10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
	For the quarterly period ended December 24, 2004.
or
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
	For the transition period from                     to                    .
Commission File Number 1-10441

SILICON GRAPHICS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	94-2789662
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1500 Crittenden Lane, Mountain View, California 94043-1351
(Address of principal executive offices) (Zip Code)
(650) 960-1980
(Registrant’s telephone number, including area code)

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

As of January 21, 2005, there were 263,001,710 shares of Common Stock outstanding.

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

SILICON GRAPHICS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page No
PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II-OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
Signatures		34

Trademarks used in this Form 10-Q: Silicon Graphics, Altix, Octane, Onyx, IRIX, Silicon Graphics Fuel SGI, and Tezro are registered trademarks, and Silicon Graphics Prism is a trademark of Silicon Graphics, Inc. in the U.S. and/or other countries worldwide. MIPS is a registered trademark 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. Intel, Pentium, and Itanium are trademarks or registered trademarks of Intel Corporation or its subsidiaries in the U.S. and other countries. Linux is a registered trademark of Linus Torvalds.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SILICON GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts, unaudited)

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
Product and other revenue	$	117,456		$	125,759		$	209,591		$	236,080
Product revenue from related party	27,823			7,534			33,674			15,328
Service revenue	77,823			86,233			155,244			170,334
Total revenue	223,102			219,526			398,509			421,742
Costs and expenses:
Cost of product and other revenue	89,780			77,044			155,565			147,360
Cost of service revenue	49,578			47,350			96,270			98,100
Research and development	24,823			26,788			48,129			58,747
Selling, general, and administrative	62,870			60,137			125,587			129,488
Other operating expenses, net (1)	5,199			12,986			8,365			37,223
Total costs and expenses	232,250			224,305			433,916			470,918
Operating loss	(9,148		)	(4,779		)	(35,407		)	(49,176		)
Interest expense	(3,856		)	(5,182		)	(8,992		)	(12,072		)
Interest and other income (expense), net	132			1,123			(134		)	656
Loss on extinguishment of tendered debt	—			(30,915		)	—			(30,915		)
Loss from continuing operations before income taxes	(12,872		)	(39,753		)	(44,533		)	(91,507		)
Income tax benefit	(1,723		)	(1,013		)	(5,455		)	(4,042		)
Net loss from continuing operations	(11,149		)	(38,740		)	(39,078		)	(87,465		)
Discontinued operations:
Net (loss) income from discontinued operations, net of tax	—			1,372			(276		)	2,168
Net loss	$	(11,149	)	$	(37,368	)	$	(39,354	)	$	(85,297	)
Net (loss) income per share – basic and diluted:
Continuing operations	$	(0.04	)	$	(0.18	)	$	(0.15	)	$	(0.42	)
Discontinued operations	—			0.01			(0.00		)	0.01
Net loss per share – basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.15	)	$	(0.41	)
Weighted-average common shares outstanding – basic and diluted	262,487			211,034			262,263			210,302

(1)Represents charges for estimated restructuring costs, related accretion expense, and asset impairments in each of the three and six-month periods ended December 24, 2004 and December 26, 2003.

See accompanying notes to these condensed consolidated financial statements.

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SILICON GRAPHICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 24, 2004			June 25, 2004
	(unaudited)			(1)
Assets:
Current assets:
Cash and cash equivalents	$	105,491		$	154,855
Short-term marketable investments	43			2,010
Short-term restricted investments	28,413			23,585
Accounts receivable, net	127,420			113,901
Inventories	73,066			66,938
Prepaid expenses and other current assets	33,168			34,916
Total current assets	367,601			396,205
Restricted investments	413			909
Property and equipment, net	63,062			74,595
Other assets	90,933			98,215
	$	522,009		$	569,924
Liabilities and Stockholders’ Deficit:
Current liabilities:
Accounts payable	$	76,853		$	65,119
Accrued compensation	38,948			37,053
Income taxes payable	2,843			6,082
Other current liabilities	69,113			70,591
Current portion of deferred revenue	87,286			96,058
Current portion of restructuring liability	21,448			27,876
Current portion of long-term debt	5,805			17,775
Total current liabilities	302,296			320,554
Long-term debt	262,201			264,212
Long-term portion of deferred revenue	41,564			25,749
Other liabilities	77,178			82,087
Total liabilities	683,239			692,602
Stockholders’ deficit:
Common stock and additional paid-in-capital	1,552,590			1,550,425
Accumulated deficit	(1,685,324		)	(1,645,970		)
Treasury stock	(6,774		)	(6,774		)
Accumulated other comprehensive loss	(21,722		)	(20,359		)
Total stockholders’ deficit	(161,230		)	(122,678		)
	$	522,009		$	569,924

(1)The balance sheet at June 25, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to these condensed consolidated financial statements.

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SILICON GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Six Months Ended
	December 24, 2004			December 26, 2003
Cash flows from operating activities of continuing operations:
Net loss	$	(39,354	)	$		(85,297	)
Loss (income) from discontinued operations	276			(2,168			)
Net loss from continuing operations	(39,078		)	(87,465			)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	31,855			42,128
Amortization of premium on 6.50% Senior Secured Convertible Notes	(2,909		)	—
Loss on sale of real estate	—			414
Non-cash loss on extinguishment of tendered debt	—			30,915
Non-cash asset impairment charges	—			2,541
Other	(1,311		)	1,934
Changes in operating assets and liabilities:
Accounts receivable	3,272			12,330
Inventories	(11,379		)	(2,720			)
Accounts payable	11,734			124
Accrued compensation	1,895			(2,108			)
Deferred revenue	(9,876		)	(8,245			)
Other assets and liabilities	(14,457		)	1,271
Total adjustments	8,824			78,584
Net cash used in operating activities of continuing operations	(30,254		)	(8,881			)
Cash flows from investing activities of continuing operations:
Proceeds from sale of real estate and fixed assets	—			10,615
Purchases of marketable investments	—			(844			)
Proceeds from the maturities of marketable investments	1,967			38
Purchases of restricted investments	(39,349		)	(55,079			)
Proceeds from the maturities of restricted investments	35,301			55,687
Capital expenditures	(6,991		)	(17,811			)
Increase in other assets	(1,056		)	(9,054			)
Net cash used in investing activities of continuing operations	(10,128		)	(16,448			)
Cash flows from financing activities of continuing operations:
Payments of debt principal	(12,709		)	(8,678			)
Proceeds from financing arrangement	1,601			—
Proceeds from employee stock plans	2,126			682
Net cash used in financing activities of continuing operations	(8,982		)	(7,996			)
Net decrease in cash and cash equivalents	(49,364		)	(33,325			)
Cash and cash equivalents at beginning of period	154,855			140,836
Cash and cash equivalents at end of period	$	105,491		$	107,511

See accompanying notes to these condensed consolidated financial statements.

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SILICON GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Silicon Graphics, Inc. and our wholly owned subsidiaries. The unaudited results of operations for the interim periods shown herein are not necessarily indicative of operating results for the entire fiscal year. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 25, 2004 filed with the Securities and Exchange Commission. Certain reclassifications of prior period amounts, due to events such as the sale of our Alias application software business, which is reflected as a discontinued operation, and a segment structure change, have been made on the condensed consolidated financial statements to conform to the current year’s presentation.

We have incurred net losses and negative cash flows from operations during each of the past several fiscal years and had working capital of $65 million at December 24, 2004, down from $76 million at June 25, 2004. Our unrestricted cash and marketable investments at December 24, 2004 were $106 million, down from $157 million at June 25, 2004.

We are committed to our goal of re-establishing profitable operations and positive cash flow. In light of our continuing losses and declining cash position, we have announced our intention to implement further restructuring actions in the third quarter of fiscal 2005 with a goal to reduce expenses by at least 10% from current levels. We have not yet determined the details of this restructuring, but we do not anticipate a significant incremental cash consumption from the implementation of the plan, as severance benefits would generally be paid over the same period in which payroll expense would otherwise have been incurred. Any forecast of operating results is inherently uncertain, and although we will seek to implement the restructuring in a manner that does not materially reduce revenue, we cannot be certain that we will achieve this objective.  Nevertheless, we believe that in light of our current resources and expected operating results, combined with the expected extension or replacement of our credit facility, we will have sufficient liquidity to meet our financial obligations through the end of fiscal 2005.

Beyond fiscal 2005, the adequacy of our resources will depend largely on our success in re-establishing profitable operations and positive operating cash flows.  If we fail to achieve these goals, we would expect to take further expense-related actions, which could include further reductions in headcount-related expenses, additional consolidation of administrative functions, and re-evaluation of our global distribution model. We are exploring alternatives for generating cash through financing transactions. We would also consider cash generating alternatives such as technology licensing and seeking funding from marketing partners and key government customers. See the “Risks That Affect Our Business” section in Item 2 of this Form 10-Q.

2.Stock-Based Compensation

At December 24, 2004, we have stock-based compensation plans that we account for using the intrinsic value method under Accounting Principles Board Opinion No. (“APB”) 25, Accounting for Stock Issued to Employees, as permitted by Statement of Financial Accounting Standards No. (“SFAS”) 123, Accounting for Stock-Based Compensation, which was subsequently amended by SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure. With the exception of restricted stock awards, this generally resulted in no compensation expense to us, since almost all options granted to employees under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Net loss from continuing operations, as reported during the periods presented in the table below includes compensation expense from restricted stock awards and from options to purchase approximately 150,000 shares that were issued prior to 2000 at values below the fair market value of the underlying common stock on the grant date.

6

The following table illustrates the pro forma effect on net loss from continuing operations and net loss per share from continuing operations as if we had applied SFAS 123’s fair value method of accounting to stock-based awards issued to our employees (in thousands, except per share amounts):

	Three Months Ended								Six Months Ended
	December 24, 2004			December 26, 2003					December 24, 2004			December 26, 2003
Net loss from continuing operations, as reported	$	(11,149	)	$	(38,740			)	$	(39,078	)	$	(87,465		)
Add:
Stock-based employee compensation expense, net of tax effect, included in net loss from continuing operations	8			68					17			135
Deduct:
Stock-based employee compensation expense determined under fair value method, net of tax effect	(1,719		)	(815				)	(3,115		)	(2,162			)
Net loss from continuing operations, pro forma	$	(12,860	)	$		(39,487		)	$	(42,176	)	$		(89,492	)
Net loss per share from continuing operations — basic and diluted:
As reported	$	(0.04	)	$			(0.18	)	$	(0.15	)	$		(0.42	)
Pro forma	$	(0.05	)	$			(0.19	)	$	(0.16	)	$		(0.43	)

Black-Scholes, an option pricing model, was used to estimate the fair value of our stock-based awards.

On February 1, 2005, we amended our Amended and Restated 1993 Long-Term Incentive Stock Plan, Amended and Restated 1996 Supplemental Non-Executive Equity Incentive Plan, Amended and Restated 1985 Stock Incentive Plan and Amended, and Restated 1989 Employee Benefit Stock Plan to remove “promissory note” as a form of consideration that may be used to pay for shares of common stock to be issued upon exercise of an option.

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3.Other Operating Expenses, Net

Other operating expenses, net represents the costs associated with our restructuring and impairment activities. These activities, by plan or action, were as follows during the first six months of fiscal 2005 (in thousands):

	Balance at June 25, 2004		Costs Incurred		Adjustments			Reclassification		Cash Payments			Balance at December 24, 2004
Fiscal 2000 plan:
Vacated facilities	$	5,898	$	—	$	(408	)	$	—	$	(1,945	)	$	3,545
Fiscal 2001 plan:
Vacated facilities	4,225		—		(211		)	—		(1,247		)	2,767
Fiscal 2002 plan:
Severance and related charges	52		61		(140		)	276		(56		)	193
Vacated facilities	450		—		304			—		(242		)	512
	502		61		164			276		(298		)	705
Fiscal 2003 plan:
Severance and related charges	288		104		(248		)	52		(2		)	194
Vacated facilities	959		—		84			—		(741		)	302
	1,247		104		(164		)	52		(743		)	496
Fiscal 2004 plan:
Severance and related charges	1,086		128		—			—		(669		)	545
Vacated facilities	46,966		5,772		(45		)	—		(10,722		)	41,971
	48,052		5,900		(45		)	—		(11,391		)	42,516
Fiscal 2005 UK relocation action:
Vacated facilities	—		2,964		—			—		(2,134		)	830
All restructuring plans and actions:
Severance and related charges	1,426		293		(388		)	328		(727		)	932
Vacated facilities	58,498		8,736		(276		)	—		(17,031		)	49,927
Total of all restructuring plans	$	59,924	$	9,029	$	(664	)	$	328	$	(17,758	)	$	50,859

During the first six months of fiscal 2005, we paid $17 million in rent obligations and $1 million in severance and related charges for all of our restructuring plans and actions. We incurred costs of $9 million, which were primarily accretion and other costs related to vacated facilities. We made $1 million in adjustments, decreasing, in total, our estimates of severance and related charges and vacated facilities charges associated with the fiscal 2000, fiscal 2001, fiscal 2002, fiscal 2003, and fiscal 2004 restructuring plans, which reflected lower estimated costs and increased projected sublease income. We also increased our severance related accruals for our fiscal 2002 and fiscal 2003 restructuring plans by reclassifying a $300 thousand liability related to restructuring actions that had previously been recorded in other liabilities.

The restructuring liability balance of $51 million at December 24, 2004 includes $1 million in severance obligations and $50 million of facility-related liabilities. The facility related liability of $50 million represents $186 million in future rental payments due, less estimated sublease income of $94 million, the majority of which is under contract and $42 million in accretion expense that will be recognized through fiscal 2013. We expect to pay $1 million in severance and related charges through the third quarter of fiscal 2005 and $14 million in facility related charges through the end of fiscal 2005 with the remainder to be paid through fiscal 2013.

As of December 24, 2004, we have substantially completed the execution of our fiscal 2000, fiscal 2001, fiscal 2002, and fiscal 2003 restructuring plans, with the exception of certain severance obligations of our international subsidiaries and payments associated with vacated leased facilities that have lease terms expiring through the end of fiscal 2007. Our obligations associated with these plans as of December 24, 2004 were $4 million under the fiscal 2000 restructuring plan, $3 million under the fiscal 2001, restructuring plan, $1 million under the fiscal 2002 restructuring plan, and $500 thousand under the fiscal 2003 restructuring plan. The facilities obligations are net of aggregated estimated sublease income of $2 million among the fiscal 2000 and fiscal 2001 plans. There is no significant estimated sublease income associated with the fiscal 2002 and 2003 plans.

8

In an effort to reduce our operating expenses and better align operating expenses with expected revenue levels, we announced and began to implement restructuring activities under the fiscal 2004 restructuring plan at the end of fiscal 2003 and continued these actions during fiscal 2004. Under the fiscal 2004 restructuring plan, we eliminated approximately 520 positions across all levels and functions and vacated approximately 100,000 square feet of sales and administrative facilities throughout the world, with lease terms expiring through fiscal 2007. As a result of the fiscal 2004 restructuring plan, we also agreed to sublease our Amphitheatre Technology Center campus in Mountain View, California and relocated our headquarters to our nearby Crittenden Technology Center campus during fiscal 2004. Pursuant to SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”, we are required to determine the fair value of our future contractual obligations under operating leases using our credit-adjusted risk-free interest rate as of the date we cease to use the leased properties. Therefore, we have determined the fair value of our future remaining obligations for the leased properties as $42 million. On a quarterly basis, we are required to accrete these discounted future obligations for the leased property up to its undiscounted value of $84 million over the periods from the respective cease-use dates to the end of the lease terms concluding in fiscal 2013 using the effective interest method. Beginning in fiscal 2004, we began recording accretion expense, which we expect to be between $200 thousand and $14 million annually through fiscal 2013. During the first six months of fiscal 2005, we recorded $6 million in Amphitheatre Technology Center-related expenses. Our obligation associated with the fiscal 2004 restructuring plan as of December 24, 2004 included $1 million in severance and related charges and $42 million of vacated leased facility obligations, net of contractual sublease income of $92 million.

During the second quarter of fiscal 2005, we initiated an action to relocate our facility in Reading, United Kingdom. We incurred costs of $3 million related to this action during the quarter, primarily for the variation of lease terms and costs associated with exiting the existing facility. We do not expect to have any significant future costs related to this exit activity.

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The restructuring and relocation costs incurred during the six months ended December 24, 2004, the cumulative amount incurred through December 24, 2004, and the total amount expected to be incurred for each major type of cost associated with our fiscal year 2003, 2004, and 2005 restructuring plans or actions were as follows (amounts in thousands):

	Products			Global Services			Total
Fiscal 2003 restructuring plan:
Costs incurred and adjustments during the six months ended December 24, 2004:
Severance and related charges	$	(70	)	$	(74	)	$	(144	)
Vacated facilities	55			29			84
Total	$	(15	)	$	(45	)	$	(60	)
Cumulative costs incurred as of December 24, 2004 (which closely approximate total amount expected to be incurred):
Severance and related charges	$	7,262		$	5,433		$	12,695
Canceled contracts	97			73			170
Vacated facilities	164			110			274
Total	$	7,523		$	5,616		$	13,139
Fiscal 2004 restructuring plan:
Costs incurred and adjustments during the six months ended December 24, 2004:
Severance and related charges	$	83		$	45		$	128
Vacated facilities	3,387			2,340			5,727
Total	$	3,470		$	2,385		$	5,855
Cumulative costs incurred as of December 24, 2004:
Severance and related charges	$	10,725		$	8,545		$	19,270
Canceled contracts	366			275			641
Vacated facilities	16,268			12,310			28,578
Other	3,119			2,471			5,590
Impairment charges	1,714			1,348			3,062
Total	$	32,192		$	24,949		$	57,141
Total amount expected to be incurred:
Severance and related charges	$	10,725		$	8,545		$	19,270
Canceled contracts	366			275			641
Vacated facilities	43,526			26,911			70,437
Other	3,119			2,471			5,590
Impairment charges	1,714			1,348			3,062
Total	$	59,450		$	39,550		$	99,000
Fiscal 2005 UK relocation action:
Costs incurred during the six months ended and cumulative costs incurred as of December 24, 2004 (which closely approximate total amount expected to be incurred):
Vacated facilities	$	1,930		$	1,034		$	2,964

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4.Inventories

Inventories were as follows (in thousands):

	December 24, 2004		June 25, 2004
Components and subassemblies	$	36,448	$	31,518
Work-in-process	16,125		13,067
Finished goods	6,751		9,514
Demonstration systems	13,742		12,839
Total inventories	$	73,066	$	66,938

5.Restricted Investments

Restricted investments consist of short- and long-term investments held under a security agreement or pledged as collateral against letters of credit. Restricted investments pledged as collateral are held in our name by major financial institutions.

6.Property and Equipment

Property and equipment were as follows (in thousands):

	December 24, 2004			June 25, 2004
Property and equipment, at cost	$	387,873		$	443,890
Accumulated depreciation and amortization	(324,811		)	(369,295		)
Property and equipment, net	$	63,062		$	74,595

7.Other Assets

Other assets were as follows (in thousands):

	December 24, 2004		June 25, 2004
Spare parts	$	29,668	$	33,881
Investments	18,577		20,134
Software licenses, goodwill, and other	42,688		44,200
	$	90,933	$	98,215

Our investment in SGI Japan, a related party, comprised the majority of our investments at December 24, 2004 and June 25, 2004 (see Note 15).

8.Financing Arrangement

We currently have an asset-based credit facility that expires in April 2005 and that is subject to acceleration upon various events of default. The 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 $48 million in letters of credit. This obligation bears interest payable monthly at the prime rate plus 0.25% (5.5% at December 24, 2004) 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 fluctuate within the quarter, are below the level needed to secure our letters of credit. The credit facility was secured by total cash collateral of $20 million and $16 million at December 24, 2004 and June 25, 2004, respectively, which is included as a component of Short-term Restricted Investments.

The credit facility contains financial and other covenants, including a quarterly minimum EBITDA covenant, a requirement to maintain a daily unrestricted cash balance of at least $50 million and limits on annual capital expenditures. Our credit facility also includes covenants that, among other things, limit our ability to incur additional indebtedness, to consolidate or merge with, or sell substantially all our assets to, another person, to issue capital stock, to pay dividends on and redeem or repurchase our capital stock, or to prepay or repurchase subordinated debt. During the first and second quarters of fiscal 2005 and the fourth quarter of fiscal 2004, we obtained a waiver of the EBITDA covenant and during the second quarter of fiscal 2005 and the third quarter of fiscal 2004, we

11

obtained a waiver of the minimum daily cash requirement. During the second quarter of fiscal 2004, we had one violation of a covenant that was administrative in nature for which we received a waiver of compliance.  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 balance, and the default is not waived, it could have a significant impact on our working capital. If we were unable to obtain a necessary waiver, we would be required to deposit an amount equal to the difference between our then current unrestricted cash deposits and the full amount of the letters of credit secured by the facility.  If the facility is not renewed, or replaced when it expires in April 2005, we may not be able to obtain alternative sources of financing on acceptable terms. See the “Risks That Affect Our Business” and “Financial Condition” sections in Item 2 of this Form 10-Q.

At present, we are in discussions with the current lender and other potential lenders and believe we will be able to extend or replace this facility on terms that are similar or more favorable terms to us than those that exist under the current facility.

9.Discontinued Operations

On June 15, 2004, we received $58 million in gross proceeds for the sale of our Alias application software business (“Alias”) to Accel-KKR, a technology-focused private equity investment firm, and recorded a net gain of $51 million on the transaction. As a result of this transaction, we have shown the operating results of Alias as a discontinued operation for all periods presented.

