 was primarily due to a decline in revenue generated in Japan caused by an overall economic decline in the Japanese economy and the impact of no longer consolidating the financial results of SGI Japan, as a result of our sale of a majority interest in that company. The fluctuation in geographic revenue as a percentage of total revenue between the Americas and Rest of World business in fiscal 2002 compared with fiscal 2001 was primarily due to the impact of no longer consolidating the revenue of SGI Japan. A decrease in sales in the Asia Pacific region in fiscal 2002 compared to fiscal 2001 also contributed to the decline in Rest of World revenue as a percentage of total revenue.

        Our consolidated backlog at June 27, 2003 was $140 million, down from $159 million at June 28, 2002. Backlog is comprised of committed purchase orders for products and professional services deliverable within three to nine months, depending on the product family. Backlog declined in both the Americas and Europe, offset slightly by a minor increase in Rest of World. From a segment standpoint, the decline was primarily noted in the workstation segment as the overall UNIX workstation market continues to decline, offset in part by an increase in Server backlog, primarily for high-performance servers and integrated storage solutions, and backlog for professional services.

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Gross Profit Margin

        Cost of product and other revenue includes costs related to product shipments, including materials, labor, overhead and other direct or allocated costs involved in their manufacture or delivery. Costs associated with non-recurring engineering revenue are included in research and development expense. Cost of service revenue includes all costs incurred in the support and maintenance of our products, as well as costs to deliver professional services.

        Overall gross profit margin decreased from 43% in fiscal 2002 to 40% in fiscal 2003. Included in fiscal 2002 results was $63 million in revenue recognized from the Microsoft intellectual property agreement recorded at 100% margin which accounted for 2.8 percentage points of the change in gross margin from fiscal 2002 to fiscal 2003. Operationally, we were able to sustain gross profit margins in fiscal 2003 compared with fiscal 2002 due to our continued improvements in manufacturing efficiencies and procurement practices. Fiscal 2003 product and other gross profit margin, excluding the Microsoft revenue noted above, declined 2.3 percentage points compared with fiscal 2002. This decline was primarily due to unfavorable product mix and lower volumes, offset in part by favorable manufacturing variances resulting from improved efficiencies in material procurement. Fiscal 2003 service gross profit margin improved 5.2 percentage points despite declining revenue levels primarily due to the restructuring of the service organization in fiscal 2002.

        Overall gross profit margin increased to 43% in fiscal 2002 compared with 33% in fiscal 2001. Included in fiscal 2002 results was $63 million in revenue recognized from the Microsoft intellectual property agreement recorded at 100% margin which accounted for 2.8 percentage points of the change in gross margin from fiscal 2001 to fiscal 2002. The remaining improvement in gross margin in fiscal 2002 was primarily attributable to decreases in manufacturing overhead expense in the second half of fiscal 2002 due to the closure of our manufacturing facility in Switzerland, the completion of the restructuring that was announced in the first quarter of fiscal 2002, and a higher margin product mix. The restructuring included the closure of our manufacturing facility in Switzerland and the reorganization of our services business, which has had a significant impact on the increase in our service margins. Gross margin improvements in fiscal 2002 were offset slightly due to deconsolidating SGI Japan during the second quarter of fiscal 2002, which negatively affects gross margin. See "Impact of SGI Japan Transaction."

Operating Expenses

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
	(in millions)
Research and development	$	171		$	177		$	236
% of total revenue		18	%		13	%		13	%
Selling, general and administrative	$	319		$	450		$	717
% of total revenue		33	%		34	%		39	%
Other	$	30		$	44		$	102
% of total revenue		3	%		3	%		6	%

        Total fiscal 2003 operating expenses decreased $151 million or 23% compared with fiscal 2002. Fiscal 2003 operating expenses included $30 million of charges for restructuring and asset impairment costs. The significant decline in operating expenses was due to an overall expense reduction program aimed at bringing expenses in line with lower revenue levels. Total fiscal 2002 operating expenses decreased $383 million or 36% compared with fiscal 2001. Fiscal 2002 operating expenses included $44 million of charges for restructuring and asset impairment costs. Fiscal 2001 operating expenses included $102 million of charges for restructuring and asset impairment and $18 million of charges as a result of the implementation of an ERP system and costs associated with a business reorganization.

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        Research and development    Fiscal 2003 research and development spending decreased $6 million or 3% compared with fiscal 2002. The fiscal 2003 decrease reflects a 7% decline in headcount and an overall reduction in research and development activities as a result of continued restructuring actions in order to align expenses with lower revenue levels. Research and development spending decreased $59 million or 25% in fiscal 2002 compared with fiscal 2001. The fiscal 2002 decrease reflected similar factors.

        Selling, general and administrative    Fiscal 2003 selling, general and administrative expenses decreased $131 million or 29% compared with fiscal 2002. This decrease in operating expenses resulted primarily from a 14% decline in headcount as a result of restructuring and personnel attrition, and the impact of our overall expense control measures aimed at bringing operating expenses more in line with revenues. Selling, general and administrative expenses decreased $267 million or 37% in fiscal 2002 compared with fiscal 2001. The fiscal 2002 decrease reflected reduced headcount as a result of restructuring activities and attrition, significantly reduced commission and outside service expenses and the impact of our overall expense control measures aimed at bringing operating expenses more in line with revenues.

        Other operating expense    Other operating expense for fiscal 2003 represented a charge for estimated restructuring of $29 million and charges of $3 million associated with the impairment of assets, partially offset by $2 million of adjustments to previously recorded restructuring charges. Other operating expense for fiscal 2002 represented a charge for estimated restructuring of $46 million and charges of $12 million associated with the impairment of assets, partially offset by adjustments to previously recorded restructuring charges of $13 million. Other operating expense for fiscal 2001 represented a charge for estimated restructuring of $88 million and charges of $20 million associated with the impairment of assets, partially offset by $6 million of adjustments to previously recorded restructuring charges. As a result of these restructuring actions, we anticipate cash outflows of $7 million through fiscal 2004 for severance and related charges and $25 million through fiscal 2010 for facilities related expenditures, net of estimated sublease income. See Note 3, "Other Operating Expense," for further information regarding these activities And Note 23 to the Consolidated Financial Statements for restructuring activities initiated in August 2003.

Interest and Other

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
	(in thousands)
Interest Expense	$	(27,143	)	$	(22,959	)	$	(19,807	)
Foreign exchange gain (loss)	$	2,078		$	(7,780	)	$	(7,519	)
Miscellaneous income (expense)		(974	)		48,329			(54,112	)
Investment gain (loss)		(2,981	)		(4,363	)		47,283
Interest income		4,462			5,275			16,135
Total Interest income and other, net	$	2,585		$	41,461		$	1,787

        Interest Expense    Interest expense increased 18% in fiscal 2003 compared with fiscal 2002 primarily due to the full year impact of higher interest rates on our Yen-based loan, which was restructured in mid-fiscal 2002, as well as interest expense resulting from the inclusion of a prior year tax refund in taxable income. Interest expense increased 16% in fiscal 2002 compared with fiscal 2001 primarily due to a full year of interest expense associated with our financing arrangement (see Note 11) and higher interest associated with the reset interest rate on our restructured Yen-based loan compared with fiscal 2001 (see Note 6).

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        Interest Income and Other, Net    Interest income and other, net includes interest income on our cash investments, gains and losses on other investments, and other non-operating items. Interest income and other, net for fiscal 2003 included the receipt of $2 million associated with an investment tax credit refund, $2 million in minority interest income related to our interest in SGI Japan, a $2.5 million impairment charge against an investment held at cost and a $6 million overall loss on the sale of certain parcels of land that occurred throughout the fiscal year. Interest income and other, net for fiscal 2002 included a $64 million gain from the sale of 60% of our interest in SGI Japan recognized in the second quarter of fiscal 2002, a charge of $24 million for the settlement of a securities class action lawsuit involving a payment of $4 million in cash and the issuance of 8 million shares of common stock and a $4 million loss on the sale of a building recognized in the first quarter of fiscal 2002.

Provision for Income Taxes

        Our net benefit for income taxes for fiscal 2003 totaled $26 million and arose principally from the reassessment of our global tax exposures as well as the receipt of income tax refunds related to prior fiscal years. We did not recognize a benefit for our fiscal 2003 loss, since the resulting deferred tax asset does not meet the criteria for realization under SFAS No. 109.

        Our net benefit for income taxes for fiscal 2002 totaled $36 million, which arose principally from a change in the U.S. income tax laws, which resulted in additional U.S. income tax refunds related to the operating results of fiscal 2001. Partially offsetting this federal income tax benefit are various provisions for income taxes payable in state and foreign jurisdictions. We did not recognize a benefit for our fiscal 2002 loss, since the resulting deferred tax asset does not meet the realizability criteria under SFAS No. 109.

        At June 27, 2003, we had gross deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $804 million. The gross deferred tax assets are offset by a valuation allowance of $727 million and deferred tax liabilities of $79 million. The valuation allowance of $727 million includes $23 million attributable to benefits of stock option deductions, which, if recognized, will be allocated directly to paid-in-capital.

        At June 27, 2003, we had United States federal, state, and foreign jurisdictional net operating loss carryforwards of approximately $1.3 billion, $333 million and $200 million, respectively. The federal losses will begin expiring in fiscal year 2010, the state losses will begin expiring in fiscal 2005, and the foreign losses will begin expiring in fiscal year 2004. At June 27, 2003, we also had general business credit carryovers of approximately $43 million for United States federal tax purposes, which will begin expiring in fiscal year 2004, and state R&D credits of $29 million, which do not have fixed expiration dates.

Impact of SGI Japan Transaction

        During the second quarter of fiscal 2002, we sold a 60% equity interest in SGI Japan to NEC and NEC Soft. This transaction affected our fiscal 2002 results in several ways. As a minority shareholder, we no longer consolidate the financial results of SGI Japan. We also recognize revenue based on the contractual distribution price of products sold to SGI Japan, which for the initial term of our distribution agreement is based on historical pricing. Gross margins are negatively affected by the shift to distributor pricing, which is lower than the price to ultimate customers, offset to some extent by the amortization of the deferred revenue of $10 million that was allocated to the estimated fair value of the exclusive distribution agreement. This deferred revenue is being recognized as revenue over the three-year period beginning in the third quarter of fiscal 2002.

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Financial Condition

        At June 27, 2003, cash and cash equivalents and marketable investments totaled $141 million compared with $218 million at June 28, 2002. Also, included in the balance sheet at June 27, 2003 and June 28, 2002 is approximately $37 million and $45 million, respectively, of restricted investments. Restricted investments at June 27, 2003 and June 28, 2002 consist of short- and long-term investments pledged as collateral against bank credit facilities. The decrease in cash and cash equivalents compared with the prior year is primarily the result of our fiscal 2003 operating and investing activities. Fiscal 2002 cash and cash equivalents and marketable investments increased by $88 million due principally to the sale 60% of our interest in SGI Japan and corporate real estate assets and the $63 million in revenue generated from the Microsoft transaction, which along with strong working capital management, offset a $101 million loss from operations.

        Primarily as a result of net losses, operating activities used $42 million in cash in fiscal 2003, compared with using $13 million and $282 million in fiscal 2002 and 2001, respectively. Operating cash flows for fiscal 2002 benefited from $63 million in revenue from the Microsoft intellectual property agreement that was received in the first quarter. To present cash flows from operating activities, net loss for each of the past three years had to be adjusted for certain significant items. Fiscal 2003 net loss was adjusted to remove the impact of the $30 million restructuring charge. Fiscal 2002 net loss is adjusted to remove the impact of the $45 million restructuring charge and a gain of $64 million from the sale of the 60% interest in SGI Japan that was reflected as a cash flow from investing activities. Fiscal 2001 net loss is adjusted to remove the impact of the $102 million restructuring charge, a non-cash charge of $83 million for the write-off of an investment in a private company and a gain of $50 million on the sale of marketable investments that is reflected as a cash flow from investing activities.

        The negative operating cash flow in fiscal 2003 was partially due to approximately $39 million in cash payments for severance, contractual obligations and facilities obligations related to restructuring activities. These restructuring actions are expected to result in additional future cash outlays of approximately $32 million, of which approximately $19 million are projected to occur in fiscal 2004. The negative operating cash flows in both fiscal 2003 and fiscal 2002 were partially offset by a decrease in accounts receivable attributable to lower revenue levels coupled with increased focus on customer cash collections and decreased inventory levels. Due to enhanced visibility provided through our global ERP system, we have been able to improve cash management programs to more effectively manage the timing of collections and disbursements within normal business cycles. As a result of these programs, our days sales outstanding improved from an average of 74 days in fiscal 2001 to 61 and 50 days in fiscal 2002 and fiscal 2003, respectively. Our investments in inventory have decreased in the past two fiscal years as our revenue levels have declined. Inventory turnover improved 31% and 5% in fiscal 2003 and fiscal 2002, respectively, compared with the prior periods.

        Investing activities, other than changes in our marketable and restricted investments, consumed $36 million in cash during fiscal 2003. The principal investing activities during fiscal 2003 consisted of increases in prepaid software licenses, equity income resulting from our investment in SGI Japan and capital expenditures of $19 million, offset in part by $8 million in proceeds received from the sale of land. Investing activities, other than changes in our marketable and restricted investments, provided $78 million in cash during fiscal 2002. The principal investing activity during fiscal 2002 was the sale of a 60% interest in SGI Japan for proceeds of $91 million and the sale of corporate real estate and other assets for proceeds of $29 million. These proceeds were offset in part by capital expenditures of $28 million in fiscal 2002. Investing activities, other than changes in our marketable and restricted investments, provided $194 million in cash during fiscal 2001. The principal investing activity during fiscal 2001 was the sale of certain corporate real estate for total cash proceeds of $278 million. These proceeds were partially offset by $139 million of capital expenditures, including capitalized costs associated with our global ERP system.

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        Financing activities over the past three years have included the issuance of common stock under employee stock purchase and option plans, the repurchase of common stock and the repayment of debt. Financing activities during fiscal 2003 consumed $8 million compared with using $5 million during fiscal 2002 and providing $11 million during fiscal 2001. Principal financing activities during the fiscal 2003 included $11 million in debt payments, partially offset by $3 million in proceeds from the sale of common stock through the employee stock purchase plan and employee stock options. The principal financing activity during fiscal 2002 included the retirement of a $13 million mortgage on our manufacturing facility in Switzerland and the non-cash restructuring of the yen denominated debt from $50 million to $37 million in the second quarter in conjunction with the sale of a majority equity interest in SGI Japan.

        We have incurred net losses and negative cash flows from operations during each of the past several fiscal years. At June 27, 2003, our principal sources of liquidity included unrestricted cash and marketable investments of $141 million, down from $218 million at June 28, 2002. For the year ended June 27, 2003, we used $42 million in cash from operations. We expect to continue to consume cash from operations through the first half of fiscal 2004. We also experience significant intra-quarter fluctuations in our cash levels due to timing differences between our payments to vendors and our collections from customers, with the result that our cash balances are generally at their highest point at the end of each quarter and significantly lower at other times. As a result, we continue to focus on expense controls and working capital efficiencies to maintain adequate levels of unrestricted cash within each quarter. We also are exploring alternatives for generating additional cash through financing transactions and dispositions of non-core assets. For example, in September 2003 we completed the sale of our facility in Cortaillod, Switzerland for net cash proceeds of approximately $10.5 million.

        We are committed to our goal of re-establishing profitable operations and positive cash flow. While a forecast of future events is inherently uncertain, we believe that the combination of our current resources and cash expected to be generated from our fiscal 2004 financial plan will be sufficient to meet our financial obligations through fiscal 2004. If we experience a material shortfall versus our plan for fiscal 2004, we will take all appropriate actions to ensure the continued operation of our business and to mitigate any negative impact on our profitability and cash reserves. We have a range of actions we can take to achieve this outcome, including but not limited to expense-related actions such as further reductions in headcount-related expenses, additional consolidation of administrative functions, re-evaluation of our global distribution model, and delayed implementation of information systems initiatives. We also can take actions to generate cash by selling non-core businesses, licensing intellectual property, seeking funding from marketing partners and key government customers, and seeking further equity or debt financing from strategic partners or financial sources. See "Risks That Affect Our Business."

        We have approximately $230 million of 5.25% senior convertible notes that will mature in September 2004. If we are not able to restructure a substantial portion of these notes to extend the maturity on terms satisfactory to our secured lender by March 2004, our secured credit facility will become due in June 2004. At June 27, 2003, our obligation under this facility, net of restricted cash collateral, was $25 million.

        During fiscal 2003 we commenced an exchange offer with the goal of exchanging new debt securities maturing in 2009 for the outstanding 2004 notes. Although the exchange offer as amended was supported by the holders of approximately 71% of the 2004 notes, we did not achieve the 85% participation level upon which the offer was conditioned, and so we withdrew the offer in August 2003. We are continuing our dialogue with the principal holders with the goal of exchanging a substantial majority of the 2004 notes for notes with a later maturity. It is likely that these new notes would carry significantly higher interest rates than the 2004 notes and, to the extent that they are convertible obligations, would involve a conversion price close to our recent stock price of approximately $1.00.

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The nonconvertible notes offered in our recent exchange offer, for example, had an interest rate of 11.75%.

        As of June 27, 2003, future payments due under debt and lease obligations, including facilities vacated as part of our restructuring activities and excluding the benefit of sublease income on our vacated facilities, are as follows (in thousands):

Fiscal year ended	2004		2005		2006		2007		2008		Thereafter		Total
10% loan payable to SGI Japan due December 2004 (payable in quarterly installments)	$	16,894	$	12,669	$	—	$	—	$	—	$	—	$	29,563
5.25% Senior Convertible Notes due September 2004		—		230,591		—		—		—		—		230,591
6.125% Convertible Subordinated Debentures due February 2011		—		—		—		5,026		5,750		46,000		56,776
Non-cancelable operating leases		49,092		44,513		33,386		27,896		26,047		106,226		287,160
Total	$	65,986	$	287,773	$	33,386	$	32,922	$	31,797	$	152,226	$	604,090

        Included in the above table under non-cancelable operating leases are lease payments associated with our Amphitheatre Technology Center campus for which we entered into an agreement to sublease on July 10, 2003. In addition, the table does not reflect the lease payments for the space we will relocate to on the Crittenden Technology Center campus. Adjusting for the impact of this agreement, the non-cancelable operating lease payments, excluding the benefit of any sublease income, would be as follows (in thousands): 2004—$49,092; 2005—$49,438; 2006—$43,225; 2007—$37,421; 2008—$35,858 and $159,876 thereafter.

Critical Accounting Policies and Estimates

        SGI's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate these estimates, including: those related to customer programs and incentives; product returns; bad debts; inventories; warranty obligations; impairment of long-lived assets and intangibles; and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

        Management has discussed the development and selection of the following critical accounting policies and estimates with the audit committee of our board of directors and the audit committee has reviewed our disclosures relating to them.

        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. For all these policies, we caution that future events often do not develop exactly as forecasted, and that even the best estimates routinely require adjustment.

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        Revenue Recognition.    A majority of our revenue is derived from sales that are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectibility is reasonably assured. Certain revenue is generated from high performance systems that may include customer acceptance criteria and for which revenue is deferred until such acceptance is obtained. Certain revenue is generated on contracts that are longer-term in duration. In these instances, we typically recognize revenue as work progresses using the percentage-of-completion method of accounting. A small portion of our product revenue is derived from product sales that require estimates for sales returns and other allowances at the time of revenue recognition. These estimates are based on historical information, current economic trends and other factors. If the data used to calculate these estimates does not properly anticipate future returns and allowances, revenue could be misstated. To date, actual experience has been consistent with our estimates.

        Product Warranties.    We provide for the estimated cost to warrant our products against defects in materials and workmanship at the time revenue is recognized. We estimate our warranty obligation based on factors such as product lifecycle analysis and historical experience, and our estimate is affected by data such as product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. On a quarterly basis, these estimates are reviewed and adjusted as considered necessary based on the factors noted above.

        Manufacturing Inventory and Spare Parts.    We write down our manufacturing inventory for estimated excess, obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value. At the end of each quarter, we perform an in depth excess and obsolete analysis of all manufacturing inventory parts on order and on hand based upon assumptions about future demand and current market conditions. For all spare parts on hand, our analysis is based on assumptions about product life cycles, historical usage, current production status and installed base. Additional adjustments to manufacturing inventory and parts may be required if actual market conditions are less favorable than those projected by us during the analyses.

        Bad Debts.    We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. When we become aware of a specific customer's inability to pay their outstanding obligation for reasons such as a deterioration in their operating results or financial position or bankruptcy proceedings, we record a specific reserve for bad debt to reduce their receivable to an amount we reasonably believe is collectible. If the financial condition of specific customers were to change, our estimates of the recoverability of receivables could be further adjusted. We also record allowances for doubtful accounts for all other customers based on a variety of factors including the length of time the receivables are past due and historical experience. On a quarterly basis, these estimates are reviewed and adjusted as considered necessary based on the criteria noted above.

        Restructuring.    In recent fiscal years, we have recorded significant accruals in connection with our restructuring programs. These accruals include estimates of employee separation costs and the settlements of contractual obligations, including lease terminations resulting from our actions. Accruals associated with vacated facilities and related asset impairments are estimated in accordance with SFAS No. 5, "Accounting for Contingencies". Estimates may be adjusted upward or downward upon occurrence of a future triggering event. Triggering events may include, but are not limited to, changes in estimated time to sublease, sublease terms and sublease rates. Due to the extended contractual obligations of certain of these leases and the inherent volatility of commercial real estate markets, we expect to make future adjustments to these vacated facilities accruals.

        Income Taxes.    Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from temporary

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differences and carryforwards. We regularly assess the likelihood that our deferred tax assets will be realized from recoverable income taxes or recovered from future taxable income based on the realization criteria set forth under SFAS 109, "Accounting for Income Taxes," and we record a valuation allowance to reduce our deferred tax assets to the amount that we believe to be more likely than not realizable. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

        Loss Contingencies.    We record an obligation for loss contingencies when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Contingent liabilities are often resolved over long time periods and there is a reasonable probability that the ultimate loss will differ from and perhaps exceed the recorded provision. Estimating probable losses requires analysis of multiple factors that often depend on judgments about the outcome of pending lawsuits and potential actions by third parties including government agencies.

        Long-Term Investments.    We hold or have held investments in other companies, which are accounted for under either the cost method or equity method of accounting and we monitor these investments for indicators of impairment. Some of these investments could be in companies that are publicly traded and have volatile share prices, while other investments could be in companies that are not publicly traded and therefore the fair value may be difficult to determine. Many of our investments in non-publicly traded companies represent emerging technology companies which are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon factors such as liquidation values, the values of recent rounds of financing, or quoted market prices of comparable public companies. To determine whether a decline in value is other-than-temporary, we evaluate, among other factors, the duration and extent to which the fair value has been less than the carrying value and the financial health of and specific prospects for the company.

        Other Significant Accounting Policies.    Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements. Policies regarding financial instruments, stock-based compensation and consolidation require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Certain of these matters are among topics currently under reexamination by accounting standards setters and regulators. Although no specific conclusions reached by these standards setters appear likely to cause a material change in our accounting policies, outcomes cannot be predicted with confidence.

Recent Accounting Pronouncements

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between Statement 146 and

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Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability for a cost associated with an exit or disposal activity should be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS 146 is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS146, in certain cases, would be recognized in future periods as certain events occur rather than up front. The FASB decided that if the benefit arrangement requires employees to render future service beyond a "minimum retention period," a liability should be recognized as employees render service over the future service period even if the benefit formula used to calculate an employee's termination benefit is based on length of service. Contract termination costs under SFAS 146 would be recognized and measured at their fair value when an entity terminates the contract in accordance with the contract terms. Contract costs that will continue to be incurred under a contract for its remaining term without economic benefit to an entity would be recognized and measured at its fair value when the entity ceases using the right conveyed by the contract, for example, the right to use a leased property. Under SFAS 146, a liability for future lease obligations, reduced by actual or estimated sublease rentals, would be recognized and measured at its fair value at the cease-use date, rather than being accrued at the date of an entity's commitment to an exit plan under Issue 94-3. We adopted the provisions of SFAS 146 in connection with restructuring activities initiated after December 31, 2002.

        In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which clarifies the requirements for a guarantor's accounting and disclosures of certain guarantees issued and outstanding. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. Consistent with the Interpretation, we have adopted the requirements in this Annual Report on Form 10-K. The adoption of Interpretation 45 did not have a material impact on our consolidated financial position, results of operations or cash flows.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition & Disclosure"—an Amendment of SFAS No. 123. This Statement provides three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The new disclosure requirements of SFAS 148 related to interim financial information are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Consistent with the Statement, we have adopted all disclosure requirements in this Form 10-K.

        In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". The Interpretation establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. Interpretation 46 applies to any business enterprise, both public and private, that has a

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controlling interest, contractual relationship or other business relationship with a variable interest entity. The provisions of Interpretation No. 46 are effective immediately for all variable interests in variable interest entities created after January 31, 2003 and no later than the first fiscal period beginning after June 15, 2003 for all variable interests in variable interest entities created before February 1, 2003. The adoption of Interpretation 46 did not have a material impact on our consolidated financial position, results of operations or cash flows. If we enter into any such arrangement with a variable interest entity in the future, our consolidated financial position or results of operations may be adversely impacted.

        In March 2003, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on accounting for arrangements involving the delivery or performance of multiple products, services and/or rights to use assets. Specifically, EITF 00-21 addresses: (1) how to determine whether an arrangement with multiple deliverables contains more than one unit of accounting, and (2) how the arrangement consideration should be measured and allocated among the separate units of accounting. The provisions of Issue 00-21 are effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We believe that the adoption of EITF 00-21 will not have a material impact on our results of operations or financial position.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Most of the provisions of SFAS 149 should be applied prospectively. We believe the adoption of SFAS 149 will have no impact on our results of operations or financial position.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which establishes standards for how an entity classifies and measures certain financial instruments with both the characteristics of a liability and equity. The Statement requires that an issuer classify a financial instrument that is within its scope as a liability, while many of these instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We believe the adoption of SFAS 150 will have no impact on our results of operations or financial position.

Risks That Affect Our Business

        SGI operates in a rapidly changing environment that involves a number of risks, some of which are beyond our control.

        We have recently introduced a number of new products, including the SGI Altix product family, but we cannot assure you they will achieve market acceptance.    In January 2003, we introduced the SGI Altix family of servers and superclusters based on the Intel® Itanium® 2 processor and the Linux® operating system. Risks associated with this new product line include dependence on Intel in terms of price, supply, performance, and product roadmaps; the availability of Linux applications optimized for the 64-bit Itanium platform or our scalable systems architecture; acceptance of the Linux operating system in demanding environments; and competition from other suppliers of Intel-based servers. There can be no assurance that this new product line will achieve market acceptance or provide significant incremental revenue. In July 2003, we introduced new highly scalable visualization products.Our ability to achieve future revenue growth will depend significantly on the market success of these products. If one or more of the product lines were to fail in the market, it could have an adverse effect on our business.

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        We are concentrating our R&D investments.    As an increasing percentage of our R&D and marketing budget is devoted to potential growth areas, including the SGI Altix family, visualization and storage, a declining amount both in percentage and absolute terms is being devoted to the traditional MIPS/IRIX products, which continue to supply the bulk of our revenue. Managing this transition without unduly compromising the competitiveness of the MIPS/IRIX family and the quality of support received by customers will be key to our success. There can be no assurance that this transition will not impair our customer relationships and our competitive position.

        We have been incurring losses and consuming cash in our operations and must reverse these trends and generate cash from other sources in fiscal 2004.    We have incurred net losses and negative cash flows from operations during each of the past several fiscal years. At June 27, 2003, our principal sources of liquidity included unrestricted cash and marketable investments of $141 million, down from $218 million at June 28, 2002. We expect to continue to consume cash from operations through the first half of fiscal 2004. Due to the significant intra-quarter fluctuations in our cash levels that result from timing differences between our payments to vendors and our collections from customers, our cash levels tend to be at their highest at the end of the quarter. As a result, we continue to focus on expense controls and working capital efficiencies to maintain adequate cash levels. We also are exploring alternatives for generating cash through financing transactions and dispositions of non-core assets and will consider a range of alternatives in the event of a material revenue shortfall. See "Financial Condition." If we fail to reduce the cash consumption from operations and to generate cash from these other sources on a timely basis, or if the cash requirements of our business change as the result of changes in terms from vendors or other causes, we could no longer have the cash resources required to run our business.