The financial results of Alias included in discontinued operations were as follows (in thousands):

	Three Months Ended				Six Months Ended
	December 24, 2004		December 26, 2003		December 24, 2004			December 26, 2003
Revenue	$	—	$	18,387	$	—		$	34,199
Income (loss) from discontinued operations before income taxes	$	—	$	2,090	$	(276	)	$	3,335
Income tax provision	—		718		—			1,167
Net income (loss) from discontinued operations	$	—	$	1,372	$	(276	)	$	2,168

10.Debt

Debt was as follows (in thousands):

	December 24, 2004			June 25, 2004
6.50% Senior Secured Convertible Notes due June 1, 2009, including unamortized premium of $20,868 at December 24, 2004 and $23,274 at June 25, 2004	$	209,446		$	212,355
6.125% Convertible Subordinated Debentures due February 1, 2011, net of unamortized discount of $6,883 at December 24, 2004 and $7,305 at June 25, 2004	49,893			49,471
10.00% Japanese Yen fixed rate loan due in quarterly installments through December 31, 2004	4,807			13,926
11.75% Senior Secured Notes due June 1, 2009	2,386			2,386
5.25% Senior Convertible Notes, repaid September 1, 2004	—			3,849
Other	1,474			—
	268,006			281,987
Less amounts due within one year	(5,805		)	(17,775		)
Amounts due after one year	$	262,201		$	264,212

In December 2003, we exchanged $224 million of newly issued 6.50% Senior Secured Convertible Notes (the “Senior Secured Convertible Notes”) and $2 million of 11.75% Senior Secured Notes (the “Senior Secured Notes”) for 98% of our existing 5.25% Senior Convertible Notes (the “2004 Senior Notes”). The Senior Secured Convertible Notes are convertible at the holders’ option into shares of common stock at a conversion price equal to $1.25 per share, and they are redeemable at our option beginning in December 2005. During calendar year 2006, the Senior Secured Convertible Notes may be redeemed at our option at 100% of the principal amount if the closing price of our common stock has been at least 150% of the conversion price for the 20 consecutive trading days ending two trading days prior to the notice of redemption. In the following years, the Senior Secured Convertible Notes may be redeemed at our option at 100% of the principal amount. The Senior Secured Notes are not convertible and are redeemable at

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our option at varying prices based on the year of redemption, beginning in June 2004 at 104% of the principal amount. Both the Senior Secured Convertible Notes and the Senior Secured Notes are redeemable at the option of the holder 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 addition, the indentures governing the Senior Secured Convertible Notes and the Senior Secured Notes contain covenants that, among other things, limit our ability to incur additional indebtedness, issue capital stock, pay dividends on and redeem or repurchase our capital stock, and prepay or repurchase subordinated debt. Both the Senior Secured Convertible Notes and the Senior Secured Notes are also secured by a junior priority security interest in those assets in which the lenders under our secured credit facility currently hold a senior priority security interest. See Note 8 to the condensed consolidated financial statements for further information regarding our secured credit facility.

The debt exchange was accounted for as an extinguishment of the tendered debt and resulted in a non-cash loss of approximately $31 million recorded in the second quarter of fiscal 2004, primarily representing the difference between the fair value of the new debt instruments and the net carrying value of the extinguished debt. The difference is treated as a premium on the new Senior Secured Convertible Notes and is being amortized as an offset to interest expense over the term of the notes. During the first six months of fiscal 2005, debt with a face value of $503 thousand was converted, and the unamortized premium was reduced by $2 million due to regular amortization and the effects of the conversion.

The remaining 2004 Senior Notes which were not tendered for exchange as noted above, with an aggregate principal amount of $4 million, were paid in full on September 1, 2004.

In connection with the fiscal 1996 acquisition of Cray Research, Inc., we assumed the 6.125% Convertible Subordinated Debentures due in 2011. These debentures are convertible into shares of our 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% of the principal amount. 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 $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 $6 million originally scheduled for fiscal years 2003 through 2006. Remaining annual sinking fund payments of $5 million in fiscal 2007 and $6 million each in fiscal 2008 to 2010 are scheduled, with a final maturity payment of $35 million in 2011.

11.Guarantees

SGI, as the guarantor, enters into three types of guarantees, namely financial guarantees, performance guarantees, and indemnifications.

Financial guarantees include contracts that contingently require us to make payments to the beneficiary of the guarantee based on changes in an underlying variable (for example, 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 financial 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 of one year or less.

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 December 24, 2004 that are subject to the disclosure requirements of FASB Interpretation No. (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.

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 judgment 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. As of December 24, 2004, we have outstanding indemnifications to cover potential exposure related to the payment of additional taxes. The term of an indemnification is based on the length of time required to settle the dispute. Indemnification agreements such as those in favor of customers with respect to potential intellectual property or other liabilities are not within the scope of this discussion of guarantees since they are considered a component of standard product warranties.

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Our maximum potential obligations under guarantees at December 24, 2004 were as follows (in thousands):

	Maximum Potential Amount of Future Payments		Assets Held as Collateral
Financial guarantees	$	51,117	$	51,117
Indemnifications	1,392		1,392
Total	$	52,509	$	52,509

Product warranty activity during the first six months of fiscal 2005 and 2004 was as follows (in thousands):

	2005			2004
Product warranty beginning balance	$	5,203		$	6,711
New warranties issued	5,411			5,194
Warranties paid	(4,860		)	(5,887		)
Changes in warranty rate estimates	684			(788		)
Product warranty ending balance	$	6,438		$	5,230

12.Loss Per Share

The computation of basic and diluted loss per share was as follows (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
Net loss from continuing operations	$	(11,149	)	$	(38,740	)	$	(39,078	)	$	(87,465	)
Weighted average shares outstanding - basic and diluted	262,487			211,034			262,263			210,302
Net loss per share from continuing operations- basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.15	)	$	(0.42	)
Potentially dilutive weighted securities excluded from computations because they are anti-dilutive	155,848			30,683			156,895			24,195

13.Comprehensive Loss

The components of comprehensive loss, net of tax, were as follows (in thousands):

	Three Months Ended							Six Months Ended
	December 24, 2004			December 26, 2003				December 24, 2004			December 26, 2003
Net loss	$	(11,149	)	$		(37,368	)	$	(39,354	)	$	(85,297	)
Change in net unrealized gain (loss) on derivative instruments designated and qualifying as cash flow hedges	109			(627			)	(88		)	(250		)
Foreign currency translation gain (loss) adjustments	—			762				(1,275		)	1,141
Comprehensive loss	$	(11,040	)	$	(37,233		)	$	(40,717	)	$	(84,406	)

14.Segment Information

Effective for fiscal 2005, SGI has two reportable segments, Products and Global Services. We combined into one reportable segment, Products, two of our previously reported segments, High-Performance Systems and Workstations, and our remanufactured and prior generations of our workstations, graphics systems, and high-performance servers businesses, which were previously included in Other in the reconciliation of reported revenue and operating profit. This change to reportable segments was made after

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reassessment of factors such as quantitative thresholds of business components to be included into reportable segments, customer base, economic characteristics, homogeneity of products, technology, delivery channels, and other factors, and it aligns reportable segments with the process by which our Chief Executive Officer makes operating decisions and evaluates performance. Prior year amounts have been reclassified to conform to the current year presentation.

Products

Our Products segment is comprised of high-performance systems, including our high-performance servers and integrated storage solutions, visual systems containing our workstations and graphics systems, and other products which include our prior generations of workstations, graphics systems, and high-performance servers.

High-performance systems include the SGI® Altix® and Origin® families of high-performance servers and the SGI® InfiniteStorage line of storage solutions. Our high-performance systems are high-performance supercomputing systems designed for technical computing applications. Our high-performance systems are also used as storage management servers for managing very large data repositories that contain critical information and media servers for broadcast television applications. These products are distributed through our direct sales force, as well as through indirect channels including resellers and distributors.

Visual systems include the Silicon Graphics® Tezro® and Silicon Graphics Fuel® workstations, the Silicon Graphics Prism^TM, and the SGI® Onyx® family of graphics systems. Our workstations are used in a variety of applications, including computer-aided design, medical imaging, 2D and 3D animation, broadcast, modeling, and simulation. Our graphics systems integrate high-performance computing, data management, and high-performance visualization into a single system. These products are distributed through our direct sales force, as well as through indirect channels including resellers, distributors, and system integrators.

Other products represent prior generations and remarketed versions of workstations, graphics systems, and high-performance servers that are sold through our remarketed products group.

Global Services

Our 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, and third-party products.

Segment Results

We evaluate our segments based on profit or loss from operations before interest and taxes.

Expenses for research and development, sales and marketing, manufacturing, and finance and administration are allocated to the reportable segments and are included in the results reported. Certain corporate-level revenues and expenses are not allocated and are included in “other” in the reconciliation of reported revenue and operating profit. Such revenue primarily comprises revenue generated from our revenue hedge program, the purpose of which is to minimize the impact of foreign currency fluctuations on revenue transactions recorded in currencies other than the U.S. dollar, from software license revenue, and from engineering service revenue.

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 products to each other, and accordingly, there is no inter-segment revenue to be reported.

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Information about our reportable segments is as follows (in thousands):

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
Revenue from external customers:
Products	$	145,525		$	132,632		$	243,160		$		249,860
Global Services	78,201			87,191			155,939			171,905
Total reportable segments	223,726			219,823			399,099			421,765
Other	(624		)	(297		)	(590		)	(23				)
Total consolidated	$	223,102		$	219,526		$	398,509		$		421,742
Operating (loss) income:
Products	$	(5,979	)	$	(19,803	)	$	(34,158	)	$			(61,069	)
Global Services	2,809			29,506			7,951			51,583
Total reportable segments	(3,170		)	9,703			(26,207		)	(9,486				)
Restructuring	(5,199		)	(12,986		)	(8,365		)	(37,223				)
Other	(779		)	(1,496		)	(835		)	(2,467				)
Total consolidated	$	(9,148	)	$	(4,779	)	$	(35,407	)	$	(49,176			)

15.Related Party Transaction

On November 9, 2001, SGI entered into an agreement whereby NEC Corporation and its publicly held affiliate, NEC Soft, acquired 40% and 20% respectively, of our then wholly owned Japanese subsidiary, SGI Japan, Ltd. The business, now jointly owned by SGI, NEC, and NEC Soft, is known as SGI Japan.  Based on the Stockholders Agreement between the parties which specifies ownership rights, SGI is not able to exert significant influence over SGI Japan nor does SGI have effective control over SGI Japan. All risks and rewards of ownership in SGI Japan are recognized based on the ownership structure of the entity. As part of the alliance, SGI and SGI Japan entered into a long-term exclusive distribution agreement to supply SGI equipment, services, and solutions in Japan, and as such SGI Japan obtained SGI trademark and intellectual property rights related to the business operations in Japan in accordance with standard business practice. Effective November 10, 2001, SGI no longer consolidates SGI Japan’s results in our financial statements but instead records our proportionate share of SGI Japan’s financial results as non-operating income or loss in accordance with APB 18, The Equity Method of Accounting for Investments in Common Stock. We record product revenue sold to SGI Japan under SEC Staff Accounting Bulletin No. (SAB) 104 Revenue Recognition (replacement of SAB 101). However, because of our related party relationship with SGI Japan, we reduce our proportionate share of their financial results, for any SGI product sold to SGI Japan that has not been sold through to their customer, by the amount of profit on those transactions.  Due to the timing of receipt of financial reporting information from SGI Japan, these entries are recorded on a quarter lag, unless the quarter results are materially different than previous quarters. Where the quarter results are materially different due to fluctuations in sales activity with SGI Japan, we reflect the amount on those transactions in the current quarter.  During the second quarter of fiscal 2005, these entries were materially different than in previous quarters due to increased sales activity and were reflected in the results for the current quarter.

Revenue and standard cost of revenue associated with sales to SGI Japan were as follows (in thousands):

	Three Months Ended				Six Months Ended
	December 24, 2004		December 26, 2003		December 24, 2004		December 26, 2003
Product revenue	$	27,823	$	7,534	$	33,674	$	15,328
Standard cost of product revenue	$	18,531	$	3,695	$	22,135	$	7,586

Aggregate amounts receivable from and amounts payable to SGI Japan were immaterial at December 24, 2004 and June 25, 2004.

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16.Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS 151, Inventory Costs, which amends Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing. SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted materials by requiring their recognition as current period expenses and requires that fixed production costs be allocated to inventory based on the normal capacity of production facilities. We are required to adopt SFAS 151 beginning with the first quarter of our fiscal year 2006. We are currently analyzing the requirements of this standard, but do not believe that its adoption will have a material effect on our reported results of operations or financial position.

On December 16, 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments, which revises SFAS 123, supersedes APB 25 and SFAS 148, and amends SFAS 95, Statement of Cash Flows. Generally, the requirements of SFAS 123(R) are similar to those of SFAS 123. However, SFAS 123(R) requires companies to recognize all share-based payments to employees, including grants of employee stock options, in their statements of operations based on the fair value of the payments. Pro forma disclosure is no longer an alternative. We are required to adopt SFAS 123(R) beginning with the first quarter of our fiscal year 2006, which starts on June 25, 2005.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods: (1) a “modified prospective” method under which compensation cost is recognized beginning with the effective date based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that are unvested on the effective date; or (2) a “modified retrospective” method which includes the requirements of the modified prospective method and also has entities restate either all prior periods presented or prior interim periods of the year of adoption using the amounts previously calculated for pro forma disclosure under SFAS 123. We have not yet determined which method we will select for our adoption of SFAS 123(R).

As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of
SFAS 123(R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. However, the impact of the adoption of SFAS 123(R) cannot be quantified at this time because it will depend on levels of share-based payments granted in the future, but had we applied the principles of SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123, as described in the disclosure of pro forma net income and earnings per share in Note 2 to these condensed consolidated financial statements. SFAS 123(R) also requires that we report the benefits of tax deductions in excess of recognized compensation cost as a financing cash flow, rather than as an operating cash flow as presently required. This requirement will reduce net operating cash flows and increase net financing cash flows in the periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend, among other things, on when employees exercise stock options), the amounts of operating cash flows that we recognized in prior periods for such excess tax deductions have been immaterial.

17.Legal Proceedings

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 outlined a process for identifying and resolving claims from members of the represented class. This process was completed in the third quarter of fiscal 2004 and we expect the complaint will be dismissed in the fourth quarter of fiscal 2005.

Our U.S. tax returns for fiscal years 2001 to 2004 are open and no adjustments have been proposed. In addition, we have open income tax, VAT, and sales tax audits for years 1989 through 2004 in various foreign jurisdictions. We believe adequate provisions have been made for any adjustments that have resulted or may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. Should any issues addressed in our tax audits be resolved in a manner not consistent with our expectations, we could be required to adjust our provision for income tax in the period such resolution occurs.

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. In August 2003, we 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 purported 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 non-terminable. 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 market acceptance of the Linux operating system.

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In May 2001, a Brazilian court entered a judgment against our Brazilian subsidiary, Silicon Graphics Comercio e Serviços Limitada, with regard to a claim by Cargill Prolease against a third party for breach of an April 1997 lease agreement to which SGI’s subsidiary was a guarantor. We have appealed the judgment, which totaled $1.2 million, including interest as of December 24, 2004, and expect the appeal to be heard in 2006.

We are currently involved in a dispute with a systems integrator regarding whether acceptance criteria were met with regard to an SGI system delivered in the spring of 2003. We are seeking full payment for the system in an amount equal to EUR 4.6 million (US $6.2 million based on the conversion rate at December 24, 2004). The other party has contested our claim and may attempt to seek damages of up to EUR 1.8 million (US $2.4 million based on the conversion rate as of December 24, 2004). We cannot currently predict the outcome of this dispute, which may result in litigation; however, we do not expect it to have a material adverse impact on the Company.

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 disputes and settlements described above, that would be likely to have a material adverse effect on our financial condition, results of operations or liquidity. However, litigation is subject to inherent uncertainties, and unfavorable outcomes could occur. An unfavorable outcome could include the payment of monetary damages, a cash or other settlement, or an injunction prohibiting us from selling one or more products. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the resolution occurs, or future periods.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Form 10-Q 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 2005, 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, the following: 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; risks related to our ability to achieve profitable operations or limit losses; risks associated with intellectual property disputes; 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 Silicon Graphics Prism Intel/Linux-based graphics 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.

Overview

We are a leading provider of products and services for high-performance computing, storage, and visualization. We sell highly scalable servers, advanced visualization systems, desktop workstations, storage solutions, and a range of software products that enable our customers in the scientific, technical, and creative communities to solve their most challenging problems and provide them with strategic and competitive advantage in their markets. We also offer a range of services and solutions, including professional services, customer support, and education. These products and services target primarily five market segments, defense and security, science and research, manufacturing, energy, and media.

We have incurred net losses and negative cash flows from operations for the past several years. The following overview describes key elements of our business strategy and our results achieved during fiscal 2004 and the first six months of fiscal 2005.

Leadership in high performance standards-based computer systems. We have over the past several years transitioned from a focus on systems based on our MIPS® processors and IRIX operating system to a focus on systems based on industry-standard Intel® Itanium® processors and the Linux operating system. In fiscal 2004, for the first time, sales of our Intel/Linux-based Altix server family exceeded those of our MIPS/IRIX Origin family. This trend accelerated in the first six months of fiscal 2005, with Altix representing approximately 80% of total server revenue, and we expect the trend to continue, especially in light of the introduction in October 2004 of Silicon Graphics Prism, our first Itanium/Linux-based graphics systems. Our revenue growth prospects, and our ability to return to profitability, depend on our ability to grow the Itanium/Linux product families at a rate that will more than offset the expected continued decline of the MIPS/IRIX families.

Maintain gross margins to support R&D and other investments.  Our strategy is to develop products that are differentiated, not just compatible, which requires continued substantial investments in research and development. Our gross margin declined to 37.5% in the second quarter of fiscal 2005 compared with 43.3% in the comparable prior year period, in significant part due to

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competitive pricing for a small number of large shipments to various customers, including shipments sold to SGI Japan, a related party, for delivery to Japanese customers, that represented 12% of our total second quarter revenue. These large, high-visibility wins are important to our market position but can materially reduce our gross margins. Maintaining acceptable gross margins will require achieving an overall revenue level adequate to absorb our fixed costs, striking the appropriate balance between these large lower-margin transactions and our more normal sales transactions, and working with suppliers such as Intel to continue to structure favorable component pricing.

Building systems integrator and reseller channels.  With our direct sales force focused on large transactions in our target markets, we are increasingly looking to resellers, systems integrators and OEM partners to add to our sales volumes and serve markets that we do not serve directly. Enhancing our reseller channels and systems integrator relationships is a key objective for us in fiscal 2005.

Managing expenses and cash.  We continue to reduce our total operating expenses, with expenses for the first six months of fiscal 2005 for research and development, sales, marketing and administration declining 8% from the comparable prior year period, resulting principally from a 6% headcount reduction since the first quarter of fiscal 2004 and our corporate headquarters consolidation.  Our unrestricted cash and cash equivalents and marketable investments totaled $106 million at the end of the second quarter of fiscal 2005, down from $157 million at fiscal year end in June 2004. Our asset-based credit facility expires in April 2005 and we believe we will be able to renew or replace the facility on terms that are similar or more favorable to us than those that exist under the current facility.  In light of our continuing losses and declining cash position, we have announced our intention to implement further restructuring actions in the third quarter of fiscal 2005 with a goal to reduce expenses by at least 10% from current levels. Due to the timing for initiating these actions, we do not expect these actions to result in significant cost savings or result in incremental cash expenditures in the third quarter of fiscal 2005.

Results of Operations

The financial information and the discussion below should be read in conjunction with the accompanying consolidated financial statements and notes thereto. The following tables and discussion present certain financial information on a comparative basis. Our Alias application software business was sold in June 2004 (see Note 9) and its operating results are excluded from continuing operations and reflected as discontinued operations for all periods presented in this Form 10-Q (in millions, except per share amounts; numbers may not add due to rounding):

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
Total revenue	$	223		$	220		$	399		$	422
Cost of revenue	139			124			252			245
Gross profit	84			95			147			176
Gross profit margin	37.5		%	43.3		%	36.8		%	41.7		%
Total operating expenses	93			100			182			225
Operating loss	(9		)	(5		)	(35		)	(49		)
Interest and other income (expense), net	(4		)	(4		)	(9		)	(11		)
Loss on extinguishment of tendered debt	—			(31		)	—			(31		)
Loss from continuing operations before benefit for income taxes	(13		)	(40		)	(45		)	(91		)
Net loss from continuing operations	(11		)	(39		)	(39		)	(87		)
Net income from discontinued operations	—			1			—			2
Net loss	$	(11	)	$	(37	)	$	(39	)	$	(85	)
Net loss per share from continuing operations – basic and diluted	$	(0.04	)	$	(0.18	)	(0.15		)	(0.42		)
Net (loss) income per share from discontinued operations – basic and diluted	—			0.01			(0.00		)	0.01
Net loss per share – basic and diluted	$	(0.04	)	$	(0.18	)	$	(0.15	)	$	(0.41	)

Revenue

The following discussion of revenue is based on the results of our reportable segments as described in Note 14 to the Condensed Consolidated Financial Statements. Total revenue is principally derived from two reportable segments, Products and Global Services. Effective for fiscal 2005, we combined into one reportable segment, Products, two of our previously reported segments, High-Performance Systems and Workstations, and our remanufactured and prior generations of workstations, graphics systems, and high-performance servers, which were previously included in “Other” in the reconciliation of reported revenue and operating profit. This change was made to align reportable segments with the process by which management makes operating decisions and evaluates performance. Prior year amounts have been reclassified to conform to current year presentation.

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Revenue for the second quarter of fiscal 2005 increased $3 million or 1% compared with the corresponding period of fiscal 2004 primarily due to strong growth of our Intel/Linux-based Altix servers, offset in part by declines in sales of our proprietary MIPS/IRIX-based products. Revenue for the first six months of fiscal 2005 declined $23 million or 5% compared with the corresponding period of fiscal 2004, principally due to declines in sales of our proprietary MIPS/IRIX-based products that more than offset growth in sales of our Intel/Linux-based Altix servers. During the second quarter of fiscal 2005, we introduced the Silicon Graphics Prism, our Intel/Linux-based graphics solution, though this product did not have a significant impact on revenue in the quarter.  See “Risks That Affect Our Business.”

The following table presents total revenue by reportable segment (in millions, except per share amounts; numbers may not add due to rounding):

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
High-performance systems	$	109		$	81		$	173		$	156
Visual systems	23			40			43			70
Other products	13			11			27			24
Total Products	$	145		$	133		$	243		$	250
% of total revenue	65		%	60		%	61		%	59		%
Global Services	$	78		$	87		$	156		$	172
% of total revenue	35		%	40		%	39		%	41		%

Products.

Revenue from our Products segment for the second quarter and first six months of fiscal 2005 increased $12 million or 9% and declined $7 million or 3%, respectively, compared with the corresponding periods in fiscal 2004. Our Products segment is comprised of high-performance systems including our high-performance servers and integrated storage solutions, visual systems containing our workstations and graphics systems, and other products which include our remanufactured and prior generations of workstations, graphics systems, high-performance servers and storage solutions. In the second quarter of fiscal 2005, shipments sold to SGI Japan, a related party, for delivery to Japanese customers, represented 12% of our total second quarter revenue.  Likewise, more than 10% of total revenue in the first quarter of fiscal 2005 was also generated by sales to a single customer.

Revenue from high-performance systems for the second quarter and first six months of fiscal 2005 increased $28 million or 35% and $17 million or 11%, respectively, compared with the corresponding periods in fiscal 2004. These increases were primarily due to growth in sales of our Intel/Linux-based Altix servers outpacing the decline in sales of our proprietary MIPS/IRIX-based Origin servers.  This increase in revenue is principally due to an overall increase in volumes, offset in part by declining average selling prices resulting from the competitive market environment for Itanium-based products.

Visual systems revenue for the second quarter and first six months of fiscal 2005 decreased $17 million or 43% and $27 million or 39%, respectively, compared with the corresponding periods in fiscal 2004, with declines in both workstations and graphics systems. The decrease in workstation revenue was primarily attributable to the continuing long-term decline in the overall UNIX workstation market, an industry-wide trend that we expect will continue as lower-cost personal computers continue to gain market share. Revenue from our workstations has declined steadily over the past few years as we discontinued several product families based upon both the MIPS and Pentium® III microprocessors and as our medical OEM business deteriorated.  Reduced volumes of our Silicon Graphics® Octane® family of visual workstations, as we completed its end of life, and reduced volumes despite an increase in average selling prices of the Fuel visual workstation were the primary contributors to the decline in workstation revenue in the second quarter and first six months of fiscal 2005 compared with the corresponding period in fiscal 2004. These declines were offset in part by a higher mix of Tezro visual workstation sales in both the second quarter and first six months of fiscal 2005 compared with the corresponding period in fiscal 2004, which carry a higher average selling price than other workstation offerings. The decline in our MIPS/IRIX-based graphics systems revenue for the second quarter and first six months of fiscal 2005 compared with the corresponding periods of fiscal 2004 was principally due to overall reduced volumes and a shift in mix from the high-end visualization systems to the lower-end visualization systems with a lower average selling price, despite an increase in the overall average selling prices of our graphics systems. In October 2004, we expanded our graphics systems product family with the introduction of Silicon Graphics Prism, our graphics system based on Linux, Itanium 2, and SGI’s scalable graphics technology. This new product introduction did not have a significant impact on revenue in the second quarter of fiscal 2005.

Revenue from other products increased $2 million or 18% and $3 million or 13%, respectively, compared with the corresponding periods in fiscal 2004, primarily due to an increase in sales of remarketed Altix systems, prior generation graphics systems and storage, offset in part by a decline in sales of remarketed prior generation workstations and Origin servers.

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Global Services

Revenue from our Global Services segment is comprised of hardware and software support, maintenance and professional services. Global Services revenue for the second quarter and first six months of fiscal 2005 decreased $9 million or 10% and $16 million or 9%, respectively, compared with the corresponding periods in fiscal 2004. These declines were 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 both a decline in our existing installed base as older systems are removed from the base as well as the impact to the installed base from lower system sales volumes in recent periods. In the second quarter of fiscal 2005, a non-recurring adjustment to deferred service revenue that reduced service revenue by $3 million also contributed to the decline.  The decline in our traditional customer support revenue was partially offset by an increase in our Professional Services revenue, which includes revenue generated from the sale of SGI and third party product and SGI consulting and managed services.

Other Revenue.

Other revenue is primarily comprised of revenue generated from our revenue hedge program, the purpose of which is to minimize the impact of foreign currency fluctuations on revenue transactions recorded in currencies other than the U.S. dollar, from software license revenue, and from engineering service revenue. Other revenue for the second quarter and first six months of both fiscal 2005 and 2004 was negligible and is therefore not reflected in the table above.

Total revenue by geographic area was as follows (in millions):

	Three Months Ended								Six Months Ended
Area	December 24, 2004				December 26, 2003				December 24, 2004				December 26, 2003
Americas	$	126	56	%	$	141	64	%	$	241	60	%	$	276	66	%
Europe	51		23	%	58		26	%	91		23	%	103		24	%
Rest of World	46		21	%	21		10	%	67		17	%	43		10	%
Total revenue	$	223			$	220			$	399			$	422

Revenue by geographic area as a percentage of total revenue in the second quarter and first six months of fiscal 2005 compared with the corresponding periods in fiscal 2004 increased primarily as a result of two large transactions to a single customer in Japan, namely SGI Japan, a related party that is also our exclusive distributor in Japan, that accounted for 10% and 6%, respectively, of total revenue in the second quarter and first six months of fiscal 2005.

Our consolidated backlog at December 24, 2004 was $88 million, down from $119 million at December 26, 2003. Backlog is comprised of committed purchase orders for products and professional services deliverable within three to nine months, depending on the product family. Declines in backlog were noted across all geographical regions. From a segment standpoint, backlog declined within the Products segment, specifically visualization systems and high-performance systems, with the exception of the Altix product line which more than doubled since December 26, 2003. A decline in backlog associated with our professional services business included in our Global Services segment also contributed to the overall decline in backlog since December 26, 2003. During the second quarter of fiscal 2005, we finalized a significant sales contract with a large European supercomputing site that includes approximately EUR 33 million (US $44 million based on the conversion rate at December 24, 2004) in future product revenue. However, due to the long-term nature of this contract, it is not currently included in our backlog at December 24, 2004 since the deliverables under the contract fall outside our nine month backing policy for it to be included in backlog.

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 engineering service revenue are included in cost of service revenue, unless the engineering service effort meets the criteria for government funded research, as outlined in SFAS 2, Accounting for Research and Development Costs. If the contract meets the criteria for a government funded research arrangement, the costs to deliver the contract 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 including the costs associated with third-party products.

Overall gross profit margin for the second quarter and the first six months of fiscal 2005 decreased from 43.3% to 37.5% and from 41.7% to 36.8%, respectively, compared with the corresponding periods of fiscal 2004. Product and other gross profit margin for the second quarter and first six months of fiscal 2005 decreased 4.0 percentage points and 5.3 percentage points, respectively, compared with the corresponding periods in fiscal 2004. Our results for the second quarter and first six months of fiscal 2005 reflected

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a higher percentage of revenue from a relatively small number of large transactions, especially in the Altix product family. These transactions typically are done at deeper than normal discounting, due to very competitive bidding processes, resulting in lower gross margins, offset to some extent by favorable component pricing applicable to these transactions. We expect to continue to generate significant revenue from high visibility customer accounts, whose transactions are typically very complex, tend to carry lower gross margins and represent unpredictable sales cycles. We expect to continue to work with suppliers such as Intel to structure favorable component pricing to support these anticipated sales. The balance of the gross margin declines for the second quarter and first six months of fiscal 2005 was principally attributable to lower sales volumes and a shift in mix from our MIPS/IRIX-based systems which typically carry a higher gross margin to our Intel/Linux-based systems whose gross margins are lower, offset slightly by favorable manufacturing variances resulting from manufacturing efficiencies and procurement cost controls. Service gross profit margin for the second quarter and first six months of fiscal 2005 decreased 8.8 percentage points and 4.4 percentage points, respectively, compared with the corresponding periods in fiscal 2004. Declining revenue levels for which the corresponding service costs are not dropping at the same rate, coupled with a large sale transaction involving a significant portion of professional services at lower margin are the primary contributors to the overall decline in service gross profit margins. During the second quarter of fiscal 2005, a non-recurring adjustment was also made to deferred service revenue which negatively impacted service gross margin by 2.1 percentage points and 1.0 percentage points in the second quarter and first six months of fiscal 2005, respectively.

Operating Expenses

Operating expenses were as follows (in millions):

	Three Months Ended						Six Months Ended
	December 24, 2004			December 26, 2003			December 24, 2004			December 26, 2003
Research and development	$	25		$	27		$	48		$	59
% of total revenue	11		%	12		%	12		%	14		%
Selling, general, and administrative	$	63		$	60		$	126		$	129
% of total revenue	28		%	27		%	32		%	31		%
Other	$	5		$	13		$	8		$	37
% of total revenue	2		%	6		%	2		%	9		%

Operating Expenses (excluding Other Operating Expense). Operating expenses, excluding other operating expenses, for the second quarter of fiscal 2005 increased in absolute dollars by 1% from the corresponding period of fiscal 2004 and decreased as a percentage of total revenue from 40% to 39%. Operating expenses, excluding other operating expenses, for the first six months of fiscal 2005 decreased in absolute dollars by 7% from the corresponding period of fiscal 2004 and decreased as a percentage of total revenue from 45% to 44%.

As a result of restructuring actions and attrition, total headcount associated with operating expense activities at the end of the second quarter of fiscal 2005 declined by 74, or 3%, from the corresponding headcount at the end of the second quarter of fiscal 2004. Our restructuring actions have also lead to a significant decrease in occupancy costs from the second quarter of fiscal 2004 to the second quarter of fiscal 2005. The effect of these cost reductions, when comparing the second quarter of fiscal 2005 to the same period of fiscal 2004, was offset by a $5 million reversal of estimated employee benefit liabilities due to a modification in the benefit plan that occurred in the second quarter of fiscal 2004. This event did not recur during the second quarter of fiscal 2005, and as a result, there was a small net increase in operating expenses between the two quarters. For the first six months of fiscal 2005 compared to the corresponding period of fiscal 2004, the effect of restructuring-related cost reductions more than offset the non-recurring benefit liability adjustment, resulting in a net decrease in operating expenses.

Other Operating Expense. Other operating expense of $5 million and $13 million for the second quarter of fiscal 2005 and 2004, respectively, represented costs of our restructuring plans or actions and asset impairment activities. Specifically, during the second quarter of fiscal 2005, we recorded non-cash accretion expense of $2 million related to the relocation of our Mountain View, California headquarters and costs of $3 million related to the relocation of our facility in Reading, United Kingdom. During the second quarter of fiscal 2004, we recorded $4 million in severance and related costs and $9 million in costs associated with our headquarters relocation.

Other operating expense was $8 million and $37 million for the first six months of fiscal 2005 and 2004, respectively. During the first six months of fiscal 2005, we recorded non-cash accretion expense of $6 million related to the relocation of our Mountain View, California headquarters and costs of $3 million related to the relocation of our facility in the United Kingdom. During the first six months of fiscal 2004, we recorded $18 million in severance and related costs, $1 million in facilities restructuring costs, and $18

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million in costs associated with our headquarters relocation. See Note 3 to the condensed consolidated financial statements for further information about these activities.

In light of our continuing losses and declining cash position, we have announced our intention to implement further restructuring actions in the third quarter of fiscal 2005 with a goal to reduce expenses by at least 10% from current levels. The details of the restructuring plan have not yet been determined, including the size of the related charge. Due to the timing for initiating these actions, we do not expect to achieve significant cost savings from these actions in the third quarter of fiscal 2005.

Interest and Other

Interest and other income (expense) were as follows (in thousands):

	Three Months Ended							Six Months Ended
	December 24, 2004			December 26, 2003				December 24, 2004			December 26, 2003
Interest expense	$	(3,856	)	$		(5,182	)	$	(8,992	)	$	(12,072	)
Investment gain (loss)	$	31		$		—		$	31		$	—
Foreign exchange gain (loss)	443			270				1,338			1,341
Miscellaneous (expense) income	(620		)	789				(2,175		)	(1,659		)
Interest income	278			64				672			974
Interest and other income (expense), net	$	132		$		1,123		$	(134	)	$	656
Loss on extinguishment of tendered debt	$	—		$	(30,915		)	$	—		$	(30,915	)

Interest Expense. Interest expense decreased from $5 million for the second quarter of fiscal 2004 to $4 million in the second quarter of fiscal 2005 and from $12 million for the first six months of fiscal 2004 to $9 million in the first six months of fiscal 2005 primarily as a result of the decrease in our long-term debt.

Interest and Other Income (Expense), Net. Interest and other income (expense), net includes interest on our cash investments, gains and losses on other investments, and other non-operating items. Miscellaneous income (expense) shifted from income to expense in the second quarter of fiscal 2005 from the second quarter of fiscal 2004 primarily due to activity associated with our minority interest in the equity of SGI Japan through the elimination of profit in inventory on product sold to SGI Japan, offset in part by income recorded based on our proportionate share of their financial results.

Loss on Extinguishment of Tendered Debt. During the second quarter of fiscal 2004, we completed an exchange offer for 98.3% of our 5.25% Senior Convertible Notes due to mature in September 2004. The exchange offer was accounted for as a debt extinguishment and resulted in a non-cash loss of approximately $31 million, primarily representing the difference between the fair value of the new debt instruments and the net carrying value of the extinguished debt. The difference is treated as a premium on the new Senior Secured Convertible Notes and is being amortized as an offset to interest expense over the term of the notes. Also included in the $31 million loss was a write-off of $400 thousand in debt issuance costs associated with the extinguished debt.

Income Taxes

Our net benefit for income taxes of $5 million for the first six months of fiscal 2005 arose principally from a refund of U.S. income taxes paid in prior years and a reduction of foreign tax exposures, partially offset by net income taxes payable in foreign jurisdictions. Our net benefit for income taxes of $4 million for the first six months of fiscal 2004 arose principally from a reduction in tax contingencies in foreign jurisdictions and the refund of certain U.S. and state income taxes paid in prior years, partially offset by net income taxes payable in foreign jurisdictions.

Financial Condition

At December 24, 2004, unrestricted cash and cash equivalents and marketable investments totaled $106 million compared with $157 million at June 25, 2004. At December 24, 2004 and June 25, 2004, we also held $29 million and $24 million, respectively, of restricted investments. Restricted investments consist of short- and long-term investments held under a security agreement or pledged as collateral against letters of credit. Our working capital decreased from $76 million at June 25, 2004 to $65 million at December 24, 2004.

Primarily as a result of net losses, operating activities from continuing operations used $30 million during the first six months of fiscal 2005, compared with using $9 million during the same period in fiscal 2004. The negative operating cash flows from

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continuing operations in the first six months of fiscal 2005 were primarily the result of payments related to restructuring actions and low revenue levels. Cash payments for severance and facilities obligations related to restructuring actions initiated in the current and prior years totaled $18 million. Furthermore, we expect these restructuring actions to result in additional future net cash outlays of $93 million, of which we project $15 million will occur in the last two quarters of fiscal 2005, with the remainder to occur through fiscal 2013. Regarding our cash invested in working capital, our inventories increased $11 million during the first six months of fiscal 2005, but the cash impact of this increase was partially offset by a decrease in accounts receivable. Inventories increased primarily due to seasonality and the timing of sales at our period ends.  We manufacture complex products for which the linearity is concentrated near the end of our quarters. Small variations in the timing of our production processes can affect whether sales occur before or after quarter end and can, therefore, affect our quarter end inventory balances. The increase in accounts receivable balances is mainly attributable to a single large transaction near the end of the second quarter, and we have maintained our focus on customer cash collections, customer lease funding, and improved cash management programs to improve our days sales outstanding. Our days sales outstanding increased from an average of 44 days at December 26, 2003 to 51 days at December 24, 2004. The increase in days sales outstanding was principally due to a $17 million milestone billing recorded during the quarter associated with a significant long-term sales contract with a large European supercomputing site for which revenue recognition was deferred.

Investing activities, other than changes in available-for-sale and restricted investments, used $8 million in cash during the first six months of fiscal 2005, compared with using $16 million in cash during the same period of fiscal 2004. Principal investing activities in the first six months of fiscal 2005 consisted of capital expenditures of $7 million. Principal investing activities in the first six months of fiscal 2004 included $18 million of capital expenditures and $9 million of other asset purchases, which were partially offset by $11 million in net cash proceeds received from the sale of our facility in Cortaillod, Switzerland. Capital expenditures were higher in the first six months of fiscal 2004 than during the first six months of 2005 primarily because of spending in 2004 related to the relocation of our corporate headquarters to the Crittenden Technology Center campus in Mountain View, California. During the first six months of fiscal 2005, we conducted an inventory of fixed assets and, as a result, recorded disposals of fixed assets with a cost basis of $58 million and no significant remaining net book value. This activity had no effect on our results of operations or cash flows.

The principal use of cash for financing activities during the first six months of fiscal 2005 and 2004 included $13 and $9 million in debt payments, respectively. We repaid approximately $9 million of our Japanese yen fixed rate loan in first six months of both fiscal 2005 and 2004 and the remaining $4 million outstanding principal amount of our 5.25% Senior Convertible Notes during the first six months of fiscal 2005.

At December 24, 2004, our principal sources of liquidity included cash and cash equivalents and unrestricted marketable investments of $106 million. Based on our revenue outlook for the third quarter ending March 25, 2005 and the timing of various future payments, we expect to continue to consume cash during the third quarter of fiscal 2005. 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. If we fail to reduce the cash consumption from operations and to generate cash from the other sources discussed below 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 to run our business.

The terms of our existing indebtedness may affect our operating flexibility, including our ability to raise additional capital if needed. We have an asset-based credit facility that we use for the purpose of issuing letters of credit supporting certain lease obligations. The facility is secured by our U.S. and Canadian accounts receivable, U.S. inventory and equipment, certain intellectual property and $10 million cash collateral. We also deposit additional cash whenever eligible accounts receivable and other collateral fluctuate below the level needed to secure our letters of credit. At December 24, 2004, this facility was secured by a total of $20 million cash collateral.

Covenants in the credit facility require us to maintain minimum levels of earnings before interest, taxes, depreciation and amortization, or EBITDA, minimum cash and cash equivalents levels, and set maximum capital expenditure levels. The credit facility and the indentures governing the secured notes also contain covenants that, among other things, limit our ability to incur additional indebtedness, issue or pay dividends on capital stock, repurchase capital stock, or prepay or repurchase subordinated debt. A failure to comply with these covenants could entitle the debt holders to accelerate the underlying obligations. On several occasions during fiscal 2004 and in the first and second quarters of fiscal 2005 we were in violation of financial and administrative covenants in the credit facility. In each case we received a waiver of compliance from the lender. If the facility is not renewed or replaced when it expires in April 2005, we may not be able to obtain alternative sources of financing on acceptable terms.

Our credit facility expires in April 2005. At present, we are in discussions with the current lender and other potential lenders and believe we will be able to extend or replace this facility on terms that are similar or more favorable terms to us then those that exist under the current facility.

At December 24, 2004, we also had outstanding $191 million ($226 million at December 26, 2003) aggregate principal amount of senior secured convertible notes and senior secured notes, both due in 2009, and $57 million ($57 million at December 26, 2003) aggregate principal of convertible subordinated debentures due in 2011.

We are committed to our goal of re-establishing profitable operations and positive cash flow. In light of our continuing losses and declining cash position, we have announced our intention to implement further restructuring actions in the third quarter of fiscal 2005 with a goal to reduce expenses by at least 10% from current levels. We have not yet determined the details of this restructuring, but we do not anticipate a significant incremental cash consumption from the implementation of the plan, as severance benefits would generally be paid over the same period in which payroll expense would otherwise have been incurred. Any forecast of operating results is inherently uncertain, and although we will seek to implement the restructuring in a manner that does not materially reduce revenue, we cannot be certain that we will achieve this objective.  Nevertheless, we believe that in light of our current resources and expected operating results, combined with the expected extension or replacement of our credit facility, we will have sufficient liquidity to meet our financial obligations through the end of fiscal 2005.

Beyond fiscal 2005, the adequacy of our resources will depend largely on our success in re-establishing profitable operations and positive operating cash flows.  If we fail to achieve these goals, we would expect to take further expense-related actions, which could include further reductions in headcount-related expenses, additional consolidation of administrative functions, and re-evaluation of our global distribution model. We are exploring alternatives for generating cash through financing transactions. We would also consider cash generating alternatives such as technology licensing and seeking funding from marketing partners and key government customers. See the "Risks That Affect Our Business" section of this MD&A.

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Contractual Obligations

During the first six months of fiscal 2005, there were no material changes outside the ordinary course of our business in long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, or any other long-term liabilities reflected on our condensed consolidated balance sheet.

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 critical accounting policies and estimates, including: those related to customer programs and incentives; bad debts; inventory; lease residual values; warranty obligations; restructuring; incomes taxes, and contingencies. 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. There have been no changes to our critical accounting policies from those included in our Annual Report on Form 10-K for the year ended June 25, 2004.

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.

Our success will require continued revenue growth from newer product families.  The SGI Altix family of servers and superclusters based on the Intel Itanium 2 processor and the Linux operating system was introduced in January 2003 and additional products in this line were added during fiscal 2004. In October 2004, we expanded our advanced graphics product line with the introduction of Silicon Graphics Prism, visualization systems based on Linux, Itanium 2, and SGI’s scalable graphics technology. Risks associated with these newer product families include dependence on Intel in terms of price, supply, performance, product roadmaps and timely access to design specifications; 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, including clusters of low-end servers.

Future revenue growth from our newer product families is especially important because revenues from our traditional MIPS and IRIX products and maintenance business are expected to continue to decline. Our ability to achieve future revenue growth will depend significantly on the market success of these newer product families in servers, storage and visualization. If one or more of the product lines were to fail in the market, it could have an adverse effect on our business.

We have been incurring losses and consuming cash in our operations and must reverse these trends.  We have incurred net losses and negative cash flows from operations during each of the past several fiscal years. At December 24, 2004, our principal source of liquidity was unrestricted cash and marketable investments of $106 million, down from $125 million at September 24, 2004.