        We must restructure most or all of our senior convertible notes before their maturity in September 2004.    We have approximately $231 million of 5.25% senior convertible notes that will mature in September 2004. Following our withdrawal in August 2003 of an exchange offer for the notes, we are continuing our dialogue with the principal holders with the goal of exchanging a substantial majority of the 2004 notes for bonds with a later maturity. We cannot assure that we will be able to complete this restructuring at all or on terms that will be favorable to our shareholders or us. It is likely that these new bonds would carry significantly higher interest rates than the 2004 bonds and, to the extent that they are convertible obligations, would involve a conversion price close to our recent stock price of approximately $1.00. The nonconvertible bonds offered in our recently withdrawn exchange offer, for example, carried an interest rate of 11.75%. Our secured credit facility will become due and payable in June 2004 if the restructuring of the 2004 notes is not completed by March 2004 on terms satisfactory to our secured lender.

        We may not be able to obtain additional capital when needed.    We have an asset-based credit facility that may be declared to be in default if we fail to meet certain financial and other covenants. This facility matures in April 2005, subject to acceleration upon various events of default or the failure to successfully extend the maturity of of our senior convertible notes due September 2004 on terms satisfactory to the secured lender on or before March 5, 2004. The facility is secured by our U.S. and Canadian accounts receivable, U.S. inventory and equipment, the pledge of certain intellectual property and $10 million cash collateral. We also deposit additional cash when eligible accounts receivable and other collateral, which fluctuate within the quarter, are below the level needed to secure our letters of credit. At June 27, 2003, this facility was secured by a total of $21 million cash collateral. We obtained waivers of compliance with the covenants of the facility from the lenders in the first, third and fourth quarters of fiscal 2003 and the second, third and fourth quarters of fiscal 2002. If we are not able to comply with the financial and other covenants of this facility or there is a material adverse change impairing our ability to repay the outstanding balance, the facility may be declared to be in default. If a default is declared and not waived or if the facility matures and is not renewed, we may not be able to obtain alternative sources of financing on acceptable terms.

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        In the future, we may need to obtain additional financing to fund our business or repay our debt, and there can be no assurance that financing will be available in amounts or on terms acceptable to us. In addition, if funds are raised through further incurrence of debt, our operations and finances may become subject to further restrictions and we may be required to limit our service or product development activities or other operations, or otherwise modify our business strategy. If we obtain additional funds by selling any of our equity securities or if we issue equity derivative securities in connection with obtaining debt financing, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights, preferences or privileges senior to the common stock.

        We may become involved in intellectual property disputes.    We routinely receive communications from third parties asserting patent or other rights covering our products and technologies. Based upon our evaluation, we may take no action or may seek to obtain a license. We are in discussions with several parties that have asserted intellectual property infringement claims. In any given case there is a risk that a license will not be available on terms that we consider reasonable, or that litigation will ensue. We expect that, as the number of hardware and software patents issued continues to increase, and as competition in the markets we address intensifies, the volume of these intellectual property claims will also increase.

        In addition, our increasing visibility as a supplier of Linux-based systems and as a participant in the open source software movement increases our risk of becoming embroiled in the intellectual property disputes concerning these subjects, such as the current widely reported litigations between SCO Group on the one hand and IBM and Red Hat on the other. We recently received a notice from SCO Group stating its intention to terminate our fully paid license to certain UNIX-related code, under which we distribute our IRIX operating system, on the basis that we have breached the terms of such license. We believe that the SCO Group's allegations are without merit and that our fully paid license is nonterminable. Nonetheless, there can be no assurance that this dispute with SCO Group will not escalate into litigation, which could have a material adverse effect on SGI, or that SCO Group's intellectual property claims will not impair the market acceptance of the Linux operating system.

        We are increasingly dependent on partners and suppliers.    Our business has always involved close collaboration with partners and suppliers. However, many elements of our current business strategy, including the recent addition of scalable servers based on Itanium 2 processors and the Linux operating system, will increase our dependence on Intel and other partners, and on our manufacturing partners and other component suppliers. Our business could be adversely affected, for example, if Intel fails to meet product release schedules, if we experience supply constraints, or if we experience any other interruption or delay in the supply chain. The competitiveness of our system products, particularly our servers, is significantly affected by the availability on our platform of third-party software applications that are important to customers in our target markets. Our ability to work with our software partners to ensure porting of these applications to our IRIX operating system and to Linux is a key factor to our business success.

        We are dependent on sales to the U.S. government.    A significant portion of our revenue is derived from sales to the U.S. government, either directly by us or through system integrators and other resellers. Sales to the government present risks in addition to those involved in sales to commercial customers, including potential disruptions due to appropriation and spending patterns. The U.S. government can typically terminate or modify its contracts with us at any time for its convenience. Any disruption or limitation in our ability to do business with the U.S. Government could have an adverse impact on SGI.

        A portion of our business requires security clearances from the U.S. government. We have implemented measures to maintain our clearances in light of the fact that our Chairman and Chief

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Executive Officer, Robert Bishop, is an Australian citizen. These arrangements are subject to periodic review by customer agencies and the Defense Security Service of the Department of Defense.

        Our business experiences period-to-period fluctuations in operating results.    Our operating results may fluctuate for a number of reasons. Delivery cycles, other than those for large-scale server products, are typically short. Over half of each quarter's product revenue results from orders booked and shipped during the third month, and disproportionately in the latter half of that month. These factors make the forecasting of revenue inherently uncertain. Because we plan our operating expenses, many of which are relatively fixed in the short term, on expected revenue, even a relatively small revenue shortfall may cause a period's results to be substantially below expectations. Such a revenue shortfall could arise from any number of factors, including lower than expected demand, supply constraints, delays in the availability of new products, transit interruptions, overall economic conditions, military or terrorist actions, or natural disasters. Demand can also be adversely affected by concerns specifically associated with our financial health, and by product and technology transition announcements by SGI or our competitors. The timing of customer acceptance of certain large-scale server products may also have a significant effect on periodic operating results. Margins are heavily influenced by revenue levels, mix considerations, including geographic concentrations, the mix of product and service revenue, and the mix of server and desktop product revenue as well as the mix of configurations within these product categories.

        The present global economic uncertainty has impacted the timing of buying decisions of our customers. Unless and until the global economic environment becomes more positive it will be difficult for us to experience growth in revenue.

        Many of our international sales require export licenses.    Our sales to foreign customers are subject to export regulations. Sales of many of our high-end products require clearance and export licenses from the U.S. Department of Commerce under these regulations. Our international sales would be adversely affected if such regulations were tightened, or if they are not modified over time to reflect the increasing performance of our products.

        In December 2002 we reached agreements with the U.S. Departments of Commerce and Justice to settle civil and criminal export licensing issues related to the sale of four deskside computers in 1996 to a Russian government laboratory, as well as administrative claims related to sales to other countries. Although there can be no assurance that the settlement will not have an adverse effect on our U.S. government business, we do not believe the settlement should have a significant impact on revenues or important customer relationships.

        The Swiss authorities are investigating compliance with their export regulations in connection with exports from the Swiss manufacturing facility we closed during the second quarter of fiscal 2002. We believe that this matter will be resolved without a significant adverse effect on our business, operating results or financial condition.

        We may not be able to develop and introduce new products on a timely basis.    Meeting our objectives for the future will require that our recently introduced products achieve success in the marketplace and that we succeed in the timely development and introduction of more successful new products. Product transitions are a recurring part of our business. A number of risks are inherent in this process.

        The development of new technology and products is increasingly complex and uncertain, which increases the risk of delays. The introduction of new computer systems requires close collaboration and continued technological advancement involving multiple hardware and software design teams, internal manufacturing teams, outside suppliers of key components such as semiconductors and outsource manufacturing partners. The failure of any one of these elements could cause our products under development to fail to meet specifications or to miss the aggressive timetables that we establish. There

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is no assurance that development or acceptance of our new systems will not be affected by delays in this process.

        Short product life cycles place a premium on our ability to manage the transition to new products. We often announce new products in the early part of a quarter while the product is in the final stages of development and testing, and seek to manufacture and ship the product in volume during the same quarter. Our results could be adversely affected by such factors as development delays, the release of products to manufacturing late in any quarter, quality or yield problems experienced by suppliers, variations in product costs and excess inventories of older products and components. In addition, some customers may delay purchasing existing products in anticipation of new product introductions.

        Most products are upgraded during their product life cycle. The ability to upgrade products in a timely fashion is necessary to compete in the computer industry. Delay in introducing updates and upgrades can adversely affect acceptance and demand for product.

        Downward fluctuations in the price of our common stock may cause our common stock to be delisted.    On October 24, 2002 we were notified by the New York Stock Exchange that we were not in compliance with its requirement that listed securities trade at a minimum per share price of $1.00 averaged over a thirty day trading period. Our stock price subsequently recovered, but if it were to decline again and not recover, the NYSE could terminate the listing of our common stock. As of September 23, 2003, the 30-day trading average of our stock was $1.04. Declines in the price of our common stock may be caused by our failure to meet the investment community's expectations for quarterly revenue or earnings or by broader market trends unrelated to our performance. Delisting would adversely affect the liquidity and market price of our common stock.

        We operate in a highly competitive industry.    The computer industry is highly competitive, with rapid technological advances and constantly improving price/performance. Most of our competitors have substantially greater technical, marketing and financial resources. They also generally have a larger installed base of customers and a wider range of available applications software. Competition may result in significant discounting and lower gross margins.

        We may not be able to retain and attract qualified employees.    Our success depends on our ability to continue to attract, retain and motivate highly qualified technical, sales and marketing and management personnel. The uncertainties surrounding our business prospects and our continuing restructuring actions have increased the challenges of retaining world-class talent. We implemented further restructuring actions during fiscal 2003 and the first quarter of fiscal 2004. As we continue to work through the turnaround process, there is no guarantee that we will not lose highly qualified employees or that we will be able to hire highly qualified candidates as new skills are needed.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        In the normal course of business, our financial position is routinely subjected to a variety of risks, including market risk associated with interest rate movements and currency rate movements on non-U.S. dollar denominated assets and liabilities, as well as the collectibility of accounts receivable. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures. As a result, we do not anticipate material losses in these areas.

        Our exposure to interest rate risk relates primarily to our investment portfolio and our convertible subordinated notes. Fixed rate securities and borrowings may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

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        The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest our excess cash in high quality money market instruments and debt instruments and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than three years.

        For purposes of specific risk analysis, we use sensitivity analysis to determine the impact that market risk exposures may have on the fair values of our debt and financial instruments. The financial instruments included in the sensitivity analysis consist of all of our cash and cash equivalents, marketable investments, short-term and long-term debt and all derivative financial instruments. Currency forward contracts and currency options constitute our portfolio of derivative financial instruments.

        To perform sensitivity analysis, we assess the risk of loss in fair values from the impact of hypothetical changes in interest rates and foreign currency exchange rates on market sensitive instruments. We compute the market values for interest risk based on the present value of future cash flows as impacted by the changes in rates attributable to the market risk being measured. We selected the discount rates used for the present value computations based on market interest rates in effect at June 27, 2003. We computed the market values for foreign exchange risk based on spot rates in effect at June 27, 2003. The market values that result from these computations are compared to the market values of these financial instruments at June 27, 2003. The differences in this comparison are the hypothetical gains or losses associated with each type of risk.

        The results of the sensitivity analysis at June 27, 2003 are as follows:

        Interest Rate Risk: A percentage point decrease in the levels of interest rates with all other variables held constant would result in a increase in the aggregate fair values of our financial instruments by $3 million at June 27, 2003. A percentage point increase in the levels of interest rates with all other variables held constant would result in a decrease in the aggregate fair values of our financial instruments by $2 million at June 27, 2003.

        Foreign Currency Exchange Rate Risk: A 10% strengthening of foreign currency exchange rates against the U.S. dollar with all other variables held constant would result in a decrease in the fair values of our financial instruments by $6 million June 27, 2003. A 10% weakening of foreign currency exchange rates against the U.S. dollar with all other variables held constant would result in an increase in the fair values of our financial instruments by $5 million at June 27, 2003.

        The financial instruments measured in the foreign currency exchange rate sensitivity analysis are used in our hedging program to reduce our overall corporate exposure to changes in foreign currency exchange rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

				Page
Financial Statements:
		Report of Ernst & Young LLP, Independent Auditors		31
		Consolidated Statements of Operations		32
		Consolidated Balance Sheets		33
		Consolidated Statements of Cash Flows		34
		Consolidated Statements of Stockholders' (Deficit) Equity		35
		Notes to Consolidated Financial Statements		36
Financial Statement Schedule:
	For each of the three fiscal years in the period ended June 27, 2003
			Schedule II—Valuation and Qualifying Accounts	72

        All other schedules have been omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and related footnotes.

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Report of Ernst & Young LLP, Independent Auditors

To the Board of Directors and Stockholders Silicon Graphics, Inc.

        We have audited the accompanying consolidated balance sheets of Silicon Graphics, Inc. as of June 27, 2003 and June 28, 2002, and the related consolidated statements of operations, stockholders' (deficit) equity, and cash flows for each of the three years in the period ended June 27, 2003. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silicon Graphics, Inc. at June 27, 2003 and June 28, 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 27, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

                                                                                                                             /s/ ERNST & YOUNG LLP

Palo Alto, California
September 29, 2003

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CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended
			June 27, 2003			June 28, 2002			June 30, 2001
			(in thousands, except per share amounts)
Revenue:
	Product and other revenue		$	547,719		$	856,719		$	1,222,561
	Service revenue			414,029			484,666			631,900
		Total revenue		961,748			1,341,385			1,854,461
Costs and expenses:
	Cost of product and other revenue			333,245			464,405			738,436
	Cost of service revenue			239,569			306,007			490,758
	Cost of discontinued product line			—			—			18,519
	Research and development			170,937			176,893			236,240
	Selling, general and administrative			319,360			450,365			716,591
	Other operating expense			30,046			44,476			102,052
		Total costs and expenses		1,093,157			1,442,146			2,302,596
Operating loss				(131,409	)		(100,761	)		(448,135	)
Interest expense				(27,143	)		(22,959	)		(19,807	)
Interest income and other, net				2,585			41,461			1,787
Loss before income taxes				(155,967	)		(82,259	)		(466,155	)
(Benefit) provision for income taxes				(26,263	)		(35,936	)		26,888
Net loss			$	(129,704	)	$	(46,323	)	$	(493,043	)
Net loss per share—basic and diluted			$	(0.64	)	$	(0.24	)	$	(2.59	)
Shares used in the calculation of net loss per share—basic and diluted				201,424			194,974			190,338

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

			June 27, 2003			June 28, 2002
			(in thousands, except share and per share amounts)
Assets:
Current assets:
	Cash and cash equivalents		$	140,836		$	213,302
	Short-term marketable investments			440			4,878
	Short-term restricted investments			35,298			43,506
	Accounts receivable, net of allowance for doubtful accounts of $8,421 in 2003 and $12,548 in 2002			133,166			193,992
	Inventories			71,426			109,410
	Prepaid expenses			10,471			18,227
	Other current assets			41,256			48,298
		Total current assets		432,893			631,613
	Restricted investments			1,430			1,183
	Property and equipment, net of accumulated depreciation and amortization			108,062			160,282
	Other assets			107,469			117,041
			$	649,854		$	910,119
Liabilities and Stockholders' Deficit:
Current liabilities:
	Accounts payable		$	76,507		$	92,326
	Accrued compensation			38,916			46,734
	Income taxes payable			22,666			10,369
	Other current liabilities			109,147			179,041
	Deferred revenue			149,434			168,283
	Current portion of restructuring charge			17,840			29,979
	Current portion of long-term debt			16,894			10,943
		Total current liabilities		431,404			537,675
Long-term debt				291,956			307,904
Other liabilities				91,385			119,181
		Total liabilities		814,745			964,760
Commitments and contingencies
Stockholders' deficit:
	Common stock, $.001 par value, and additional paid-in capital; 500,000,000 shares authorized; shares issued: 204,590,129 in 2003 and 199,762,254 in 2002;			1,467,798			1,450,829
	Accumulated deficit			(1,606,049	)		(1,466,181	)
	Treasury stock, at cost: 618,350 shares in 2003 and 1,124,392 shares in 2002;			(6,715	)		(17,096	)
	Accumulated other comprehensive loss			(19,925	)		(22,193	)
		Total stockholders' deficit		(164,891	)		(54,641	)
			$	649,854		$	910,119

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended
				June 27, 2003			June 28, 2002			June 30, 2001
				(in thousands)
Cash Flows From Operating Activities:
Net loss				$	(129,704	)	$	(46,323	)	$	(493,043	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation				87,710			148,920			119,895
	Amortization				7,783			11,264			15,568
	Gain on sale of 60% interest in SGI Japan				—			(63,723	)		—
	Gain on sale of Cray product line				—			—			(23,506	)
	Gain on sale of long-term investments				—			(1,713	)		(49,561	)
	(Gain) loss on sale of corporate real estate				5,665			(3,573	)		(11,529	)
	Loss on write-down of investments in private companies				—			6,158			83,129
	Restructuring and impairment charges, net				30,046			44,476			102,051
	Other				(2,401	)		10,634			(7,067	)
Changes in operating assets and liabilities:
	Accounts receivable				60,826			105,184			(6,511	)
	Inventories				28,267			52,812			(31,490	)
	Accounts payable				(15,819	)		(55,327	)		19,687
	Accrued compensation				(32,465	)		(32,855	)		1,671
	Deferred revenue				(18,849	)		(69,949	)		(27,526	)
	Other assets and liabilities				(63,475	)		(118,757	)		26,118
		Total adjustments			87,288			33,551			210,929
			Net cash used in operating activities		(42,416	)		(12,772	)		(282,114	)
Cash Flows From Investing Activities:
Marketable investments:
	Purchases				(449	)		(2,125	)		(1,178	)
	Maturities				4,886			225			4,470
Purchases of restricted investments					(194,707	)		(448,984	)		(500,830	)
Proceeds from the maturities of restricted investments					203,703			481,147			445,947
Proceeds from the sale of interest in SGI Japan					—			90,705			—
Proceeds from the sale of corporate real estate and other assets					7,653			29,400			278,186
Capital expenditures					(18,544	)		(27,833	)		(139,010	)
(Increase) decrease in other assets					(25,055	)		(14,304	)		55,176
			Net cash (used in) provided by investing activities		(22,513	)		108,231			142,761
Cash Flows From Financing Activities:
Issuance of debt					—			44			93
Payments of debt principal					(10,777	)		(13,877	)		(5,150	)
Sale of SGI common stock					3,240			8,547			16,120
Restricted investments used to purchase SGI common stock					—			—			104,439
Repurchase of SGI common stock					—			—			(104,439	)
Cash dividends-preferred stock					—			—			(392	)
			Net cash (used in) provided by financing activities		(7,537	)		(5,286	)		10,671
Net (decrease) increase in cash and cash equivalents					(72,466	)		90,173			(128,682	)
Cash and cash equivalents at beginning of year					213,302			123,129			251,811
Cash and cash equivalents at end of year				$	140,836		$	213,302		$	123,129

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

				Three years ended June 27, 2003
				Preferred Stock			Common Stock and Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' (Deficit) Equity
				(in thousands)
Balance at June 30, 2000				$	16,998		$	1,410,663	$	(832,219	)	$	(21,458	)	$	18,566		$	592,550
	Components of comprehensive loss:
		Net loss			—			—		(493,043	)		—			—			(493,043	)
		Currency translation adjustment			—			—		—			—			(11,653	)		(11,653	)
		Change in unrealized gain on available-for-sale investments, net of tax of $(1,026)			—			—		—			—			(3,118	)		(3,118	)
	Reclassification adjustment of accumulated unrealized gain related to the sale of investments				—			—		—			—			(30,053	)		(30,053	)
		Change in unrealized loss on derivative instruments designated and qualifying as cash flow hedges			—			—		—			—			3,383			3,383
			Total comprehensive loss		(534,484	)
	Convertible preferred stock, Series A preferred dividends				—			—		(392	)		—			—			(392	)
	Purchase (160,134 shares) and issuance (1,599,886 shares) of treasury stock and common stock (6,538,671 shares) under employee stock plans—net				—			15,206		(14,431	)		20,707			—			21,482
	Purchase of 6,000,000 shares of treasury stock under equity forward arrangements				—			—		—			(104,439	)		—			(104,439	)
	Conversion of preferred stock to common stock				(16,998	)		16,998		—			—			—			—
Balance at June 30, 2001					—			1,442,867		(1,340,085	)		(105,190	)		(22,875	)		(25,283	)
	Components of comprehensive loss:
		Net loss			—			—		(46,323	)		—			—			(46,323	)
		Currency translation adjustment			—			—		—			—			901			901
		Change in unrealized gain on available-for-sale investments, net of tax of $(66)			—			—		—			—			(165	)		(165	)
	Reclassification adjustment of accumulated unrealized gain related to the sale of investments				—			—		—			—			2,637			2,637
		Change in unrealized loss on derivative instruments designated and qualifying as cash flow hedges			—			—		—			—			(2,691	)		(2,691	)
		Total comprehensive loss																	(45,641	)
	Issuance of treasury stock (4,974,487 shares) under employee stock plans—net				—			2,106		(79,773	)		88,094			—			10,427
	Issuance of common stock (2,400,000 shares) for settlement of securities class action lawsuit				—			5,856		—			—			—			5,856
Balance at June 28, 2002					—			1,450,829		(1,466,181	)		(17,096	)		(22,193	)		(54,641	)
	Components of comprehensive loss:
		Net loss			—			—		(129,704	)		—			—			(129,704	)
		Currency translation adjustment			—			—		—			—			680			680
		Change in unrealized loss on derivative instruments designated and qualifying as cash flow hedges			—			—		—			—			1,588			1,588
			Total comprehensive loss																(127,436	)
	Common stock reserved for issuance (5,600,000 shares) for settlement of securities class action lawsuit				—			13,664		—			—			—			13,664
Issuance of treasury stock (506,042 shares) under employee stock plans—net					—			3,305		(10,164	)		10,381			—			3,522
Balance at June 27, 2003				$	—		$	1,467,798	$	(1,606,049	)	$	(6,715	)	$	(19,925	)	$	(164,891	)

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

        SGI is a leader in high-performance computing, visualization and storage. We sell highly scalable servers, advanced visualization systems, desktop workstations, storage solutions and a range of software products which enable our customers in the scientific, technical and creative communities to solve their most challenging problems and provide them with strategic and competitive advantages in their marketplace. We also offer a range of technical solutions, including professional services, Reality Center immersive visualization centers, customer support and education. These products and services are targeted primarily towards five market segments: Government and Defense, Science, Manufacturing, Energy, and Media.

        Our products were manufactured in Wisconsin during fiscal 2003 and in both Wisconsin and Switzerland during fiscal 2002 and 2001. During the first half of fiscal 2002, we consolidated our manufacturing operations with the closure of our manufacturing facility in Switzerland. We distribute our products through our direct sales force, as well as through indirect channels including resellers, distributors and system integrators. Product and other revenue consists primarily of revenue from computer system and software product shipments, as well as the sale of software distribution rights, system leasing, technology licensing agreements and non-recurring engineering contracts. Service revenue results from customer support and maintenance contracts, as well as from delivery of professional services.

        We have incurred net losses and negative cash flows from operations during each of the past four fiscal years, and had working capital of $1.5 million at June 27, 2003. Our unrestricted cash and marketable investments at June 27, 2003 were $141 million, down from $218 million at June 28, 2002. While a forecast of future events is inherently uncertain, we believe that the combination of our current resources and cash expected to be generated from our fiscal 2004 financial plan will be sufficient to meet our financial obligations through fiscal 2004.

        We are committed to our goal of reestablishing profitable operations and positive cash flow. If we experience a material shortfall versus our plan for fiscal 2004, we will take all appropriate actions to ensure the continued operation of our business and to mitigate any negative impact on our profitability and cash reserves. We have a range of actions we can take to achieve this outcome, including but not limited to expense-related actions such as further reductions in headcount-related expenses, additional consolidation of administrative functions, re-evaluation of our global distribution model, and delayed implementation of information systems initiatives. We also can take actions to generate cash by selling non-core businesses, licensing intellectual property, seeking funding from marketing partners and key government customers, and seeking further equity or debt financing from strategic partners or financial sources. See "Risks That Affect Our Business."

Note 2. Summary of Significant Accounting Policies

        Basis of Presentation and Principles of Consolidation    Beginning in fiscal 2002, SGI changed to a 52-53 week fiscal year ending on the last Friday in June. For fiscal 2003 and 2002, the fiscal year ended on June 27 and June 28, respectively. For fiscal years prior to 2002, the fiscal year ended on June 30. The consolidated financial statements include the accounts of SGI and our wholly-and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of prior year amounts have been made to conform with the current year presentation.

        Foreign Currency Translation    Historically, the functional currency of a majority of our foreign subsidiaries' was their local currency and, at the end of every period, their financial statements were translated to the U.S. dollar at the rates of exchange in effect at the end of the period with the resulting translation adjustments recorded directly to accumulated other comprehensive (loss) income, a

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separate component of stockholders' (deficit) equity. Effective December 29, 2001, we changed the functional currency of all but a few of our foreign subsidiaries from their respective local currency to the U.S. dollar due to the subsidiaries' operations becoming less self-contained and more integrated within our U.S. business. Accordingly, we translate the assets and liabilities of our foreign subsidiaries stated in local functional currencies to U.S. dollars at the rates of exchange in effect at the end of the period, except for inventory, property, plant and equipment and certain other assets, which are remeasured at their historical exchange rates. Revenues and expenses are translated using rates of exchange in effect during the period, except for those expenses related to the previously noted balance sheet amounts, which are remeasured at historical exchange rates. Gains and losses from currency translation are included in stockholders' (deficit) equity. For the year ended June 27, 2003, currency transaction gains or losses are recognized in interest income and other, net and, net of hedging gains or losses, have not been significant to our operating results in any period.

        Use of Estimates    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

        Cash Equivalents and Marketable and Restricted Investments    Cash equivalents consist of high credit quality money market instruments with maturities of 90 days or less at the date of purchase. Short-term marketable investments and restricted investments consist of both high credit quality money market instruments and high credit quality debt securities with maturities of one year or less, and are stated at fair value. At June 27, 2003 and June 28, 2002, our cash equivalents and marketable investments are all classified as available-for-sale. At June 27, 2003 and June 28, 2002, our restricted investments are classified as available-for-sale but are pledged as collateral against letters of credit or held under a security agreement. Restricted investments are held in SGI's name by major financial institutions.

        The cost of securities when sold is based upon specific identification. We include realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities in interest income and other, net. We include unrealized gains and losses (net of tax) on securities classified as available-for-sale in accumulated other comprehensive (loss) income, a component of stockholders' (deficit) equity.

        Fair Values of Financial Instruments    The carrying values of short-term debt and cash equivalents approximate fair value due to the short period of time to maturity. Fair values of marketable investments, long-term debt, foreign exchange forward contracts and currency options are based on quoted market prices or pricing models using current market rates.

        Derivative Financial Instruments    We use derivatives to moderate the financial market risks of our business operations. We use derivative products to hedge the foreign currency market exposures underlying certain assets and liabilities and commitments related to customer transactions. Our accounting policies for these instruments are based on our designation of such instruments as hedging transactions. We designate an instrument as a hedge based in part on its effectiveness in risk reduction and one-to-one matching of derivative instruments to underlying transactions.

        For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that

37

is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported in other comprehensive (loss) income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period.

        The effectiveness test for derivatives used to hedge the underlying economic exposure is determined by using the forward-to-forward rate comparison for currency forward contracts which makes same-currency hedges perfectly effective. For currency option contracts, the effectiveness is assessed based on changes in the option's intrinsic value plus the effect of discounting. As a result, the change in the volatility value of the contract is excluded from the assessment of the hedge effectiveness and immediately recognized in earnings.

        Inventories    Manufacturing inventories are stated at the lower of cost (first-in, first-out) or market. Demonstration sytems are stated at cost less depreciation generally based on an eighteen-month life.

        Property and Equipment    Property and equipment is stated at cost, and depreciation is computed using the straight-line method. Useful lives of two to five years are used for machinery and equipment and furniture and fixtures; leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. Our buildings are depreciated over twenty-five to forty-five years and improvements over eight to fifteen years.

        Other Assets    Included in other assets are spare parts that are generally depreciated on a straight-line basis over the course of their respective useful lives ranging from two to five years and equity investments in certain technology companies that are carried at either market value or the lower of cost or market. Our investment in SGI Japan comprised the majority of our total equity investments for fiscal years 2003 and 2002. Also included in other assets is goodwill associated with the acquisition of Silicon Graphics World Trade Corporation in fiscal 1991 which, prior to our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," on June 29, 2002, was being amortized on a straight-line basis over a period of 20 years.

        Revenue Recognition    We recognize product revenue under SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. The product is considered delivered to the customer (including distributors, channel partners and resellers) once it has been shipped, and title and risk of loss have transferred. Sales of certain high performance systems may be made on the basis of contracts that include acceptance criteria. In these instances, we recognize revenue (net of trading allowances) upon acceptance by the customer or independent distributor. We defer the fair value of products that have been shipped to the customer but for which the appropriate revenue recognition criteria (e.g. customer acceptance) have not yet been met. Certain system sales may be made on contracts that are longer-term in duration. In these instances, we typically recognize revenue using the percentage-of-completion method of accounting. We recognize revenue as work progresses based on the percentage that incurred costs to date bear to estimated total costs. We reduce product revenue for certain stock rotation and price protection rights that may occur under contractual arrangements we have with resellers.

        In certain situations, we enter into multiple-element revenue arrangements where we are obligated to deliver multiple products and/or services. A typical multiple-element arrangement includes SGI product, third party product, SGI consulting services and SGI maintenance services. Under these

38

transactions, we currently allocate revenue to be earned under the arrangement among the various elements based on their relative fair value. Effective with the implementation of EITF 00-21 "Revenue Arrangements with Multiple Deliverables," we will further determine evidence of fair value by reference to prices charged for components on a stand-alone basis to our existing customer base or to prices charged by third parties for the separate sale of similar items. We recognize revenue related to the delivered products or services when: 1) the product or service revenue criteria noted above are met; 2) there is objective evidence of fair value for each of the undelivered products or services; 3) any undelivered products or services are not essential to the functionality of the delivered product or services; and 4) payment for the delivered products or services is not contingent upon delivery of the remaining products or services.

        We recognize service revenue when persuasive evidence of an arrangement exists, the service has been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Revenue related to future commitments under service contracts is deferred and recognized ratably over the related contract term. Consulting and installation revenue is recognized when the service has been performed.

        We recognize stand-alone software revenue in accordance with AICPA Statement of Position ("SOP") No. 97-2,"Software Revenue Recognition", as amended by SOP 98-9, when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. Operating system software revenue is recognized when we ship the product and the revenue recognition criteria for product revenue have been met. If any of these criteria are not met, or the transaction is not on a stand-alone basis, revenue recognition is deferred until all criteria are met.

        We generally recognize royalty revenue, under technology agreements, in the quarter in which we receive a report from a licensee detailing the shipments of products incorporating our intellectual property components. The report is generally received on a one-quarter lag basis from when the royalty revenues were earned.

        We recognize engineering services revenue, where the service is performed on a best efforts basis, when we have completed the defined milestones and the milestone payment is probable of collection.

        Shipping and Handling Costs    Shipping and handling costs are classified as a component of cost of sales. Customer payments of shipping and handling costs are recorded as product and other revenue.

        Product Warranty    We provide at the time of sale for an estimated cost to warrant our products against defects in materials and workmanship for a period of up to one year on UNIX and Linux systems and up to three years on Windows NT systems.

        Guarantees    We enter into four categories of guarantees, namely financial guarantees, performance guarantees, indemnifications and indirect guarantees of the indebtedness of others.

        Financial guarantees include contracts that contingently require us to make payments to the beneficiary of the guarantee based on changes in an underlying variable (e.g. a specified interest rate, security price or other variable) that is related to an asset, liability or equity security of the guaranteed party.

        Performance guarantees include contracts that contingently require us to make payments to the beneficiary of the guarantee based on another entity's failure to perform under an obligating agreement.

        Indemnifications include agreements that contingently require us to make payments to an indemnified party based on changes in an underlying variable (e.g. a specified interest rate, security price or other variable) that is related to an asset, liability, or an equity security of the indemnified

39

party. Indemnifications include agreements to indemnify the guaranteed party for an adverse judgement in a lawsuit or the imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law.

        Indirect guarantees include agreements between us and a lender requiring us to transfer funds to the lender upon the occurrence of specified events. Indirect guarantees include our guarantee of our subsidiary's debt to a third party and our subsidiary's guarantee of the debt owed to a third party by either us or another subsidiary of ours. This category of guarantees has terms that are consistent with those of the debt agreements.

        Advertising Costs    We account for advertising costs as expense in the period in which they are incurred. Advertising expense for fiscal years 2003, 2002 and 2001 was $3 million, $4 million and $30 million, respectively.

        Per Share Data    Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net (loss) income by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income, adjusted for the effect, if any, from assumed conversion of all potentially dilutive common shares outstanding, by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding.

        Stock-Based Compensation    At June 27, 2003, we have both stock-based employee and non-employee director compensation plans, which are described more fully in Note 15. We have elected to continue to follow the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations for these plans.

        The following table illustrates the effect on net loss and net loss per share as if we had applied the fair value recognition provisions of FASB Statement No. 123, as amended by SFAS 148, to stock-based employee compensation:

		Years ended
		June 27, 2003			June 28, 2002			June 30, 2001
		(in thousands, except per share amounts)
Net loss—as reported		$	(129,704	)	$	(46,323	)	$	(493,043	)
Additions:
	Stock-based employee compensation expense, net of tax effect, included in net loss above	$	281		$	1,988		$	5,823
Deductions:
	Stock-based employee compensation expense determined under fair value method for all awards, net of tax effect	$	(9,729	)	$	(15,352	)	$	(55,756	)
Pro forma net loss		$	(139,152	)	$	(59,687	)	$	(542,976	)
Net loss per share—basic and diluted—as reported		$	(0.64	)	$	(0.24	)	$	(2.59	)
Net loss per share—basic and diluted—pro forma		$	(0.69	)	$	(0.31	)	$	(2.85	)

        The pro forma information above may not be representative of the effects on potential pro forma effects on results for future years.

        Long Lived Assets    In accordance with the provisions of SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets", we review long-lived assets classified as "held and used", including property and equipment, assets under capital leases, long term prepaid assets and other intangible assets subject to amortization for impairment whenever events or changes in business circumstances, such as a significant industry downturn or a significant decline in projected future cash

40

flow for an operating segment, indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS 144, an impairment loss would be recognized when the sum of its estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount. In accordance with the SFAS 144 provisions, we classify long lived assets as "held for sale" only when all of the criteria for a qualifying plan of sale are met and reassess their "fair value less cost to sell" each reporting period. We classify long lived assets to be disposed of other than by sale as "held and used" until they are actually disposed and report them at the lower of the carrying amount or fair value less costs to sell.

        Capitalized Software    In accordance with SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", we capitalize certain costs incurred to acquire or create internal use software, principally related to software coding, designing system interfaces, installation and testing of the software. Capitalized costs are included in property and equipment (see Note 8) and are amortized over periods ranging from 3 to 5 years.

        Recent Accounting Pronouncements    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between Statement 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability for a cost associated with an exit or disposal activity should be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS 146 is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS146, in certain cases, would be recognized in future periods as certain events occur rather than up front. The FASB decided that if the benefit arrangement requires employees to render future service beyond a "minimum retention period" a liability should be recognized as employees render service over the future service period even if the benefit formula used to calculate an employee's termination benefit is based on length of service. Contract termination costs under SFAS 146 would be recognized and measured at their fair value when an entity terminates the contract in accordance with the contract terms. Contract costs that will continue to be incurred under a contract for its remaining term without economic benefit to an entity would be recognized and measured at its fair value when the entity ceases using the right conveyed by the contract, for example, the right to use a leased property. Under SFAS 146, a liability for future lease obligations, reduced by actual or estimated sublease rentals, would be recognized and measured at its fair value at the cease-use date, rather than being accrued at the date of an entity's commitment to an exit plan under Issue 94-3. We adopted the provisions of SFAS 146 in connection with the restructuring activities initiated after December 31, 2002.

        In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which clarifies the requirements for a guarantor's accounting and disclosures of certain guarantees issued and outstanding. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end.

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The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. Consistent with the Interpretation, we have adopted the requirements in this Annual Report on Form 10-K. The adoption of Interpretation 45 did not have a material impact on our consolidated financial position, results of operations or cash flows.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition & Disclosure"—an Amendment of SFAS No. 123. This Statement provides three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The new disclosure requirements of SFAS 148 related to interim financial information are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Consistent with the Statement, we have adopted all disclosure requirements in this Form 10-K.

        In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". The Interpretation establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. Interpretation 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a variable interest entity. The provisions of Interpretation No. 46 are effective immediately for all variable interests in variable interest entities created before February 1, 2003 and no later than the first fiscal period beginning after June 15, 2003 for all variable interests in variable interest entities created before February 1, 2003. The adoption of Interpretation 46 did not have a material impact on our consolidated financial position, results of operations or cash flows. If we enter into any such arrangement with a variable interest entity in the future, our consolidated financial position or results of operations may be adversely impacted.

        In March 2003, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on accounting for arrangements involving the delivery or performance of multiple products, services and/or rights to use assets. Specifically, EITF 00-21 addresses: (1) how to determine whether an arrangement with multiple deliverables contains more than one unit of accounting, and (2) how the arrangement consideration should be measured and allocated among the separate units of accounting. The provisions of Issue 00-21 are effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We believe that the adoption of EITF 00-21 did not have a material impact on our results of operations or financial position.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No.133, "Accounting for Derivative Instruments and Hedging Activities". The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. Most of its provisions should be applied prospectively. We believe the adoption of SFAS 149 will have no impact on our results of operations or financial position.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which establishes standards for how an entity classifies and measures certain financial instruments with both the characteristics of a liability and equity. The Statement requires that an issuer classify a financial instrument that is within its scope as a liability, while many of these instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We believe that the adoption of FASB 150 will not have a material impact on our results of operations or financial position.

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Note 3. Other Operating Expense

        Other operating expense is as follows (in thousands):

	Years ended
	June 27, 2003		June 28, 2002		June 30, 2001
Restructuring and impairment charges	$	30,046	$	44,476	$	102,052

        Restructuring    In the first quarter of fiscal 2000, we announced and began to implement a restructuring program to better align our expenses with expected revenue levels. These actions resulted in aggregate charges of $145 million (before the effect of the adjustments noted below). This restructuring program included a re-evaluation of our core competencies, technology roadmap and business model, as well as development of our fiscal 2001 operating plan and covered virtually all aspects of our products, operations and processes. The fiscal 2000 actions resulted in the elimination of approximately 1,100 positions, writing down certain operating assets, vacating certain leased facilities and canceling certain contracts. Severance payments and related charges of $66 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services.

        Fiscal 2000 restructuring actions also were comprised of vacating approximately 1,500,000 square feet of leased sales and administrative facilities throughout the world, with lease terms expiring through fiscal 2004. We estimated this would require ongoing lease payments of $26 million until subleases could be arranged and $7 million in exit costs, including costs to restore vacated facilities to their original condition.

        During fiscal 2000, we also reduced by $7 million our prior estimate of the total costs associated with a similar restructuring initiated in fiscal 1998. This adjustment primarily reflected a decrease in severance and related charges resulting from higher attrition and lower per person costs than we had estimated. During the second through fourth quarters of fiscal 2000, we further lowered our estimate of the total costs associated with the fiscal 2000 restructuring activities described above. As a result, a cumulative reversal of approximately $37 million was recorded in fiscal 2000. This decrease related primarily to lease obligations, as we were able to settle these obligations on far more favorable terms than we had estimated due to extremely high demand at that time for facilities in Mountain View, California. During the first quarter of fiscal 2001, we again lowered our estimate of the total costs associated with the fiscal 2000 restructuring activities and recorded an adjustment of $6 million. The adjustment primarily reflected lower than estimated facilities closure costs due to negotiating better than anticipated sublease arrangements. As of March 31, 2001, we had eliminated all the positions covered by our estimate and paid all severance-related charges incurred in the fiscal 2000 restructuring.

        During the fourth quarter of fiscal 2001, we announced and began to implement additional restructuring actions to further reduce our operating expenses to be better aligned with expected revenue levels. These actions resulted in aggregate charges of $88 million and were broad-based and covered virtually all aspects of our products, operations and processes. Fiscal 2001 restructuring actions resulted in the elimination of approximately 1,000 positions, across all levels and functions, all of which were eliminated as of March 29, 2002. Severance payments and related charges of $45 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. The cancellation of contracts associated with the fiscal 2001 actions resulted in charges of $2 million. Our plans included vacating approximately 3,000,000 square feet of leased sales and administrative facilities throughout the world, with lease terms expiring through April 2010. We estimated this would require ongoing lease payments of $32 million and $9 million in exit costs, including costs to restore facilities to their original condition. During the fourth quarter of fiscal 2002, we lowered our estimate of the total costs associated with the fiscal 2001 restructuring activities and recorded an adjustment of $5 million. The adjustment primarily reflected lower than estimated

43

severance and related costs primarily due to the sale of our 60% interest in SGI Japan which resulted in a smaller reduction in staff than originally anticipated. As of December 27, 2002, all severance related charges were paid in relation to the fiscal 2001 restructuring. During fiscal 2003, we further lowered our estimate of the facilities costs related to the fiscal 2001 restructuring activities and recorded an adjustment of $2.5 million, which principally reflected re-negotiated sublease deals and lower rental rates.

        During fiscal 2002, we announced and began to implement additional restructuring actions consistent with the objective of the fiscal 2001 restructuring. These actions resulted in aggregate charges of $46 million and the elimination of approximately 1,000 positions across all levels and functions, all of which were eliminated as of June 28, 2002. Severance payments and related charges of $37 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. Third party contract cancellation charges associated with the fiscal 2002 actions totaled $3 million. Our plans included vacating approximately 176,000 square feet of administrative facilities throughout the world, with lease terms expiring through fiscal 2007. We estimated this would require ongoing lease payments of $5 million. Our plans also included consolidating our manufacturing activity in Wisconsin and closing our manufacturing facility in Switzerland, which were completed in December 2001. During the fourth quarter of fiscal 2002, we lowered our estimate of the total costs associated with the fiscal 2002 restructuring activities and recorded an adjustment of $1 million, which reflected lower than estimated severance and related costs. During the second quarter of fiscal 2003 we further reduced our estimate of severance and related charges associated with the fiscal 2002 restructuring and recorded an adjustment of $0.7 million, which reflected lower than estimated severance and related costs attributable to higher than expected attrition. As of March 28, 2003, all severance related charges were paid in relation to the fiscal 2002 restructuring and we determined that the remaining severance accrual associated with the fiscal 2002 restructuring activities was unnecessary and recorded an adjustment of approximately $0.8 million. The adjustment primarily reflected lower than estimated severance and related costs attributable to higher than expected attrition and lower per person costs.

        During the fourth quarter of fiscal 2002, we announced and began to implement additional restructuring actions (fiscal 2003 restructuring plan) in an effort to further reduce our operating expense to be better aligned with expected revenue levels. These actions resulted in aggregate charges of $4 million and elimination of approximately 100 positions across all levels and functions. In the first quarter of fiscal 2003 we continued the restructuring actions under the plan initiated in the fourth quarter of fiscal 2002. These actions resulted in additional aggregate charges of $8 million and the elimination of approximately 150 positions across all levels and functions. Severance payments and related charges of $5 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. Our plans included vacating approximately 52,000 square feet of leased facilities in the US, with lease terms expiring through fiscal 2007, which require ongoing lease payments of $3 million, net of $1 million of estimated sublease income.

        During the second quarter of fiscal 2003, we continued implementing restructuring activities under the fiscal 2003 restructuring plan. These actions resulted in aggregate charges of $7 million and the elimination of approximately 90 positions across all levels and functions in our overseas offices. Severance payments and related charges of $5 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. Our plans included vacating approximately 8,000 square feet of leased sales and administrative facilities throughout the world, with lease terms expiring through fiscal 2009. We estimated it would require ongoing lease payments of $2 million, net of $2 million of estimated sublease income.

        During the third quarter of fiscal 2003, we initiated additional restructuring activities under the fiscal 2003 restructuring plan. These actions resulted in aggregate charges of $4 million and elimination

44

of approximately 130 positions across all levels and functions. Severance payments and related charges of $4 million consisted primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. These actions were accounted for in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which is effective for exit or disposal activities initiated after December 31, 2002. All restructuring activities prior to December 31, 2002 were accounted for in accordance with the provisions of EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." All restructuring activities after December 31, 2002 are accounted for in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".

        During the latter part of the fourth quarter of fiscal 2003, we announced and began to implement additional restructuring activities that will be referred to as the fiscal 2004 restructuring plan. These actions resulted in aggregate charges of $10 million and elimination of approximately 324 positions across all levels and functions, which we believe allow us potential future annual savings of $12 million in cost of goods sold and $20 million in operating expenses. Severance payments and related charges of $9 million consist primarily of salary and expected payroll taxes, extended medical benefits, statutory legal obligations and outplacement services. Third party contracts cancellation charges and outside consulting associated with the fiscal 2004 restructuring plan totaled $0.2 million. Our plans included vacating approximately 6,400 square feet of administrative facilities overseas, with lease terms expiring through fiscal 2004. We estimated this would require ongoing lease payments of $0.2 million. During the fourth quarter of fiscal 2003, we reclassified a previously recorded liability included in other liabilities to restructuring. Also in conjunction with this leased facility, we recorded a $7 million adjustment which largely reflected the reversal of sublease income previously expected. We also increased our estimate of severance and related charges associated with the fiscal 2003 restructuring overseas and recorded an adjustment of $2 million, which reflected higher than estimated severance and related costs and unfavorable fluctuations in foreign exchange rates.

        The remaining restructuring accrual balance of approximately $32 million at June 27, 2003 is expected to result in cash expenditures of approximately $7 million through the third quarter of fiscal 2004 for severance and related charges, and approximately $25 million through fiscal 2010 for facilities related expenditures, net of estimated sublease income of $4 million.

        Impairment    As a result of the fiscal 2001 restructuring activities described above, we wrote down approximately $10 million of fixed assets, primarily associated with leasehold improvements and associated furniture and fixtures held for disposal. We wrote down approximately $6 million related to canceled projects and demonstration units as a result of the decision to discontinue the Pentium III product line. In addition, we also recorded approximately $4 million in impairment charges for internally developed software projects that were discontinued in fiscal 2002 as a result of the functionality provided by the new enterprise resource planning system. The fair value and remaining carrying value of all of these assets at June 30, 2001 was immaterial.

        As a result of the fiscal 2002 restructuring activities described above, we wrote down approximately $12 million of fixed assets held for disposal which included a $7 million write-down for our Switzerland manufacturing facility that was closed during the second quarter.

        As a result of the fiscal 2003 restructuring activities described above, we wrote down approximately $2 million of fixed assets, which included leasehold improvements and associated furniture and fixtures held for disposal in the closed offices and buildings. In addition, we recorded approximately $3 million in impairment charges for the Switzerland manufacturing facility as a result of the fair value reassessment by an independent third party. For further information regarding the sale of the manufacturing facility in Switzerland, see Note 23 to the Consolidated Financial Statements.

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        The following table depicts the restructuring and impairment activity in fiscal 2003, 2002 and 2001 (in thousands):

Category		Severance and Related Charges			Canceled Contracts			Vacated Facilities			Impairment Charges			Total
Balance at June 30, 2000		$	3,265		$	—		$	6,440		$	—		$	9,705
Additions—fiscal 2001 restructuring and impairment			45,136			1,923			41,490			19,724			108,273
Adjustments:
	Increase		—			—			3,619			—			3,619
	(decrease)		(2,590	)		—			(3,631	)		—			(6,221	)
	Expenditures:
	Cash		(9,428	)		(706	)		(3,880	)		—			(14,014	)
	Non-cash		(233	)		—			(756	)		(19,724	)		(20,713	)
Balance at June 30, 2001		$	36,150		$	1,217		$	43,282		$	—		$	80,649
Additions—fiscal 2002 restructuring and impairment			37,440			3,224			4,899			11,515			57,078
Adjustments:
	Increase		—			—			—			—			—
	(decrease)		(6,430	)		—			(6,172	)		—			(12,602	)
Expenditures:
	Cash		(57,982	)		(3,023	)		(20,438	)		—			(81,443	)
	Non-cash		—			—			6,172			(11,515	)		(5,343	)
Balance at June 28, 2002		$	9,178		$	1,418		$	27,743		$	—		$	38,339
Additions—fiscal 2003 restructuring and impairment			22,759			207			5,558			3,516			32,040
Adjustments:
Increase			550			—			—			—			550
(decrease)			—			—			(2,544	)		—			(2,544	)
Reclassification:
	Cash		—			—			6,179			—			6,179
	Non-cash		—			—			—			1,399			1,399
Expenditures:
	Cash		(25,296	)		(1,612	)		(12,288	)		—			(39,196	)
	Non-cash		—			—			—			(4,915	)		(4,915	)
Balance at June 27, 2003		$	7,191		$	13		$	24,648		$	—		$	31,852

        In accordance with SFAS No. 146, effective January 1, 2003, the total amount of severance and related charges, cancelled contracts and facilities for each reportable segment incurred in the fiscal 2003 and subject to provisions of SFAS 146 are presented in the following table (in thousands):

Additions—fiscal 2003 restructuring	Servers		Workstations		Global Services		Total
Severance and Related Charges	$	5,358	$	2,241	$	5,697	$	13,296
Canceled Contracts	$	69	$	28	$	73	$	170
Vacated Facilities	$	77	$	32	$	81	$	190

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Note 4. Loss Per Share

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
	(in thousands, except per share amounts)
Net loss	$	(129,704	)	$	(46,323	)	$	(493,043	)
Less preferred stock dividends		—			—			(392	)
Net loss available to common stockholders	$	(129,704	)	$	(46,323	)	$	(493,435	)
Weighted average shares outstanding—basic and diluted		201,424			194,974			190,338
Net loss per share—basic and diluted	$	(0.64	)	$	(0.24	)	$	(2.59	)
Potentially dilutive securities excluded from computations because they are anti-dilutive		17,727			18,090			8,643

Note 5. Financial Instruments

        Cash Equivalents and Marketable and Restricted Investments    The following table summarizes by major security type the fair value of our cash equivalents and marketable and restricted investments at June 27, 2003 and June 28, 2002 (in thousands):

		2003			2002
Money market funds		$	1,220		$	122,442
Time deposits			39,814			48,840
U.S. commercial paper			734			2,735
	Total		41,768			174,017
Less amounts classified as cash equivalents			(4,600	)		(124,450	)
	Total marketable and restricted investments	$	37,168		$	49,567

        Gross realized gains and losses on sales and unrealized gains and losses on our available-for-sale securities were not significant in any one fiscal period presented.

Derivative Instruments and Hedging Activities

                Risk Management    In the normal course of business, our financial position is routinely subjected to a variety of risks, including market risk associated with interest rate movements and currency rate movements on non-U.S. dollar denominated assets and liabilities. We regularly assess risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures. We use derivatives to moderate the financial market risks of our business operations by hedging the foreign currency market exposures underlying certain assets, liabilities and for commitments related to customer transactions. All of our hedges currently qualify as cash flow hedges. We do not use derivatives for trading purposes.

                Cash Flow Hedges    Cash flow hedges are hedges of forecasted transactions or of the variability of cash flows to be received or paid related to a recognized asset or liability. We purchase currency options and currency forward contracts generally expiring within one year as hedges of anticipated sales that are denominated in foreign currencies. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely

47

affected by changes in exchange rates. The amount in accumulated Other Comprehensive Income as of June 27, 2003 will be reclassified to operations within the next twelve months.

                Accumulated Derivative Gains or Losses    The following table summarizes activity in Other Comprehensive Lossrelated to derivatives classified as cash flow hedges held by us during the period from July through June of the following fiscal periods (in thousands):

	2003			2002
Opening balance	$	(1,969	)	$	722
Reclassified into earnings from other comprehensive loss, net		—			1,470
Changes in fair value of derivatives, net		1,588			(4,161	)
Unrealized loss on derivative instruments included in other comprehensive (loss) income	$	(381	)	$	(1,969	)

        The effect on earnings for the fiscal periods presented relating to the ineffectiveness of hedging activities was not material.

                Fair Value of Financial Instruments    The carrying amounts and estimated fair values of our financial instruments at June 27, 2003 and June 28, 2002 are summarized as follows (in thousands):

	2003						2002
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	140,836		$	140,836		$	213,302		$	213,302
Marketable investments		37,168			37,168			49,567			49,567
Debt instruments		308,850			227,655			318,847			220,435
Currency forward contracts		(355	)		(355	)		62			62
Currency options		(270	)		(270	)		(1,698	)		(1,698	)

Note 6. Sale of Interest in SGI Japan

        On November 9, 2001, NEC Corporation and its publicly held affiliate, NEC Soft, acquired 40% and 20% respectively, of SGI Japan for an aggregate purchase price of 11.5 billion Japanese yen, yielding approximately $91 million in net proceeds. The net proceeds exceeded 60% of the net book value of SGI Japan at the purchase date by approximately $68 million. The total gain in this transaction, after recognition of the debt reduction and transaction-related costs, was approximately $74 million. We recognized a gain of approximately $64 million in other income during the quarter ended December 28, 2001. Because SGI Japan, under an exclusive distribution agreement, received a discount in excess of the discount provided to another major distributor of SGI, the remaining $10 million of the overall gain on the sale was designated as deferred revenue to be recognized over three years as we fulfill product orders from SGI Japan under the long-term exclusive distribution agreement to supply SGI equipment, services and solutions in Japan. Our best estimate of the fair value of the future incremental discount was based on projected future product sales of SGI Japan through a combination of historical and forward-looking information. Also as part of this transaction, SGI's current yen-denominated debt held by a financial institution, which would have otherwise matured in December 2001, was restructured and is now owed to SGI Japan, maturing in quarterly installments from September 2002 through December 2004. The result of this debt restructuring was to reduce the outstanding balance at December 28, 2001 from $50 million to $37 million (See Note 13). SGI's debt is secured by its remaining ownership interest in SGI Japan. Effective November 10, 2001, SGI no longer consolidates SGI Japan's results in its financial statements but instead records its proportionate share of SGI Japan's earnings as non-operating income in accordance with APB 18, "The

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Equity Method of Accounting for Investments in Common Stock." Due to the timing of receipt of financial reporting information from SGI Japan, these entries are recorded on a quarter lag.

Note 7. Concentration of Credit and Other Risks

        Credit Risk    Financial instruments that potentially subject SGI to concentration of credit risk consist principally of cash, investments, currency forward contracts and trade receivables. We place our investments and transact our currency forward contracts with high-credit-quality counter-parties and, by policy, limit the amount of credit exposure to any one counter-party. The credit risk on receivables due from counter-parties related to currency forward contracts is immaterial at June 27, 2003 and June 28, 2002. We perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain reserves for potential credit losses and such losses have been within our expectations.

        Production    Most of our products incorporate components that are available from only one or from a limited number of suppliers. Many of these components are custom designed and manufactured, with lead times from order to delivery that can exceed 90 days. Shortages of various essential materials could occur due to interruption of supply or increased demand in the industry. If we were unable to procure certain such components or sustain our outsourced production capacity, it could affect our ability to meet demand for our products that would have an adverse effect upon our results.