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We expect to continue to consume cash from operations in the third quarter of fiscal 2005. 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 are considering a range of alternatives to raise additional cash to fund our ongoing operations. 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.

Our restructuring may not achieve its objective of reducing our losses and cash consumption.  We announced in January 2005 that in light of our continuing losses and reduced cash position, we intend to implement further restructuring actions in the third quarter of fiscal 2005 with a goal to reduce expenses by at least 10% from current levels. The details of the restructuring plan have not yet been determined, including the size of the related charge. Although we will seek to implement the restructuring in a manner that does not materially reduce revenue or impair our ability to compete successfully, we cannot be certain that these outcomes will not occur or that the restructuring will accomplish its intended objective of reducing our losses and cash consumption.

The terms of our debt obligations may limit our ability to raise additional capital and may adversely affect our business.  We have an asset-based credit facility and two series of outstanding secured notes that may be in default and accelerated if we fail to meet certain financial and other covenants.  See “Financial Condition.”  During the first and second quarters of fiscal 2005 and on several occasions during fiscal 2003 and 2004, we were in violation of financial or administrative covenants under the credit facility.  Although in each case we received a waiver from the lender, there can be no assurance that such a waiver will be available on acceptable terms in the event of a future default.  If we were unable to obtain a necessary waiver, we would be required to deposit an amount equal to the difference between our then current unrestricted cash deposits and the full amount of the letters of credit secured by the facility. The credit facility expires in April 2005.  We believe we will be able to renew or replace the facility on terms that are similar or more favorable to us than those that exist under one current facility, but if a default is not waived or if we do not succeed in renewing or replacing the facility, we may not be able to obtain alternative financing on acceptable terms.  The need to comply with the terms of our debt obligations may also limit our ability to obtain additional financing and our flexibility in planning for or reacting to changes in our business and the industry.

In the future, we may need to obtain additional financing to fund our business or repay our debt, and we cannot assure you that financing will be available in amounts or on terms acceptable to us. In addition, if funds are raised by incurring further 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.

Our disclosure controls and procedures need improvement.  Our independent registered public accounting firm, Ernst & Young LLP, advised us in connection with the completion of their audit for fiscal 2004 that they had identified certain matters involving the operation of our internal controls that they consider to be a material weakness. See “Item 4. Controls and Procedures” elsewhere in this Form 10-Q. We are in the process of implementing changes to respond to these matters.  Although we are making progress implementing these changes, we have continued to experience deficiencies in our internal controls and have booked adjustments that were identified by Ernst & Young during the course of its quarterly Statement on Auditing Standards (SAS) No. 100, Interim Financial Information review.  See “Item 4. Controls and Procedures” elsewhere in this Form 10-Q. Until we effectively correct the identified deficiencies, there could be a risk of accounting errors, which could have an adverse affect on our operations or financial results.  There is no guarantee that the changes we implement will be effective.  In addition, we are evaluating, documenting and testing our internal controls in anticipation of our required compliance at June 24, 2005 with Section 404 of the Sarbanes-Oxley Act of 2002.  If we are unable to complete the required assessment as to the adequacy of our internal control reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of June 24, 2005, investors could lose confidence in the reliability of our internal controls over financial reporting.

We are concentrating our R&D and marketing investments.  As an increasing percentage of our R&D and marketing budget is devoted to potential growth areas, including the SGI Altix and Prism families, visualization and storage, a declining amount both in percentage and absolute terms is being devoted to the traditional MIPS and IRIX products, which continue to supply a significant portion of our revenue. Managing this transition without unduly compromising the competitiveness of the MIPS and IRIX families 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 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

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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 growing visibility as a supplier of Linux-based systems and as a participant in the open source software community 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 received a notice from SCO Group purporting to terminate as of October 14, 2003 our fully paid license to certain UNIX operating system-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 non-terminable.  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 the technical cooperation of our partners.  Our strategy of developing system products based on industry-standard technologies has increased our dependence on Intel and other partners.  It is important that we receive appropriate technical cooperation from Intel and other partners, and that the products from these partners continue to evolve in ways that support the differentiation that we seek to bring to our products.

The competitiveness of our system products, particularly our servers, is also significantly affected by the availability on our platform of third-party software applications that are important to customers in our target markets.  Over the last few years, SGI has made a strategic shift towards open standards and away from proprietary technology. Our ability to achieve success with our Linux-based products and services is dependent on a number of factors including, but not limited to:  the growth of the Linux market, the acceptance of Linux solutions by customers in demanding environments, the availability of Linux applications optimized for the 64-bit Itanium platform or our scalable systems architecture and our dependence on acceptance of SGI-developed code by the Open Source Community and by Linux distributors with whom we partner.

Our dependence on third party partners and suppliers, including sole source suppliers, may prevent us from delivering an acceptable product on a timely basis.  We rely on both single source and sole source suppliers for many of the components we use in our products.  We utilize the Intel Itanium processors in our Altix family of servers and superclusters and our Prism graphics system and have designed our system architecture to optimize performance using this processor.  If we were to utilize an alternative microprocessor, the transition would require an alternate design, which would be costly and may cause delays in the development of future products, adversely affecting our business and operating results.

Our business is dependent on our ability to anticipate our needs for components and products and our suppliers’ ability to deliver such components and products in time to meet critical manufacturing and distribution schedules. In addition, we have benefited from favorable discounts on certain components from key suppliers for selected transactions.  Our business could be adversely affected, for example, if suppliers fail to meet product release schedules, if we experience supply constraints, if we fail to negotiate favorable pricing or if we experience any other interruption or delay in the supply chain which interferes with our ability to manufacture our products or manage our inventory levels. Risks also include limited bargaining flexibility and the possibility of charges for excess and obsolete inventory.  We are currently focused on maximizing our working capital by working closely with our suppliers and tightly managing our overall supply chain.

In addition, we have used IBM as a key foundry supplier of our integrated circuits.  IBM has informed us that it will no longer act as our foundry supplier on a long-term basis, although it will continue production of our current products for a limited time.  We are in the process of negotiating an orderly termination of the relationship with IBM and completing contracts with an alternate supplier to act as our foundry for certain key integrated circuits for new products planned for 2007 and later.  There can be no assurance that we will be to complete agreements with IBM and/or the alternate supplier on reasonable terms.

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 changes in appropriation and spending patterns. Our U.S. government business is also highly sensitive to changes in the U.S. government's national and international priorities and budgeting. Events like Operation Iraqi Freedom and the continuing war on terrorism may affect funding for our programs or result in changes in government programs or spending priorities that may adversely affect our business. In addition, the U.S. government can typically terminate or modify its contracts with us at any time for its convenience. Our government business is also subject to specific procurement regulations and a variety of other requirements.  Failure to comply with these regulations and requirements could lead to suspension or debarment from government contracting or subcontracting for a period of time. 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 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.

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We expect our operating results to fluctuate for a variety of reasons.  Our revenue and operating results may fluctuate for a number of reasons from period to period.  Decreases in revenue can arise from any number of factors, including decreased demand, supply constraints, delays in the availability of new products, transit interruptions, overall economic conditions, competitive factors, 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 us 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, industry price trends, competitive pricing pressures (particularly for high visibility accounts) and the mix of server and desktop product revenue as well as the mix of configurations within these product categories.  As a result of the concentration of sales in the third month of each quarter, developments late in a quarter can have a significant impact on that period’s results.

Our typical concentration of sales at the end of our fiscal quarters makes period-to-period financial results less predictable.  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.  This makes the forecasting of revenue inherently uncertain and can produce pressure on the Company’s internal infrastructure during the third month of a quarter.  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.

We are subject to the risks of international operations.   We generate a large portion of our revenue outside the United States, and as a result, our business is subject to the risks associated with doing business internationally. International transactions frequently involve increased financial and legal risks arising from stringent contractual terms and conditions and the widely difffering legal systems and customs in foreign countries. War, terrorism or public health issues in the regions of the world in which we do business have caused and may continue to cause damage or disruption to commerce by creating economic and political uncertainties.  Such events could adversely affect our business in any number of ways, such as decreasing demand for our products, increasing our costs of operations, making it difficult to deliver products to customers, and causing delays and other problems in our supply chain.  Our future revenue, gross margin, expenses and financial condition could also suffer due to other international factors, including but not limited to: changes in a country’s economic and labor conditions; currency fluctuations; compliance with a variety of foreign laws, as well as U.S. laws affecting the activities of U.S. companies abroad; changes in tax laws; changes in the regulatory or legal environment; difficulties associated with repatriating cash generated abroad; fluctuations in transportation costs; natural and medical disasters; and trade protection measures.

Many of our international sales require export licenses.  Our sales to customers outside the United States are subject to U.S. 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.

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 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.  During fiscal 2003 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 increased to more than

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$1.00, but if it were to decline again and not recover, the NYSE could terminate the listing of our common stock. Our stock price has been and is likely to continue to be highly volatile.  As of January 21, 2005, the 52-week range for our stock price was $1.26 to $3.80. 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.  In addition, as our Linux-based systems business grows, the number of our competitors may grow commensurate with the increased market opportunity.  Specifically, certain PC vendors market products that can be clustered together to produce systems that compete with our mid-range products.  These clustered systems may not be subject to U.S. export regulations, which may make them more attractive to certain international customers.  See “Many of our international sales require export licenses.”

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, and recently announced our intention to implement further actions in the third quarter of fiscal 2005. 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.

We may not be able to utilize a significant portion of our net operating loss and credit carryforwards.  We have generated a significant amount of U.S. net operating loss carryforwards due to prior period losses.  U.S. and state income tax laws limit the amount of these carryforwards a company can utilize upon a greater than 50% cumulative shift of stock ownership over a three year period.  The issuance of additional common stock, in financing transactions or on conversion of our outstanding convertible bonds such as the 2009 Senior Convertible Notes issued in December 2003, will count towards this cumulative ownership shift. There is a risk that our ability to use our existing carryforwards in the future could be limited and not available to offset income tax liabilities from future profits.  This would have an effect on our cash balances and liquidity and would reduce our income after taxes.  This would not affect our future effective tax rate since any affected loss and credit carryforwards have been subjected to a valuation allowance in prior periods.

Unforeseen environmental costs could impact our future net earnings.  Certain of our operations involve the use of substances regulated under various federal, state and international laws governing the environment. While we endeavor to be in compliance with environmental laws at all times, any failure to so comply can subject us to material liability. Production and marketing of products in certain states and countries may subject us to environmental and other regulations including, in some instances, the requirement that we finance the costs of environmentally safe recycling, recovery or disposal of products imported into the EU. Such laws and regulations have recently been passed in several jurisdictions in which our products are sold, including various European Union member states, Japan and California. These and other environmental laws may become stricter over time and require us to incur substantial costs for compliance. Environmental costs are presently not material to our operations or financial position. Although we do not anticipate any material adverse effects in the future based on the nature of our operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not have a material adverse affect on us.

Our business is subject to 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 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required under this Item 3 is included in the section above entitled “Our Business is Subject to Market Risk” and should be read in connection with the information on market risk related to changes in interest rates and non-U.S. currency exchange rates in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in our Annual Report on Form 10-K for the year ended June 25, 2004.

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Item 4. Controls and Procedures

(a)Evaluation of disclosure controls and procedures. Company management, including our chief executive officer and chief financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q (the “Evaluation Date”).  Based on that evaluation, our chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective, except as discussed below, to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including cost limitations, the possibility of human error, judgments and assumptions regarding the likelihood of future events, and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Our independent registered public accounting firm, (“Ernst & Young, LLP”) advised us in connection with the completion of their audit for fiscal 2004 that they had identified certain matters involving the operation of our internal controls that they consider to be a material weakness.  A “material weakness” is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by errors in amounts that would be material in relation to the consolidated financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

Ernst & Young’s conclusion that we need to reassess our existing finance organization resource requirements and re-evaluate the design and operating effectiveness of certain controls surrounding the financial statement close process was based on several adjustments that were made in the course of the audit process that, in their view, should have been identified and resolved by the Company as part of the internal close process.  The adjustments involved accruals for accounts payable, calculation errors relating to certain items of interest and depreciation expense, and the choice of accounting methods for a complex transaction involving hardware and services revenue.  The adjustments were made prior to the public release of our results for fiscal 2004 and do not affect previously announced results.

The matters identified in the Ernst & Young letter have been reviewed with management and the Audit Committee. Management believes that the material weakness identified in the Ernst & Young letter is attributable in significant part to the substantial headcount reductions that we have implemented over the past several years, which have had a disproportionate impact on administrative functions.

We have an ongoing process of analyzing and attempting to improve our internal controls, including those related to the matters identified in the Ernst & Young letter. We are in the process of implementing changes to respond to these matters on an immediate and a longer-term basis. During the first six months of fiscal 2005 we implemented enhanced control procedures to mitigate several of the items noted by Ernst & Young.

Specifically, we:

•developed and began to deliver training programs for our finance personnel, including programs specifically targeted at revenue recognition;

•strengthened our staffing in revenue recognition accounting and SEC Reporting;

•implemented additional procedures to identify the existence of liabilities and review their accuracy;

•added additional review procedures over critical spreadsheets that are used to directly determine financial statement amounts or balances; and

•strengthened our internal review procedures in conjunction with our ongoing work to enhance our internal controls, enabling us to identify and adjust items proactively during our quarter ended December 24, 2004.

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Through the second fiscal quarter we continued to identify and address internal control issues, including one instance involving an adjustment relating to our inventory valuation reserves that was identified by Ernst & Young during the course of their quarterly review.  We have discussed this “significant deficiency” in our internal controls over financial reporting with Ernst & Young and our audit committee.  A “significant deficiency” is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that it more that inconsequential will not be prevented or detected.  The adjustment was made prior to the public release of our results for fiscal 2004 and does not affect previously announced results.  We are continuing our efforts to enhance our internal review procedures.

In addition, we have been engaged in an ongoing process of identifying, documenting and testing our internal controls in anticipation of our required compliance with Section 404 of the Sarbanes-Oxley Act at the end of fiscal 2005.  Changes have been made and will be made to our internal controls as a result of these efforts.  However, the process has not yet been completed and we cannot provide any assurance that we will be able to complete the required assessment as to the adequacy of our internal control reporting or that Ernst & Young will be able to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of June 24, 2005.  In addition, other issues not currently identified could arise prior to the end of this fiscal year that we would not be able to remediate prior to June 24, 2005.

Other than as described above, there have been no changes in the Company’s internal control over financial reporting during the quarter ended December 24, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(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.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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 outlined a process for identifying and resolving claims from members of the represented class. This process was completed in the third quarter of fiscal 2004 and we expect the complaint will be dismissed in the fourth quarter of fiscal 2005.

Our U.S. tax returns for fiscal years 2001 to 2004 are open and no adjustments have been proposed. In addition, we have open income tax, VAT and sales tax audits for years 1989 through 2004 in various foreign jurisdictions. We believe adequate provisions have been made for any adjustments that have resulted or may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. Should any issues addressed in our tax audits be resolved in a manner not consistent with our expectations, we could be required to adjust our provision for income tax in the period such resolution occurs.

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. In August 2003, we 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 purported to terminate our UNIX System V license effective October 14.  We believe that the SCO Group’s allegations are without merit and that our fully paid license is non-terminable. 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.

In May 2001, a Brazilian court entered a judgment against our Brazilian subsidiary, Silicon Graphics Comercio e Serviços Limitada, with regard to a claim by Cargill Prolease against a third party for breach of an April 1997 lease agreement to which SGI’s subsidiary was a guarantor.  We have appealed the judgment, which totaled $1.2 million, including interest as of December 24, 2004, and expect the appeal to be heard in 2006.

We are currently involved in a dispute with a systems integrator regarding whether acceptance criteria were met with regard to an SGI system delivered in the spring of 2003. We are seeking full payment for the system in an amount equal to EUR 4.6 million (US $6.2 million based on the conversion rate at December 24, 2004). The other party has contested our claim and may attempt to seek damages of up to EUR 1.8 million (US $2.4 million based on the conversion rate as of December 24, 2004). We cannot currently predict the outcome of this dispute, which may result in litigation; however, we do not expect it to have a material adverse impact on the Company.

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

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will be available on terms we consider reasonable, or that litigation will not ensue.

We are not aware of any pending disputes, including those disputes and settlements described above, that would be likely to have a material adverse effect on our financial condition, results of operations or liquidity. However, litigation is subject to inherent uncertainties, and unfavorable outcomes could occur.  An unfavorable outcome could include the payment of monetary damages, a cash or other settlement or an injunction prohibiting us from selling one or more products.  If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the results of operations of the period in which the resolution occurs, or future periods.

Item 4. Submission of Matters to a Vote of Security Holders

(a)SGI held its Annual Meeting of Stockholders on December 8, 2004. Proxies for the meeting were solicited pursuant to Regulation 14A.

(b)SGI’s Board of Directors is divided into three classes serving staggered terms of office. Accordingly, not all Directors are elected at each Annual Meeting of Stockholders.Robert R. Bishop and Dr. Robert M. White were re-elected as Directors at the meeting.  The Directors whose terms of office continued after the meeting are Lewis S. Edelheit, James A. McDivitt, Arthur L. Money, Anthony R. Muller and Charles A. Steinberg.

(c)The matters described below were voted on at the Annual Meeting of Stockholders, and the number of votes cast with respect to each matter and, with respect to the election of directors, were as indicated.

1.To elect three Class II Directors, each for a three-year term.

Class III Directors
Robert R. Bishop:	For:  217,224,602	Withheld: 4,303,919
Dr. Robert M. White:	For:  218,318,233	Withheld: 3,210,288

2.To ratify the appointment of Ernst & Young LLP, as independent auditors of SGI for the fiscal year ending June 24, 2005.

For: 218,372,885  Against:  2,761,499 Abstain:   394,137

Item 5. Other Information

(a)(i)On January 31, 2005, we entered into an Amendment to the Amended and Restated Loan and Security Agreement between the Company and Wells Fargo Foothill, Inc. to, among other things, eliminate the requirements for cash collateral for specified extended letters of credit.  The description of the Amendment set forth above is qualified in its entirety by reference to the Amendment, which is attached as Exhibit 10.8.

(ii)On February 1, 2005, we amended our Amended and Restated Employee Stock Purchase Plan (“ESPP”) to, among other things, shorten the offering period from 12 to six months and exclude certain “highly compensated employees” from participation in the plan.  The description of the ESPP set forth above is qualified in its entirety by reference to the Amendment, which is attached as Exhibit 10.9.

Item 6. Exhibits

The following Exhibits are filed as part of this Report:

10.1	Amended and Restated 1985 Stock Incentive Program
10.2	Amended and Restated 1989 Employee Benefit Stock Plan
10.3	Amended and Restated 1993 Long-Term Incentive Stock Plan, and forms of stock option agreements
10.4	Amended and Restated 1996 Supplemental Non-Executive Equity Incentive Plan, and forms of stock option agreements
10.5	Description of Executive Incentive Plan and Summary Form of Notice
10.6	Description of Sales Executive Compensation Plan and Summary Form of Notice
10.7	Agreement between the Company and Steve Coggins dated as of January 10, 2005 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on January 14, 2005)
10.8	Amendment dated January 31, 2005 to the Amended and Restated Loan and Security Agreement between the Company and Wells Fargo Foothill, Inc.
10.9	Amended and Restated 1998 Employee Stock Purchase Plan
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

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SIGNATURES

Pursuant to the requirements 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.

Dated: February 2, 2005	SILICON GRAPHICS, INC. a Delaware corporation
	By:	/s/ Jeffrey Zellmer
		Jeffrey Zellmer Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By:	/s/ Kathy Lanterman
		Kathy Lanterman Vice President and Corporate Controller (Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1985 STOCK INCENTIVE PROGRAM

1.Purposes of the Program.  The purposes of this Stock Incentive Program are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company’s business.

Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement.

2.Definitions.  As used herein, the following definitions shall apply:

(a)“Board” shall mean the Board of Directors of the Company.

(b)“Code” means the Internal Revenue Code of 1986 as amended from time to time and any successor thereto.

(c)“Committee” means the Committee appointed by the Board in accordance with paragraph (a) of Section 4 of the Program.  If at any time no Committee shall be in office, then the functions of the Committee specified in the Program shall be exercised by the Board.

(d)“Common Stock” shall mean the Common Stock of the Company.

(e)“Company” shall mean Silicon Graphics, Inc., a Delaware corporation, or any successor corporation.

(f)“Consultant” shall mean any person who is engaged by the Company or any Parent or Subsidiary to render consulting services and is compensated for such consulting services, provided the term Consultant shall not include directors who are not compensated for their services or are paid only a director’s fee by the Company.

(g)“Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service as an Employee or Consultant.  Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute.  Moreover, in the case of Incentive Stock Options granted after the effective date of the restatement of this Program, and for Nonstatutory Stock Options, Continuous Status as an Employee or

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Consultant shall not be considered interrupted in the case of transfers between locations of the Company or between the Company, its Parent, or any of its Subsidiaries or successors.

(h)“Director” means a member of the Board.

(i)“Employee” shall mean any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company.  The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company.

(j)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(k)“Fair Market Value” means as of any date, unless otherwise determined by the Board or Committee in good faith, the closing sales price for such Common Stock as quoted on the New York Stock Exchange for the date the Option is granted (or if there are no sales on such date, then on the last preceding business day on which there were sales), or, if the Common Stock is not listed on the New York Stock Exchange, then (i) the last sales price per share of Common Stock as reported by NASDAQ (or successor system) or by the Wall Street Journal for such date, (or if there are no sales on such date, then on the last preceding business day on which there were sales); or (ii) if the Common Stock is listed on any other stock exchange, the closing sales price for such Common Stock as quoted on such exchange for the date the Option is granted (or if there are no sales for such date, then on the last preceding business day on which there were sales); or (iii) the fair market value thereof, as determined in any other manner adopted in good faith by the Board.

(l)“Incentive Stock Option” shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(m)“Nonstatutory Stock Option” shall mean an Option not intended to qualify as an Incentive Stock Option.

(n)“Option” shall mean a stock option granted pursuant to the Program.

(o)“Optioned Stock” shall mean the Common Stock subject to an Option.

(p)“Optionee” shall mean an Employee or Consultant who receives an Option.