        International Operations    We derive over one-third of our revenue from sales outside the United States. Therefore, our results could be affected by such factors as changes in foreign currency exchange rates, trade protection measures, longer accounts receivable collection patterns, and changes in regional or worldwide economic or political conditions. However, the risks of our international operations are mitigated in part by our foreign exchange hedging program and by the extent to which our sales are geographically distributed.

        Export Compliance    Our sales to foreign customers are subject to export regulations. Sales of many of our high-end products require clearance and export licenses from the U.S. Department of Commerce under these regulations. Our international sales would be adversely affected if such regulations were tightened, or if they are not modified over time to reflect the increasing performance of our products. The Swiss authorities are investigating compliance with their export regulations in connection with exports from the Swiss manufacturing facility that we closed during the second quarter of fiscal 2002. We believe that this matter will be resolved without a significant adverse effect on our business.

Note 8. Consolidated Financial Statement Details

Inventories

        Inventories at June 27, 2003 and June 28, 2002 are as follows (in thousands):

	2003		2002
Components and subassemblies	$	39,939	$	70,497
Work-in-process		8,897		19,442
Finished goods		12,000		8,682
Demonstration systems		10,590		10,789
Total inventories	$	71,426	$	109,410

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Property and Equipment

        Property and equipment at June 27, 2003 and June 28, 2002 are as follows (in thousands):

	2003			2002
Land and buildings	$	66,101		$	90,416
Machinery and equipment (including capitalized software)		415,437			457,414
Furniture and fixtures		48,712			47,807
Leasehold improvements		46,080			45,299
		576,330			640,936
Accumulated depreciation and amortization		(468,268	)		(480,654	)
Net property and equipment	$	108,062		$	160,282

Note 9. Other Assets

        Other assets at June 27, 2003 and June 28, 2002 are as follows (in thousands):

	2003		2002
Spare parts, net of accumulated depreciation of $75,493 in 2003 and $88,331 in 2002	$	44,505	$	55,548
Investments		20,655		20,628
Software licenses, goodwill and other, net of accumulated amortization of $79,249 in 2003 and $71,466 in 2002		42,309		40,865
	$	107,469	$	117,041

Note 10. Goodwill

        At June 29, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses financial accounting and reporting for acquired goodwill and other intangible assets, including the elimination of goodwill amortization, to be replaced with periodic evaluation of goodwill for impairment. The identification of our reporting units was determined per the guidelines in SFAS 142 and is consistent with our reportable segments as discussed in Note 18 to the Consolidated Financial Statements". We completed step one of the transitional goodwill impairment test as of December 27, 2002 and the annual goodwill impairment test as of June 27, 2003 and found no impairment. Since no impairment was found, no further testing of goodwill is necessary unless there is evidence of further impairment or events or changes in circumstances occur by the end of fiscal 2004 that would reduce the fair value of the reporting units containing goodwill below their carrying amounts. At June 27, 2003, we had goodwill with a carrying value of approximately $13 million. In accordance with SFAS 142, the results for the fiscal years ended June 28, 2002 and June 30, 2001 have not been restated. The

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following table discloses a reconciliation of reported net loss and basic and diluted net loss per share to the amounts adjusted for exclusion of goodwill amortization:

		Years ended
		June 27, 2003			June 28, 2002			June 30, 2001
		(in thousands, except per share amounts)
	Reported net loss	$	(129,704	)	$	(46,323	)	$	(493,043	)
Add:
	Goodwill, net of tax		—			1,460			1,460
	Adjusted net loss	$	(129,704	)	$	(44,863	)	$	(491,583	)
Reported net loss per share—basic and diluted		$	(0.64	)	$	(0.24	)	$	(2.59	)
Add:
	Goodwill, net of tax		—			0.01			0.01
	Adjusted net loss per share—basic and diluted	$	(0.64	)	$	(0.23	)	$	(2.58	)

Note 11. Financing Arrangement

        During fiscal 2002 and through March 2003, available credit under our asset-based credit facility was determined monthly based on 85% of eligible accounts receivable. We did not use this facility for cash borrowings, but rather to support letters of credit we are required to provide as security under certain lease obligations. This obligation bore interest payable monthly at the prime rate plus 0.25% for cash advances and at 3.25% for letters of credit. During this period of time, the facility was secured by the pledge of our U.S. accounts receivable and inventory, certain intellectual property and a $7 million cash deposit. We also deposited additional cash when eligible accounts receivable, which fluctuate within the quarter, were below the level needed to secure our letters of credit. The credit facility also contained financial and other covenants. We obtained waivers of compliance with the covenants of this facility from the lenders in the first and third quarters of fiscal 2003 and the second, third and fourth quarters of fiscal 2002.

        During the fourth quarter of fiscal 2003, we renewed our asset-based credit facility for a two-year term maturing in April 2005. In the event we are unable to extend the maturity of our senior convertible notes due 2004 on terms satisfactory to our secured lender on or before March 5, 2004, the facility will mature in June 2004. This facility is also subject to acceleration upon various events of default. The renewed facility is secured by U.S. and Canadian accounts receivable, U.S. inventory and equipment, the pledge of certain intellectual property and a $10 million cash deposit. Available credit under our asset-based credit facility is determined monthly based on 85% of eligible accounts receivable and an inventory collateral calculation based on the terms of the agreement. We have not used this facility for cash borrowings, but rather to support letters of credit, including letters of credit we are required to provide as security under certain lease obligations. We are currently using our full capacity under this line to secure $46 million in letters of credit. This obligation bears interest payable monthly at the prime rate plus 0.25% (4.5% at June 27, 2003) for cash advances and at 2.0% for letters of credit. We deposit additional cash collateral when the eligible accounts receivable and other collateral, which fluctuates within the quarter, is below the level needed to secure our letters of credit. At June 27, 2003, the credit facility was secured by a total of $21 million cash collateral, which is included as a component of Short-term Restricted Investments. The credit facility contains financial and other covenants similar in nature to that of the previous facility. We obtained a waiver of compliance with the covenants of this facility from the lender in the first, third and fourth quarters of fiscal 2003. In the event we are not able to comply with the financial and other covenants of this facility in the future, or there is a material adverse change affecting our ability to repay the outstanding

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balance, the facility may be declared to be in default. If a default is declared and not waived it could have a significant impact on our working capital. See "Risks That Affect Our Business".

Note 12. Guarantees

        SGI, as the guarantor, enters into four categories of guarantees, namely financial guarantees, performance guarantees, indemnifications and indirect guarantees of the indebtedness of others.

        Financial guarantees include contracts that contingently require us to make payments to the beneficiary of the guarantee based on changes in an underlying variable (e.g. a specified interest rate, security price or other variable) that is related to an asset, liability or equity security of the guaranteed party. Currently, we have issued guarantees: to cover rent on leased facilities and equipment; in favor of government authorities and certain other parties to cover liabilities associated with the importation of goods; and to support payments in advance of future delivery on our goods and services. The majority of our guarantees within this category have terms no greater than one year.

        Performance guarantees include contracts that contingently require us to make payments to the beneficiary of the guarantee based on another entity's failure to perform under an obligating agreement. We had no outstanding performance guarantees at June 27, 2003 that are subject to the disclosure requirements of FIN 45.

        Indemnifications include agreements that contingently require us to make payments to an indemnified party based on changes in an underlying variable (e.g. a specified interest rate, security price or other variable) that is related to an asset, liability, or an equity security of the indemnified party. Indemnifications include agreements to indemnify the guaranteed party for an adverse judgement in a lawsuit or the imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law. Currently, we have issued indemnifications to cover potential exposure related to the imposition of additional taxes. The term of an indemnification is based on the length of time required to settle the dispute.

        Indirect guarantees include agreements between SGI and a lender requiring us to transfer funds to the lender upon the occurrence of specified events. Indirect guarantees include SGI's guarantee of our subsidiary's debt to a third party and our subsidiary's guarantee of the debt owed to a third party by either SGI or another subsidiary of SGI. This category of guarantees has terms that are consistent with those of the debt agreements.

        The following table discloses our obligations under guarantees as of June 27, 2003 (in thousands):

		Maximum Potential Amount of Future Payments		Assets Held as Collateral
Financial guarantees		$	54,580	$	54,580
Indemnifications			1,983		1,005
Indirect guarantees			6,098		—
	Total	$	62,661	$	55,585

        The following table depicts product warranty activity during fiscal 2003 (in thousands):

Balance at June 28, 2002	$	8,958
New warranties issued		10,804
Warranty activity		(13,310	)
Changes in estimates		259
Balance at June 27, 2003	$	6,711

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Note 13. Long-Term Debt

        Long-term debt at June 27, 2003 and June 28, 2002 was as follows (in thousands):

	2003			2002
Senior Convertible Notes due September 2004 at 5.25%	$	230,591		$	230,591
Convertible Subordinated Debentures due February 2011 at 6.125%, net of unamortized discount of $8,097 ($8,825 in 2002)		48,679			47,951
Japanese Yen fixed rate loan due in quarterly installments through December 2004 at 10.00%(1)		29,563			40,267
Other		17			38
		308,850			318,847
Less amounts due within one year		(16,894	)		(10,943	)
Amounts due after one year	$	291,956		$	307,904

(1)

The Japanese yen fixed rate loan of approximately 3.5 billion yen was converted at a rate of 118.39 yen per U.S. dollar. This loan is collateralized by our remaining ownership interest in SGI Japan.

        The Senior Convertible Notes (the "Senior Notes") are convertible into shares of common stock at a conversion price equal to $18.70 per share. The Senior Notes are redeemable at our option beginning in 2002, at varying prices based on the year of redemption. The Senior Notes are redeemable at the holder's option in the event of the sale of all, or substantially all, of our common stock for consideration other than common stock traded on a U.S. exchange or approved for quotation on the NASDAQ National Market.

        In connection with the fiscal 1996 acquisition of Cray Research Inc., SGI assumed the Convertible Subordinated Debentures. These debentures are convertible into SGI's common stock at a conversion price of $39.17 per share at any time prior to maturity and may be redeemed at our option at a price of 100%. Prior to our acquisition of Cray, Cray repurchased a portion of the debentures with a face value of $33 million. The repurchase satisfied the first six required annual sinking fund payments of approximately $6 million originally scheduled for fiscal years 1997 through 2002. In fiscal 2000 and fiscal 1999, we repurchased additional portions of the debentures with a face value of $11 million and $15 million, respectively. These repurchases satisfied the next four required annual sinking fund payments of approximately $6 million originally scheduled for fiscal years 2003 through 2006. Remaining annual sinking fund payments of approximately $5 million in fiscal 2007 and approximately $6 million each from fiscal 2008 to 2010 are scheduled, with a final maturity payment of approximately $35 million in 2011.

        Principal maturities of long-term debt at June 27, 2003 are as follows (in millions): 2004—$17; 2005—$243; 2006—$0; 2007—$5; 2008—$6 and $46 thereafter.

Note 14. Leasing Arrangements as Lessee

        We lease certain of our facilities and some of our equipment under non-cancelable operating lease arrangements.

        Future minimum annual lease payments under operating leases at June 27, 2003 are as follows (in millions): 2004—$49; 2005—$45; 2006—$33; 2007—$28; 2008—$26, and thereafter—$106. Included in these lease payments are amounts related to restructuring activities at June 27, 2003 as follows: 2004—$11; 2005—$10; 2006—$5; 2007—$1; 2008—$1; and thereafter—$1. Future sublease and rental income as of June 27, 2003 are as follows (in millions): 2004—$4; 2005—$4; 2006—$2; 2007—$1; 2008—$1; and thereafter—$8, of which $4 million relates to restructuring.

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        Aggregate operating lease rent expense in fiscal 2003, 2002 and 2001 was $35 million, $45 million and $53 million, respectively. Included in fiscal 2003, 2002 and 2001 rent expense is an offset of $5 million, $6 million and $4 million, respectively, which relates to recognition of a portion of our deferred gain on the sale leaseback transaction completed in December 2000 involving our Amphitheatre and Crittenden Technology Center campuses in Mountain View, California. As of June 27, 2003, we have a remaining deferred gain of $37 million on the sale leaseback transaction that will be recognized over the terms of the respective leases as an offset to rent expense.

        On July 10, 2003, we announced that we had entered into an agreement to sublease our Amphitheatre Technology Center campus in Mountain View, California. We will relocate our headquarters to our nearby Crittenden Technology Center campus, where we will lease additional space. In combination, these actions will substantially reduce our occupancy costs. For additional information regarding this sublease agreement see Note 24to the Consolidated Financial Statements.

Note 15. Stockholders' Equity

        Preferred Stock Transactions    There were no preferred stock transactions in fiscal 2003 or 2002. On March 1, 2001, NKK Corporation ("NKK"), which owned 17,500 shares of Series A convertible preferred stock, elected to convert its remaining shares into our common stock. As a result of the conversion, NKK received 3,829,321 shares of common stock, calculated by dividing the original issuance price by the then-current price of the common stock. The market value of these shares was $4.57 per share at the point of conversion. Prior to conversion, the preferred stock paid a 3% cumulative annual dividend on the original issuance price of $1,000 per share, had preference upon liquidation equal to $1,000 per share and had aggregate voting rights equivalent to 1,400,000 shares of common stock.

        Stock Award Plans    We have various stock award plans that provide for the grant of incentive and nonstatutory stock options and the issuance of restricted stock awards to members of our Board of Directors and employees. The Board of Directors determines the exercise price and vesting schedule for all stock option grants and restricted stock awards. All stock options granted in fiscal 2001 through 2003 had an exercise price of no less than the fair market value on the date of grant. No restricted stock awards were granted during fiscal 2003 and 2002 while 175,000 were granted in fiscal 2001.

        Stock options granted to employees typically vest over a 25-month or 50-month period from the date of grant. Options granted to newly-hired employees generally also include a 10-month initial waiting period before they may be exercised. Restricted stock awards generally vest in four annual installments. Under the directors' compensation program, members of the Board of Directors receive an initial stock option grant on appointment to the Board which vests over a two year period, and an additional option grant annually which is fully vested on the date of grant.

        At the end of fiscal 2003, 2002 and 2001, there were 11,042,542, 16,362,551 and 14,641,134 options available for grant, respectively, and there were 97,500, 175,408 and 1,146,024 shares of restricted stock, respectively, subject to repurchase.

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        Activity under all of the stock award plans was as follows:

		2003				2002				2001
		Number of Shares Under Option		Weighted Average Exercise Price		Number of Shares Under Option		Weighted Average Exercise Price		Number of Shares Under Option		Weighted Average Exercise Price
Balance at beginning of fiscal year		34,419,589		$	3.73	33,222,585		$	5.08	23,827,668		$	6.78
	Options granted	10,034,800		$	1.43	13,044,170		$	0.87	19,734,021		$	3.62
	Options exercised	(852,215	)	$	0.56	(1,273,554	)	$	1.56	(1,563,748	)	$	0.92
	Options forfeited	—			—	—			—	—			—
	Options canceled	(5,429,291	)	$	4.95	(10,573,612	)	$	4.71	(8,775,356	)	$	7.14
Balance at end of fiscal year		38,172,883		$	3.02	34,419,589		$	3.73	33,222,585		$	5.08
Exercisable at end of fiscal year		27,498,427		$	3.50	23,306,452		$	4.44	18,827,210		$	5.57

        Additional information about options outstanding at June 27, 2003 is as follows:

	Options Outstanding				Options Exercisable
Exercise Price Range	Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Number of Shares	Weighted Average Exercise Price
$0.42–$0.57	8,467,791	$	0.56	8.04	7,434,770	$	0.57
$0.62–$2.98	11,858,218	$	1.67	8.76	3,173,671	$	1.87
$2.99–$6.12	15,890,527	$	4.60	6.30	14,939,338	$	4.58
$6.30–$37.49	1,956,347	$	9.02	5.04	1,950,648	$	9.02
$0.42–$37.49	38,172,883	$	3.02	7.38	27,498,427	$	3.50

        Employee Stock Purchase Plan    We have an employee stock purchase plan under which eligible employees may purchase stock at 85% of the lower of the closing prices for the stock at the beginning of a twenty four-month offering period or the end of each six-month purchase period. The purchase periods generally begin in May and November. Purchases are limited to 10% of each employee's compensation. Purchases under this plan were suspended in April 2003, when the shares available for purchase were exhausted. Purchase periods will not resume until additional shares are approved for issuance under the plan by the shareholders.

        At June 27, 2003, we had issued a total of 20,275,430 shares over the life of the plan, including 4,006,072 shares issued during fiscal 2003, and we have 592 shares in reserve for future issuance under the plan. Both scheduled purchases during fiscal 2003 were pro-rated to allocate the shares available for purchase among the participants; employees used 26% and 30%, respectively, of their payroll contributions toward purchasing shares and the remainder of their contribution was returned to them.

        Grant Date Fair Values    The weighted average estimated fair value of employee stock options granted at grant date market prices during fiscal 2003, 2002, and 2001 was $1.07, $0.55, and $2.06 per share, respectively. The weighted average exercise price of employee stock options granted at grant date market prices during fiscal 2003, 2002 and 2001 was $1.43, $0.87, and $3.59 per share, respectively. The weighted average fair value of restricted stock granted during fiscal 2001 was $4.46 per share. The weighted average estimated fair value of shares granted under the Stock Purchase Plan during fiscal 2003, 2002, and 2001 was $0.61, $1.16, and $1.59 per share, respectively.

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        We estimated the weighted average fair value of options granted at the date of grant using a Black-Scholes option-pricing model with the weighted average assumptions listed below.

	Employee Stock Options						Stock Purchase Plan Shares
	2003		2002		2001		2003		2002		2001
Expected life (in years)	0.02		0.02		0.03		0.50		0.50		0.40
Risk-free interest rate	1.10	%	3.00	%	5.10	%	1.52	%	1.27	%	5.22	%
Volatility	1.1		1.02		0.81		1.15		1.30		0.93
Dividend yield	0	%	0	%	0	%	0	%	0	%	0	%

        Pro Forma Information    We have elected to follow APB 25 in accounting for our employee stock options. Under APB 25, we recognize no compensation expense in our financial statements except in connection with the grant of restricted stock for nominal consideration and unless the exercise price of our employee stock options is less than the market price of the underlying stock on the grant date. Total compensation expense recognized in our financial statements for stock-based awards under APB 25 for fiscal 2003, 2002, and 2001 was $0.3 million, $2 million, and $6 million, respectively.

        The pro forma information regarding net loss and net loss per share as if we had accounted for our employee stock options and employee stock purchase plan under the fair value method prescribed by SFAS 123 is presented in Note 2 to the Consolidated Financial Statements.

        Stock Repurchase Program    During fiscal 2001, we settled our remaining equity forward instrument under which we were committed to repurchase an aggregate of 6.0 million shares of common stock at an aggregate cost of $104 million. We recorded the proceeds received from the sale of equity instruments and amounts paid upon the purchase of equity instruments as a component of stockholders' (deficit) equity. Subsequent changes in the fair value of the equity instrument contracts were not recognized. We had the ability to determine whether the contracts were settled in cash or stock.

Note 16. Comprehensive Loss

        The components of accumulated other comprehensive loss, net of tax, are as follow (in thousands):

	Years ended
	June 27, 2003			June 28, 2002
	$	—		$	—
Unrealized loss on derivative instruments designated and qualifying as cash flow hedges	$	(381	)	$	(1,969	)
Foreign currency translation adjustments		(19,544	)		(20,224	)
Accumulated other comprehensive loss	$	(19,925	)	$	(22,193	)

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Note 17. Income Taxes

        The components of loss from continuing operations before income taxes are as follows (in thousands):

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
United States	$	(146,651	)	$	(157,782	)	$	(341,479	)
International		(9,316	)		75,523			(124,676	)
	$	(155,967	)	$	(82,259	)	$	(466,155	)

        The (benefit from) provision for income taxes consists of the following (in thousands):

		Years ended
		June 27, 2003			June 28, 2002			June 30, 2001
Federal:
	Current	$	(4,452	)	$	(40,654	)	$	6,111
	Deferred		—			—			—
State:
	Current		(2,784	)		2,635			1,300
	Deferred		—			—			—
Foreign:
	Current		(18,612	)		314			19,477
	Deferred		(415	)		1,769			—
		$	(26,263	)	$	(35,936	)	$	26,888

        The (benefit from) provision for income taxes reconciles to the amounts computed by applying the statutory federal rate to income (loss) before income taxes as follows (in thousands):

	Years ended
	June 27, 2003			June 28, 2002			June 30, 2001
Tax at U.S. federal statutory rate	$	(54,588	)	$	(28,791	)	$	(163,154	)
State taxes, net of federal tax benefit		(1,810	)		1,713			845
Net operating loss with no tax benefit		53,956			27,985			162,352
Change in U.S. federal tax law		—			(42,083	)		—
Net foreign taxes with no tax benefit (detriment)		(19,027	)		2,083			19,477
Earnings subject to foreign taxes at lower rates		(4,958	)		—			—
Other		164			3,157			7,368
(Benefit from) provision for income taxes	$	(26,263	)	$	(35,936	)	$	26,888

        As a result of the enactment of the Job Creation and Worker Assistance Act of 2002, which provided for additional U.S. federal operating loss carryback claims from the year ended June 30, 2001, we recognized additional tax benefits of approximately $42 million in the third quarter of the year ended June 28, 2002.

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        The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities at June 27, 2003 and June 28, 2002 are as follows (in thousands):

			2003			2002
Deferred tax assets:
	Net operating loss carryforwards		$	527,283		$	504,895
	General business credit carryforwards			63,605			54,330
	Inventory valuation			43,053			42,246
	Reserves not currently deductible			43,130			34,106
	Other			127,191			165,443
		Subtotal		804,262			801,020
		Valuation allowance		(726,957	)		(699,950	)
	Total deferred tax assets			77,305			101,070
Deferred tax liabilities:
	Foreign taxes on unremitted foreign earnings, net of related U.S. tax liability			75,891			102,105
	Other			2,768			734
		Total deferred tax liabilities		78,659			102,839
	Total		$	(1,354	)	$	(1,769	)

        At June 27, 2003, we had gross deferred tax assets arising from deductible temporary differences, tax losses, and tax credits of $804 million. The gross deferred tax assets are offset by a valuation allowance of $727 million and deferred tax liabilities of $79 million. The valuation allowance of $727 million includes $23 million attributable to benefits of stock option deductions, which, if recognized, will be allocated directly to paid-in-capital.

        At June 27, 2003, we had United States federal, state, and foreign jurisdictional net operating loss carryforwards of approximately $1,251 million, $333 million, and $200 million, respectively. The federal losses will begin expiring in fiscal year 2010, the state losses will begin expiring in fiscal 2005, and the foreign losses will begin expiring in fiscal year 2004. At June 27, 2003, we also had general business credit carryovers of approximately $43 million for United States federal tax purposes, which will begin expiring in fiscal year 2004, and state R&D credits of $29 million which can be carried forward indefinitely.

Note 18. Segment Information

        SGI is a leading provider of products, services and solutions for use in high-performance computing, visualization and storage. We sell highly scalable servers, advanced visualization systems, desktop workstations, storage solutions and a range of software products which enable our customers in the scientific, technical and creative communities to solve their most challenging problems and provide them with strategic and competitive advantages in their marketplace. We also offer a range of technical solutions, including professional services, Reality Center immersive visualization centers, customer support and education. These products and services are targeted primarily towards five market segments: Government and Defense, Science, Manufacturing, Energy and Media.

        The Server segment's current products include visualization systems, high-performance servers and integrated storage solutions. The Server segment's systems include the SGI Onyx family of graphics systems and the SGI Altix and Origin families of high-performance servers. This segment also includes prior generations of graphics systems and high-performance servers available through our Remarketed Products Group. Our servers are high-performance supercomputing systems designed for technical computing applications. Our servers are also used as storage management servers for managing very

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large data repositories that contain critical information and media servers for video on demand, media streaming and broadcast television applications. These products are distributed through our direct sales force, as well as through indirect channels including resellers and distributors.

        The Workstation segment's current products include the Silicon Graphics Fuel and Octane2™ workstations along with prior generations of workstations available through our Remarketed Products Group. During the fourth quarter of fiscal 2002, a decision was made to end of life the Silicon Graphics® 750 system based upon the new Intel Itanium processor and first-generation Intel Itanium architecture. This product shipped through the end of fiscal 2002. During the fourth quarter of fiscal 2001, a decision was made to end of life the Silicon Graphics® 230, Silicon Graphics® 330, Silicon Graphics® 550 and the Silicon Graphics Zx10™ visual workstations based upon the Intel microprocessor and the Windows NT® and Red Hat® Linux® operating systems. These products were shipped through the first quarter of fiscal 2002. Our workstations are used in a variety of applications including computer-aided design, medical imaging, 2D and 3D animation, broadcast, modeling and simulation. These products are distributed through our direct sales force, as well as through indirect channels including resellers and distributors.

        The Global Services segment supports our computer hardware and software products and provides professional services to help customers realize the full value of their information technology investments. Our Professional Services organization provides technology consulting, education and managed services. Effective for fiscal 2002, we reorganized our Global Services segment and removed the Remarketed Products Group from this segment. Revenue from remanufactured systems is included in either the servers and visual workstations reportable segments based on the nature of the system sold. Prior period amounts have been reclassified to conform to current period presentation.

        We evaluate each of these segments based on profit or loss from operations before interest and taxes.

        Expenses of the research and development, sales and marketing, manufacturing, finance and administration groups are allocated to the reportable segments and are included in the results reported. The revenue and related expenses of our wholly-owned software subsidiary Alias, as well as certain corporate-level revenue and expenses are not allocated and are included in "Other" in the reconciliation of reported revenue and operating profit.

        We do not identify or allocate assets or depreciation by operating segment, nor do we evaluate segments on these criteria. Operating segments do not sell product to each other, and accordingly, there is no inter-segment revenue to be reported. The accounting policies for segment reporting are the same as those described in Note 2 to the Consolidated Financial Statements.

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        Information on reportable segments is as follows for fiscal 2003, 2002, and 2001 (in thousands):

		Servers			Visual Workstations			Global Services
2003:
Revenue from external customers		$	366,668		$	150,960		$	382,799
Segment (loss) profit		$	(120,182	)	$	(74,648	)	$	102,938
2002:
Revenue from external customers		$	516,720		$	237,668		$	456,790
Segment (loss) profit		$	(122,263	)	$	(79,917	)	$	103,251
2001:
Revenue from external customers		$	747,698		$	397,297		$	598,025
Segment (loss) profit		$	(219,029	)	$	(124,143	)	$	5,242
Significant items:
	Charges for contract cancellations and inventory and future support costs related to the discontinuance of Pentium III-based product line	$	—		$	(13,864	)	$	(4,665	)

        Reconciliation to SGI as reported (in thousands):

	Years ended
	2003			2002			2001
Revenue:
Total reportable segments	$	900,427		$	1,211,178		$	1,743,020
Other		61,321			130,207			111,441
Total SGI consolidated	$	961,748		$	1,341,385		$	1,854,461
Operating loss:
Total reportable segments	$	(91,892	)	$	(98,929	)	$	(337,930	)
Other		(9,471	)		64,841			10,213
Restructuring		(25,131	)		(32,958	)		(82,328	)
Write-down of impaired long-lived assets		(4,915	)		(11,515	)		(19,724	)
Enterprise Resource Planning implementation expense		—			(22,200	)		(14,477	)
Business reorganization costs		—			—			(3,889	)
Total SGI consolidated	$	(131,409	)	$	(100,761	)	$	(448,135	)

        No single customer represented 10% or more of our total revenue in any period presented.

        Geographic revenue for the fiscal years 2003, 2002, and 2001 is based on the location of the customer. Long-lived assets at the end of fiscal 2003, 2002, and 2001 include all non-current assets except long-term restricted and other long-term investments and net long-term deferred tax assets. Geographic information is as follows (in thousands):

		Revenue						Long-lived Assets
		2003		2002		2001		2003		2001		2002
Americas		$	609,279	$	839,576	$	1,008,135	$	88,611	$	134,763	$	139,040
Europe			237,873		306,194		436,979		104,985		118,399		226,712
Rest of World			114,596		195,615		409,347		1,280		5,065		47,911
	Total	$	961,748	$	1,341,385	$	1,854,461	$	194,876	$	258,227	$	413,663

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Note 19. Benefit Plans

        401(k) Retirement Savings Plan.    We provide a 401(k) investment plan covering substantially all of our U.S. employees. The plan provides for a minimum 25% Company match of an employee's contribution up to a specified limit, but allows for a larger matching subject to certain regulatory limitations. The Company's matching contributions for fiscal 2003, 2002 and 2001, were approximately $3 million, $3 million and $4 million, respectively.

        Deferred Compensation Plan.    We have a Non-Qualified Deferred Compensation Plan that allows eligible executives and directors to defer a portion of their compensation. The deferred compensation, together with Company matching amounts and accumulated earnings, is accrued but unfunded. Such deferred compensation is distributable in cash and amounted to approximately $3 million as of June 27, 2003, $2 million as of June 28, 2002 and $4 million as of June 30, 2001. A participant may elect to receive such deferred amounts in one payment or in annual installments no sooner than two years following each annual election. Participant contributions are always 100% vested and our matching contributions vest as directed by the board of directors. There have been no matching contributions to date.

Note 20. Related Party Transactions

        We have from time to time engaged in significant transactions with related parties in the ordinary course of business. Total revenue for the fiscal years ended 2003, 2002 and 2001 included, in the aggregate, sales to related parties in the amounts of $32 million, $28 million and $12 million, respectively. In fiscal 2003 and 2002, related party sales were primarily to SGI Japan which is not a consolidated subsidiary following the sale of a majority equity interest by SGI to NEC and NEC Soft during fiscal 2002. Total purchases from related parties for the years ended June 27, 2003 and June 28, 2002 amounted to $3 million and $13 million, respectively, and were insignificant for fiscal 2001. Aggregate amounts receivable from and amounts payable to such related parties were immaterial at June 27, 2003, June 28, 2002, and June 30, 2001.

Note 21. Consolidated Statement of Cash Flows

        Other adjustments to reconcile net loss to net cash from operating activities include the write-off of long-lived assets and accrual of compensation expense related to employee stock awards. The effect of exchange rate changes on cash balances are not material for any of the periods presented.

        Supplemental disclosures of cash flow information (in thousands):

		Years ended
		June 27, 2003		June 28, 2002			June 30, 2001
Cash paid during the year for:
	Interest	$	19,405	$	16,700		$	17,500
	Income taxes, net of refunds	$	703	$	(24,800	)	$	16,300

        Supplemental schedule of non cash investing and financing activities (in thousands):

	Years ended
	June 27, 2003		June 28, 2002		June 30, 2001
Settlement of shareholder lawsuit	$	—	$	19,500	$	—
Conversion of preferred stock to common stock	$	—	$	—	$	16,888

61

Note 22. Contingencies

        In September 2001, we reached a settlement of securities class action lawsuits that were filed in the U.S. District Court for the Northern District of California and in California Superior Court for the county of Santa Clara in December 1997 and January 1998 alleging that SGI and certain former officers made material misrepresentations and omissions during the period from July to October 1997. The settlement, which involved a payment of $4 million in cash and the issuance of 8 million shares of SGI common stock to the settlement class, received final court approval on January 3, 2002. Accordingly, we recorded a charge of approximately $24 million ($20 million of which was non-cash) in the nine months ended March 29, 2002 in interest income (expense) other, net. Approximately 2.4 million shares were issued in January 2002 in satisfaction of plaintiffs' attorneys' fees and the remaining shares were issued in July 2003.

        In June 2002, we reached an agreement to resolve the claims asserted in a lawsuit originally filed as Collette Sweeney v. Silicon Graphics, Inc. and Does 1-50, inclusive, CV 790199, on June 5, 2000 in the Superior Court for the County of Santa Clara, State of California, and later dismissed by the plaintiffs but refiled as a representative action under California Business and Professions Code section 17200 by the plaintiffs' original counsel. The lawsuit asserts claims for violations of provisions of the California Labor Code and California Wage Orders. The settlement agreement outlines a process for identifying and resolving claims from members of the represented class. Once this process is complete, the complaint will be dismissed. We currently expect to complete this process in 2003. However, we do not expect all claims to be resolved through this process.

        In October 2002, the Internal Revenue Service completed its examination of our U.S. income tax returns for fiscal years ended 1996 through 1999 and proposed certain adjustments. We are contesting these adjustments and believe that adequate amounts have been provided for adjustments that may ultimately result from these examinations.

        SCO Group, the successor to AT&T as the owner of certain UNIX system V intellectual property and as our licensor, has publicly claimed that certain elements of the Linux operating system infringe SCO Group's intellectual property rights. We have received a letter from SCO Group alleging that, as a result of our activities related to the Linux operating system, we are in breach of the fully-paid license under which we distribute our IRIX operating system. The letter purports to terminate our UNIX System V license effective October 14, 2003.

        We believe that the SCO Group's allegations are without merit and that our fully paid license is nonterminable. There can be no assurance that this dispute with SCO Group will not escalate into litigation, which could have a material adverse effect upon SGI, or that SCO Group's intellectual property claims, which include a widely-publicized litigation against IBM Corporation, will not impair the market acceptance of the Linux operating system.

        We also routinely receive communications from third parties asserting patent or other rights covering our products and technologies. Based upon our evaluation, we may take no action or we may seek to obtain a license. We are in discussions with several parties that have asserted intellectual property infringement claims. There can be no assurance in any given case that a license will be available on terms we consider reasonable, or that litigation will not ensue.

        We are not aware of any pending disputes, including those described above, that would be likely to have a material adverse effect on our financial condition, results of operations or liquidity. However, our evaluation of the likely impact of these pending disputes could change in the future.

62

Note 23. Subsequent Events

        On July 10, 2003, we announced that we had agreed to sublease our Amphitheatre Technology Center campus in Mountain View, California. We will relocate our headquarters to our nearby Crittenden Technology Center campus, where we will lease additional space. In combination, the lease transactions are expected to result in a net reduction in our facilities occupancy costs of $14 million to $17 million per year beginning in fiscal 2005. We began to vacate the Amphitheatre campus in July 2003 and plan to complete the relocation by August 2004. During the transition period, we expect to incur incremental cash outflows of $1 million to $3 million associated with the move and to recognize additional non-cash charges as we exit the Amphitheatre facility and over the term of the sublease. The incremental charges that will flow through restructuring for the net sublease loss and accretion of the deferred gain on the Amphitheatre Technology Center campus will total approximately $71 million over the next 10 years, of which approximately $22 million will be recorded in fiscal 2004.

        On August 27, 2004, we also announced and began to implement additional restructuring actions in an effort to further reduce our operating expense and better align expenses with revenue targets for fiscal 2004. These actions are expected to result in the elimination of approximately 600 additional positions across all levels and functions. We expect to record aggregate charges of approximately $20 million in the first half of fiscal 2004 related to these actions. This charge will principally consist of severance costs paid over the next several months, and as a result does not represent a significant incremental cash expenditure.

        In September 2003, we sold the manufacturing facility in Cortaillod, Switzerland, that was closed in December 2001. We will receive approximately $10.5 million in net cash proceeds, resulting in a loss on the sale of approximately $500 thousand.

Note 24. Selected Quarterly Financial Data (Unaudited)

		Fiscal 2003
		June 27			March 28			December 27			September 27
		(in thousands, except per share amounts)
Total revenue		$	240,165		$	217,127		$	262,738		$	241,718
Costs and expenses:
	Cost of revenue		143,351			136,646			148,538			144,279
	Research and development		40,463			44,911			42,920			42,643
	Selling, general and administrative		78,250			80,247			74,086			86,777
	Other operating expense(1)		12,585			3,200			5,817			8,444
Operating loss			(34,484	)		(47,877	)		(8,623	)		(40,425	)
Interest and other (expense) income, net			(14,155	)		(2,395	)		(7,448	)		(560	)
Loss before income taxes			(48,639	)		(50,272	)		(16,071	)		(40,985	)
Net loss		$	(36,648	)	$	(34,987	)	$	(16,997	)	$	(41,072	)
Net loss per share—basic and diluted:		$	(0.18	)	$	(0.17	)	$	(0.08	)	$	(0.21	)
Shares used in the calculation of net loss per share:
	Basic and diluted		203,281			201,990			200,748			199,676

63

		Fiscal 2002
		June 28			March 29			December 28			September 28
		(in thousands, except per share amounts)
Total revenue		$	284,501		$	313,604		$	363,888		$	379,392
Costs and expenses:
	Cost of revenue		167,292			180,213			217,269			205,637
	Research and development		44,087			43,093			42,095			47,620
	Selling, general and administrative		95,430			100,106			114,233			140,598
	Other operating expense(2)		1,929			10,512			(80	)		32,112
Operating loss			(24,237	)		(20,320	)		(9,629	)		(46,575	)
Interest and other (expense) income, net(3)			(10,961	)		(1,743	)		51,862			(20,655	)
(Loss) income before income taxes			(35,198	)		(22,063	)		42,233			(67,230	)
Net (loss) income		$	(36,690	)	$	10,337		$	49,312		$	(69,282	)
Net (loss) income per share—basic:		$	(0.18	)	$	0.05		$	0.26		$	(0.36	)
Net (loss) income per share—diluted:		$	(0.18	)	$	0.05		$	0.24		$	(0.36	)
Shares used in the calculation of net (loss) income per share:
	Basic		198,545			196,372			192,956			192,094
	Diluted		198,545			202,484			210,293			192,094

(1)

Fiscal 2003 amounts include net aggregate restructuring charges of $27 million and $3 million in impairment charges.

(2)

Fiscal 2002 amounts include net aggregate restructuring charges of $33 million and $12 million in impairment charges

(3)

Amounts include a $64 million gain on the sale of 60% interest in SGI Japan in the second quarter and $24 million in expenses associated with the class action lawsuit in the first nine months of fiscal 2002.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures.    Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days of the filing date of this quarterly report, have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.



(b)

Changes in internal controls.    There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

64

PART III

        Certain information required by Part III is omitted from this Report in that we filed our definitive proxy statement pursuant to Regulation 14A (the "2003 Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information concerning our directors required by this Item is incorporated by reference to the information set forth in the 2003 Proxy under the heading "Proposal No. 1—Election of Directors—Directors and Nominee for Director."

        The information concerning executive officers and family relationships required by this Item is incorporated by reference to the section in Part I hereof entitled "Executive Officers of the Registrant."

        The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, required by this Item is incorporated by reference to information set forth in the 2003 Proxy Statement under the heading "Executive Officer Compensation—Compliance with Section 16(a) of the Exchange Act."

ITEM 11. EXECUTIVE COMPENSATION

        The information required by this Item is incorporated by reference to information set forth in the 2003 Proxy Statement under the headings "Proposal No. 1—Election of Directors—Compensation Committee Interlocks and Insider Participation" and "—Director Compensation"; "Executive Officer Compensation—Summary Compensation Table", "—Option Grants in Fiscal 2003" and "—Option Exercises in Fiscal Year 2003 and Fiscal Year-end Option Values"; "Report of the Compensation and Human Resources Committee of the Board of Directors"; and "Company Stock Price Performance Graph".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required by this Item is incorporated by reference to the information set forth in the 2003 Proxy Statement under the headings "Information Concerning Solicitation and Voting—Record Date and Principal Share Ownership" and "—Voting and Solicitation" and under the heading "Other Information—Security Ownership of Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this Item is incorporated by reference to the information set forth in the 2003 Proxy Statement under the heading "Certain Transactions."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by this Item is incorporated by reference to the information set forth in the 2003 Proxy Statement under the heading "Proposal No. 3—Ratification of Appointment of Independent Auditors."

65

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as a part of this Report:

1.

FINANCIAL STATEMENTS. The following consolidated financial statements of Silicon Graphics, Inc. and Report of Ernst & Young LLP, Independent auditors are filed as part of this Report on pages 30 through 64.

Consolidated Statement of Operations—Years ended June 27, 2003, June 28, 2002 and June 30, 2001

Consolidated Balance Sheets—June 27, 2003 and June 28, 2002

Consolidated Statements of Cash Flows—Years ended June 27, 2003, June 28, 2002 and June 30, 2001

Consolidated Statements of Stockholders' (Deficit) Equity—Years ended June 27, 2003, June 28, 2002 and June 30, 2001

        Notes to Consolidated Financial Statements

        Report of Ernst & Young LLP, Independent Auditors

2.

FINANCIAL STATEMENT SCHEDULES. The following financial statement schedule of Silicon Graphics, Inc. is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Silicon Graphics, Inc.

Schedule	Description	Page
II	Valuation and Qualifying Accounts	72

Schedules not listed above have been omitted because they are not applicable or are not included in the consolidated financial statements or notes thereto.

3.

EXHIBITS. The following Exhibits are filed as part of, or incorporated by reference into, this Report:

3.1.1	Restated Certificate of Incorporation of the Company.
3.2(12)	Bylaws of the Company, as amended.
4.1(8)	Indenture dated February 1, 1986 between Cray Research, Inc. and Manufacturers Hanover Trust Company, as Trustee.
4.2(8)	First Supplemental Indenture dated June 30, 1996 between the Company, Cray Research, Inc., and Chemical Bank (formerly Manufacturers Hanover Trust Company)
4.3	Indenture dated as of September 1, 1997 between the Company and State Street Bank and Trust Company of California, N.A., as Trustee.
9.1(7)	Voting and Exchange Trust Agreement between the Company and Computershare dated June 15, 1995.
10.1(1)	Software Agreement dated as of January 4, 1986, as supplemented June 6, 1986, and Sublicensing Agreement dated as of June 9, 1986 between the Company and AT&T Information Systems Inc.
10.2(2)	Software License Agreement dated January 24, 1986, between the Company and AT&T Information Systems Inc.

66

10.3(3)	Form of Indemnification Agreement entered into between the Company and its executive officers and certain other agents. (Revised)
10.4(10)*	Directors' Stock Option Plan and form of Stock Option Agreement as amended as of April 23, 1997.
10.5(9)*	1985 Stock Incentive Program, as amended.
10.6(9)*	Amended and Restated 1989 Employee Benefit Stock Plan and form of stock option agreement.
10.7 (15)*	1993 Long-Term Incentive Stock Plan, as amended, and form of stock option agreement.
10.8(10)*	1996 Supplemental Non-Executive Equity Incentive Plan, as amended, and form of stock option agreement.
10.9(12)*	1998 Employee Stock Purchase Plan.
10.10(5)*	Non-Qualified Deferred Compensation Plan dated as of September 9, 1994.
10.11(10)*	Addendum to the Non-Qualified Deferred Compensation Plan.
10.12(6)*	Alias Research Inc.'s 1994 Stock Plan and standard forms of Option Agreements.
10.13(7)*	Wavefront Technologies, Inc. 1990 Stock Option Plan with standard form of Option Agreement.
10.14(14)	Intellectual Property Security Agreement between the Company and Foothill Capital Corporation dated November 9, 2001.
10.15(14)	Loan Agreement between the Company, Silicon Graphics World Trade B.V. and SGI Japan, Ltd. as of November 2001 and related Pledge Agreement.
10.16*(14)	Letter Agreement between Warren Pratt and the Company, as amended as of November 2001.
10.17*(14)	Amended and Restated Promissory Note in the principal amount of $250,000 as of April 2001.
10.18(14)	Pledge Agreement between Warren Pratt and the Company dated September 27, 2000.
10.19*(14)	Amended and Restated Promissory Note in the principal amount of $500,000 as of April 2001.
10.20(14)	Letter Agreement between Jeffrey Zellmer and the Company, as amended as of October 2001.
10.21*(14)	Letter Agreement between Sandra Escher and the Company, effective October 2001.
10.22(14)	Consulting Agreement between Arthur L. Money and Silicon Graphics, Inc. dated June 1, 2002.
10.23(16)	Amendment No 1. dated April 11, 2003, to the Amended and Restated Loan and Security between the Company and Foothill Capital Corporation and the Bank of America, N.A. dated September 24, 2002.
10.24	Amendment No 2. including Waiver dated September 17, 2003, to the Amended and Restated Loan and Security between the Company and Foothill Capital Corporation and the Bank of America, N.A. dated September 24, 2002.

67

21.1	List of Subsidiaries.
23.1	Consent of Ernst & Young LLP, Independent Auditors
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert R. Bishop and Jeffrey V. Zellmer.

*

This exhibit is a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c).

(1)

Incorporated by reference to exhibits to the Company's Registration Statement on Form S-1 (No. 33-8892), which became effective October 29, 1986.

(2)

Incorporated by reference to exhibits to the Company's Registration Statement on Form S-1 (No. 33-12863), which became effective March 31, 1987.

(3)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1992.

(4)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1994.

(5)

Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994.

(6)

Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 (No. 33-60215), which became effective June 14, 1995.

(7)

Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 (No. 33-60213), which became effective June 14, 1995.

(8)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 1995.

(9)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the period ended June 30, 1996.

(10)

Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997.

(11)

Incorporated by reference to exhibits to the Company's Registration Statement on Form S-4 (No. 333-32379), which became effective August 7, 1997.

(12)

Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1999.

(13)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the year ended June 30, 2001.

(14)

Incorporated by reference to exhibits to the Company's Annual Report on Form 10-K for the year ended June 28, 2002.

(15)

Incorporated by reference to exhibits to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003.

68

(16)

Incorporated by reference to exhibits to the Company's Form 8-K filed on April 21, 2003.

(b)

Reports on Form 8-K. During the quarter ended June 27, 2003, we furnished or filed the following information:

        A Form 8-K was filed on April 21, 2003 in connection with Regulation FD disclosures and the filing of exhibits relating to the announcement of the Company's financial results for the quarter ended March 28, 2003 and the renewal of the Company's asset based credit facility.

        A Form 8-K was filed on May 22, 2003 in connection with Regulation FD disclosures relating to the announcement of a reduction in force.

        A Form 8-K was filed on June 10, 2003 in connection with Regulation FD disclosures relating to meetings with investors.

Trademarks used in the Form 10-K

        Silicon Graphics, SGI, O2, Octane, Onyx, Origin, FailSafe, IRIX and Reality Center are registered trademarks, and Altix, CXFS, NUMAflex, Onyx4, UltimateVision, Silicon Graphics Fuel, Tezro, Octane2, and Silicon Graphics Zx10 are trademarks of Silicon Graphics, Inc. in the U.S. and/or other countries worldwide. Alias Studio is a trademark of Alias Systems, a division of Silicon Graphics Limited. Maya is a registered trademark of Silicon Graphics, Inc., and exclusively used by Alias Systems, a division of Silicon Graphics Limited.

        MIPS is a registered of MIPS Technologies, Inc. used under license by Silicon Graphics, Inc. UNIX is a registered trademark of The Open Group, in the U. S. and other countries. Windows and Windows NT are registered trademarks of Microsoft Corporation in the United States and /or other countries. Intel, Pentium and Itanium are registered trademarks of Intel Corporation or its subsidiaries in the United States and other countries. Linux is a registered trademark of Linus Torvalds. Red Hat is a registered trademark of Red Hat, Inc. in the United States and other countries. Macintosh is a registered trademark of Apple Computer, Inc, registered in the United States and other countries.

69

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SILICON GRAPHICS, INC.
Dated: September 29, 2003	By:	/s/  ROBERT R. BISHOP Robert R. Bishop Chairman and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  ROBERT R. BISHOP Robert R. Bishop	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	September 29, 2003
/s/  JEFFREY V. ZELLMER Jeffrey V. Zellmer	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	September 29, 2003
/s/  KATHY A. LANTERMAN Kathy A. Lanterman	Vice President & Corporate Controller (Principal Accounting Officer)	September 29, 2003
/s/  LEWIS S. EDELHEIT Lewis S. Edelheit	Director	September 29, 2003
/s/  JAMES A. MCDIVITT James A. McDivitt	Director	September 29, 2003
/s/  ARTHUR L. MONEY Arthur L. Money	Director	September 29, 2003

70

/s/  ANTHONY R. MULLER Anthony R. Muller	Director	September 29, 2003
/s/  CHARLES A. STEINBERG Charles A. Steinberg	Director	September 29, 2003
/s/  ROBERT M. WHITE Robert M. White	Director	September 29, 2003

71

Schedule II

Valuation and Qualifying Accounts and Reserves

Description		Balance at Beginning of Period		Charged to Costs and Expenses		Other			Write-offs/ Other			Balance at End of Period
Year ended June 30, 2001
	Accounts receivable allowance	$	12,383	$	10,334	$	—		$	(2,649	)	$	20,068
	Warranty Accrual	$	27,879	$	22,398	$	(2,457)	(1)	$	(26,460	)	$	21,360
	Deferred tax asset allowance	$	632,324	$	192,836	$	1,733	(2)	$	—		$	826,893
Year ended June 28, 2002
	Accounts receivable allowance	$	20,068	$	4,443	$	—		$	(11,963	)	$	12,548
	Warranty Accrual	$	21,360	$	13,173	$	(1,083)	(1)	$	(24,492)	(3)	$	8,958
	Deferred tax asset allowance	$	826,893	$	—	$	(1,761)	(2)	$	(125,182)	(4)	$	699,950
Year ended June 27, 2003
	Accounts receivable allowance	$	12,548	$	3,160	$	(1,138)	(5)	$	(6,149	)	$	8,421
	Warranty Accrual	$	8,958	$	10,804	$	—		$	(13,051	)	$	6,711
	Deferred tax asset allowance	$	699,950	$	26,758	$	249	(2)	$	—		$	726,957

(1)

Reclassification from other accrual accounts

(2)

Reserve of paid-in capital benefits related to stock option activity

(3)

Includes prior year adjustment to reconcile to the GL Balance at Beginning of Period

(4)

The net reduction in valuation allowance against deferred tax assets (other than for changes in the reserve of paid-in capital benefits related to stock options activity) totaled $125 million for fiscal 2002. The reduction arose principally from a change in the U.S. income tax laws that resulted in the utilization of certain deferred tax assets, which had previously been reserved by valuation allowance. Additionally, valuation allowances established in prior years for certain deferred tax assets associated with general business credits and foreign tax credits were reduced due to the underlying assets' expiration or deduction.

(5)

Primarily related to the release of $1million provision due to achieving a reduction in aging over 90 days.

72

QuickLinks

PART I

ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Ernst & Young LLP, Independent Auditors

CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES

Schedule II

Valuation and Qualifying Accounts and Reserves

EX-3.1(1)

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Exhibit 3.1.1

RESTATED CERTIFICATE OF INCORPORATION OF
SILICON GRAPHICS, INC.

        Silicon Graphics, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company") does hereby certify that:

        (1)   The name of the Company is Silicon Graphics, Inc. The name under which the Company was originally incorporated in the State of Delaware was Silicon Graphics, Inc. The original Certificate of Incorporation of the Company was filed with the Secretary of State on September 5, 1986.

        (2)   At a meeting of the Board of Directors of the Company, a resolution was duly adopted in accordance with Section 245 of the Delaware General Corporation Law to restate and integrate all of the provisions of the Restated Certificate of Incorporation in effect and operative as of the date of such restatement.

        (3)   This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Company's Restated Certificate of Incorporation as heretofore amended and supplemented. There is no discrepancy between the provisions hereof and the provisions of the Company's Restated Certificate of Incorporation as heretofore amended or supplemented.

        (4)   As a result of the foregoing, the certificate of incorporation of the Company is restated in its entirety as follows:

"FIRST:	The name of the Corporation is Silicon Graphics, Inc. (the "Corporation").
SECOND:	The address of the Corporation's registered office in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, Zip Code 19808. The name of its registered agent at such address is Corporation Service Company.
THIRD:	The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH:	The total number of shares of all classes of stock which the Corporation has authority to issue is Five Hundred Two Million (502,000,000) shares, consisting of Five Hundred Million (500,000,000) shares of Common Stock, $0.001 par value, (the "Common Stock") and Two Million (2,000,000) shares of Preferred Stock, $0.001 par value (the "Preferred Stock").
	The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them.
	The Board of Directors is further authorized to increase or decrease the number of shares of any series, the number of which was fixed by it, subsequent to the issue of shares of such series then outstanding, subject to the limitations and restrictions stated in the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
FIFTH:	The Corporation is to have perpetual existence.

SIXTH:	The election of directors need not be by written ballot unless a stockholder demands election by written ballot at a meeting of stockholders and before voting begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH:	The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation.
EIGHTH:	In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.
NINTH:	To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may thereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
	Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
TENTH:	At the election of directors of the Corporation, each holder of stock or of any class or classes of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for such provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit.
ELEVENTH:	Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
TWELFTH:	The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
THIRTEENTH:	At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders meeting called and held in accordance with the Delaware General Corporation Law.

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	The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, which classes are hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next regularly-scheduled annual meeting of stockholders after the filing of this amendment; the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders; and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the annual meeting of stockholders scheduled to be held in October 1992.
	At each annual meeting after the annual meeting of stockholders scheduled to be held in October 1992, directors to replace those of the Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified.
	If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as is practicable.
	Any director may be removed from office by the stockholders of the Corporation only for cause.
	The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation.
	Vacancies occurring on the Board of Directors for any reason may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified.
FOURTEENTH:	Subject to and in accordance with the section Fourth above:
	I.    Authorized Number and Designation.    One share of the preferred stock, $0.001 par value per share, of the Company is hereby constituted as a series of the preferred stock designated Series E Preferred Stock, $0.001 par value (the "Series E Preferred").
	II.    Dividends.    The holder of Series E Preferred shall not be entitled to receive any dividends declared and paid by the Company.

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        III.    Voting Rights.    Except as otherwise required by law or the Certificate of Incorporation, (i) the holder of record of the share of Series E Preferred shall have a number of votes equal to the number of votes that the holders of the outstanding Exchangeable Non-Voting Shares ("Exchangeable Shares") of Silicon Graphics Canada Limited from time to time, which are not owned by the Company, any of its subsidiaries or any person directly or indirectly controlled by or under common control of the Company, would be entitled to if all such Exchangeable Shares were exchanged by the holders thereof for shares of the Common Stock of the Company pursuant to the terms of the Exchangeable Shares, in each case for the election of directors and on all matters submitted to a vote of the Stockholders of the Company, and (ii) in respect of all matters concerning the voting of shares, the Series E Preferred and the common stock of the Company shall vote as a single class.

        IV.    Liquidation Preference.    Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, and subject to any prior rights of holders of shares of preferred stock ranking senior to the Series E Preferred, the holder of the share of Series E Preferred shall be paid an amount equal to $1.00, together with payment to any class of stock ranking equally with the Series E Preferred, and before payment shall be made to holders of any stock ranking on liquidation junior to the Series E Preferred (such amount payable with respect to the Series E Preferred being referred to as the "Series E Preferred Liquidation Preference Payment").

        V.    Ranking.    The Series E shall rank junior to the Series A Preferred Stock of the Company in all respects.

        VI.    Other Provisions.

                (a)    Pursuant to the terms of that certain Amended and Restated Agreement and Plan of Acquisition and Arrangement, dated as of February 6, 1995, by and among the Company, Silicon Graphics Manufacturing S.A., a Swiss corporation and subsidiary of the Company ("Swissco"), 1103707 Ontario Inc., an Ontario corporation and a wholly owned subsidiary of Swissco, and Alias Research Inc., an Ontario corporation, as amended, one share of Series E Preferred is being issued to the trustee (the "Trustee") under the Voting and Exchange Trust Agreement, dated as of June 15, 1995 by and between the Company, Swissco, Silicon Graphics Canada Limited ("SGCL") and the Trustee.

                (b)    The holder of the share of Series E Preferred is entitled to exercise the voting rights attendant thereto in such manner as such holder desires.

                (c)    At such time as the Series E Preferred has no votes attached to it because there are no Exchangeable Shares of Alias outstanding which are not owned by the Company, any of its subsidiaries or any person directly or indirectly controlled by or under common control of the Company, and there are no shares of stock, debts, options or other agreements of SGCL which could give rise to the issuance of any Exchangeable Shares of SGCL to any person (other than the Company, any of its subsidiaries or any person directly or indirectly controlled by or under common control of the Company), the Series E Preferred shall be cancelled.

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        IN WITNESS WHEREOF, Silicon Graphics, Inc. has caused this certificate to be signed by Sandra M. Escher, its Senior Vice President and General Counsel, this 24th day of July, 2003.