(q)“Parent” shall mean a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

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(r)“Program” shall mean this 1985 Stock Incentive Program.

(s)“Subsidiary” shall mean a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

In addition, the terms “Tax Date” and “Insiders” shall have the meanings set forth in Section 10.

3.Stock Subject to the Program.  Subject to the provisions of Section 11 of the Program, the maximum aggregate number of shares under the Program is 5,500,000 shares of Common Stock.  The shares may be authorized, but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without having been exercised in full, then such shares of Common Stock shall, unless the Program shall have been terminated, become available for future grant or sale under the Program.  Notwithstanding the above, however, if shares of Common Stock are issued upon exercise of an Option and later repurchased by the Company, such shares of Common Stock shall not become available for future grant or sale under the Program.

4.Administration of the Program.

(a)Procedure.  The Program shall be administered by (i) the Board, if the Board may administer the Program in compliance with Rule 16b-3 promulgated under the Exchange Act, or any successor rule thereto (“Rule 16b-3”), with respect to a plan intended to qualify under Rule 16b-3 as a discretionary plan, or (ii) a Committee designated by the Board to administer the Program, which Committee shall be constructed to permit the Program to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan.  Once appointed, the Committee shall continue to serve until otherwise directed by the Board.  From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Program, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan.

(b)Authority.  Subject to the general purposes, terms, and conditions of the Program and to the direction of the Board, the Committee, if there be one, shall have full power to implement and carry out the Program including, but not limited to, the following:

(i)to select the officers, Consultants and other key Employees of the Company and its Subsidiaries to whom Options may from time to time be granted hereunder;

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(ii)to determine whether and to what extent Options are granted hereunder;

(iii)to determine the number of shares of Common Stock to be covered by each such Option granted hereunder;

(iv)to approve forms of agreement for use under the Program;

(v)to determine the terms and conditions, not inconsistent with the terms of the Program, of any Option granted hereunder (including, but not limited to, the share price and any restriction or limitation, or any vesting or exercise acceleration or waiver of forfeiture restrictions regarding any Option and/or the shares of Common Stock relating thereto, based in each case on such factors as the Committee shall determine, in its sole discretion);

(vi)to determine the form of payment that will be acceptable consideration for exercise of an Option granted under the program;

(vii)to determine whether, to what extent and under what circumstances Common Stock under this Program shall be deferred either automatically or at the election of the participant (including providing for and determining the amount (if any) of any deemed earnings on any deferred amount during any deferral period);

(viii)to determine the Fair Market Value of the Common Stock; and

(ix)to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted.

The Committee shall have the authority to construe and interpret the Program, to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously made by the Committee, to prescribe, amend and rescind rules and regulations relating to the Program, and to make all other determinations necessary or advisable for the administration of the Program.  All decisions, determinations and interpretations of the Committee shall be final and binding on all Optionees and any other holders of any Options granted under the Program.

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5.Eligibility.

(a)Any Employee or Consultant of the Company or a subsidiary whom the Committee deems to have the potential to contribute to the future success of the Company shall be eligible to receive Options under the Program; provided, however, that Incentive Stock Options may be granted only to Employees.

(b)Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.  However, notwithstanding such designations, to the extent that the aggregate fair market value of the shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company) exceed $100,000, such Options shall be treated as Nonstatutory Stock Options.

(c)For purposes of Section 5(b), Options shall be taken into account in the order in which they were granted, and the fair market value of the shares shall be determined as of the time the Option with respect to such shares is granted.

(d)The Program shall not confer upon any participant any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company’s right to terminate his or her employment or consulting relationship at any time.

6.Term of Program.  The restatement of the Program shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by vote of the stockholders of the Company as described in Section 17 of the Program.  It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Program.

7.Option Exercise Price and Consideration of Shares.

(a)The per share exercise price for the shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Committee, and may be less than, equal to or greater than the fair market value of the Common Stock on the date the Option is granted; provided that in no event shall the exercise price of an Incentive Stock Option be less than 100% of the fair market value per share on the date of grant.  In the case of an Incentive Stock Option granted to an Employee who, at the time of grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of grant.

(b)The Option price, which shall be determined by the Committee, in the case of an Incentive Stock Option shall in no event be less than one hundred percent

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(100%) of the Fair Market Value of the Common Stock at the time the Option is granted.  The Option agreement shall specify the number of shares of Common Stock to which it pertains.

(c)The consideration to be paid for the shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of cash, check, other shares of Common Stock which (i) either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which said Option shall be exercised, or any combination of such methods of payment, or such other consideration and method of payment for the issuance of shares to the extent permitted under applicable state corporation law; provided, however, that for Incentive Stock Options granted prior to the effective date of the restatement of this Program, no optionee shall be entitled to pay for shares to be issued upon exercise of such Incentive Stock Options by exchanging shares of the Company which were previously acquired as “statutory option stock,” as that term is defined in Section 424 of the Code, until the applicable holding period, as prescribed by the Code, has been satisfied.  In making its determination as to the type of consideration to accept, the Committee shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

8.Options.

(a)Term of Option.  The Committee, in its discretion, may grant options to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options.  The term of each Option shall be ten (10) years from the date of grant thereof or such shorter term as may be provided in the stock option agreement.  However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter time as may be provided in the stock option agreement.

(b)Exercise of Option.

(i)Procedure for Exercise; Rights as a Stockholder.  Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee, including performance criteria with respect to the Company and/or the Optionee, and shall be permissible under the terms of the Program; provided, however, that an Incentive Stock Option granted prior to January 1, 1987 shall not be exercisable while there is outstanding any incentive stock option which was granted, before the granting of such Incentive Stock Option, to the same Optionee to purchase stock of the Company or any Subsidiary, or any predecessor corporation of such

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corporations.  For purposes of this provision, an incentive stock option shall be treated as outstanding until such option is exercised in full or expires by reason of lapse of time.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the shares with respect to which the Option is exercised has been received by the Company.  Full payment may, as authorized by the Committee, consist of any consideration and method of payment allowable under Section 7(c) of the Program.  Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such shares, which issuance shall be made as soon as is practicable, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option.  No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Program.

Exercise of an Option in any manner shall result in a decrease in the number of shares which thereafter may be available, both for purposes of the Program and for sale under the Option, by the number of shares as to which the Option is exercised.

(ii)Termination of Status as an Employee or Consultant.  In the event of termination of an Optionee’s Continuous Status as an Employee or Consultant, such Optionee may, but only within such period of time not exceeding three (3) months, as is determined by the Board, after the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination.  To the extent that he or she was not entitled to exercise the Option at the date of such termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate and any unexercised shares shall be returned to the Program.

(iii)Disability of Optionee.  Notwithstanding the provisions of Section 8(b)(ii) above, in the event of termination of an Optionee’s Continuous Status as an Employee or Consultant, as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code, “Disability”), he or she may, but only within one (1) year from the date of such termination (but in no event later than the date of expiration of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination.  To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate.

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(iv)Death of Optionee.  Unless otherwise set forth in the Option Agreement, in the event of the death of an Optionee:

(A)during the term of the Option who is at the time of his or her death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised, at any time within one (1) year following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, to the extent that he or she was entitled to exercise it at the date of death; or

(B)within three (3) months after the termination of Continuous Status as an Employee or Consultant for any reason other than for cause or a voluntary termination initiated by the Optionee, the Option may be exercised, at any time within one (1) year following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination.

(c)Rule 16b-3.  Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemptions of the Exchange Act with respect to Program transactions.

9.Transferability of Options.  Unless otherwise determined by the Committee to the contrary, Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.  The Committee may, in the manner established by the Committee, provide for the transfer, without payment of consideration, of an Option by the Optionee to the Optionee’s “immediate family”.  In such case, the Option will be exercisable only by such transferee.  Following a transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.  For purposes of this Section 9, the Optionee’s “immediate family” shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Optionee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.  A transfer under a domestic relations order in settlement of marital property rights is not a prohibited transfer for value.

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10.Stock Withholding to Satisfy Withholding Tax Obligations.  When a participant incurs tax liability in connection with the exercise of an Option which tax liability is subject to tax withholding under applicable tax laws, and the participant is obligated to pay the Company an amount required to be withheld under applicable tax laws, the participant may satisfy the withholding tax obligation by electing to have the Company withhold from the shares to be issued that number of shares having a Fair Market Value equal to the amount required to be withheld determined on the date that the amount of tax to be withheld is to be determined (the “Tax Date”).

All elections by a participant to have shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions:

(i)the election must be made on or prior to the applicable Tax Date;

(ii)once made, the election shall be irrevocable as to the particular shares as to which the election is made;

(iii)all elections shall be subject to the consent or disapproval of the Committee;

(iv)if the participant is an executive officer or Director of the Company or other person whose transactions in Common Stock are subject to Section 16(b) of the Exchange Act (collectively “Insiders”), the election may not be made within six months of the date of grant of the Option; provided, however, that this limitation shall not apply in the event that death or Disability of the participant occurs prior to the expiration of the six-month period; and

(v)if the participant is an Insider, the election must be made either six months prior to the Tax Date (as determined in accordance with Section 83 of the Code, as amended) or in the 10-day period beginning on the third day following the release of the Company’s quarterly or annual summary statement of sales or earnings.

In the event the election to have shares withheld is made by a participant who is an Insider and the Tax Date is deferred because no election is filed under Section 83(b) of the Code, as amended, the participant shall receive the full number of shares with respect to which the exercise occurs, but such participant shall be unconditionally obligated to tender back to the Company the proper number of shares on the Tax Date.

11.Adjustments Upon Changes in Capitalization or Merger.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the number of shares of Common Stock which have been authorized for issuance under the Program but as to which no Options have yet been granted or which have been returned to the Program upon cancellation or

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expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.  The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option as to all or any part of the shares subject to the Option, including as to shares as to which the Option would not otherwise be exercisable.  In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Optionee shall have the right to exercise the Option as to all of the Optioned Stock, including shares as to which the Option would not otherwise be exercisable.  If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option will terminate upon the expiration of such period.

12.Time of Granting Options.  The date of grant of an Option shall, for all purposes, be the date on which the Board or Committee makes the determination granting such Option.  Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.

13.Amendment and Termination of the Program.

(a)Amendment and Termination.  The Board may at any time amend, alter, suspend or discontinue the Program, but no amendment, alteration, suspension or discontinuation shall be made which would impair the right of any participant under any grant theretofore made, without his or her consent.  In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or Section 422 of the

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Code (or any applicable law or regulation), the Company shall obtain stockholder approval of any Program amendment in such a manner and to such a degree as required.

(b)Effect of Amendment or Termination.  Any such amendment or termination of the Program shall not affect Options already granted and such Options shall remain in full force and effect as if this Program had not been amended or terminated, unless mutually agreed otherwise between the participant and the Board, which agreement must be in writing and signed by the participant and the Company.

14.Conditions Upon Issuance of Shares.  Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

15.Reservation of Shares.  The Company, during the term of this Program, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Program.

Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

16.Option Agreements.  Options shall be evidenced by an Incentive Stock Option Agreement, in the form attached hereto as Exhibit A, and by a Nonstatutory Stock Option Agreement, in the form attached hereto as Exhibit B.  Such agreements shall be subject to amendment from time to time as shall be determined by the Board or the Committee.

17.Stockholder Approval.  Continuance of the Program shall be subject to approval by the stockholders of the Company within twelve months before or after (a) the date the Program is adopted and, (b) the date a restatement of the Program requiring stockholder approval pursuant to applicable state and federal law is adopted.  Such stockholder approval and approval for any amendment to the Program requiring stockholder approval pursuant to Section 13 of the Program, shall be obtained in the degree and manner required under the applicable state and federal law.

18.Information to Optionees.  The Company shall provide to each Optionee, during the period for which such Optionee has one or more Options outstanding, such information and reports, if any, as are required to be provided by applicable securities and tax laws and regulations.

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EX-10.2

Exhibit 10.2

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1989 EMPLOYEE BENEFIT STOCK PLAN

1.Purpose.

This Plan is intended to provide a means for Silicon Graphics, Inc. (the “Company”), by granting shares of Company stock in the form of stock grants (“Stock Grants”), grants of restricted stock (“Restricted Stock”) and options to purchase Company stock (“Options”) to selected management and other key employees, to attract and retain persons of ability and motivate them to advance the interests of the Company.  An employee eligible to participate under the Plan is hereinafter referred to as an “Employee.”

It is intended that the Plan be interpreted in accordance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  It is also intended that, except as otherwise limited by paragraph 2, some or all of the Options granted to Employees under the Plan may constitute “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and some or all of the Options may constitute “nonstatutory options”, i.e., options not qualifying under Section 422 or other similar provisions of the Code.  Unless otherwise indicated, the terms and conditions of the Plan shall apply equally to all Stock Grants, grants of Restricted Stock and Options hereunder, regardless of whether Options be incentive stock options or nonstatutory options.

2.Additional Definitions.  As used herein, the following definitions apply:

(a)“Continuous Status as an Employee” means that the relationship as an Employee is not interrupted or terminated by the Company.  Continuous Status as an Employee shall not be considered interrupted in the case of:  (i) any leave of absence approved by the Company, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of qualifying an Option as an incentive stock option, in the event any such leave exceeds ninety (90) days, the Employee’s Continuous Status as an Employee will be deemed to have terminated on the

ninety-first (91st) day after the commencement of such leave, unless re-employment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; or (ii) transfers between locations of the Company or between the Company and its subsidiaries.

(b)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(c)“Fair Market Value” means, as of any date, the closing price for a share of Common Stock as reported daily in The Wall Street Journal or a similar readily available public source (or if no sales of shares were made on such date, the closing price of a share as reported for the preceding day), unless the Committee shall determine that such method does not reflect, due to circumstances prevailing at that time, the true fair market value of the Company’s Common Stock.  In that event, the Committee shall determine fair market value through such alternative method as it may in good faith determine to be then appropriate.

3.Shares Subject to the Plan.

Subject to adjustment as provided in Section 11, a total of 7,888,000 shares of authorized but unissued or reacquired Common Stock of the Company is authorized and reserved for issuance to Employees under the Plan in the form of Stock Grants or grants of Restricted Stock or upon the exercise of Options; provided, however, that no more than 7,888,000 shares shall be cumulatively available for the grant of incentive stock options under the Plan.  If any Option expires or terminates without having been exercised in full, the unacquired shares (including shares forfeited on the termination of any grant of Restricted Stock) shall be available for the grant of future Stock Grants, grants of Restricted Stock or Options under the Plan.

4.Administration.

The Plan shall be administered by a Committee of the Board of Directors of the Company, consisting of at least two (2) disinterested persons not eligible to participate under this Plan or under any other stock or option plan of the Company or its subsidiaries

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except as may be permitted in accordance with Rule 16b-3 under the Exchange Act (the “Committee”).

5.Eligibility.

The Committee shall determine the Employees to whom, and the number of shares for which, Stock Grants, grants of Restricted Stock and/or Options shall be granted, taking into consideration such factors, including any recommendations of the Chief Executive Officer of the Company, as it deems relevant to select and motivate employees of ability to advance the interests of the Company.  Employees so selected shall be either management or other key employees of the Company or its subsidiaries, who the Committee determines have contributed materially to the success of the Company or are in a position to contribute materially to the future success of the Company.  Except as hereafter limited, an Employee from time to time may be granted any combination of Stock Grants, grants of Restricted Stock and Options (incentive or nonstatutory) as the Committee shall determine.

An employee shall not be eligible to receive an incentive stock option if immediately before the Option is to be granted the employee owns (directly and through application of the constructive stock ownership attribution rules of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary.  The aggregate Fair Market Value (determined at the time an Option is granted) of shares with respect to which incentive stock options are exercisable for the first time by an Employee during any calendar year (under this Plan and all other plans of the Company and its subsidiaries pursuant to Section 422 of the Code) shall not exceed $100,000.

6.Stock Options.

All Options granted hereunder shall be evidenced by an Option Agreement executed as of the date of grant by the Company and the Employee, on such terms as may be determined by the Committee, including the following:

(a)The Option Agreement shall specify whether the Option is an incentive stock option or a nonstatutory option.

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(b)The “date of grant” for any Option granted under the Plan shall be specified in the Option Agreement.

(c)The Option exercise price per share shall be specified in the Option Agreement and shall be equal to 100% of the Fair Market Value of a share of Company Common Stock on the date of grant.

(d)The Option exercise price shall be paid at the time of exercise.  The consideration to be paid for the shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an incentive stock option, shall be determined at the time of grant) and may consist entirely of: (1) cash; (2) check; (3) other shares which (i) in the case of shares acquired upon exercise of an option, have been owned by the Employee for more than six months on the date of surrender and (ii) have an aggregate Fair Market Value on the date of surrender not greater than the aggregate exercise price of the shares as to which said Option shall be exercised; (4) delivery of a properly executed exercise notice together with such other documentation as the Committee and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; (5) any combination of the foregoing methods of payment; or (6) such other consideration and method of payment for the issuance of shares as the Committee determines are consistent with the Plan’s purpose and applicable law.  Any fractional share not required for payment of the Option exercise price shall be paid for by the Company in cash on the basis of the same value utilized for such exercise.

(e)At the time an Option is granted, the Committee shall determine the terms and conditions to be satisfied before shares may be purchased, including the dates on which shares subject to the Option may first be purchased.  The Committee may specify that an Option may not be exercised until the completion of a service period specified at the time of grant.  (Any such

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period is referred to herein as the “waiting period.”)  At the time an Option is granted, the Committee shall fix the period within which the Option may be exercised, which shall not be earlier than the end of the waiting period, if any, nor, in the case of an Incentive Stock Option, later than ten (10) years from the date of grant.

(f)An incentive stock option hereunder shall not contain terms pursuant to which the exercise of the Option would affect the Employee’s right to exercise a nonstatutory option hereunder, or vice versa, such that the incentive stock option would be deemed a prohibited “tandem stock option” within the meaning of Section 422 of the Code and the regulations thereunder.

(g)Unless the issuance of the shares upon the exercise of an Option hereunder is registered or exempt under federal and state securities laws, the Employee shall be required to give an investment representation at the time of exercise, and transfer of the shares shall be appropriately restricted.

(h)During the lifetime of an Employee, Options held by such Employee may be exercised only by the Employee and only while an Employee of the Company or of a parent or a subsidiary of the Company and only if such Employee has maintained his or her Continuous Status as an Employee since the date such Options were granted; provided, however, that:

(1)In the event an Employee’s Continuous Status as an Employee terminates (other than upon his or her death or Disability), the Option holder may exercise his or her Option, but only within such period of time from the date of such termination as is determined by the Committee, not to exceed three (3) months in the case of an Option that is intended to qualify as an incentive stock option, and, unless determined otherwise by the Committee, only to the extent that the Employee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). To the extent

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that the Employee was not entitled to exercise an Option at the date of such termination, and to the extent that he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

(2)In the event an Employee’s Continuous Status as an Employee terminates as a result of his or her Disability, the Option holder may exercise his or her Option, but only within twelve (12) months from the date of such termination, and, unless determined otherwise by the Committee, only to the extent that the Employee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  To the extent that the Employee was not entitled to exercise an Option at the date of such termination, and to the extent that he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

(3)In the event of an Employee’s death, the Employee’s estate or a person who acquired the right to exercise the deceased Employee’s Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and, unless determined otherwise by the Committee, only to the extent that the Employee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  To the extent that the Employee was not entitled to exercise an Option at the date of death, and to the extent that the Employee’s estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

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(4)Except as otherwise provided, in no event shall any Option be exercisable at any time after its expiration date.

(5)On a case-by-case basis, the Committee may, in its sole discretion, accelerate the schedule of the time or times when an Option granted under this Plan may be exercised or extend the period for exercise to a time after the expiration date.  Unless otherwise determined by the Committee at the time of grant, each Option shall provide that in the event of a change in control of the Company (as specified by the Committee), any Employee’s Options will become exercisable in full if, within twenty-four (24) months after a change in control of the Company (as specified by the Committee), the Employee’s employment is terminated without cause or the Employee resigns due to certain involuntary relocations or reductions in compensation, as specified by the Committee.  Each Option granted under the Plan may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee.

(i)Unless otherwise determined by the Committee to the contrary, Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Employee, only by the Employee.  The Committee may, in the manner established by the Committee, provide for the transfer, without payment of consideration, of an Option by the Employee to the Employee’s “immediate family”.  In such case, the Option will be exercisable only by such transferee.  Following a transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.  For purposes of this Section 6(i), the Employee’s “immediate family” shall include any child, stepchild, grandchild,

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parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Employee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than fifty percent of the voting interests.  A transfer under a domestic relations order in settlement of marital property rights is not a prohibited transfer for value.

7.Stock Grants.

The Committee may, in its discretion, award a Stock Grant to an Employee in furtherance of the Plan’s purposes; provided, however, that no Employee shall be eligible to receive a Stock Grant for more than fifty (50) shares of Company Common Stock in any calendar year.  An Employee receiving a Stock Grant shall be entitled to all of the rights and privileges in the Common Stock awarded as of the date on which the award is made.  Unless the issuance of shares pursuant to a Stock Grant is registered or exempt under federal or state securities laws, the Employee shall be required to give an investment representation at the time of grant, and transfer of the shares shall be appropriately restricted.

8.Grants of Restricted Stock.

(a)The Committee may, in its discretion and in furtherance of the purposes of the Plan, grant Restricted Stock to an Employee.  With respect to awards of Restricted Stock, the Committee shall:

(i)Select the Employees to whom grants will be made (the “Participants”);

(ii)Determine the number of shares to be awarded;

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(iii)Determine the length of the restricted period, if any, and the performance and employment conditions under which the Restricted Stock may be forfeited to the Company, if any;

(iv)Determine the purchase price, if any, to be paid by the Participant for such Restricted Stock; and

(v)Determine any restrictions other than those set forth in this Section 8.

(b)The terms of each award of Restricted Stock shall be set forth in a written award agreement (the “Award Agreement”) and a certificate representing the number of shares of Common Stock granted shall be issued to the Participant as the registered owner.  The certificate representing such shares shall be legended as to sale, transfer, assignment, pledge or other encumbrances during the restricted period and shall be deposited by the Participant, together with a stock power endorsed in blank, with the Company.  Such certificates shall be held in the custody of the Company until the restricted period expires or until all restrictions thereon otherwise lapse.