By:	/s/  SANDRA M. ESCHER
	Name:	Sandra M. Escher
	Title:	Senior Vice President and General Counsel

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RESTATED CERTIFICATE OF INCORPORATION OF SILICON GRAPHICS, INC.

EX-4.3

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Exhibit 4.3

SILICON GRAPHICS, INC.

5¹/4% Senior Convertible Notes due 2004


INDENTURE

Dated as of September 1, 1997


STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A., TRUSTEE

SILICON GRAPHICS, INC.

Reconciliation and tie between
Trust Indenture Act of 1939 and
Indenture, dated as of September 1, 1997

Trust Indenture Act Section	Indenture Section
§310(a)(1)	7.10
(a)(2)	7.10
(a)(3)	Not Applicable
(a)(4)	Not Applicable
(b)	7.06, 7.08
§311(a)	7.11
(b)	7.11
(c)	Not Applicable
§312(a)	2.05, 2.14
(b)	2.14(b), 11.03
(c)	2.14(c), 11.03
§313(a)	7.12(a)
(b)	7.12(a)
(c)	7.12(a)
(d)	7.12(b)
§314(a)	4.02
(b)	Not Applicable
(c)(1)	11.04
(c)(2)	11.04
(c)(3)	Not Applicable
(d)	Not Applicable
(e)	11.04
(f)	Not Applicable
§315(a)	7.01
(b)	7.05, 7.12(a)
(c)	7.01
(d)	6.11
§316(a)(1)(A)	6.02
(a)(1)(B)	6.04
(a)(2)	Not Applicable
(b)	6.07
(c)	Not Applicable
§317(a)(1)	6.08
(a)(2)	6.09
(b)	3.03
§318(a)	11.1

Note:    This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.

TABLE OF CONTENTS¹

		PAGE
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01.	Definitions	1
Section 1.02.	Other Definitions	5
Section 1.03.	Incorporation by Reference of TIA	5
Section 1.04.	Rules of Construction	5
ARTICLE 2 THE SECURITIES
Section 2.01.	Form and Dating	5
Section 2.02.	Execution and Authentication	6
Section 2.03.	Registrar, Paying Agent and Conversion Agent	6
Section 2.04.	Paying Agent to Hold Money and Securities in Trust	6
Section 2.05.	Securityholder Lists	7
Section 2.06.	Exchange and Registration of Transfer of Securities; Depositary	7
Section 2.07.	Replacement Securities	8
Section 2.08.	Outstanding Securities; Determinations of Holders' Action	9
Section 2.09.	Temporary Securities	9
Section 2.10.	Cancellation	10
Section 2.11.	Persons Deemed Owners	10
Section 2.12.	Payment of Interest; Interest Rights Preserved	10
Section 2.13.	Computation of Interest	11
Section 2.14.	Preservation of Information; Communications to Holders	11
ARTICLE 3 REDEMPTION
Section 3.01.	Right to Redeem; Notices to Trustee	11
Section 3.02.	Selection of Securities to be Redeemed	12
Section 3.03.	Notice of Redemption	12
Section 3.04.	Effect of Notice of Redemption	12
Section 3.05.	Deposit of Redemption Price	13
Section 3.06.	Securities Redeemed in Part	13
Section 3.07.	Conversion Arrangement on Call for Redemption	13
Section 3.08.	Redemption at Option of the Holder upon a Fundamental Change	14
ARTICLE 4 COVENANTS
Section 4.01.	Payment of Securities	16
Section 4.02.	SEC Reports	16
Section 4.03.	Compliance Certificate	16
Section 4.04.	Further Instruments and Acts	16
Section 4.05.	Maintenance of Office or Agency	16

¹

This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture.

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ARTICLE 5 SUCCESSOR CORPORATION
Section 5.01.	When Company May Merge or Transfer Assets	17
ARTICLE 6 DEFAULTS AND REMEDIES
Section 6.01.	Events of Default	18
Section 6.02.	Acceleration	18
Section 6.03.	Other Remedies	19
Section 6.04.	Waiver of Past Defaults	19
Section 6.05.	Control by Majority	19
Section 6.06.	Limitation on Suits	19
Section 6.07.	Rights of Holders to Receive Payment	19
Section 6.08.	Collection Suit by Trustee	20
Section 6.09.	Trustee May File Proofs of Claim	20
Section 6.10.	Priorities	20
Section 6.11.	Undertaking for Costs	21
Section 6.12.	Waiver of Stay, Extension or Usury Laws	21
ARTICLE 7 TRUSTEE
Section 7.01.	Duties of Trustee	21
Section 7.02.	Rights of Trustee	22
Section 7.03.	Individual Rights of Trustee	22
Section 7.04.	Trustee's Disclaimer	22
Section 7.05.	Notice of Defaults	22
Section 7.06.	Disqualification; Conflicting Interests	22
Section 7.07.	Compensation and Indemnity	22
Section 7.08.	Replacement of Trustee	23
Section 7.09.	Successor Trustee by Merger	23
Section 7.10.	Eligibility; Disqualification	23
Section 7.11.	Preferential Collection of Claims Against Company	24
Section 7.12.	Reports by Trustee	24
ARTICLE 8 DISCHARGE OF INDENTURE
Section 8.01.	Discharge of Liability on Securities	24
Section 8.02.	Repayment to the Company	24
ARTICLE 9 AMENDMENTS
Section 9.01.	Without Consent of Holders	24
Section 9.02.	With Consent of Holders	25
Section 9.03.	Compliance with TIA	25
Section 9.04.	Revocation and Effect of Consents, Waivers and Actions	25
Section 9.05.	Notation on or Exchange of Securities	25
Section 9.06.	Trustee to Sign Supplemental Indentures	26
Section 9.07.	Effect of Supplemental Indentures	26

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ARTICLE 10 CONVERSION
Section 10.01.	Conversion Privilege	26
Section 10.02.	Conversion Procedure	26
Section 10.03.	Fractional Shares	27
Section 10.04.	Taxes on Conversion	27
Section 10.05.	Company to Provide Stock	27
Section 10.06.	Adjustment for Change in Capital Stock	28
Section 10.07.	Adjustment for Rights Issue	28
Section 10.08.	Adjustment for Other Distributions	28
Section 10.09.	When Adjustment May be Deferred	31
Section 10.10.	When no Adjustment Required	31
Section 10.11.	Notice of Adjustment	31
Section 10.12.	Voluntary Decrease	31
Section 10.13.	Notice of Certain Transactions	32
Section 10.14.	Effect of Reclassification, Consolidation, Merger or Sale	32
Section 10.15.	Company Determination Final	32
Section 10.16.	Trustee's Adjustment Disclaimer	33
Section 10.17.	Simultaneous Adjustments	33
Section 10.18.	Successive Adjustments	33
Section 10.19.	Rights Issued in Respect of Common Stock Issued Upon Conversion	33
Section 10.20.	General Considerations	34
ARTICLE 11 MISCELLANEOUS
Section 11.01.	Conflict with TIA	34
Section 11.02.	Notices	34
Section 11.03.	Communication by Holders with other Holders	35
Section 11.04.	Certificate and Opinion as to Conditions Precedent	35
Section 11.05.	Statements Required in Certificate or Opinion	35
Section 11.06.	Separability Clause	35
Section 11.07.	Rules by Trustee, Paying Agent, Conversion Agent and Registrar	35
Section 11.08.	Legal Holidays	35
Section 11.09.	Governing Law	35
Section 11.10.	No Recourse Against Others	35
Section 11.11.	Successors	36
Section 11.12.	Multiple Originals	36
EXHIBIT A —Form of Security		A-1

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        INDENTURE, dated as of September 1, 1997, between SILICON GRAPHICS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized and existing under the laws of the United States of America (the "Trustee").

        Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 5¹/4% Senior Convertible Notes due 2004 (the "Securities"):

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

        Section 1.01.    Definitions.

        "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

        "Applicable Price" means (i) in the event of a Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the last reported sales price for the Common Stock (determined as set forth in the definition of Current Market Price) during the ten Trading Days prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change, or, if there is no such record date, the date upon which the holders of Common Stock shall have the right to receive such cash, securities, property or other assets in connection with a Fundamental Change.

        "Board of Directors" means either the board of directors of the Company or any duly authorized committee of such board.

        "Business Day" means each day of the year on which banking institutions are not required or authorized to close in The City of New York or at the principal corporate trust office of the Trustee.

        "Closing Price" means with respect to any securities on any day the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive.

        "Common Stock" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 10.14, however, shares issuable on conversion of the Securities shall include only shares of Common Stock, par value $.001 per share, of the Company as it exists on the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such

resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

        "Company" means the party named as the "Company" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors.

        "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President, a Senior Vice President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

        "Conversion Price" has the meaning specified in Section 10.01.

        "Current Market Price" per share of Common Stock at any date shall be the average of the last reported sale prices for the ten consecutive Trading Days preceding the day before the record date with respect to any distribution, issuance or other event requiring such computation. The last reported sale price for each day shall be (i) the last reported sale price of Common Stock on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange on which such security is listed, or on the Nasdaq National Market or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (ii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for the Common Stock on at least 5 of the 10 preceding days, or (iii) if the Common Stock is listed or admitted for trading on any national securities exchange, the last sale price, or the closing bid price if no sale occurred, of the Common Stock on the principal securities exchange on which the Common Stock is listed. If the Common Stock is quoted on a national securities or central market system, in lieu of a market or quotation system described above, the last reported sale price shall be determined in the manner set forth in clause (ii) of the preceding sentence if bid and asked quotations are reported but actual transactions are not, and in the manner set forth in clause (iii) of the preceding sentence if actual transactions are reported. If none of the conditions set forth above is met, the last reported sale price of Common Stock on any day or the average of such last reported sale prices for any period shall be the fair market value of the Common Stock as determined by a member firm of the New York Stock Exchange, Inc. selected by the Company.

        "Custodian" means State Street Bank and Trust Company of California, N.A., as custodian with respect to any Global Security, or any successor.

        "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default.

        "Defaulted Interest" has the meaning specified in Section 2.12.

        "Depositary" means, with respect to the Securities issuable or issued in whole or in part in global form, the person specified in Section 2.06 as the Depositary with respect to the Securities, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

        "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or

2

constitute solely the right to receive (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) consideration which is not all or substantially all common stock listed (or, upon consummation of such transaction or event, will be listed) on a United States national securities exchange or approved for quotation in the Nasdaq National Market or any similar system of automated dissemination of quotations of securities prices.

        "Global Security" means a Security that is registered in the Security Register in the name of the Depository or a nominee thereof.

        "Holder" or "Securityholder" means a Person in whose name a Security is registered on the Registrar's books.

        "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof.

        "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities.

        "Interest Period" shall have the meaning set forth in Section 10.02.

        "Maturity" when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, redemption upon a Fundamental Change or otherwise.

        "Officer" means the Chairman of the Board, any Vice Chairman, the President, any Senior Vice President, any Vice President, the Treasurer or the Secretary or any Assistant Treasurer or Assistant Secretary of the Company.

        "Officers' Certificate" means a written certificate containing the information specified in Sections 11.04 and 11.05, signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President, a Senior Vice President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

        "Opinion of Counsel" means a written opinion containing the information specified in Sections 11.04 and 11.05, from legal counsel who is acceptable to the Trustee. The counsel may be an employee of, or counsel to, the Company or the Trustee.

        "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof.

        "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

        "Reference Market Price" shall initially mean $18.33 and in the event of any adjustment to the Conversion Price pursuant to Article 10, the Reference Market Price shall be adjusted to equal the initial Reference Market Price multiplied by a fraction the numerator of which is the Conversion Price specified in the form of Security attached as Exhibit A hereto (without regard to any adjustment thereto) and the denominator of which is the Conversion Price following such adjustment.

        "Redemption Date" shall mean a date specified for redemption of the Securities (other than redemption upon a Fundamental Change at the option of the Securityholder) in accordance with the terms of the Securities and Section 3.01 of this Indenture.

        "Redemption Price" shall have the meaning set forth in paragraph 5 of the Securities.

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        "Regular Record Date" for the interest payable on any Interest Payment Date means the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.

        "Rights Agreement" means that certain Amended and Restated Preferred Shares Rights Agreement, dated as of May 6, 1992, between the Company and State Street Bank and Trust Company of California, N.A., as successor rights agent thereunder, as amended from time to time.

        "Rights" shall mean "Rights" as such term is defined in the Rights Agreement.

        "SEC" means the Securities and Exchange Commission.

        "Securities" means any of the Company's 5¹/4% Senior Convertible Notes due 2004, as amended or supplemented from time to time, issued under this Indenture.

        "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

        "Securityholder" or "Holder" means a person in whose name a Security is registered on the Registrar's books.

        "Security Register" has the meaning specified in Section 2.05.

        "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.12.

        "Stated Maturity" when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable.

        "Subsidiary" means a corporation of which a majority of the capital stock (which for purposes of this definition means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by such corporation) having voting power under ordinary circumstances to elect a majority of the board of directors of such corporation is owned directly or indirectly by (i) the Company, (ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries.

        "TIA" means the Trust Indenture Act of 1939 as in effect on the date of this Indenture, except as provided in Section 9.03.

        "Trading Day" means a day during which trading in securities generally occurs on the New York Stock Exchange or, if the applicable security is not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which the applicable security is then listed or, if the applicable security is not listed on a national or regional securities exchange, on the Nasdaq National Market or, if the applicable security is not quoted on the Nasdaq National Market, on the principal other market on which the applicable security is then traded.

        "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters.

        "Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent, such successor or successors.

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        Section 1.02.    Other Definitions.

Term	Defined in Section
"Bankruptcy Law"	6.01
"Company Notice"	3.08(b)
"Conversion Agent"	2.03
"Event of Default"	6.01
"Fundamental Change Repurchase Date"	3.08(a)
"Fundamental Change Redemption Notice"	3.08(c)
"Fundamental Change Redemption Price"	3.08(a)
"Legal Holiday"	11.08
"Notice of Default"	6.01
"Paying Agent"	2.03
"Registrar"	2.03

        Section 1.03.    Incorporation by Reference of TIA.    Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:

        "Commission" means the SEC.

        "Indenture Securities" means the Securities.

        "Indenture Security Holder" means a Securityholder.

        "Indenture to be Qualified" means this Indenture.

        "Indenture Trustee" or "Institutional Trustee" means the Trustee.

        "Obligor" on the indenture securities means the Company.

        All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

        Section 1.04.    Rules of Construction.    Unless the context otherwise requires:

        (1)   a term has the meaning assigned to it;

        (2)   an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time;

        (3)   "or" is not exclusive;

        (4)   "including" means including, without limitation; and

        (5)   words in the singular include the plural, and words in the plural include the singular.

ARTICLE 2
THE SECURITIES

        Section 2.01.    Form and Dating.    The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage (provided that any such notation, legend or endorsement required by usage is in a form acceptable to the Company). The Company shall provide any such notations, legends or endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication.

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        Section 2.02.    Execution and Authentication.    The Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairman, its President, one of its Senior Vice Presidents or one of its Vice Presidents, under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.

        Securities bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of authentication of such Securities.

        No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

        The Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount of up to $234,500,000 upon a Company Order without any further action by the Company. The aggregate principal amount of Securities outstanding at any time may not exceed the amount set forth in the foregoing sentence, subject to the proviso set forth therein, except as provided in Section 2.07.

        Section 2.03.    Registrar, Paying Agent and Conversion Agent.    The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for purchase or payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register (the "Security Register") of the Securities and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional paying agents and one or more additional conversion agents. The term Paying Agent includes any additional paying agent. The term Conversion Agent includes any additional conversion agent.

        The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-registrar (if not the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar, Conversion Agent or co-registrar.

        The Company initially appoints the Trustee as Registrar, Conversion Agent and Paying Agent in connection with the Securities.

        Section 2.04.    Paying Agent to Hold Money and Securities in Trust.    Except as otherwise provided herein, prior to or on each due date of payments in respect of any Security, the Company shall deposit with the Paying Agent a sum of money or securities sufficient to make such payments when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money and securities held by the Paying Agent for the making of payments in respect of the Securities and shall notify the Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money and securities so held in trust. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money and securities held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money and securities held by it to the Trustee and to account for

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any funds and securities disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money or securities.

        Section 2.05.    Securityholder Lists.    The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee at least semiannually on February 15 and August 15 a listing of Holders dated within 15 days of the date on which the list is furnished and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.

        Section 2.06.    Exchange and Registration of Transfer of Securities; Depositary.    Upon surrender for registration of transfer of any Security at any office or agency of the Company designated as Registrar or co-registrar pursuant to Section 2.03 and satisfaction of the requirements for such transfer set forth in this Section 2.06, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount.

        Securities may be exchanged for a like aggregate principal amount of Securities of other authorized denominations. Securities to be exchanged shall be surrendered at any office or agency to be maintained by the Company designated as Registrar or co-registrar pursuant to Section 2.03 and the Company shall execute and register and the Trustee shall authenticate and deliver in exchange therefor the Security or Securities which the Securityholder making the exchange shall be entitled to receive, bearing registration numbers not contemporaneously outstanding.

        All Securities presented for registration of transfer or for exchange, purchase, redemption, conversion or payment shall (if so required by the Company, the Trustee, the Registrar or any co-registrar) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee, duly executed by the Holder or his attorney duly authorized in writing.

        No service charge shall be charged to the Securityholder for any exchange or registration of transfer of Securities, but the Company may require payment of a sum sufficient to cover any tax, assessments or other governmental charges that may be imposed in connection therewith.

        None of the Company, the Trustee, the Registrar or any co-registrar shall be required to exchange or register a transfer of (a) any Securities for a period of 15 days next preceding any selection of Securities to be redeemed or (b) any Securities or portions thereof selected or called for redemption or (c) any Securities or portion thereof surrendered for conversion or (d) any Securities or portion thereof surrendered for redemption (and not withdrawn) pursuant to Section 3.08.

        All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture as the Securities surrendered upon such exchange or transfer.

        The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply only to Global Securities:

        (1)   Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or Custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture.

        (2)   Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in party may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company

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that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security.

        (3)   Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct.

        (4)   Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article Two or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof.

        (5)   The Depositary or its nominee, as registered own of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the applicable procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its agent members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof.

        The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Securities in global form. Initially, the Global Security shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co.

        If at any time the Depositary for the Global Security notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, the Company may appoint a successor Depositary with respect to such Security. If a successor Depositary for the Global Security is not appointed by the Company within 90 days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of a Company Order for authentication and delivery of Securities, will authenticate and deliver, Securities in definitive form, in an aggregate principal amount equal to the principal amount of the Global Security, in exchange for the such Security in the global form.

        Section 2.07.    Replacement Securities.    If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.

        In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or redeem such Security, as the case may be.

        Upon the issuance of any new Securities under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in

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relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

        Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

        The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

        Section 2.08.    Outstanding Securities; Determinations of Holders' Action.    Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the Holders of the requisite principal amount of Securities have given or concurred in any request, demand, authorization, direction, notice,. consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including, without limitation, determinations pursuant to Articles 6 and 9).

        If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.

        If the Paying Agent holds, in accordance with this Indenture, on a Redemption Date, on a Fundamental Change Repurchase Date or on Stated Maturity, money or securities, if permitted hereunder, sufficient to pay Securities payable on that date, then on and after that date such Securities shall cease to be outstanding and interest on such Securities shall cease to accrue; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made.

        If a Security is converted in accordance with Article 10, then from and after such conversion such Security shall cease to be outstanding and interest shall cease to accrue on such Security.

        Section 2.09.    Temporary Securities.    Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities.

        If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.03, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.

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        Section 2.10.    Cancellation.    All Securities surrendered for payment, conversion, redemption or, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article 10. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed by the Trustee and evidence of their destruction delivered to the Company unless the Company directs by Company Order that the Trustee deliver canceled Securities to the Company.

        Section 2.11.    Persons Deemed Owners.    Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal amount, premium, if any, interest, Redemption Price and Fundamental Change Redemption Price in respect thereof, for the purpose of conversion and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary.

        Section 2.12.    Payment of Interest; Interest Rights Preserved.    Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

        Any interest on any Security which is payable, but is not punctually paid or dully provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (a) or (b) below:

        (a)   The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (b).

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        (b)   The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or market on which the Securities may be listed, and upon such notice as may be required by such exchange or market, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

        Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

        In the case of any Security which is converted after any Regular Record Date on or prior to the close of business on the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or dully provided for) shall be paid to the Person whose name that Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable.

        Section 2.13.    Computation of Interest.    Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months.

        Section 2.14.    Preservation of Information; Communications to Holders.

        (a)   The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 2.05 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 2.05 upon receipt of a new list so furnished.

        (b)   The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding right and duties of the Trustee, shall be as provided in the TIA.

        (c)   Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to names and addresses of the Holders made pursuant to the TIA.

ARTICLE 3
REDEMPTION

        Section 3.01.    Right to Redeem; Notices to Trustee.    The Company, at its option, may redeem the Securities in accordance with the provisions of paragraph 5 of the Securities. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the principal amount of Securities to be redeemed, the Redemption Price, and the amount of accrued interest to, but excluding, the Redemption Date.

        The Company shall give the notice to the Trustee provided for in this Section 3.01 (i) in the case of any redemption of fewer than all of the Securities, at least 45 days before the Redemption Date and (ii) in the case of a redemption of all of the Securities, no later than the Company is required to give notice to the Holders pursuant to Section 3.03, in each case unless a shorter notice shall be satisfactory to the Trustee.

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        Section 3.02.    Selection of Securities to be Redeemed.    If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method the Trustee considers fair and appropriate (as long as such method is not prohibited by the rules of any stock exchange or automated quotation system on which the Securities are then listed). The Trustee shall make the selection at least 35 days, but not more than 60 days, before the Redemption Date from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal amount of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in principal amounts of $1,000 or a multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed.

        If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as outstanding for the purpose of such selection.

        Section 3.03.    Notice of Redemption.    At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed.

        The notice shall identify the Securities to be redeemed and shall state:

        (1)   the Redemption Date;

        (2)   the Redemption Price, together with the amount of accrued interest to, but excluding, the Redemption Date;

        (3)   the Conversion Price;

        (4)   the name and address of the Paying Agent and Conversion Agent,

        (5)   that Securities called for redemption may be converted at any time before the close of business on the last Trading Day prior to the Redemption Date;

        (6)   that Holders who want to convert Securities must satisfy the requirements set forth in paragraph 7 of the Securities;

        (7)   that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price and accrued interest to, but excluding, the Redemption Date;

        (8)   if fewer than all the outstanding Securities are to be redeemed, the certificate number and principal amounts of the particular Securities to be redeemed; and

        (9)   that interest on Securities called for redemption will cease to accrue on and after the Redemption Date.

        At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense.

        Section 3.04.    Effect of Notice of Redemption.    Once notice of redemption is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price, together with accrued interest to, but excluding, the Redemption Date, stated in the notice except for Securities which are converted in accordance with the terms of this Indenture.

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        Upon the later of the Redemption Date or the date such Securities are surrendered to the Paying Agent, such Securities shall be paid at the Redemption Price, together with accrued interest to, but excluding, the Redemption Date, stated in the notice.

        Section 3.05.    Deposit of Redemption Price.    Prior to or on the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price and accrued interest to, but excluding, the Redemption Date of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which prior thereto have been delivered by the Company to the Trustee for cancellation or have been converted; provided that if such payment is made on the Redemption Date it must be received by the Trustee or Paying Agent, as the case may be, by 10:00 a.m. New York City time, on such Redemption Date. The Paying Agent shall as promptly as practicable return to the Company any money, with interest, if any, thereon (subject to the provisions of Section 7.01(f)), not required for that purpose because of conversion of Securities. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust.

        Section 3.06.    Securities Redeemed in Part.    Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security in an authorized denomination equal in principal amount to the unredeemed portion of the Security surrendered.

        Section 3.07.    Conversion Arrangement on Call for Redemption.    In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Paying Agent in trust for the Securityholders, on or before the close of business on the Redemption Date, an amount that, together with any amounts deposited with the Paying Agent by the Company for the redemption of the Securities, is not less than the Redemption Price, together with interest, if any, accrued to the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article 3, the obligation of the Company to pay the Redemption Price of such Securities, including all accrued interest, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article 10) surrendered by such purchasers for conversion, all immediately prior to the close of business on the Redemption Date, subject to payment of the above amount as aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it in the same manner as it would moneys deposited with it by the Company for the redemption of Securities. Without the Paying Agent's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Paying Agent as set forth in this Indenture, and the Company agrees to indemnify the Paying Agent from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Paying Agent in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture.

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        Section 3.08.    Redemption at Option of the Holder upon a Fundamental Change.    (a) If a Fundamental Change shall occur at any time prior to September 1, 2004, each Holder of Securities shall have the right, at such Holder's option, to require the Company to redeem such Holder's Securities on the date (the "Fundamental Change Repurchase Date") (or if such date is not a Business Day, the next succeeding Business Day) that is 45 days after the date of the Company's notice of such Fundamental Change. The Securities will be redeemable in part in multiples of $1,000 of principal amount. Such repayment shall be made at the following prices (the "Fundamental Change Redemption Price") (expressed as percentages of the principal amount) in the event of a Fundamental Change Repurchase Date occurring during the 12-month period beginning September 1:

Year	Percentage	Year	Percentage
1997	105.25%	2001	102.25%
1998	104.50	2002	101.50
1999	103.75	2003	100.75
2000	103.00

and 100% at September 1, 2004; provided that if the Applicable Price with respect to the Fundamental Change is less than the Reference Market Price, the Company shall redeem such Securities at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay to such Holders accrued interest to, but excluding, the Fundamental Change Repurchase Date on the redeemed Securities; provided that if such Fundamental Change Repurchase Date is an Interest Payment Date, then the interest payable on such date shall be paid to the Holder of the Security on the next preceding the Regular Record Date.

        (b)   On or before the tenth day after the occurrence of a Fundamental Change, the Company, or, at its written request (which must be received by the Trustee at least five Business Days prior to the date the Trustee is requested to give notice as described below), the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed to all Holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the redemption right at the option of the Holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in Section 3.03. The Company shall also deliver a copy of the Company Notice to the Trustee at such time as it is mailed to the Holders.

        Each Company Notice shall specify the circumstances constituting the Fundamental Change, the Fundamental Change Repurchase Date, the Fundamental Change Redemption Price at which the Company shall be obligated to redeem the Securities, the amount of interest accrued on each Security to, but excluding, the Fundamental Change Repurchase Date, the latest time by which the Holder must exercise the redemption right (the "Fundamental Change Expiration Time"), that the Holder shall have the right to withdraw any Notes prior to the Fundamental Change Expiration Time, a description of the procedure which a Holder must follow to exercise such redemption right and to withdraw any surrendered Notes and the place or places where the Holder is to surrender such Holder's Securities.

        No failure of the Company to give the foregoing notices and no defect therein shall limit the Holders' redemption rights or affect the validity of the proceedings for the repurchase of the Securities pursuant to this Section 3.08.

        (c)   For a Security to be so redeemed at the option of the Holder, the Paying Agent must receive such Security with the form entitled "Option to Elect Redemption Upon a Fundamental Change" on the reverse thereof duly completed (a "Fundamental Change Redemption Notice"), together with such Security duly endorsed for transfer, on or before the 30th day after the date of such Company Notice (or if such 30th day is not a Business Day, the immediately preceding Business Day). All questions as

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to the validity, eligibility (including time of receipt) and acceptance of any Security for redemption shall be determined by the Company, whose determination shall be final and binding.

        (d)   Upon receipt by the Company of the Fundamental Change Redemption Notice specified in Section 3.08(c), the Holder of the Security in respect of which such Fundamental Change Redemption Notice was given shall (unless such Fundamental Change Redemption Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, with respect to such Security. Such Fundamental Change Redemption Price together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, shall be paid to such Holder promptly following the Fundamental Change Repurchase Date. Securities in respect of which a Fundamental Change Redemption Notice has been given by the Holder thereof may not be converted into shares of Common Stock on or after the date of the delivery of such Fundamental Change Redemption Notice, unless such Fundamental Change Redemption Notice has first been validly withdrawn as specified in the following two paragraphs.