(c)Subject to the restrictions set forth in this Section 8 or in the Award Agreement, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions.

(d)The Award Agreement may provide, or the Committee may subsequently determine in its discretion, that, in the case of death, Disability or other special circumstances, any or all restrictions then applicable to a Participant’s Restricted Stock be waived.

(e)The Committee may, in its sole discretion, declare the restrictions applicable to shares of Restricted Stock to lapse in the event of a change in control of the Company (as specified by the Committee), in which case the Company shall remove all restrictive legends and stop-transfer orders applicable to the Restricted Stock as of the date of said change in control

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and certificates representing such shares shall be delivered to the Participants.

(f)Except as otherwise provided in this Section 8 or in the Award Agreement, no shares of Restricted Stock shall be sold, exchanged, transferred, pledged or otherwise disposed of during the restricted period.

(g)With respect to any number of shares of Restricted Stock as to which the restrictions imposed hereunder shall have lapsed, the restrictive legend shall be removed and a new certificate representing the shares shall be delivered to the Participant.  The Committee may, in its sole discretion, modify or cancel the restrictions imposed on Restricted Stock or otherwise accelerate the vesting of shares of Restricted Stock.

9.Termination.

Unless sooner terminated by action of the Board of Directors of the Company, the Plan shall terminate ten (10) years from its effective date.  Options outstanding under the Plan at the time of termination shall remain in effect until exercise or expiration.  Restricted Stock outstanding under the Plan at the time of termination shall remain subject to the restrictions imposed at the time of grant until the restricted period expires or until all conditions with respect thereto otherwise lapse or are satisfied.

10.Effective Date; Shareholder Approval.

The Plan became effective on September 7, 1988, the date of its adoption by the Board of Directors of the Company, and was approved by the Company’s stockholders on May 16, 1989.  The effective date of each amendment to the Plan shall be the date of adoption of such amendment by the Board of Directors of the Company; provided, however, that in the event the shareholders of the Company shall not approve any amendment to the Plan which is determined by the Board of Directors to require approval by the shareholders, such amendment shall be of no effect and no Stock Grant, grant of Restricted Stock or Option previously granted shall be effective if the authorization of the grant thereof was contingent on the effectiveness of such amendment or shall otherwise be benefited or altered by such amendment.  No Stock Grants or grants of Restricted

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Stock shall be made under the Plan until shareholder approval of the Plan amendments authorizing such grants is obtained.

11.Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

(a)Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and each outstanding grant of Restricted Stock, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no awards have been granted or which have been returned to the Plan upon cancellation or expiration of an award, as well as the exercise price per share of Common Stock covered by each outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Company’s Board of Directors, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b)Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action.  The Committee may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee and give each holder the right to exercise his or her Option as to all or any part of the

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underlying Common Stock prior to such expiration, including shares as to which the Option would not otherwise be exercisable.

(c)Merger or Asset Sale.  In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a parent or subsidiary of the successor corporation.  In the event that the successor corporation does not agree to assume the Option or to substitute an equivalent option, the Committee may, in lieu of such assumption or substitution, provide for the Option holder to have the right to exercise the Option as to all or a portion of the underlying Common Stock, including shares as to which it would not otherwise be exercisable.  If the Committee makes an Option exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Committee shall notify the holder that the Option shall be exercisable for such period as the Committee may designate, and the Option will terminate upon the expiration of such period.  For the purposes of this Section 11(c), the Option shall be considered assumed if, immediately following the merger or sale of assets, the Option confers the right to receive, for each share of Common Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent, the Committee may, with the consent of the successor corporation and the Option holder, provide for the consideration to be received upon the exercise of the Option, for each share of Common Stock subject to the Option, to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

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12.Amendment.

The Board of Directors may amend the Plan at any time as determined to be in the best interests of the Company.  The Board of Directors shall not, however, without shareholder approval, increase the maximum number of shares subject to the Plan or restrict the class of management and other key employees eligible to be awarded Stock Grants, Restricted Stock or Options under the Plan.

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EX-10.3

Exhibit 10.3

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1993 LONG-TERM INCENTIVE STOCK PLAN

1.Purpose of the Plan.  The purpose of the Silicon Graphics, Inc. 1993 Long-Term Incentive Stock Plan (the “Plan”) is to promote the long-term success of Silicon Graphics, Inc. (“SGI”) and to increase stockholder value by providing its eligible employees, consultants, officers and directors with incentives to create excellent performance and to continue service with the Company, its subsidiaries and affiliates. Both by encouraging such employees, consultants, officers and directors to become owners of Common Stock and by providing actual ownership through Plan awards, it is intended that Plan participants will view the Company from an ownership perspective. Additionally, the Company believes the Plan will assist in attracting and retaining people of the highest caliber.

2.Eligibility.  SARs and Stock Awards (collectively “Rights”) and Nonstatutory Stock Options may be granted to Employees, Consultants and Directors. Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or any successor section (“Incentive Stock Options”) may be granted only to Employees. If otherwise eligible, an Employee, Consultant or Director who has been granted an Option or Right may be granted additional Options or Rights.

3.Stock Subject to the Plan.

(a)Subject to Section 12 of the Plan, the maximum aggregate number of shares of Common Stock of the Company (“shares”) that may be issued pursuant to Options and Rights granted to participants under the Plan shall be the sum of 3.5% of the issued shares at June 30 of each of the Company’s fiscal years from 1993 through 1997, plus any unused carried forward shares and any forfeited shares; provided, however, that the number of shares that may be transferred to participants under the Plan in any one fiscal year of the Company shall not exceed 3.5% of the issued shares determined as of the June 30 of the immediately preceding fiscal year plus any unused carried forward shares and any forfeited shares. The term “shares” shall include shares that have been subject to SARs that are exercised for cash, whether granted in connection with or independently of Options. For purposes of this Section 3, the following apply: (i) the number of “issued shares” at June 30 of a fiscal year means the number of shares outstanding at that date, plus all shares reacquired by the Company during the preceding fiscal year, whether or not such shares are designated as retired or treasury shares; (ii) ”unused shares” means any shares available from a prior Plan year, based on the percentage of issued shares calculation, which were not transferred, plus any shares reserved for grants which have not been covered by grants under prior shareholder-approved plans other than the 1985 Stock Incentive Program (“Prior Plans”) which will be terminated as of the effective date of the Plan; and (iii) ”forfeited shares”

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means any shares issued pursuant to awards made under the Plan which are forfeited to the Company pursuant to award terms and conditions, plus any shares covered by grants made under Prior Plans which are not issued to participants or are returned to the Company because of the cancellation, expiration or forfeiture of a grant made under the Prior Plans; provided, however, that the term “forfeited shares” shall not include shares as to which the original recipient received any benefits of ownership (other than voting rights).

(b)In no event, however, except as subject to Section 12 of the Plan, shall more than 23,025,560 of the shares eligible for issuance under the Plan be issued upon the exercise of Incentive Stock Options under the Plan. Additionally, the maximum number of shares which may be issued pursuant to Stock Awards contemplated by Section 8 of the Plan shall be limited to 3,800,000 shares (approximately 3% of the number of shares outstanding at June 30, 1993).

(c)The following limitations will apply to grants of Options or SARs under the Plan:

(i)no Employee will be granted Options or SARs under the Plan to purchase more than 2,000,000 shares over the term of the Plan, provided that, if the number of shares available for issuance under Section 3(a) of the Plan is increased, the maximum number of Options or SARs that any Employee may be granted also automatically will increase by an amount equal to 500,000 shares for each additional fiscal year in which shares are allocated for issuance under the Plan.

The foregoing limitations set forth in this Section 3(c) are intended to satisfy the requirements applicable to Options and SARs intended to qualify as “performance-based compensation” within the meaning of Section 162(k) of the Code. In the event that the Committee determines that such limitations are not required to qualify Options or SARs as performance-based compensation, the Committee may modify or eliminate such limitations.

(d)For purposes of Section 3(a), except as to forfeited shares, the payment of cash dividends and dividend equivalents in conjunction with outstanding awards shall not be counted against the shares available for issuance.

(e)Any shares issued under the Plan may consist in whole or in part of authorized and unissued shares or of treasury shares, and no fractional shares shall be issued under the Plan. Cash may be paid in lieu of any fractional shares in settlement of awards under the Plan.

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4.Plan Administration.

(a)Committees.

(i)Multiple Administrative Bodies.  The Plan may be administered by different committees with respect to different groups of Employees, Consultants and Directors.  Committee shall mean a committee of Directors appointed by the Board of Directors of the Company (the “Board”).

(ii)Section 162m.  To the extent that the Company determines it to be desirable to qualify Options granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

(iii)Rule 16b-3.  To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv)Other Administration.  Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy applicable laws.

(b)Powers of the Committee.  The Committee shall have full and exclusive power to interpret the Plan and to adopt such rules, regulations and guidelines for carrying out the Plan as it may deem necessary or proper. This power includes, but is not limited to, selecting award recipients, establishing all award terms and conditions and adopting modifications, amendments and procedures, including subplans and the like as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company operates in order to assure the viability of awards granted under the Plan and to enable participants employed in such countries to receive advantages and benefits under the Plan and such laws and rulings.

(c)Effect of Committee’s Decision.  The Committee’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Rights.

(d)Tax Withholding.  The Committee may, in its discretion, allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the shares to be issued upon exercise of an Option that number of shares having a Fair Market Value of the shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined.  All elections by an Optionee to have shares withheld for this purpose shall be made in such form and under such conditions as the Committee may deem necessary or advisable.

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5.Duration of the Plan.  The Plan shall remain in effect until terminated by the Board under the terms of the Plan, provided that in no event may Incentive Stock Options be granted under the Plan later than 10 years from the date the Plan was adopted by the Board.

6.Awards.  The Committee shall determine the type or types of award(s) to be made to each participant. Awards may be granted singly, in combination or in tandem. Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company, including the plan of any acquired entity. The types of awards that may be granted under the Plan are Options, SARs and Stock Awards.

7.Options and SARs.

(a)Options; Number of Shares.  The Committee, in its discretion, may grant Options to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be evidenced by a Notice of Grant which shall specify the number of shares to which it pertains, expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options and be in such form and contain such provisions as the Committee shall from time to time deem appropriate. Without limiting the foregoing, the Committee may at any time authorize the Company, with the consent of the respective recipients, to issue new Options or Rights in exchange for the surrender and cancellation of outstanding Options or Rights. Option agreements shall contain the following terms and conditions:

(i)Exercise Price.  The per share exercise price for the shares issuable pursuant to an Option shall be such price as is determined by the Committee; provided, however, that in no event shall the price of an Option or SAR be less than 100% of the Fair Market Value of the Common Stock on the date the Option or SAR is granted, subject to any additional conditions set out in Subsection 7(a)(v) below.

(ii)Waiting Period and Exercise Dates.  At the time an Option is granted, the Committee shall determine the terms and conditions to be satisfied before shares may be purchased, including the dates on which shares subject to the Option may first be purchased. The Committee may specify that an Option may not be exercised until the completion of a service period specified at the time of grant. (Any such period is referred to herein as the “waiting period.”) At the time an Option is granted, the Committee shall fix the period within which the Option may be exercised, which shall not be earlier than the end of the waiting period, if any, nor, in the case of an Incentive Stock Option, later than ten (10) years, from the date of grant.

(iii)Form of Payment.  The consideration to be paid for the shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of:

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(1)cash;

(2)check;

(3)other shares which (a) in the case of shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (b) have a Fair Market Value on the date of surrender not greater than the aggregate exercise price of the shares as to which said Option shall be exercised;

(4)delivery of a properly executed exercise notice together with such other documentation as the Committee and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price;

(5)any combination of the foregoing methods of payment; or

(6)such other consideration and method of payment for the issuance of shares to the extent permitted by Applicable Laws.

(iv)Reload Options.  The Committee may grant Options that provide for the award of a new Option when the exercise price has been paid by tendering shares to the Company, subject to such terms and conditions as the Committee shall determine.

(v)Special Incentive Stock Option Provisions.  In addition to the foregoing, Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following terms and conditions:

(1)Dollar Limitation.  To the extent that the aggregate Fair Market Value of (a) the shares with respect to which Options designated as Incentive Stock Options plus (b) the shares of stock of the Company with respect to which other Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year under all plans of the Company exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of the preceding sentence, (a) Options shall be taken into account in the order in which they were granted, and (b) the Fair Market Value of the shares shall be determined as of the time the Option or other Incentive Stock Option is granted.

(2)10% Stockholder.  If any Optionee to whom an Incentive Stock Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual:

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(a)The per share Option price of shares subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and

(b)The Option shall not have a term in excess of five (5) years from the date of grant.

Except as modified by the preceding provisions of this subsection 7(a)(v) and except as otherwise limited by Section 422 of the Code, all of the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder.

(vi)Other Provisions.  Unless otherwise determined by the Committee at the time of grant, each Option shall provide that in the event of a change in control of the Company (as specified by the Committee), any Optionee’s Options will become exercisable in full if, within twenty-four months after a change in control of the Company, the Optionee’s employment is terminated without cause or the Optionee resigns due to certain involuntary relocations or reductions in compensation, as specified by the Committee. Each Option granted under the Plan may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Committee.

(vii)Buyout Provisions.  The Committee may at any time offer to buyout for a payment in cash, promissory note or shares, an Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Optionee at the time that such offer is made.

(b)SARs.

(i)In Connection with Options.  At the sole discretion of the Committee, SARs may be granted in connection with all or any part of an Option, either concurrently with the grant of the Option or at any time thereafter during the term of the Option. The following provisions apply to SARs that are granted in connection with Options:

(1)The SAR shall entitle the Optionee to exercise the SAR by surrendering to the Company unexercised the corresponding portion of the related Option. The Optionee shall receive in exchange from the Company an amount equal to the excess of (1) the Fair Market Value on the date of exercise of the SAR of the Common Stock covered by the surrendered portion of the related Option over (2) the exercise price of the Common Stock covered by the surrendered portion of the related Option. Notwithstanding the foregoing, the Committee may place limits on the amount that may be paid upon exercise of an SAR; provided, however, that such limit shall not restrict the exercisability of the related Option.

(2)When an SAR is exercised, the related Option, to the extent surrendered, shall cease to be exercisable.

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(3)An SAR shall be exercisable only when and to the extent that the related Option is exercisable and shall expire no later than the date on which the related Option expires.

(4)An SAR may only be exercised at a time when the Fair Market Value of the Common Stock covered by the related Option exceeds the exercise price of the Common Stock covered by the related Option.

(ii)Independent of Options.  At the sole discretion of the Committee, SARs may be granted without related Options. The following provisions apply to SARs that are not granted in connection with Options:

(1)The SAR shall entitle the Optionee, by exercising the SAR, to receive from the Company an amount equal to the excess of (1) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the date of such exercise, over (2) the Fair Market Value of the Common Stock covered by the exercised portion of the SAR, as of the last market trading date prior to the date on which the SAR was granted; provided, however, that the Committee may place limits on the aggregate amount that may be paid upon exercise of an SAR.

(2)SARs shall be exercisable, in whole or in part, at such times as the Committee shall specify in the Optionee’s SAR agreement.

(iii)Form of Payment.   The Company’s obligation arising upon the exercise of an SAR may be paid in Common Stock or in cash, or in any combination of Common Stock and cash, as the Committee, in its sole discretion, may determine. Shares issued upon the exercise of an SAR shall be valued at their Fair Market Value as of the date of exercise.

(c)Method of Exercise.

(i)Procedure for Exercise; Rights as a Stockholder.  Any Option or SAR granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan.

An Option may not be exercised for a fraction of a share.

An Option or SAR shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option or SAR by the person entitled to exercise the Option or SAR and full payment for the shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Committee and permitted by the Option Agreement, consist of any consideration and method of payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance (as evidenced by the appropriate entry

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on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of shares which thereafter shall be available, both for purposes of the Plan and for sale under the Option, by the number of shares as to which the Option is exercised. Exercise of an SAR for Common Stock shall, to the extent the SAR is exercised, result in a decrease in the number of shares which thereafter shall be available for purposes of the Plan, and the SAR shall cease to be exercisable to the extent it has been exercised.

(ii)Termination of Employment, Consulting or Director Relationship.  In the event an Optionee’s Continuous Status as an Employee , Consultant or Director terminates (other than upon the Optionee’s death or Disability), the Optionee may exercise his or her Option or SAR, but only within such period of time from the date of such termination as is determined by the Committee, not to exceed three (3) months in the case of an Option that is intended to qualify as an Incentive Stock Option, and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate.

(iii)Disability of Optionee.  In the event an Optionee’s Continuous Status as an Employee ,Consultant or Director terminates as a result of the Optionee’s Disability, the Optionee may exercise his or her Option or SAR, but only within twelve (12) months from the date of such termination, and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of such termination, and to the extent that the Optionee does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate.

(iv)Death of Optionee.  In the event of an Optionee’s death, the Optionee’s estate or a person who acquired the right to exercise the deceased Optionee’s Option or SAR by bequest or inheritance may exercise the Option or SAR, but only within twelve (12) months following the date of death, and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option or SAR

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as set forth in the Option or SAR Agreement). To the extent that Optionee was not entitled to exercise an Option or SAR at the date of death, and to the extent that the Optionee’s estate or a person who acquired the right to exercise such Option does not exercise such Option or SAR (to the extent otherwise so entitled) within the time specified herein, the Option or SAR shall terminate.

8.Stock Awards.

(a)Stock Awards.  All or part of any Stock Award may be subject to conditions and restrictions established by the Committee, and set forth in the award agreement, which will include, but are not limited to, achievement of specific business objectives and other measurements of individual, business unit or Company performance measured over a period of not less than twelve (12) months.

9.Outside Director Grants.

(a)All Options granted pursuant to this Section shall be Nonstatutory Stock Options and, except as otherwise provided herein, shall be subject to the other terms and conditions of the Plan.

(b)All grants of Options hereunder shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions:

(i)No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.

(ii)Each Outside Director shall be automatically granted an Option to purchase 50,000 Shares (which number shall be subject to adjustment in the manner set forth in Section 12 hereof upon the occurrence of any event described therein) upon the date on which such person first becomes a Director (an “Initial Grant”), whether through election by the stockholders of the Company or by appointment by the Board to fill a vacancy.

(iii)On the date of each regular October meeting of the Board of Directors of the Company (or, if the Board does not meet in October of any year, on the date of the next regularly scheduled Board meeting) during the term of this Plan, each Outside Director who has served as a Director for at least the previous six (6) months shall automatically receive an Option to purchase 20,000 Shares (which number shall be subject to adjustment in the manner set forth in Section 12 hereof upon the occurrence of any event described therein) (a “Renewal Grant”).

(iv)The terms of each Option granted pursuant to this Section shall be as follows:

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(1)the term of the Option shall be ten (10) years.

(2)the Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 7 hereof; provided that if the Optionee retires from the Board of Directors of the Company at 65 or more years of age with more than 5 years of continuous service on the Board, he or she may, but only within twelve (12) months from the date of termination, exercise the Option to the extent he or she was entitled to exercise it at the date of such termination; provided further that in the event the exercise period terminates at a time when the Optionee is prohibited from engaging in transactions in the Company’s stock as a result of the Company’s trading window being closed, the Option shall remain exercisable until the Optionee is no longer so prohibited;

(3)the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option;

(4)with respect to Initial Grants, the Option will become exercisable in two annual installments on each of the first and second anniversaries of the grant date, so long as the Optionee remains a Director on such date; provided that the Option will become fully exercisable in the event of the occurrence of one of the following events while the Optionee remains a Director (a “Change of Control”): (x) the consummation of a merger or consolidation of the Company with or into any other entity pursuant to which the stockholders of the Company immediately prior to such merger or consolidation hold, directly or indirectly, less than 50% of the voting power of the surviving entity; (y) the sale or other disposition of all or substantially all of the Company’s assets; or (z) the acquisition by any person or persons of the beneficial ownership of 50% or more of the voting power of the Company’s equity securities in a single transaction or series of related transactions; and

(5)with respect to Renewal Grants, the Option will be fully exercisable on the grant date.

v)In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors on the automatic grant date.  No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.

10.Deferrals and Settlements.  Payment of awards may be in the form of cash, Common Stock, other awards or combinations thereof as the Committee shall determine, and with such restrictions as it may impose including, without limitation, restrictions imposed on Insiders under Rule 16b-3. The Committee also may require or

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permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under the Plan. The Committee may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts.

11.Transferability of Options and Rights.  Unless otherwise determined by the Committee to the contrary, Options and Rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.  The Committee may, in the manner established by the Committee, provide for the transfer, without payment of consideration, of an Option or Right by the Optionee to the Optionee’s “immediate family”.  In such case, the Option or Right will be exercisable only by such transferee.  Following a transfer, any such Options or Rights shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.  For purposes of this Section 11, the Optionee’s “immediate family” shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Optionee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.  A transfer under a domestic relations order in settlement of marital property rights is not a prohibited transfer for value.

12.Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale or Change of Control.

(a)Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per share of Common Stock covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Right.

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(b)Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option or Right has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Committee may, in the exercise of its sole discretion in such instances, declare that any Option or Right shall terminate as of a date fixed by the Committee and give each Optionee the right to exercise his or her Option or Right as to all or any part of the Optioned Stock, including shares as to which the Option or Right would not otherwise be exercisable.

(c)Merger or Asset Sale.  In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Right shall be assumed or an equivalent Option or Right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation does not agree to assume the Option or to substitute an equivalent option, the Committee may, in lieu of such assumption or substitution, provide for the Optionee to have the right to exercise the Option or Right as to all or a portion of the Optioned Stock, including shares as to which it would not otherwise be exercisable. If the Committee makes an Option or Right exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Committee shall notify the Optionee that the Option or Right shall be exercisable for such period as the Committee may designate, and the Option or Right will terminate upon the expiration of such period. For the purposes of this Section 12(c), the Option or Right shall be considered assumed if, immediately following the merger or sale of assets, the Option or Right confers the right to receive, for each share of Optioned Stock subject to the Option or Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent, the Committee may, with the consent of the successor corporation and the Optionee, provide for the consideration to be received upon the exercise of the Option or Right, for each share of Optioned Stock subject to the Option or Right, to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

13.Date of Grant.  The date of grant of an Option or Right shall be, for all purposes, the date on which the Committee makes the determination granting such Option or Right, or such other later date as is determined by the Committee. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

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14.Amendment and Termination of the Plan.