        A Fundamental Change Redemption Notice may be withdrawn by the Holder by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to the close of business on the Fundamental Change Repurchase Date to which it relates specifying:

        (1)   the certificate number of the Security in respect of which such notice of withdrawal is being submitted,

        (2)   the principal amount of the Security with respect to which such notice of withdrawal is being submitted, and

        (3)   the principal amount, if any, of such Security which remains subject to the original Fundamental Change Redemption Notice and which has been or will be delivered for purchase by the Company.

        There shall be no redemption pursuant to Section 3.08 if there has occurred prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the required Fundamental Change Redemption Notice and is continuing an Event of Default (other than a default in the payment of the Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, with respect to such Securities).

        (e)   On or before the Fundamental Change Repurchase Date the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.04) an amount of money and/or securities, if permitted hereunder, sufficient to pay the aggregate Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, of all the Securities or portions thereof which are to be redeemed as of such Fundamental Change Repurchase Date; provided that if such payment is made on the Fundamental Change Repurchase Date it must be received by the Trustee or Paying Agent, as the case may be, by 10:00 a.m. New York City time, on such Fundamental Change Repurchase Date.

        (f)    Any Security that is to be redeemed upon a Fundamental Change only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and, upon the Company's written direction to the Trustee, the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not redeemed.

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        (g)   In connection with any offer to redeem Securities under Section 3.08 hereof, the Company shall (i) comply with Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act, if applicable, (ii) file, if applicable, the related Schedule 13E-4 (or any successor schedule, form or report) under the Exchange Act and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 3.08 to be exercised in the time and in the manner specified in Section 3.08.

        (h)   The Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed as provided in paragraph 11 of the Securities, together with interest or dividends, if any (subject to the provisions of Section 7.01(f)), thereon, held by them for the payment of a Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.08 exceeds the aggregate Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, of the Securities or portions thereof which the Company is obligated to purchase as of the Fundamental Change Repurchase Date then promptly after the Business Day following the Fundamental Change Repurchase Date the Trustee and the Paying Agent shall return any such excess to the Company together with interest or dividends, if any, thereon.

ARTICLE 4
COVENANTS

        Section 4.01.    Payment of Securities.    The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities or pursuant to this Indenture. The principal amount, premium, if any, accrued interest, Redemption Price and Fundamental Change Redemption Price shall be considered paid on the applicable date due if on such date the Trustee or the Paying Agent holds on or before 10:00 a.m. New York City time on such date, in accordance with this Indenture, money or securities, if permitted hereunder, sufficient to pay all such amount then due.

        The Company shall pay interest at the rate set forth in paragraph I of the Securities and it shall pay interest on overdue interest at the same rate compounded semiannually (to the extent that the payment of such interest shall be legally enforceable), which interest on overdue interest shall accrue from the date such amounts became overdue.

        Section 4.02.    SEC Reports.    The Company shall file with the Trustee, within 15 days after it files such annual and quarterly reports, information, documents and other reports with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

        Section 4.03.    Compliance Certificate.    The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending on June 30, 1998) an Officers' Certificate stating whether or not the signers know of any Default that occurred during such period. If they do, such Officers' Certificate shall describe the Default and its status.

        Section 4.04.    Further Instruments and Acts.    Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

        Section 4.05.    Maintenance of Office or Agency.    The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange, redemption or conversion and where notices and demands to or upon the Company in respect of the

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Securities and this Indenture may be served. The office of State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, at 61 Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006, shall be such office or agency for all of the aforesaid purposes unless the Company shall maintain some other office or agency for such purposes and shall give prompt written notice to the Trustee of the location, and any change in the location, of such other office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 12.02.

        The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes.

ARTICLE 5
SUCCESSOR CORPORATION

        Section 5.01.    When Company May Merge or Transfer Assets.    The Company shall not consolidate with or merge with or into any other Person (other than in a merger or consolidation in which the Company is the surviving Person) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

        (a)   the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety (i) shall be a corporation, partnership or trust organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (ii) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture;

        (b)   immediately after giving effect to such transaction, no Default shall have occurred and be continuing; and

        (c)   the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been satisfied.

        The successor Person formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein; and thereafter, except in the case of (i) a lease of its properties and assets substantially as an entirety and (ii) obligations the Company may have under a supplemental indenture pursuant to Section 10.14, the Company shall be discharged from all obligations and covenants under this Indenture and the Securities.

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ARTICLE 6
DEFAULTS AND REMEDIES

        Section 6.01.    Events of Default.    An "Event of Default" occurs if:

        (1)   the Company defaults in the payment of the principal amount of, premium, if any, Redemption Price or Fundamental Change Redemption Price on any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise;

        (2)   the Company defaults in the payment of any installment of interest upon any of the Securities as and when the same shall become due and payable, and continuance of such default for 30 days;

        (3)   the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1) or (2) above) and such failure continues for 60 days after receipt by the Company of a Notice of Default;

        (4)   a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of the Company under any Bankruptcy Law, and such decree or order shall have continued undischarged and unstayed for a period of 60 consecutive days; or a decree or order of a court having jurisdiction in the premises of the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of its property, or for the winding-up or liquidation of its affairs, shall have been entered, and such decree or order shall have remained in force undischarged and unstayed of a period of 60 consecutive days; or

        (5)   the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any Bankruptcy Law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due.

        "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors.

        A Default under clause (3) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time specified in clause (3) above after actual receipt of such notice (a "Notice of Default"). Any such notice must specify the Default, demand that it be remedied and state that such notice is a Notice of Default.

        Section 6.02.    Acceleration.    If an Event of Default (other than an Event of Default specified in Section 6.01(4) or (5)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding by notice to the Company and the Trustee, may declare the principal amount and premium, if any, on all the Securities and the interest accrued thereon to be immediately due and payable. Upon such a declaration, such principal amount, premium, if any, and interest accrued thereon shall be due and payable immediately. If an Event of Default specified in Section 6.01(4) or (5) occurs and is continuing, the principal amount and premium, if any, on all the Securities and the interest accrued thereon shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder) may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and

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if all existing Events of Default have been cured or waived except nonpayment of the principal amount, premium, if any, and interest accrued thereon that has become due solely as a result of acceleration and if all amounts due to the Trustee under Section 7.07 have been paid. No such rescission shall affect any subsequent Default or impair any right consequent thereto.

        Section 6.03.    Other Remedies.    If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of the principal amount and premium, if any, on the Securities and interest accrued thereon or to' enforce the performance of any provision of the Securities or this Indenture.

        The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative.

        Section 6.04.    Waiver of Past Defaults.    The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing Default and its consequences except (1) an Event of Default described in Section 6.01(1) or 6.01(2), (2) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected or (3) a Default that constitutes a failure to convert any Security in accordance with the terms of Article 10. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

        Section 6.05.    Control by Majority.    The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability unless the Trustee is offered indemnity satisfactory to it.

        Section 6.06.    Limitation on Suits.    A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless:

        (1)   the Holder gives to the Trustee written notice stating that an Event of Default is continuing;

        (2)   the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy;

        (3)   such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense satisfactory to the Trustee;

        (4)   the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security or indemnity; and

        (5)   the Holders of a majority in aggregate principal amount of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period.

        A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder.

        Section 6.07.    Rights of Holders to Receive Payment.    Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the principal amount, premium, if any,

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accrued interest, Redemption Price or Fundamental Change Redemption Price in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities or any Redemption Date or Fundamental Change Repurchase Date, as the case may be, and to convert the Securities in accordance with Article 10, or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, shall not be impaired or affected adversely without the consent of each such Holder.

        Section 6.08.    Collection Suit by Trustee.    If an Event of Default described in Section 6.01(1) or 6.01(2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount owing with respect to the Securities and the amounts provided for in Section 7.07.

        Section 6.09.    Trustee May File Proofs of Claim.    In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal amount, premium, if any, accrued interest, Redemption Price or Fundamental Change Redemption Price in respect of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding or otherwise,

        (a)   to file and prove a claim for the whole amount of the principal amount, premium, if any, accrued interest, Redemption Price or Fundamental Change Redemption Price and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and

        (b)   to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07.

        Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claims of any Holder in any such proceeding.

        Section 6.10.    Priorities.    If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order:

        First: to the Trustee for amounts due under Section 7.07;

        Second: to Securityholders for amounts due and unpaid on the Securities for the principal amount, premium, if any, accrued interest, Redemption Price or Fundamental Change Redemption Price, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and

        Third: the balance, if any, to the Company.

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        The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid.

        Section 6.11.    Undertaking for Costs.    In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the Securities at the time outstanding.

        Section 6.12.    Waiver of Stay, Extension or Usury Laws.    The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal amount, premium, if any, accrued interest, Redemption Price or Fundamental Change Redemption Price in respect of Securities as contemplated herein, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such laws and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE 7
TRUSTEE

        Section 7.01.    Duties of Trustee.    (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

        (b)   Except during the continuance of an Event of Default:

        (1)   the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and

        (2)   in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture.

        (c)   The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

        (1)   this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01;

        (2)   the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

        (3)   the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.

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        (d)   Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.01.

        (e)   The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense.

        (f)    Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law.

        Section 7.02.    Rights of Trustee.    (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

        (b)   Before the Trustee acts or refrains from acting, it may require a Company Order, an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Company Order, Officers' Certificate or Opinion of Counsel.

        (c)   The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

        (d)   Subject to the provisions of Section 7.01(c), the Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

        Section 7.03.    Individual Rights of Trustee.    The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or co-registrar may do the same with the like rights. However, the Trustee must comply with Section 7.10.

        Section 7.04.    Trustee's Disclaimer.    The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, it shall not be responsible for any statement in the Prospectus for the Securities or in the Indenture or the Securities (other than its certificate of authentication), the acts of an prior Trustee hereunder, or the determination as to which beneficial owners are entitled to receive any notices hereunder.

        Section 7.05.    Notice of Defaults.    If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall give to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default described in Section 6.01(1) or 6.01(2), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. The Trustee shall not give notice of a Default pursuant to Section 6.01(3) until at least sixty (60) days have passed since its occurrence.

        Section 7.06.    Disqualification; Conflicting Interests.    If the Trustee has or shall acquire any conflicting interest within the meaning of the TIA, it shall either eliminate such conflicting interest or resign, to the extent and in the manner provided by, and subject to the provisions of the TIA and this Indenture.

        Section 7.07.    Compensation and Indemnity.    The Company agrees:

        (a)   to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

        (b)   to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture

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(including the reasonable compensation and the expense, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

        (c)   to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.

        To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal amount, premium, if any, accrued interest, Redemption Price or Fundamental Change Redemption Price, as the case may be, on particular Securities.

        The Company's payment obligations pursuant to this Section 7.07 shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(4) or (5), the expenses are intended to constitute expenses of administration under any Bankruptcy Law.

        Section 7.08.    Replacement of Trustee.    The Trustee may resign by so notifying the Company; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if:

        (1)   the Trustee fails to comply with, or ceases to be eligible under, Section 7.10;

        (2)   the Trustee is adjudged bankrupt or insolvent;

        (3)   a receiver or public officer takes charge of the Trustee or its property; or

        (4)   the Trustee otherwise becomes incapable of acting.

        If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint, by resolution of its Board of Directors, a successor Trustee.

        A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07.

        If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Securities at the time outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee.

        If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

        Section 7.09.    Successor Trustee by Merger.    If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trustee business or assets to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.

        Section 7.10.    Eligibility; Disqualification.    The Trustee (or if a Trustee is a member of a bank holding company, its bank holding company) shall have a combined capital and surplus of at least

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$50,000,000 as set forth in its most recent published annual report of conditions. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

        Section 7.11.    Preferential Collection of Claims Against Company.    If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against the Company (or any such other obligor).

        Section 7.12.    Reports by Trustee.

        (a)   The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the TIA at the times and in the manner provided pursuant thereto.

        (b)   A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange or market upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange or market.

ARTICLE 8
DISCHARGE OF INDENTURE

        Section 8.01.    Discharge of Liability on Securities.    When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable and the Company deposits with the Trustee cash and/or securities, as, permitted by the terms hereof, sufficient to pay at Stated Maturity the principal amount of all outstanding Securities (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 7.07, cease to be of further effect. The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company.

        Section 8.02.    Repayment to the Company.    The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, provided, however, that the Trustee or such Paying Agent, before being required to make any such return, shall at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each such Holder notice that such money or securities remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed money or securities then remaining will be returned to the Company. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

ARTICLE 9
AMENDMENTS

        Section 9.01.    Without Consent of Holders.    The Company and the Trustee may amend this Indenture or the Securities without the consent of any Securityholder:

        (1)   to cure any ambiguity, defect or inconsistency;

        (2)   to comply with Article 5 or Section 10.14;

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        (3)   to provide for uncertificated Securities in addition to certificated Securities so long as such uncertificated Securities are in registered form for purposes of the Internal Revenue Code of 1986, as amended;

        (4)   to make any change that does not adversely affect the right of any Securityholder; or

        (5)   to make any change to comply with the TIA, or any amendment thereto, or to comply with any requirement of the SEC in connection with the qualification, if any, of the Indenture under the TIA.

        Section 9.02.    With Consent of Holders.    With the written consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding, the Company and the Trustee may amend this Indenture or the Securities. However, without the consent of each Securityholder affected, an amendment or supplement to this Indenture or the Securities may not:

        (1)   make any change to the manner or rate of accrual in connection with interest, reduce the rate of interest referred to in paragraph 1 of the Securities or extend the time for payment of interest on any Security;

        (2)   reduce the principal amount or extend the Stated Maturity of any Security;

        (3)   reduce the Redemption Price or Fundamental Change Redemption Price of any Security;

        (4)   make any Security payable in money or securities other than that stated in the Security;

        (5)   make any change in Section 6.04, Section 6.07 or this Section 9.02, except to increase any such percentage;

        (6)   make any change that adversely affects the right to convert any Security; or

        (7)   make any change that adversely affects the right to require the Company to redeem the Securities upon a Fundamental Change in accordance with the terms thereof and this Indenture;

and no such amendment or supplement to this Indenture may reduce the aforesaid percentage of Securities whose Holders must consent to any such amendment or supplemental indenture, without the comment of the Holders of all the Securities then outstanding.

        It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or supplemental indenture, but it shall be sufficient if such consent approves the substance thereof.

        After an amendment under this Section 9.02 becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment.

        Section 9.03.    Compliance with TIA.    Every supplemental indenture executed pursuant to this Article shall comply with the TIA as then in effect.

        Section 9.04.    Revocation and Effect of Consents, Waivers and Actions.    Until an amendment, supplemental indenture, waiver or other action becomes effective, a consent to it or any other action by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the consent, waiver or action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Security or portion of the Security if the Trustee receives the notice or revocation before the date the amendment, supplemental indenture, waiver or action becomes effective. After an amendment, supplemental indenture, waiver or action becomes effective, it shall bind every Securityholder.

        Section 9.05.    Notation on or Exchange of Securities.    Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the

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Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities.

        Section 9.06.    Trustee to Sign Supplemental Indentures.    The Trustee shall sign any supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign such supplemental indenture. In signing such supplemental indenture the Trustee shall be entitled to receive, and (subject to the provisions of Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture.

        Section 9.07.    Effect of Supplemental Indentures.    Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

ARTICLE 10
CONVERSION

        Section 10.01.    Conversion Privilege.    A Holder of a Security may convert such Security into Common Stock at any time during the period stated in paragraph 7 of the Securities. The conversion price per share of Common Stock (the "Conversion Price") shall be that set forth in paragraph 7 in the Securities, subject to adjustment as herein set forth.

        A Holder may convert a portion of the principal amount of a Security if the portion is $1,000 or a multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.

        Section 10.02.    Conversion Procedure.    To convert a Security a Holder must satisfy the requirements in paragraph 7 of the Securities. The date on which the Holder satisfies all those requirements is the conversion date (the "Conversion Date"). Securities surrendered for conversion during the period from the close of business on any Regular Record Date to the close of business on the Trading Day immediately prior to the next succeeding Interest Payment Date (the "Interest Period") shall (except in the case of Securities or portions thereof which have been called for redemption on a Redemption Date within such Interest Period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Securities being surrendered for conversion. Subject to the provisions of Section 3.07 relating to the payment of Defaulted Interest by the Company, the interest payment with respect to a Security surrendered for conversion during the Interest Period (except in the case of Securities or portions thereof which have been called for redemption on a Redemption Date within the Interest Period) shall be payable on such Interest Payment Date to the Holder of such Securities at the close of business on such Regular Record Date notwithstanding the conversion of such Securities during such Interest Period.

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        As soon as practicable after the Conversion Date, the Company shall deliver to the Holder, through the Conversion Agent, a certificate for the number of full shares of Common Stock issuable upon the conversion and cash in lieu of any fractional share determined pursuant to Section 10.03. The person in whose name the certificate is registered shall be treated as a stockholder of record on and after the Conversion Date; provided, however, that no surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; such conversion shall be at the Conversion Price in effect on the date that such Security shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security.

        No payment or adjustment will be made for dividends on or other distribution with respect to any Common Stock except as provided in this Article 10.

        If the Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total principal amount of the Securities converted.

        Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security in an authorized denomination equal in principal amount to the unconverted portion of the Security surrendered.

        If the last day on which a Security may be converted is a Legal Holiday in a place where a Conversion Agent is located, the Security may be surrendered to that Conversion Agent on the next succeeding day that it is not a Legal Holiday.

        Section 10.03.    Fractional Shares.    The Company will not issue a fractional share of Common Stock upon conversion of a Security. Instead, the Company will deliver cash for the current market value of the fractional share. The current market value of a fractional share shall be determined to the nearest 1/10,000th of a share by multiplying the last reported sale price (determined as set forth in the definition of Current Market Price), on the last Trading Day prior to the Conversion Date, of a full share by the fractional amount and rounding the product to the nearest whole cent.

        Section 10.04.    Taxes on Conversion.    If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulations.

        Section 10.05.    Company to Provide Stock.    The Company shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of the Securities.

        All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

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        The Company will endeavor promptly to comply with all Federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will endeavor promptly, if permitted by the rules of such exchange, over-the-counter market or other market, to list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted.

        Section 10.06.    Adjustment for Change in Capital Stock.    In case the Company shall (i) pay a dividend, or make a distribution, in shares of its Common Stock, on its Common Stock, (ii) subdivide its outstanding Common Stock into a greater number of shares, or (iii) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Security thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Company which he would have owned or have been entitled to receive after the happening of any of the events described above had such Security been converted immediately prior to the happening of such event. If any dividend or distribution of the type described in clause (i) above is not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. An adjustment made pursuant to this Section 10.06 shall become. effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination.

        Section 10.07.    Adjustment for Rights Issue.    In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock at the record date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the record date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. If such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date for the determination of stockholders entitled to receive such rights' or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such. Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors.

        Section 10.08.    Adjustment for Other Distributions.    (a) In case the Company shall distribute to all holders of its Common Stock (excluding any distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary) any shares of any class of capital

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stock of the Company (other than Common Stock) or evidences of its indebtedness or assets (other than cash) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in Section 10.07 hereof) (any of the foregoing hereinafter in this Section 10.08(a) called the "Distributed Securities"), then, in each case, the Conversion Price shall be adjusted so that the same shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors of the Company, whose determination shall be conclusive, and described in a certificate filed with the Trustee) of the Distributed Securities so distributed applicable to one share of Common Stock, and the denominator shall be the Current Market Price per share of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event the then fair market value (as so determined) of the portion of the Distributed Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the relevant record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Securityholder shall have the right to receive upon conversion the amount of Distributed Securities such Holder would have received had such Holder converted each Security on such record date. In the event that such distribution is not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such distribution had not been declared. If the Board of Director determines the fair market value of any distribution for purposes of this Section 10.08(a) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock.

        Notwithstanding the foregoing provisions of this Section 10.08(a), no adjustment shall be made thereunder for any distribution of Distributed Securities if the Company makes proper provision so that each Holder of a Security who converts such Security (or any portion thereof) after the record date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Distributed Securities that such Holder would have been entitled to receive if such Holder had, immediately prior to such record date, converted such Security into Common Stock, provided that, with respect to any Distributed Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Distributed Securities receivable upon conversion of such Security would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Security.

        (b)   In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent such preceding quarterly dividend did not require any adjustment of the Conversion Price pursuant to this Section 10.08(b) (as adjusted to reflect subdivisions or combinations of the Common Stock), and (B) 3.75% of the average of the last reported sales prices of the Common Stock (determined as provided in the definition of Current Market Price) during the ten Trading Days next preceding the date of declaration of such dividend and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, unless the Company elects to reserve such cash for distribution to the holders of the Securities upon the conversion of the Securities so that any such holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount of cash which such holder would have received if such holder had, immediately prior to the record date for such distribution of cash, converted its Securities into

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Common Stock, the Conversion Price shall be decreased so that the same shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the record date by a fraction of which the numerator shall be the Current Market Price of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, and the denominator shall be such Current Market Price of the Common Stock, such decrease to be effective immediately prior to the opening of business on the day following the record date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Securityholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Security on the record date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 10.08(b) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 10.08(b) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution.

        (c)   In case a tender or exchange offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such Subsidiary of consideration per share of Common Stock having a fair market value (as. determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive, and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be, at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended)) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be decreased so that the same shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such decrease to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be effect if such tender or exchange offer had not been made.

        (d)   In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of Common Stock to more than 25% of the Common Stock outstanding and shall involve the payment by such person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the last

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time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Price shall be decreased so that the same shall equal the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to the Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Offer Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) on the Offer Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such decrease to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 10.08(d) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article 5.

        Section 10.09.    When Adjustment May be Deferred.    No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment.

        All calculations under this Article 10 shall be made to the nearest cent or to the nearest 1/10,000th of a share, as the case may be.

        Section 10.10.    When no Adjustment Required.    No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest.

        No adjustment need be made for a change in the par value or no par value of the Common Stock.

        To the extent the Securities become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash.

        Section 10.11.    Notice of Adjustment.    Whenever the Conversion Price is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment. The Company shall file with the Trustee and the Conversion Agent such notice. The certificate shall, absent manifest error, be conclusive evidence that the adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof.

        Section 10.12.    Voluntary Decrease.    The Company may make such decreases in the Conversion Price, in addition to those required by Sections 10.06, 10.07 and 10.08, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable

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law, the Company from time to time may decrease the Conversion Price by any amount for any period of time if the period is at least 20 days, the decrease is irrevocable during the period and the Board of Directors shall have made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is so decreased, the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice of the decrease. The Company shall mail the notice at least 15 days before the date the decreased Conversion Price takes effect. The notice shall state the decreased Conversion Price and the period it will be in effect.

        Section 10.13.    Notice of Certain Transactions.    If:

        (1)   the Company makes any distribution or dividend that would require an adjustment in the Conversion Price pursuant to Section 10.06, 10.07 or 10.08; or

        (2)   the Company takes any action that would require a supplemental indenture pursuant to Section 10.14; or

        (3)   there is a liquidation or dissolution of the Company;

then the Company shall mail to Securityholders and file with the Trustee and the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. The Company shall file and mail the notice at least 15 days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.

        Section 10.14.    Effect of Reclassification, Consolidation, Merger or Sale.    If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture providing that each Security shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article.

        The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Securities at his address appearing on the Security register provided for in Section 2.03 of this Indenture.

        The above provisions of this Section shall similarly apply to successive reclassifications, consolidations, mergers, combinations, and sales.

        If this Section applies, neither Section 10.06, 10.07 nor 10.08 applies.

        Section 10.15.    Company Determination Final.    Any determination that the Company or the Board of Directors must make pursuant to Section 10.03, 10.06, 10.07, 10.08, 10.09, 10.10, 10.14 or 10.17 is conclusive.

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        Section 10.16.    Trustee's Adjustment Disclaimer.    The Trustee has no duty to determine when an adjustment under this Article 10 should be made, how it should be made or what it should be. The Trustee has no duty to determine whether a supplemental indenture under Section 10.14 need be entered into or whether any provisions of any supplemental indenture are correct. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article 10. Each Conversion Agent shall have the same protection under this Section 10.16 as the Trustee.

        Section 10.17.    Simultaneous Adjustments.    In the event that this Article 10 requires adjustments to the Conversion Price under more than one of Sections 10.06, 10.07, 10.08(a) or 10.08(b), and the record dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 10.08(a), second, the provisions of Section 10.08(b), third the provisions of Section 10.06 and, fourth, the provisions of Section 10.07.

        Section 10.18.    Successive Adjustments.    After an adjustment to the. Conversion Price under this Article 10, any subsequent event requiring an adjustment under this Article 10 shall cause an adjustment to the Conversion Price as so adjusted.

        Section 10.19.    Rights Issued in Respect of Common Stock Issued Upon Conversion.    Each share of Common Stock issued upon conversion of Securities pursuant to this Article 10 shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of the Rights Agreement as in effect at the time of such conversion. If the Rights are separated from the Common Stock in accordance with the provisions of the Rights Agreement such that the Holders of Securities would thereafter not be entitled to receive any such Rights in respect to the Common Stock issuable upon conversion of such Securities, the Conversion Price will be adjusted as provided in Section 10.08(a) on the separation date; provided that if such Rights expire, terminate or are redeemed by the Company, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such separation had not occurred. In lieu of any such adjustment, the Company may amend the Rights Agreement to provide that upon conversion of the Securities the Holders will receive, in addition to the Common Stock issuable upon such conversion, the Rights which would have attached to such shares of Common Stock if the Rights had not become separated from the Common Stock pursuant to the provisions of the Rights Agreement.

        Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"):

        (i)    are deemed to be transferred with such shares of Common Stock,

        (ii)   are not exercisable, and

        (iii)  are also issued in respect of future issuances of Common Stock,

shall not be deemed distributed for purposes of Section 10.08(a) until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Price under Section 10.08(a), (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder

33

had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of any such rights or warrants all of which shall have expired without exercise by any holder thereof, the Conversion Price shall be readjusted as if such issuance had not occurred.

        Section 10.20.    General Considerations.    Whenever successive adjustments to the Conversion Price are called for pursuant to this Article 10, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Article and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

ARTICLE 11
MISCELLANEOUS

        Section 11.01.    Conflict with TIA.    If any provision hereof limits, qualifies or conflicts with a provision of the TIA that is required under the TIA to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be.

        Section 11.02.    Notices.    Any request, demand, authorization, notice, waiver, consent or communication shall be in writing and delivered in person or mailed by first class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by overnight courier) to the following facsimile numbers:

        if to the Company:

Silicon Graphics, Inc.
2011 North Shoreline Boulevard
P.O. Box 7311
Mountain View, California 94309-7311
Attn: Director, Corporate Legal Services
Telephone Number: (415) 960-1980
Facsimile Number:    (415) 969-6289

        if to the Trustee:

State Street Bank and Trust Company of California, N.A
725 South Figueroa Street
Suite 3100
Los Angeles, California 90017
Attention: Corporate Trust Department
Telephone Number: (213) 362-7369
Telefax Number:    (213) 362-7357

        The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

        Any notice or communication given to a Securityholder shall be mailed to the Securityholder, by first class mail, postage prepaid, at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.

        Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee.

34

        If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion Agent or co-registrar.

        Section 11.03.    Communication by Holders with other Holders.    Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar, the Paying Agent, the Conversion Agent and anyone else shall have the protection of TIA Section 312(c).

        Section 11.04.    Certificate and Opinion as to Conditions Precedent.    Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

        (1)   an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

        (2)   an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

        Section 11.05.    Statements Required in Certificate or Opinion.    Each Officers' Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include:

        (1)   a statement that each person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition;

        (2)   a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based;

        (3)   a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and

        (4)   a statement that, in the opinion of such person, such covenant or condition has been complied with.

        Section 11.06.    Separability Clause.    In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

        Section 11.07.    Rules by Trustee, Paying Agent, Conversion Agent and Registrar.    The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar, Conversion Agent and the Paying Agent may make reasonable rules for their functions.

        Section 11.08.    Legal Holidays.    A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and, to the extent applicable, no interest, if any, shall accrue for the intervening period.

        Section 11.09.    Governing Law.    THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES.