(a)Amendment and Termination.  The Board may at any time amend, alter, suspend or terminate the Plan.

(b)Stockholder Approval.  The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted). Such stockholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the Applicable Laws, rules or regulations.

(c)Effect of Amendment or Termination.  No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company.

15.Conditions Upon Issuance of Shares.

(a)Legal Compliance.  Shares shall not be issued pursuant to the exercise of an Option or Right unless the exercise of such Option or Right and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws, and the requirements of any stock exchange or quotation system upon which the shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b)Investment Representations.  As a condition to the exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required.

16.Liability of Company.

(a)Inability to Obtain Authority.  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

(b)Grants Exceeding Allotted Shares.  If the Optioned Stock covered by an Option or Right exceeds, as of the date of grant, the number of shares which may be issued under the Plan without additional stockholder approval, such Option or Right shall be void with respect to such excess Optioned Stock, unless stockholder approval of

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an amendment sufficiently increasing the number of shares subject to the Plan is timely obtained in accordance with Section 14 of the Plan.

17.Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan.

18.Stockholder Approval.  Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required by the Applicable Laws, rules and regulations.

19.Definitions.  As used herein, the following definitions shall apply:

(a)“Applicable Laws” means all applicable law, including without limitation, the Code, Delaware General Corporation Law, and applicable federal and state securities laws.

(b)“Common Stock” means the Common Stock of SGI.

(c)“Company” means Silicon Graphics, Inc., and any entity that is directly or indirectly controlled by the Company, or any entity in which the Company has a significant equity interest, as determined by the Committee; provided, however, that with respect to Options that are intended to qualify as Incentive Stock Options, the term “Company” shall be limited to Silicon Graphics, Inc. and any “parent” or “subsidiary” as those terms are defined in Sections 424(e) and (f) of the Code, respectively, or any successor sections.

(d)“Consultant” means any person, including an advisor, engaged by the Company to render services and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid only a Director’s fee by the Company or who are not compensated by the Company for their services as Directors.

(e)“Continuous Status as an Employee or Consultant”, means that the relationship as an Employee or Consultant is not interrupted or terminated by the Company. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of:  (i) any leave of absence approved by the Company, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of qualifying an Option as an Incentive Stock Option, in the event any such leave exceeds ninety (90) days, the Optionee’s Continuous Status as an Employee will be deemed to have terminated on the ninety-first (91st) day after the commencement of such leave, unless re-employment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; or (ii) transfers between locations of the Company.

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(f)“Director” means any person who is a member of the Board of Directors of the Company or its subsidiaries and affiliates.

(g)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(h)“Employee” means any person, including Officers, employed by the Company.  Neither service solely as a Director nor payment solely of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(i)“Fair Market Value” means, as of any date, the closing price for a share of Common Stock as reported daily in The Wall Street Journal or a similar readily available public source. If no sales of shares were made on such date, the closing price of a share as reported for the preceding day on which sale of shares were made shall be used.

(j)“Nonstatutory Stock Option” means any Option that is not an Incentive Stock Option.

(k)“Notice of Grant” means a written notice evidencing certain terms and conditions of an individual Option, SAR or Stock Award grant. The Notice of Grant is part of the Option Agreement, the SAR Agreement and the Stock Award Agreement.

(l)“Option” means a stock option granted pursuant to the Plan.

(m)“Option Agreement” means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(n)“Optioned Stock” means the Common Stock subject to an Option or Right.

(o)“Optionee” means an Employee, Consultant or Director who holds an outstanding Option or Right.

(p)“Outside Director” means a Director who is not an Employee and who is not the “beneficial owner” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing 5% or more of the total voting power represented by the Company’s outstanding voting securities on the date of any grant hereunder.

(q)“SAR” means a stock appreciation right granted pursuant to Section 7(b) of the Plan.

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(r)“SAR Agreement” means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual SAR grant. The SAR Agreement is subject to the terms and conditions of the Plan.

(s)“Stock Award” means an award made or denominated in shares or equivalent in value to shares pursuant to Section 8 of the Plan.

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(RENEWAL)

SILICON GRAPHICS, INC.

1993 LONG-TERM INCENTIVE STOCK PLAN

NON-STATUTORY STOCK OPTION GRANT AGREEMENT

Silicon Graphics, Inc., a Delaware corporation (“SGI”), has granted to the Optionee named on the attached NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT (the “NOTICE”) which is incorporated herein by reference, an Option to purchase the total number of shares of Common Stock and at the price determined, both as set forth on the attached NOTICE, and in all respects subject to the terms, definitions and provisions of the 1993 Long-Term Incentive Stock Plan (the “Plan”) adopted by SGI which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein.

By signing the NOTICE, Optionee acknowledges responsibility of reviewing the terms of the Plan and the related prospectus, copies of which are available at http://www-finance.corp.sgi.com/stock or upon request from Employee Stock Services (MS-645 or stock_support@sgi.com) and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee further agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.

1.Nature of the Option. This Option is a non-statutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price. The exercise price for each share of Common Stock is as set forth in the attached NOTICE, which price is not less than the fair market value per share of the Common Stock on the date of grant.

3.Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(a)Right to Exercise.

(i)Subject to subsection 3(a) (ii) and (iii), below, this Option shall be exercisable to the extent of six and one-quarter percent (6.25%) of the Shares subject to the Option every three months on each quarterly anniversary of the date of grant as set forth in the attached NOTICE.

(ii)This Option may not be exercised for a fraction of a share.

(iii)In the event of Optionee’s death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8, and 9 below.

(b)Method of Exercise. This Option shall be exercisable by written notice signed by the Optionee and delivered to the Company’s Employee Stock Services group or by using the electronic exercise methods approved from time to time by Employee Stock Services (currently www.optionslink.com). If electronic exercise method is not chosen, such notice shall

be in the form of Exhibit A (Stock Exercise Request) found at Employee Stock Services’ web site or upon request. The exercise notice shall be accompanied by payment of the exercise price. The Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the exercise price.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such shares.

4.Optionee’s Representations. In the event the shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, concurrently with the exercise of all or any portion of this Option, deliver to SGI his or her Investment Representation Statement in the form of Exhibit B, (available in Employee Stock Services) and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.

5.Method of Payment. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash; or

(ii)check; or

(iii)surrender of other Shares of Common Stock of SGI of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv) delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect an exercise of the Option and delivery to SGI of the sale or loan proceeds required to pay the exercise price.

6.Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of SGI, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations (“Regulation G”) as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

7.Termination of Status as an Employee or Consultant. If Optionee ceases to serve as an Employee or Consultant, he or she may, but only within three (3) months after the date he or she ceases to be an Employee or Consultant of the Company, exercise this Option to the extent that he or she was entitled to exercise it at the date of such termination. To the extent that he or she was not entitled to exercise this Option at the date of such termination, or if he or she does

not exercise this Option within the time specified herein, the Option shall terminate.

8.Disability of Optionee. Notwithstanding the provisions of Section 7 above, if Optionee is unable to continue his or her employment or consulting relationship with the Company as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise the Option at the date of such termination. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option within the time specified herein, the Option shall terminate.

9.Death of Optionee. In the event of the death of Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued as of the date of death.

10.Transferability of Option. Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

11.Term of Option. This Option may not be exercised more than seven (7) years (five years if Optionee owns, immediately before this Option is granted, stock representing more than 10 percent of the total combined voting power of all classes of stock of SGI) from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

12.Taxation Upon Exercise of Option. Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the shares over the exercise price. The Company will be required to withhold tax from Optionee’s current compensation with respect to such income; to the extent that Optionee’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Optionee to make a cash payment to cover such liability as a condition of exercise of this Option. Upon a resale of such shares by the Optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the Option will be treated as capital gain or loss.

13.Acceleration Upon Change of Control. Notwithstanding provisions of Section 3(a) with respect to option exercisability, in the event of a Change of Control of the Company, this Option shall automatically become exercisable in full if, within twenty-four (24) months after a Change of Control Date, (i) the Optionee is involuntarily terminated by the Company or any successor company (hereinafter, the “Employer”) without Cause or (ii) the Optionee voluntarily resigns from the Employer for Good Reason.

14.Definitions. For purposes of Section 13, the terms “Cause,” “Change of Control,” “Change of Control Date,” and “Good Reason” shall have the meanings set out below:

(a)“Cause” means the termination of employment of an Optionee shall have taken place as a result of:

(i)any act or acts of dishonesty undertaken by such Optionee and intended to result in gain or personal enrichment of the Optionee, or

(ii)persistent failure to perform the duties and obligations of such Optionee which is not remedied in a reasonable period of time after receipt of written notice from the Employer, or

(iii)violation of confidentiality or proprietary information obligations to or agreements entered into with the Employer, or

(iv)use, sale or distribution of illegal drugs on the Employer’s premises, or

(v)threatening, intimidating, or coercing or harassing fellow employees, or

(vi)the conviction of such Optionee of a felony.

(b)“Change of Control” of the Company means:

(i)the acquisition by any Person (as such term is used in Sections 13(d) and 14(d) of the 1934 Act) as Beneficial Owner (as such term is used in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding shares of capital stock of the Company’s then outstanding securities with respect to the election of the directors of the Board.

(ii)During any period of three (3) consecutive years individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director of the Board subsequent to the date of this agreement whose election, or nomination for election by the Company’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) shall be, for these purposes, considered as though such person were a member of the Incumbent Board.

(c)“Change of Control Date” means the effective date of the Change of Control or such date, which the Board shall, by resolution, deem to be the Change of Control Date.

(d)“Good Reason” for voluntary resignation means (i) the Employer reduces by ten percent (10%) or more the Optionee’s compensation at the rate in effect immediately prior to the Change of Control or (ii) without the Optionee’s express written consent, the Employer requires the Optionee to change the location of his or her job or office, so that he or she will be

based at a location more then fifty (50) miles from the location of his or her job or office immediately prior to the Change of Control. For these purposes, “Compensation” includes base salary, exclusive of bonus, incentive compensation and shift differential, paid by the Employer as consideration for the Optionee’s service.

(New Employee Grant)

SILICON GRAPHICS, INC
AMENDED AND RESTATED
1993 LONG-TERM INCENTIVE STOCK PLAN

NON STATUTORY STOCK OPTION GRANT AGREEMENT

Silicon Graphics, Inc., a Delaware corporation (“SGI”), has granted to the Optionee named on the attached NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT (the “NOTICE”) which is incorporated herein by reference, an Option to purchase the total number of shares of Common Stock and at the price determined, both as set forth on the attached NOTICE, and in all respects subject to the terms, definitions and provisions of the 1993 Long-Term Incentive Stock Plan (the “Plan”) adopted by SGI which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein.

By accepting the NOTICE, Optionee acknowledges responsibility of reviewing the terms of the Plan and the related prospectus, copies of which are available at http://www-finance.corp.sgi.com/stock or upon request from Employee Stock Services (MS-645 or stock_support@sgi.com) and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee further agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.

1.Nature of the Option. This Option is a non-statutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price. The exercise price for each share of Common Stock is as set forth in the attached NOTICE, which price is not less than the fair market value per share of the Common Stock on the date of grant.

3.Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(a)Right to Exercise.

(i)Subject to subsection 3(a) (ii) and (iii), below, this Option shall be exercisable, cumulatively, to the extent of twenty-five percent (25%) of the Shares subject to the Option on the one year anniversary of the date of hire as set forth in the attached NOTICE; thereafter the Shares subject to the Option shall be exercisable to the extent of six and one-quarter percent (6.25%) of the Shares subject to the Option every three months on each quarterly anniversary of the date of hire.   

(ii)This Option may not be exercised for a fraction of a share.

(iii)In the event of Optionee’s death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8, and 9 below.

(b)Method of Exercise. This Option shall be exercisable by written notice

signed by the Optionee and delivered to the Company’s Employee Stock Services group or by using the electronic exercise methods approved from time to time by Employee Stock Services (currently www.optionslink.com). If electronic exercise method is not chosen, such notice shall be in the form of Exhibit A (Stock Exercise Request) found at Employee Stock Services’website or upon request. The exercise notice shall be accompanied by payment of the exercise price. The Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the exercise price.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such shares.

4.Optionee’s Representations. In the event the shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, concurrently with the exercise of all or any portion of this Option, deliver to SGI his or her Investment Representation Statement in the form of Exhibit B, (available in Employee Stock Services) and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.

5.Method of Payment. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash; or

(ii)check; or

(iii)surrender of other Shares of Common Stock of the Company of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv) delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect an exercise of the Option and delivery to SGI of the sale or loan proceeds required to pay the exercise price.

6.Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations (“Regulation G”) as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

7.Termination of Status as an Employee or Consultant. If Optionee ceases to serve as an Employee or Consultant, he or she may, but only within three (3) months after the date he or she ceases to be an Employee or Consultant of the Company, exercise this Option to the extent

that he or she was entitled to exercise it at the date of such termination. To the extent that he or she was not entitled to exercise this Option at the date of such termination, or if he or she does not exercise this Option within the time specified herein, the Option shall terminate.

8.Disability of Optionee. Notwithstanding the provisions of Section 7 above, if Optionee is unable to continue his or her employment or consulting relationship with the Company as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise the Option at the date of such termination. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option within the time specified herein, the Option shall terminate.

9.Death of Optionee. In the event of the death of Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued as of the date of death.

10.Transferability of Option. Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

11.Term of Option. This Option may not be exercised more than seven (7) years (five years if Optionee owns, immediately before this Option is granted, stock representing more than 10 percent of the total combined voting power of all classes of stock of SGI) from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

12.Taxation Upon Exercise of Option. Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the shares over the exercise price. The Company will be required to withhold tax from Optionee’s current compensation with respect to such income; to the extent that Optionee’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Optionee to make a cash payment to cover such liability as a condition of exercise of this Option. Upon a resale of such shares by the Optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the Option will be treated as capital gain or loss.

13.Acceleration Upon Change of Control. Notwithstanding provisions of Section 3(a) with respect to option exercisability, in the event of a Change of Control of the Company, this Option shall automatically become exercisable in full if, within twenty-four (24) months after a Change of Control Date, (i) the Optionee is involuntarily terminated by the Company or any successor company (hereinafter, the “Employer”) without Cause or (ii) the Optionee voluntarily resigns from the Employer for Good Reason.

14.Definitions. For purposes of Section 13, the terms “Cause,” “Change of Control,”

“Change of Control Date,” and “Good Reason” shall have the meanings set out below:

(a)“Cause” means the termination of employment of an Optionee shall have taken place as a result of:

(i)any act or acts of dishonesty undertaken by such Optionee and intended to result in gain or personal enrichment of the Optionee, or

(ii)persistent failure to perform the duties and obligations of such Optionee which is not remedied in a reasonable period of time after receipt of written notice from the Employer, or

(iii)violation of confidentiality or proprietary information obligations to or agreements entered into with the Employer, or

(iv)use, sale or distribution of illegal drugs on the Employer’s premises, or

(v)threatening, intimidating, or coercing or harassing fellow employees, or

(vi)the conviction of such Optionee of a felony.

(b)“Change of Control” of the Company means:

(i)the acquisition by any Person (as such term is used in Sections 13(d) and 14(d) of the 1934 Act) as Beneficial Owner (as such term is used in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding shares of capital stock of the Company’s then outstanding securities with respect to the election of the directors of the Board.

(ii)During any period of three (3) consecutive years individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director of the Board subsequent to the date of this agreement whose election, or nomination for election by the Company’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) shall be, for these purposes, considered as though such person were a member of the Incumbent Board.

(c)“Change of Control Date” means the effective date of the Change of Control or such date which the Board shall, by resolution, deem to be the Change of Control Date.

(d)“Good Reason” for voluntary resignation means (i) the Employer reduces by ten percent (10%) or more the Optionee’s compensation at the rate in effect immediately prior to the Change of Control or (ii) without the Optionee’s express written consent, the Employer requires the Optionee to change the location of his or her job or office, so that he or she will be

based at a location more then fifty (50) miles from the location of his or her job or office immediately prior to the Change of Control. For these purposes, “Compensation” includes base salary, exclusive of bonus, incentive compensation and shift differential, paid by the Employer as consideration for the Optionee’s service.

Grant No.

SILICON GRAPHICS, INC.

DIRECTOR’S OPTION AGREEMENT

(Annual Option)

Silicon Graphics, Inc., a Delaware corporation (“SGI”), has granted to                          (the “Optionee”), as of                         , an option to purchase a total of 20,000 shares of SGI’s Common Stock (the “Optioned Stock”), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the 1993 Long-Term Incentive Stock Plan (the “Plan”) adopted by SGI which is incorporated herein by reference.  The terms defined in the Plan shall have the same defined meanings herein.

1. Nature of the Option.  This Option is a nonstatutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price.  The exercise price is $        for each share of Common Stock, which is 100% of the fair market value of the Common Stock as determined on the date of grant of this Option.

3.Exercise of Option.  This option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(i)Right to Exercise.

(a)This Option shall become exercisable in two installments:  the first fifty percent (50%) of the Optioned Stock on the date of the next Annual Meeting and the second fifty percent (50%) of the Optioned Stock on the date of the next Annual Meeting, so long as the Optionee remains a Director.

(b)This Option may not be exercised for a fraction of a share.

(c)In the event of Optionee’s death, disability or other termination of service as a Director, the exercisability of this Option is governed by Sections 6, 7 and 8 of this Agreement.

(ii)Method of Exercise.

(a)This Option shall be exercisable by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan.  Such written notice shall

be signed by the Optionee and shall be delivered in person, by facsimile or by certified mail to SGI’s Employee Stock Services.  The written notice shall be accompanied by payment of the exercise price

(b)No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed.  Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such shares.

4.Method of Payment.  Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash;

(ii)check;

(iii)surrender of other Shares of Common Stock of SGI of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv)delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect an exercise of the Option and delivery to SGI of the sale of loan proceeds required to pay the exercise price.

5.Restrictions on Exercise.  This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed.  As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

6.Termination of Status as a Director.  If the Optionee ceases to serve as a Director, he or she may, but only within three (3) months after the date he or she ceases to be a Director of the Company, exercise this Option to the extent that he or she was entitled to exercise it at the date of such termination.  Notwithstanding the foregoing, in no event may the Option be exercised after its ten (10) year term has expired.  To the extent that the Optionee was not entitled to exercise this Option at the date of such termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

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7.Disability of Optionee.  Notwithstanding the provisions of Section 6 above, if the Optionee is unable to continue his or her service as a Director as a result of the Optionee’s Disability, he or she may, but only within twelve (12) months from the date of termination, exercise this Option to the extent he or she was entitled to exercise it at the date of such termination.  Notwithstanding the foregoing, in no event may the Option be exercised after its ten (10) year term has expired.  To the extent that the Optionee was not entitled to exercise this Option at the date of termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

8.Death of Optionee.  In the event of the death of the Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death.  Notwithstanding the foregoing, in no event may the Option be exercised after its ten (10) year term has expired.

9.Transferability of Option.  Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.  The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

10.Term of Option.  This Option may not be exercised more than ten (10) years (five years if Optionee owns, immediately before this Option is granted, stock representing more than 10 percent of the total combined voting power of all classes of stock of SGI) from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

11.Taxation Upon Exercise of Option.  Optionee understands that, upon exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares purchased over the exercise price paid for such Shares.  (Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the measurement and timing of such income may be deferred, and the Optionee is advised to contact a tax advisor concerning the desirability of filing an 83(b) election in connection with the exercise of the Option.)  Upon a resale of such Shares by the Optionee, any difference between the sale price and the fair market value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss.

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SILICON GRAPHICS, INC.,

a Delaware corporation

Sandra M. Escher

Vice President, General Counsel and
Secretary

Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof.  Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan.

Optionee

4

Grant No.

SILICON GRAPHICS, INC.

DIRECTOR’S OPTION AGREEMENT

(First Option)

Silicon Graphics, Inc., a Delaware corporation ("SGI"), has granted               an option to purchase a total of 50,000 shares of SGI’s Common Stock (the "Optioned Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the 1993 Long-Term Incentive Stock Plan (the "Plan") adopted by SGI which is incorporated herein by reference.  The terms defined in the Plan shall have the same defined meanings herein.

1.Nature of the Option.  This Option is a nonstatutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price.  The exercise price is $       for each share of Common Stock, which is 100% of the fair market value of the Common Stock as determined on the date of grant of this Option.

3.Exercise of Option.  This option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(i)Right to Exercise.

(a)This Option shall become exercisable in two installments:  the first fifty percent (50%) of the Optioned Stock on the first anniversary of the Grant Date and the second fifty percent (50%) of the Optioned Stock on the date of the next anniversary of the Grant Date, so long as the Optionee remains a Director.

(b)This Option may not be exercised for a fraction of a share.

(c)In the event of Optionee’s death, disability or other termination of service as a Director, the exercisability of this Option is governed by Sections 6, 7 and 8 of this Agreement.

(ii)Method of Exercise.

(a)This Option shall be exercisable by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan.  Such written notice shall

be signed by the Optionee and shall be delivered in person, by facsimile or by certified mail to the SGI’s Employee Stock Services Department.  The written notice shall be accompanied by payment of the exercise price

(b)No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed.  Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such shares.

4.Method of Payment.  Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash;

(ii)check;

(iii)surrender of other Shares of Common Stock of SGI of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv)delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect an exercise of the Option and delivery to SGI of the sale of loan proceeds required to pay the exercise price.