        Section 11.10.    No Recourse Against Others.    A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities.

35

        Section 11.11.    Successors.    All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

        Section 11.12.    Multiple Originals.    The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.

36

        IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first written above.

	SILICON GRAPHICS, INC.
	By:	/s/ William Kelly Title:
Attest:
/s/ Sandra Escher Title:
[SEAL]
	STATE STREET BANK AND TRUST     COMPANY OF CALIFORNIA, N.A.
	By:	Title:    Assistant Vice President

        IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first written above.

	SILICON GRAPHICS, INC.
	By:	Title:
Attest:
Title:
[SEAL]
	STATE STREET BANK AND TRUST     COMPANY OF CALIFORNIA, N.A.
	By:	Illegible Title:    Assistant Vice President

EXHIBIT A

[FORM OF FACE OF SECURITY]

[FORM OF LEGEND FOR GLOBAL SECURITY:

        UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY.CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

SILICON GRAPHICS, INC.

5¹/4% SENIOR CONVERTIBLE NOTE DUE 2004

No.	$
	CUSIP

        Silicon Graphics, Inc., a Delaware corporation, promises to pay to                          or registered assigns, the principal amount of                          Dollars ($            ) on September 1, 2004 and to pay interest thereon from September 4, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 1 and September 1 in each year, commencing March 1, 1998, at the rate of 5¹/4% per annum until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or other market on which the Securities may be listed, and upon such notice as may be required by such exchange or market, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the Corporate Trust Office or the office or agency of the Company maintained for that purposes in the Borough of Manhattan, The City of New York, New York in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address o f or by wire transfer to the account of, the Person entitled thereto as such address shall appear in the Security Register.

        Additional provisions of this Security are set forth on the other side of this Security.

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        IN WITNESS WHEREOF, Silicon Graphics, Inc. has caused this instrument to be duly executed under its corporate seal.

		SILICON GRAPHICS, INC.
		By:	Title:
[SEAL]
Attest:
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY     OF CALIFORNIA, N.A as Trustee,
By:	Authorized Signatory

A-2

[FORM OF REVERSE SIDE OF SECURITY]

SILICON GRAPHICS, INC.

5¹/4% SENIOR CONVERTIBLE NOTE DUE 2004

1.     Interest

        This Security shall bear interest at 5¹/4% per annum in the manner set forth in the Indenture and the face of this Security. In the event that principal hereof or any portion of such principal is not paid when due (whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the date set for payment of the Redemption Price pursuant to paragraph 5 hereof, upon the date set for payment of a Fundamental Change Redemption Price pursuant to paragraph 6 hereof or upon the Stated Maturity of this Security), then in each such case the overdue amount shall bear interest at the rate of 5¹/4% per annum, compounded semiannually (to the extent that the payment of such interest shall be legally enforceable), which interest shall accrue from the date such overdue amount was due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.

2.     Method of Payment

        Subject to the terms and conditions of the Indenture, the Company will make payments in respect of the Securities to the persons who are registered Holders of Securities at the close of business on the Redemption Date, Fundamental Change Repurchase Date or Stated Maturity, as the case may be. Holders must surrender Securities to a Paying Agent to collect such payments in respect of the Securities. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make such cash payments by check mailed to the address of, or by wire transfer to the account of, the person entitled to such payment.

3.     Paying Agent, Conversion Agent and Registrar

        Initially, State Street Bank and Trust Company of California, N.A., a national banking association (the "Trustee"), will act as Paying Agent, Conversion Agent and Registrar. The Company may appoint and change any Paying Agent, Conversion Agent, Registrar or co-registrar without notice, other than notice to the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent, Registrar or co-registrar.

4.     Indenture

        The Company issued the Securities under an Indenture dated as of September 1, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture for a statement of those terms.

        The Securities are general unsecured obligations of the Company limited to $234,609,000 aggregate principal amount (subject to Sections 2.02 and 2.07 of the Indenture).

5.     Redemption at the Option of the Company

        Prior to September 7, 2000, the Securities will not be redeemable at the option of the Company. Beginning on September 7, 2000, the Company may redeem the Securities for cash as a whole at any time, or from time to time in part, upon not less than 30 days' nor more than 60 days' notice at the following prices (the "Redemption Price") (expressed as percentages of the principal amount), together with accrued and unpaid interest to, but excluding, the Redemption Date, except that on or after

A-3

September 7, 2000 and prior to September 7, 2002, the Securities will not be redeemable at the option of the Company unless the Closing Price of the Common Stock shall have exceeded 140% of the Conversion Price then in effect for 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the notice of redemption.

        If redeemed during the 12-month period beginning September 1 (beginning September 7, 2000 and ending on August 31, 2001, in the case of the first such period):

Year	Redemption Price
2000	103.00%
2001	102.25
2002	101.50
2003	100.75

and 100% at September 1, 2004; provided that if such Redemption Date is an Interest Payment Date, then the interest payable on such date shall be paid to the Holder of the Security on the next preceding Regular Record Date. No Securities may be redeemed by the Company if an Event of Default with respect to the payment of interest on the Securities has occurred and is continuing.

        No sinking fund is provided for the Securities.

        Notice of redemption at the option of the Company will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at the Holder's registered address. If money sufficient to pay the Redemption Price, together with accrued interest to, but excluding, the Redemption Date, of all Securities (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the Redemption Date, on and after such date interest ceases to accrue on such Securities or portions thereof Securities in denominations larger than $1,000 of principal amount may be redeemed in part but only in multiples of $1,000 of principal amount.

6.     Redemption at the Option of the Holder Upon a Fundamental Change

        (a)   At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to redeem the Securities held by such Holder on the date (the "Fundamental Change Repurchase Date") (or if such date is not a Business Day, the next succeeding Business Day) that is 45 days after the date of the Company's notice of such Fundamental Change (as defined in the Indenture) occurring on or prior to September 1, 2004 at the following prices (expressed as percentages of the principal amount) in the event of a Fundamental Change Repurchase Date occurring during the 12-month period beginning September 1:

Year	Percentage	Year	Percentage
1997	105.25%	2001	102.25%
1998	104.50	2002	101.50
1999	103.75	2003	100.75
2000	103.00

and 100% at September 1, 2004; provided in each case that if the Applicable Price (as defined in the Indenture) is less than the Reference Market Price (as defined in the Indenture), the Company shall redeem such Securities at a price equal to the foregoing repayment price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest, if any, on such Securities to, but excluding, the Fundamental Change Repurchase Date; provided that if such Fundamental Change Repurchase Date is an Interest Payment Date, then the interest payable on such date shall be paid to the Holder of the Security on the next preceding Regular Record Date. Securities in denominations larger than $1,000 of principal amount

A-4

may be redeemed in part in connection with a Fundamental Change, but only in multiples of $1,000 of principal amount.

        (b)   Holders have the right to withdraw any Fundamental Change Redemption Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

        (c)   If cash sufficient to pay the Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, of all Securities or portions thereof to be purchased as of the Fundamental Change Repurchase Date is deposited with the Paying Agent on or prior to the Fundamental Change Repurchase Date, interest ceases to accrue on such Securities (or portions thereof) on and after the Fundamental Change Repurchase Date, and the Holder thereof shall have no other rights as such (other than the right to receive the Fundamental Change Redemption Price, together with accrued interest to, but excluding, the Fundamental Change Repurchase Date, upon surrender of such Security).

7.     Conversion

        Subject to the next two succeeding sentences, a Holder of a Security may convert it into Common Stock of the Company at any time after issuance and before the close of business on September 1, 2004. If the Security is called for redemption, the Holder may convert it at any time before the close of the last Trading Day prior to the Redemption Date. In the event the Security is surrendered during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the close of business on the Trading Day immediately preceding the next succeeding Interest Payment Date (except in the case of Security to be redeemed within such period), such Securities must be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest payable on such Interest Payment Date (except in the case of Securities whose Maturity is prior to such Interest Payment Date), no payment or adjustment is to be made on conversion for interest accrued hereon or for dividends on the Common Stock issued on conversion. A Security in respect of which a Holder has delivered a notice of exercise of the option to redeem such Security in the event of a Fundamental Change may be converted only if the notice of exercise is withdrawn in accordance with the terms of the Indenture.

        The initial Conversion Price is $36.25 per share of Common Stock, subject to adjustment in certain events described in the Indenture. The Company will deliver cash or a check in lieu of any fractional share of Common Stock.

        To convert a Security a Holder must (1) complete and manually sign the conversion notice on the back of the Security (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Conversion Agent, the Company or the Trustee and (4) pay any transfer or similar tax, if required.

        A Holder may convert a portion of a Security if the principal amount of such portion is $1,000 or a multiple of $1,000. No payment or adjustment will be made for dividends on the Common Stock except as provided in the Indenture.

        The Conversion Price is subject to adjustment as provided in the Indenture. In addition, in the case of (i) any reclassification of the Common Stock, or (ii) a consolidation or merger involving the

A-5

Company or a sale or conveyance to another corporation of the property and assets of the Company as an entirety (or substantially as an entirety), in each case as a result of which holders of Common Stock shall be entitled to receive stock, securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, as set forth in the Indenture, or upon certain distributions described in the Indenture, the right to convert a Security into Common Stock may be changed; as set forth in the Indenture, into a right to convert it into securities, cash or other assets of the Company or another person.

8.     Conversion Arrangement on Call for Redemption

        Any Securities called for redemption, unless surrendered for conversion before the close of business on the last Trading Day prior to the Redemption Date, may be deemed to be purchased from the Holders of such Securities at an amount not less than the Redemption Price, together with accrued interest to, but excluding the Redemption Date, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Securities from the Holders, to convert them into Common Stock of the Company and to make payment for such Securities to the Trustee in trust for such Holders.

9.     Denominations; Transfer; Exchange

        The Securities are in registered form, without coupons, in denominations of $1,000 of principal amount and multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities in respect of which a Fundamental Change Redemption Notice has been given and not withdrawn (except, in the case of a Security to be purchased in part, the portion of the Security not to be purchased) or any Securities for a period of 15 days before a selection of Securities to be redeemed.

10.   Persons Deemed Owners

        The registered Holder of this Security may be treated as the owner of this Security for all purposes.

11.   Unclaimed Money or Securities

        The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, provided, however, that the Trustee or such Paying Agent, before being required to make any such return, shall at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each such Holder notice that such money or securities remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed money or securities then remaining will be returned to the Company. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

12.   Amendment; Waiver

        Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate principal amount

A-6

of the Securities at the time outstanding and (ii) certain defaults or noncompliance with certain provisions may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Securities at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, or to comply with Article 5 or Section 10.14 of the Indenture, to provide for uncertificated Securities in addition to or in place of certificated Securities or to make any change that does not adversely affect the rights of any Securityholder or to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA.

13.   Defaults and Remedies

        Under the Indenture, Events of Default include (i) default in payment of the principal amount, Redemption Price or Fundamental Change Redemption Price, as the case may be, in respect of the Securities when the same becomes due and payable; (ii) default for 30 days in the payment of any installment of interest on the Securities; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; and (iv) certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding, may, declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being declared due and payable immediately upon the occurrence of such Events of Default.

        Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of amounts specified in clause (i) or (ii) above) if it determines that withholding notice is in their interests.

14.   Trustee Dealings with the Company

        The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

15.   No Recourse Against Others

        A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

16.   Authentication

        This Security shall not be valid until an authorized officer of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security.

A-7

17.   Abbreviations

        Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

18.   Governing Law

        THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS SECURITY

        The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to:

Silicon Graphics, Inc.
2011 North Shoreline Boulevard
P.O. Box 7311
Mountain View, California 94309-7311
Attn: Director, Corporate Legal Services

A-8

[FORM OF CONVERSION NOTICE]

CONVERSION NOTICE

To: Silicon Graphics, Inc.

        The undersigned registered holder of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is $1,000 principal amount or a multiple thereof) below designated, into shares of Common Stock of Silicon Graphics, Inc. in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto.

Dated:
	Signature(s)

A-9

Fill in for registration of shares if to be delivered, and Securities if to be issued other than to and in the name of the registered holder:
(Name)
(Street Address)
(City, State and zip code)
Please print name and address
	principal amount to be converted (if less than all):
	$            ,000
	Social Security or Other Taxpayer Identification Number

A-10

[FORM OF OPTION TO ELECT REDEMPTION

UPON A FUNDAMENTAL CHANGE]

To: Silicon Graphics, Inc.

        The undersigned registered holder of this Security hereby acknowledges receipt of a notice from Silicon Graphics, Inc. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to redeem this Security, or the portion hereof (which is $1,000 principal amount or a multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security.

Dated:
	Signature(s)
	principal amount to be redeemed (if less than all):
	$            ,000
	Social Security or Other Taxpayer Identification Number

A-11

[FORM OF ASSIGNMENT]

For value received                          hereby sell(s), assign(s) and transfer(s) unto

(Please insert social security or other taxpayer identification number of assignee.)

the within Security and hereby irrevocably constitutes and appoints                          attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises.

Dated:
	Signature(s)
	Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange.
	Signature Guarantee

NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Security in every particular without alteration or enlargement or any change whatever.

A-12

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Exhibit 4.3

INDENTURE
SILICON GRAPHICS, INC. Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of September 1, 1997
TABLE OF CONTENTS¹
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
ARTICLE 2 THE SECURITIES
ARTICLE 3 REDEMPTION
ARTICLE 4 COVENANTS
ARTICLE 5 SUCCESSOR CORPORATION
ARTICLE 6 DEFAULTS AND REMEDIES
ARTICLE 7 TRUSTEE
ARTICLE 8 DISCHARGE OF INDENTURE
ARTICLE 9 AMENDMENTS
ARTICLE 10 CONVERSION
ARTICLE 11 MISCELLANEOUS
EXHIBIT A [FORM OF FACE OF SECURITY]
[FORM OF REVERSE SIDE OF SECURITY]
[FORM OF CONVERSION NOTICE]
[FORM OF OPTION TO ELECT REDEMPTION UPON A FUNDAMENTAL CHANGE]
[FORM OF ASSIGNMENT]

EX-10.24

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Exhibit 10.24

AMENDMENT NUMBER TWO TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

THIS AMENDMENT NUMBER TWO TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of September 17, 2003 (the "Execution Date"), is entered into between and among, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), WELLS FARGO FOOTHILL, INC., a California corporation, as the arranger and administrative agent for the Lenders ("Agent" and together with the Lenders, collectively, the "Lender Group"), SILICON GRAPHICS, INC., a Delaware corporation ("Parent"), and each of Parent's Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter each individually as a "Borrower," and individually and collectively, jointly and severally, as "Borrowers"), in light of the following:

W I T N E S S E T H

        WHEREAS, Borrower and the Lender Group are parties to that certain Amended and Restated Loan and Security Agreement, dated as of September 20, 2002 (as amended, restated, supplemented, or modified from time to time, the "Loan Agreement");

        WHEREAS, Borrower has requested that Agent waive non-compliance with a certain financial covenant and that the Loan Agreement be amended to provide for, among other things, a reset of certain financial covenants; and

        WHEREAS, subject to the satisfaction of the conditions set forth herein, the Lender Group is willing to so consent to the amendment of the Loan Agreement.

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Loan Agreement as follows:

1.     DEFINITIONS.    Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement, as amended hereby.

2.     AMENDMENTS TO LOAN AGREEMENT.

        (a)   Section 6.3(a)(iii) of the Loan Agreement is hereby amended and restated in its entirety as follows:

        '(iii) a Compliance Certificate demonstrating, in reasonable detail (including detailed calculations of Borrowers' compliance or non-compliance with the financial covenants in Section 7.20) compliance at the end of such quarter with the applicable financial covenants contained in Section 7.20, and"

        (b)   Section 7.20(a) of the Loan Agreement is hereby amended and restated in its entirety as follows:

        "Minimum EBITDA.    EBITDA, measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto:

Applicable Amount			Applicable Period
	Waived		For the 3 month period ending June 27, 2003
$	(45,882,000	)	For the 3 month period ending September 26, 2003
$	11,200,000		For the 3 month period ending December 26, 2003
$	3,900,000		For the 3 month period ending March 26, 2004
$	18,500,000		For the 3 month period ending June 25, 2004

provided, however, that the required amount of EBITDA for each 3 month period ending after June 25, 2004 shall be set by Agent at a discount to projected EBITDA following receipt of and based upon applicable Projections satisfactory to the Lender Group. In all cases, all non-cash restructuring charges or reversals (or releases) of any accruals for each applicable period will be eliminated in the calculation of EBITDA for purposes of determining compliance with the covenants in Section 7.20(a)."

        (c)   Section 7.20(d) of the Loan Agreement is hereby deleted in its entirety and replaced by the following:

        "Minimum Cash Held By Agent.    At all times during the term of this Agreement, cash of Parent and its Subsidiaries, determined on a consolidated basis, which cash will be held by Agent in an interest bearing account maintained by Agent, in an amount equal to the greater of (i) the amount by which the Obligations exceed the Borrowing Base and (ii) $10,000,000."

        (d)   Schedule E-1 of the Loan Agreement is hereby amended and restated in its entirety as attached hereto as Schedule E-1.

3.     LIMITED WAIVER.

        (a)   Agent grants to Borrowers a limited one-time waiver of Section 7.20(a) of the Loan Agreement with respect only to Borrowers' fiscal quarter ended June 27, 2003.

        (b)   This waiver is not a waiver of any subsequent Default or Event of Default of the same provisions of the Loan Agreement, nor is it a waiver of any other current or future Default or Event of Default. Agent is not obligated to provide this or any other waiver of its default rights.

4.     CONDITIONS PRECEDENT TO THIS AMENDMENT.    The satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment and each and every provision hereof:

        (a)   The representations and warranties in the Loan Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date);

        (b)   No Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Amendment;

        (c)   No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower or the Lender Group; and

        (d)   Lender shall have received from Borrower an amendment fee (the "Amendment Fee") in the amount of $35,000, receipt of $15,000 of which is hereby acknowledged.

Upon Agent's receipt of a copy of this Amendment executed by Borrowers, Agent shall be authorized to charge Borrowers' Loan Account the amount of $20,000, constituting the unpaid balance of the Amendment Fee; said $20,000 shall be non-refundable when charged.

5.     CONDITION SUBSEOUENT.    The satisfaction of the following shall constitute a condition subsequent to the effectiveness of this Amendment and each and every provision hereof:

        (a)   No later than October 1, 2003, Administrative Borrower shall deliver to Agent a Landlord's Waiver, in form satisfactory to Agent, for the premises located at 2701 Olson Drive, Chippewa Falls, Wisconsin 54729, duly executed by the landlord thereof.

2

        (b)   No later than October 1, 2003, Administrative Borrower shall deliver to Agent a revised Schedule P-1 to the Loan Agreement which shall reflect only the following changes from the original Schedule P-1:

        (i)    additional Liens to secure the IP Loans, subject to the Intercreditor Agreement; and

        (ii)   deletion of those Permitted Liens which are no longer existing or required.

Upon delivery to Agent, this revised Schedule P-1 shall constitute an amended and restated Schedule P-1 to the Loan Agreement.

        (c)   No later than October 1, 2003, Administrative Borrower shall deliver to Agent the information required to be set forth on Schedule A-1 attached to Amendment Number One to Amended and Restated Loan and Security Agreement, dated as of April 11, 2003, between and among the parties hereto.

6.     CONSTRUCTION.    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF CALIFORNIA.

7.     ENTIRE AMENDMENT; EFFECT OF AMENDMENT.    This Amendment, and terms and provisions hereof, constitute the entire agreement among the parties pertaining to the subject matter hereof and supersedes any and all prior or contemporaneous amendments relating to the subject matter hereof. Except for the amendments to the Loan Agreement expressly set forth in Section 2 hereof, the Loan Agreement and other Loan Documents shall remain unchanged and in full force and effect. To the extent any terms or provisions of this Amendment conflict with those of the Loan Agreement or other Loan Documents, the terms and provisions of this Amendment shall control. This Amendment is a Loan Document.

8.     COUNTERPARTS; TELEFACSIMILE EXECUTION.    This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.

9.     MISCELLANEOUS.

        (a)   Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Loan Agreement shall mean and refer to the Loan Agreement as amended by this Amendment.

        (b)   Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Loan Agreement shall mean and refer to the Loan Agreement as amended by this Amendment.

3

        IN WITNESS WHEREOF. the parties have caused this Amendment to be executed and delivered as of the date first written above.

WELLS FARGO FOOTHILL, INC., a California corporation, as Agent and as a Lender
By:	/s/  THOMAS P. SHUGHRUE
Name:	Thomas P. Shughrue
Title:	Vice President
SILICON GRAPHICS, INC., a Delaware Corporation
By:
Name:	Jean Furter
Title:	Vice President
SILICON GRAPHICS FEDERAL, INC., a Delaware corporation
By:
Name:	Jeff Zellmer
Title:	Vice President

4

        IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered as of the date first written above.

WELLS FARGO FOOTHILL, INC., a California corporation, as Agent and as a Lender
By:
Name:
Title:
SILICON GRAPHICS, INC., a Delaware Corporation
By:	/s/  JEAN FURTER
Name:	Jean Furter
Title:	Vice President, Treasurer
SILICON GRAPHICS FEDERAL, INC., a Delaware corporation
By:	/s/  JEFF ZELLMER
Name:	Jeff Zellmer
Title:	Vice President

5

Schedule E-l

ELIGIBLE INVENTORY LOCATIONS

2701 Olson Drive
Chippewa Falls, Wisconsin 54729

Riverside Systems Building
100 N. Cashman Drive
Chippewa Falls, Wisconsin

UPS Service Parts Logistics, Inc.
2200 Outer Loop Road
Louisville, Kentucky

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Exhibit 10.24

AMENDMENT NUMBER TWO TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Schedule E-l ELIGIBLE INVENTORY LOCATIONS

EX-21.1

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Exhibit 21.1

SILICON GRAPHICS, INC. SUBSIDIARIES

Name	Jurisdiction of Incorporation
Alias Systems Inc.	California
ParaGraph International, Inc.	California
WTI Developments, Inc.	California
Cray Research, LLC	Delaware
Cray Asia/Pacific, Inc.	Delaware
Cray Financial Corporation	Delaware
Cray Research (America Latina) Ltd.	Delaware
Cray Research (Eastern Europe) Ltd.	Delaware
Cray Research (India) Ltd.	Delaware
Cray Research International, Inc.	Delaware
Silicon Graphics Federal, Inc.	Delaware
Silicon Graphics Real Estate, Inc.	Delaware
Silicon Graphics World Trade Corporation	Delaware
Silicon Studio, Inc.	Delaware
Silicon Graphics S.A.	Argentina
Silicon Graphics Pty Limited	Australia
Silicon Graphics S.A./N.V.	Belgium
Silicon Graphics Comercio e Serviços Limitada	Brazil
Cray Research (Canada) Inc.	Canada
Silicon Graphics Limited	Canada
Silicon Graphics spolecnost rucerum omezenym	Czech Republic
Silicon Graphics A/S	Denmark
Silicon Graphics	France
Alias Systems SAS	France
Silicon Graphics GmbH	Germany
Alias Systems GmbH	Germany
Silicon Graphics Limited	Hong Kong
Silicon Graphics Systems (India) Ltd	India
Cray Research (Israel) Ltd.	Israel
Silicon Graphics Computer Systems Limited	Israel
Alias Systems Srl.	Italy
Silicon Graphics S.p.A.	Italy
Alias Systems K.K.	Japan
Korea Silicon Graphics Ltd.	South Korea
Silicon Graphics Sdn. Bhd.	Malaysia
Silicon Graphics S.A. de C.V.	Mexico
Silicon Graphics B.V.	Netherlands
Silicon Graphics Europe Trade B.V.	Netherlands
Silicon Graphics World Trade B.V.	Netherlands
Silicon Graphics Limited	New Zealand
Silicon Graphics A/S	Norway
Silicon Graphics Computer Engineering and Technology (China) Co. Ltd.	People's Republic of China
Silicon Graphics Pte. Limited	Singapore
Silicon Graphics	Spain
Silicon Graphics AB	Sweden
Silicon Graphics S.A.	Switzerland
Silicon Graphics Finance S.A.	Switzerland
Silicon Graphics Trading SARL	Switzerland
Silicon Graphics Limited	Taiwan
Silicon Graphics Bilbisayar Sistemleri Anonim Siket	Turkey
Alias Systems Limited	United Kingdom
Silicon Graphics Limited	United Kingdom
Silicon Graphics Manufacturing Finance Limited	Jersey Channel Islands
Silicon Graphics S.A.	Venezuela

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Exhibit 21.1

SILICON GRAPHICS, INC. SUBSIDIARIES

EX-23.1

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Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration Statements (Form S-8 File Nos. 33-11703, 33-16529, 33-18717, 33-26003, 33-34919, 33-38536, 33-40879, 33-44305, 33-44333, 33-48890, 33-59098, 33-65190, 33-50999, 33-51275, 33-56017, 33-60213, 33-60215, 333-01211, 333-06403, 333-08651, 333-15977, 333-40849, 333-76445, 333-90263, 333-48780, 333-71628 and 333-100124) pertaining to the Employee Stock Purchase Plan; 1982 Stock Option Plan; 1984 Incentive Stock Option Plan; 1985 Stock Incentive Program; 1986 Incentive Stock Option Plan; 1987 Stock Option Plan, 1998 Employee Stock Purchase Plan; 1993 Long-term Incentive Stock Plan; WaveFront Technologies, Inc. 1990 Stock Option Plan; Alias Research, Inc. 1998 Employee Share Ownership Plan, 1989 Employee Share Ownership Plan, 1990 Employee Share Ownership Plan, 1994 Stock Plan; Amended and Restated 1996 Supplemental Non-Executive Equity Incentive Plan; 1989 Non-Employee Directors' Stock Option Plan; Cray Research, Inc. Amended and Restated 1989 Employee Benefit Stock Plan; Directors' Stock Option Plan of our report dated September 29, 2003 with respect to the consolidated financial statements and schedule of Silicon Graphics, Inc. included in the Annual Report (Form 10-K) for the year ended June 27, 2003.

/s/  ERNST & YOUNG LLP

Palo Alto, California
September 29, 2003

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Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

EX-31.1

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Exhibit 31.1

Certification

I, Robert R. Bishop, the principal executive officer of Silicon Graphics, Inc., certify that:

1)

I have reviewed this Annual Report on Form 10-K of Silicon Graphics, Inc.;

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)

Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)

Our other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for us and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to us, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

c)

Evaluated the effectiveness of our disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in our internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting;

5)

Our other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to our auditors and the audit committee of our board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in our internal control over financial reporting.

Dated: September 29, 2003 By: /s/  ROBERT R. BISHOP Robert R. Bishop
Chairman and Chief Executive Officer

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Exhibit 31.1

Certification

EX-31.2

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Exhibit 31.2

Certification

I, Jeffrey V. Zellmer, the principal financial officer of Silicon Graphics, Inc., certify that:

1)

I have reviewed this Annual Report on Form 10-K of Silicon Graphics, Inc.;

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)

Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)

Our other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for us and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to us, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

c)

Evaluated the effectiveness of our disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in our internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting;

5)

Our other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to our auditors and the audit committee of our board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in our internal control over financial reporting.

Dated: September 29, 2003 By: /s/  JEFFREY V. ZELLMER Jeffrey V. Zellmer
Senior Vice President and Chief Financial Officer

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Exhibit 31.2

Certification

EX-32

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Exhibit 32

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

The certification set forth below is submitted to the Securities and Exchange Commission solely for the purpose of complying with Section 906 of the Sarbanes-Oxley Act of 2002. This certification is not to be deemed filed pursuant to the Securities Exchange Act of 1934 and does not constitute a part of the accompanying Annual Report on Form 10-K for the period ended June 27, 2003 (the "Report").

Robert R. Bishop, the Chief Executive Officer and Jeffrey V. Zellmer, the Chief Financial Officer of Silicon Graphics, Inc. (the "Company"), each certifies that:

1.

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 29, 2003	/s/  ROBERT R. BISHOP Robert R. Bishop Chief Executive Officer
	/s/  JEFFREY V. ZELLMER Jeffrey V. Zellmer Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)