5.Restrictions on Exercise.  This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed.  As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

6.Termination of Status as a Director.  If the Optionee ceases to serve as a Director, he or she may, but only within three (3) months after the date he or she ceases to be a Director of the Company, exercise this Option to the extent that he or she was entitled to exercise it at the date of such termination.  Notwithstanding the foregoing, in no event may the Option be exercised after its five (5) year term has expired.  To the extent that the Optionee was not entitled to exercise this Option at the date of such termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

2

7.Disability of Optionee.  Notwithstanding the provisions of Section 6 above, if the Optionee is unable to continue his or her service as a Director as a result of the Optionee’s Disability, he or she may, but only within twelve (12) months from the date of termination, exercise this Option to the extent he or she was entitled to exercise it at the date of such termination.  Notwithstanding the foregoing, in no event may the Option be exercised after its five (5) year term has expired.  To the extent that the Optionee was not entitled to exercise this Option at the date of termination, or if the Optionee does not exercise this Option within the time specified herein, the Option shall terminate.

8.Death of Optionee.  In the event of the death of the Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death.  Notwithstanding the foregoing, in no event may the Option be exercised after its five (5) year term has expired.

9.Transferability of Option.  Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.  The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

10.Term of Option.  This Option may not be exercised more than five (5) years from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

11.Taxation Upon Exercise of Option.  Optionee understands that, upon exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares purchased over the exercise price paid for such Shares.  (Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the measurement and timing of such income may be deferred, and the Optionee is advised to contact a tax advisor concerning the desirability of filing an 83(b) election in connection with the exercise of the Option.)  Upon a resale of such Shares by the Optionee, any difference between the sale price and the fair market value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss.

3

SILICON GRAPHICS, INC.,

a Delaware corporation

Sandra M. Escher

Senior Vice President, General Counsel and
Secretary

Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof.  Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan.

Optionee

4

EX-10.4

Exhibit 10.4

SILICON GRAPHICS, INC.

AMENDED AND RESTATED 1996 SUPPLEMENTAL NON-
EXECUTIVE EQUITY INCENTIVE PLAN

1.Purpose of the Plan.  The purpose of the Silicon Graphics, Inc. 1996 Supplemental Non-Executive Equity Incentive Plan (the “Plan”) is to promote the long-term success of Silicon Graphics, Inc. (“SGI”) by providing supplemental equity incentives to non-executives of the Company to address special circumstances identified from time to time by the Compensation and Human Resources Committee (the “Committee”) appointed by the Board of Directors of SGI (the “Board”), which could without limitation include special retention programs addressing exceptional competitive pressures in the market for technical personnel, special recognition programs for outstanding performance, and other circumstances outside of the normal course.

2.Eligibility.  Stock Awards (“Rights”) and Options may be granted to Eligible Employees.  If otherwise eligible, an Employee who has been granted an Option or Right may be granted additional Options or Rights.

3.Stock Subject to the Plan.

(a)Subject to Section 11 of the Plan, the maximum aggregate number of shares of Common Stock of the Company (“shares”) that may be issued pursuant to Options and Rights granted to participants under the Plan shall be 22,500,000 shares.  If shares issued pursuant to a Stock Award are forfeited or otherwise reacquired by the Company, or if an Option or Right expires or becomes unexercisable without having been exercised in full, the reacquired or unpurchased shares, respectively, that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated).

(b)Any shares issued under the Plan may consist in whole or in part of authorized and unissued shares or of treasury shares, and no fractional shares shall be issued under the Plan.  Cash may be paid in lieu of any fractional shares in settlement of awards under the Plan.

4.Plan Administration.

(a)Committee.  The Committee shall be responsible for administering the Plan.  The Committee shall have full and exclusive power to interpret the Plan and to adopt such rules,

regulations and guidelines for carrying out the Plan as it may deem necessary or proper.  This power includes, but is not limited to, selecting award recipients, establishing all award terms and conditions and adopting modifications, amendments and procedures, including subplans and the like as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company operates in order to assure the viability of awards granted under the Plan and to enable participants employed in such countries to receive advantages and benefits under the Plan and such laws and rulings.

(b)Effect of Committee’s Decision.  The Committee’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Rights.

5.Duration of the Plan.  The Plan shall remain in effect until terminated by the Board.

6.Awards.  The Committee shall determine the type or types of award(s) to be made to each participant.  Awards may be granted singly, in combination or in tandem.  Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Company, including the plan of any acquired entity.  The types of awards that may be granted under the Plan are Options and Stock Awards.

7.Options.

(a)Options; Number of Shares.  The Committee, in its discretion, may grant Options to eligible participants.  Each Option shall be evidenced by a Notice of Grant that shall specify the number of shares to which it pertains and be in such form and contain such provisions as the Committee shall from time to time deem appropriate.  Without limiting the foregoing, the Committee may at any time authorize the Company, with the consent of the respective recipients, to issue new Options or Rights in exchange for the surrender and cancellation of outstanding Options or Rights.  Option agreements shall contain the following terms and conditions:

(i)Exercise Price.  The per share exercise price for the shares issuable pursuant to an Option shall be such price as is determined by the Committee.

(ii)Waiting Period and Exercise Dates.  At the time an Option is granted, the Committee shall determine the terms and conditions to be satisfied before shares may be purchased, including the dates on which shares subject to the Option may first be purchased.  The Committee may specify than an Option may not be exercised until the completion of a service period specified at the time of

grant.  (Any such period is referred to herein as the “waiting period.”)  At the time an Option is granted, the Committee shall fix the period within which the Option may be exercised, which shall not be earlier than the end of the waiting period, if any.

(iii)Form of Payment.  The consideration to be paid for the shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of:

(1)cash;

(2)check;

(3)other shares that (a) in the case of shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (b) have a Fair Market Value on the date of surrender not greater than the aggregate exercise price of the shares as to which said Option shall be exercised;

(4)delivery of a properly executed exercise notice together with such other documentation as the Committee and the broker, if applicable, shall require to effect an exercise of the Option and delivery to SGI of the sale or loan proceeds required to pay the exercise price;

(5)any combination of the foregoing methods of payment; or

(6)such other consideration and method of payment for the issuance of shares to the extent permitted by Applicable Laws.

(iv)Other Provisions.  Unless otherwise determined by the Committee at the time of grant, each Option shall provide that in the event of a change in control of the Company (as specified by the Committee), any Optionee’s Options will become exercisable in full if, within twenty-four (24) months after a change in control of the Company, the Optionee’s employment is terminated without cause or the Optionee resigns due to certain involuntary relocations or reductions in compensation, as specified by the Committee.  Each Option granted under the Plan may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee.

(v)Buyout Provisions.  The Committee may at any time offer to buy out for a payment in cash, promissory note or shares, an Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Optionee at the time that such offer is made.

(b)Method of Exercise.

(i)Procedure for Exercise; Rights as a Stockholder.  Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee and as shall be permissible under the terms of the Plan.

An Option may not be exercised for a fraction of a share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the shares with respect to which the Option is exercised has been received by the Company.  Full payment may, as authorized by the Committee and permitted by the Option Agreement, consist of any consideration and method of payment allowable under subsection 7(a)(iii) of the Plan.  Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option.  No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of shares that thereafter shall be available, both for purposes of the Plan and for sale under the Option, by the number of shares as to which the Option is exercised.

(ii)Termination of Employment Relationship.  In the event an Optionee ceases to be an Employee (other than as a result of the Optionee’s death or Disability), the Optionee may exercise his or her Option, but only within such period of time from the date of such termination as is determined by the Committee and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  To the extent that Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

(iii)Disability of Optionee.  In the event an Optionee ceases to be an Employee as a result of the Optionee’s Disability, the Optionee may exercise his or her Option, but only within twelve (12) months from the date of such termination, and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option

Agreement).  To the extent that Optionee was not entitled to exercise an Option at the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

(iv)Death of Optionee.  In the event of an Optionee’s death, the Optionee’s estate or a person who acquired the right to exercise the deceased Optionee’s Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and, unless determined otherwise by the Committee, only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  To the extent that Optionee was not entitled to exercise an Option at the date of death, and to the extent that the Optionee’s estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

8.Stock Awards.  All or part of any Stock Award may be subject to conditions and restrictions established by the Committee, and set forth in the award agreement, which will include, but are not limited to, achievement of specific business objectives and other measurements of individual, business unit or Company performance measured over a period of not less than twelve (12) months.

9.Deferrals and Settlements.  Payment of awards may be in the form of cash, Common Stock, other awards or combinations thereof as the Committee shall determine, and with such restrictions as it may impose.  The Committee also may require or permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under the Plan.  The Committee may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts.

10.Tranferability of Options and Rights.  Unless otherwise determined by the Committee to the contrary, Options and Rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.  The Committee may, in the manner established by the Committee, provide for the transfer, without payment of consideration, of an Option or Right by the Optionee to the Optionee’s “immediate family”.  In such case, the Option or Right will be exercisable only by such transferee.  Following a transfer, any such Options or Rights shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.  For purposes of this Section 10, the Optionee’s “immediate family” shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Optionee’s

household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.  A transfer under a domestic relations order in settlement of marital property rights is not a prohibited transfer for value.

11.Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale or Change of Control.

(a)Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Right, and the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Right, as well as the price per share of Common Stock covered by each such outstanding Option or Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Right.

(b)Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option or Right has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action.  The Committee may, in the exercise of its sole discretion in such instances, declare that any Option or Right shall terminate as of a date fixed by the Committee and give each Optionee the right to exercise his or her Option or Right as to all or any part of the Optioned Stock, including shares as to which the Option or Right would not otherwise be exercisable.

(c)Merger or Asset Sale.  In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Right shall be assumed or an equivalent Option or Right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation.  In the event that the successor corporation does not agree to assume the Option or to substitute an equivalent option, the Committee may, in lieu of such assumption or substitution, provide for the Optionee to have the right to

exercise the Option or Right as to all or a portion of the Optioned Stock, including shares as to which it would not otherwise be exercisable.  If the Committee makes an Option or Right exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Committee shall notify the Optionee that the Option or Right shall be exercisable for such period as the Committee may designate, and the Option or Right will terminate upon the expiration of such period.  For the purposes of this Section 11(c), the Option or Right shall be considered assumed if, immediately following the merger or sale of assets, the Option or Right confers the right to receive, for each share of Optioned Stock subject to the Option or Right immediately prior to the merger or sale of assets, the consideration (either stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent, the Committee may, with the consent of the successor corporation and the Optionee, provide for the consideration to be received upon the exercise of the Option or Right, for each share of Optioned Stock subject to the Option or Right, to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

12.Date of Grant.  The date of grant of an Option or Right shall be, for all purposes, the date on which the Committee makes the determination granting such Option or Right, or such other later date as is determined by the Committee.  Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

13.Amendment and Termination of the Plan.

(a)Amendment and Termination.  The Board may at any time amend, alter, suspend or terminate the Plan.

(b)Effect of Amendment or Termination.  No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company.

14.Conditions Upon Issuance of Shares.

(a)Legal Compliance.  Shares shall not be issued pursuant to the exercise of an Option or Right unless the exercise of such Option or Right and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws, and the

requirements of any stock exchange or quotation system upon which the shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b)Investment Representations.  As a condition to the exercise of an Option or Right, the Company may require the person exercising such Option or Right to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required.

15.Liability of Company.  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

16.Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan.

17.Definitions.  As used herein, the following definitions shall apply:

(a)“Applicable Laws” means all applicable law, including without limitation, the Code, Delaware General Corporation Law, and applicable federal and state securities laws.

(b)“Common Stock” means the Common Stock of SGI.

(c)“Company” means Silicon Graphics, Inc., and any entity that is directly or indirectly controlled by the Company, or any entity in which the Company has a significant equity interest, as determined by the Committee.

(d)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(e)“Eligible Employee” means an Employee who is not a vice-president or more senior Employee.

(f)“Employee” means any person employed by the Company.

(g)“Fair Market Value” means, as of any date, the closing price for a share of Common Stock as reported daily in The Wall Street Journal or a similar readily available public source.  If no sales of shares were made on such date, the

closing price of a share as reported for the preceding day on which sale of shares were made shall be used.

(h)“Notice of Grant” means a written notice evidencing certain terms and conditions of an individual Option or Stock Award grant.  The Notice of Grant is part of the Option Agreement and the Stock Award Agreement.

(i)“Option” means a nonstatutory stock option granted pursuant to the Plan.

(j)“Option Agreement” means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant.  The Option Agreement is subject to the terms and conditions of the Plan.

(k)“Optioned Stock” means the Common Stock subject to an Option or Right.

(l)“Optionee” means an Employee who holds an outstanding Option or Right.

(m)“Stock Award” means an award made or denominated in shares or equivalent in value to shares pursuant to Section 8 of the Plan.

(RENEWAL)

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1996 SUPPLEMENTAL NON-EXECUTIVE EQUITY INCENTIVE PLAN

NON-STATUTORY STOCK OPTION GRANT AGREEMENT

Silicon Graphics, Inc., a Delaware corporation (“SGI”), has granted to the Optionee named on the attached NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT (the “NOTICE”) which is incorporated herein by reference, an Option to purchase the total number of shares of Common Stock and at the price determined, both as set forth on the attached NOTICE included in this Option package, and in all respects subject to the terms, definitions and provisions of the Amended and Restated 1996 Supplemental Non-Executive Equity Incentive Plan (the “Plan”) adopted by SGI which is incorporated herein by reference.  The terms defined in the Plan shall have the same defined meanings herein.

By accepting the NOTICE, Optionee acknowledges responsibility of reviewing the terms of the Plan and the related prospectus, copies of which are included in this Option grant package and also available at http://www-finance.corp.sgi.com/stock or upon request from Employee Stock Services (MS-645 or stock_support@sgi.com). Optionee further represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof.  Optionee further agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.

1.Nature of the Option.  This Option is a non-statutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price.  The exercise price for each Share of Common Stock is as set forth in the attached NOTICE.

3.Exercise of Option.  This Option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(a)Right to Exercise.

(i)Subject to subsection 3(a) (ii) and (iii), below, this Option shall be exercisable to the extent of six and one-quarter percent (6.25%) of the Shares subject to the Option every three months on each quarterly anniversary of the date of grant as set forth in the attached NOTICE.

(ii)This Option may not be exercised for a fraction of a Share.

(iii)In the event of Optionee’s death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8, and 9 below.

(b)Method of Exercise.  This Option shall be exercisable by written notice signed by the Optionee and delivered to SGI’s Employee Stock Services group or by using the electronic methods approved from time to time by Employee Stock Services (currently www.optionslink.com).  If an electronic exercise method is not chosen, such notice shall be in the form of Exhibit A (Stock Exercise Request) found at the Employee Stock Services’ website or upon request.  The exercise notice shall be accompanied by payment of the exercise price.  The Option shall be deemed to be exercised upon receipt by SGI of such written notice accompanied by the exercise price.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed.  Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

4.Optionee’s Representations.  In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, concurrently with the exercise of all or any portion of this Option, deliver to SGI his or her Investment Representation Statement in the form of Exhibit B, (available in Employee Stock Services) and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.

5.Method of Payment.  Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash; or

(ii)check; or

(iii)surrender of other Shares of Common Stock of SGI of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv) delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect a cashless exercise of the Option and delivery to SGI of the sale proceeds required to pay the exercise price.

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6.Restrictions on Exercise.  This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such Shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations (“Regulation G”) as promulgated by the Federal Reserve Board.  As a condition to the exercise of this Option, SGI may require Optionee to make any representation and warranty to SGI as may be required by any Applicable Law or regulation.

7.Termination of Status as an Employee.  If Optionee ceases to serve as an Employee, he or she may, but only within three (3) months after the date he or she ceases to be an Employee of the Company, exercise this Option to the extent that he or she was entitled to exercise it at the date of such termination.  To the extent that he or she was not entitled to exercise this Option at the date of such termination, or if he or she does not exercise this Option within the time specified herein, the Option shall terminate.

8.Disability of Optionee.  Notwithstanding the provisions of Section 7 above, if Optionee is unable to continue his or her employment relationship with the Company as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise the Option at the date of such termination.  To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option within the time specified herein, the Option shall terminate.

9.Death of Optionee.  In the event of the death of Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued as of the date of death.

10.Transferability of Option.  Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.  The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

11.Term of Option.  This Option may not be exercised more than seven (7) years from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

12.Taxation Upon Exercise of Option.  Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the shares over the exercise price.  The

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Company will be required to withhold tax from Optionee’s current compensation with respect to such income; to the extent that Optionee’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Optionee to make a cash payment to cover such liability as a condition of exercise of this Option.  Upon a resale of such shares by the Optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the Option will be treated as capital gain or loss.

13.Acceleration Upon Change of Control.  Notwithstanding provisions of Section 3(a) with respect to Option exercisability, in the event of a Change of Control of SGI, this Option shall automatically become exercisable in full if, within twenty-four (24) months after a Change of Control Date, (i) the Optionee is involuntarily terminated by the Company or any successor company (hereinafter, the “Employer”) without Cause or (ii) the Optionee voluntarily resigns from the Employer for Good Reason.

14.Definitions.  For purposes of Section 13, the terms “Cause,” “Change of Control,” “Change of Control Date,” and “Good Reason” shall have the meanings set out below:

(a)“Cause” means the termination of employment of an Optionee shall have taken place as a result of:

(i)an act or acts of dishonesty undertaken by such Optionee and intended to result in gain or personal enrichment of the Optionee, or

(ii)persistent failure to perform the duties and obligations of such Optionee which is not remedied in a reasonable period of time after receipt of written notice from the Employer, or

(iii)violation of confidentiality or proprietary information obligations to or agreements entered into with the Employer, or

(iv)use, sale or distribution of illegal drugs on the Employer’s premises, or

(v)threatening, intimidating, or coercing or harassing fellow employees, or

(vi)the conviction of such Optionee of a felony.

(b)“Change of Control” of SGI means:

(i)the acquisition by any Person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as Beneficial Owner (as such term is used in Rule 13d-3 promulgated under the Exchange

4

Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding shares of capital stock of SGI’s then outstanding securities with respect to the election of the directors of the Board.

(ii)During any period of three (3) consecutive years individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director of the Board subsequent to the date of the NOTICE whose election, or nomination for election by SGI’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for these purposes, considered as though such person were a member of the Incumbent Board.

(c)“Change of Control Date” means the effective date of the Change of Control or such date which the Board shall, by resolution, deem to be the Change of Control Date.

(d)“Good Reason” for voluntary resignation means (i) the Employer reduces by ten percent (10%) or more the Optionee’s compensation at the rate in effect immediately prior to the Change of Control or (ii) without the Optionee’s express written consent, the Employer requires the Optionee to change the location of his or her job or office, so that he or she will be based at a location more then fifty (50) miles from the location of his or her job or office immediately prior to the Change of Control.  For these purposes, “Compensation” includes base salary, exclusive of bonus, incentive compensation and shift differential, paid by the Employer as consideration for the Optionee’s service.

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(NEW HIRE)

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1996 SUPPLEMENTAL NON-EXECUTIVE EQUITY INCENTIVE PLAN

NON-STATUTORY STOCK OPTION GRANT AGREEMENT

Silicon Graphics, Inc., a Delaware corporation (“SGI”), has granted to the Optionee named on the attached NOTICE OF GRANT OF STOCK OPTION AND GRANT AGREEMENT (the “NOTICE”) which is incorporated herein by reference, an Option to purchase the total number of shares of Common Stock and at the price determined, both as set forth on the attached NOTICE included in this Option package, and in all respects subject to the terms, definitions and provisions of the Amended and Restated 1996 Supplemental Non-Executive Equity Incentive Plan (the “Plan”) adopted by SGI which is incorporated herein by reference.  The terms defined in the Plan shall have the same defined meanings herein.

By accepting the NOTICE, Optionee acknowledges responsibility of reviewing the terms of the Plan and the related prospectus, copies of which are included in this Option grant package and also available at http://www-finance.corp.sgi.com/stock or upon request from Employee Stock Services (MS-645 or stock_support@sgi.com). Optionee further represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof.  Optionee further agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.

1.Nature of the Option.  This Option is a non-statutory option and is not intended to qualify for any special tax benefits to the Optionee.

2.Exercise Price.  The exercise price for each Share of Common Stock is as set forth in the attached NOTICE.

3.Exercise of Option.  This Option shall be exercisable during its term in accordance with the provisions of Section 7 of the Plan as follows:

(a)Right to Exercise.

(i)Subject to subsection 3(a) (ii) and (iii), below, this Option shall be exercisable, cumulatively, to the extent of twenty-five percent (25%) of the Shares subject to the Option on the one year anniversary of the date of hire as set forth in the attached NOTICE; thereafter the Shares subject to the Option shall be exercisable to the extent of six and one-quarter percent (6.25%) of the Shares subject to the Option every three months on each quarterly anniversary of the date of hire.

(ii)This Option may not be exercised for a fraction of a Share.

(iii)In the event of Optionee’s death, disability or other termination of employment, the exercisability of the Option is governed by Sections 7, 8, and 9 below.

(b)Method of Exercise.  This Option shall be exercisable by written notice signed by the Optionee and delivered to SGI’s Employee Stock Services group or by using the electronic methods approved from time to time by Employee Stock Services (currently www.optionslink.com).  If an electronic exercise method is not chosen, such notice shall be in the form of Exhibit A (Stock Exercise Request) found at the Employee Stock Services’ website or upon request.  The exercise notice shall be accompanied by payment of the exercise price.  The Option shall be deemed to be exercised upon receipt by SGI of such written notice accompanied by the exercise price.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed.  Assuming such compliance, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

4.Optionee’s Representations.  In the event the shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form of Exhibit B, (available in Employee Stock Services) and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement.

5.Method of Payment.  Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(i)cash; or

(ii)check; or

(iii)surrender of other Shares of Common Stock of SGI of a value equal to the exercise price of the shares as to which the Option is being exercised which, in the case of shares acquired previously upon exercise of an option have been owned by the Optionee for more than six (6) months on the date of surrender; or

(iv) delivery of a properly executed exercise notice together with such other documentation as SGI and the broker, if applicable, shall require to effect a cashless exercise of the Option and delivery to SGI of the sale proceeds required to pay the exercise price.

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6.Restrictions on Exercise.  This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such Shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations (“Regulation G”) as promulgated by the Federal Reserve Board.  As a condition to the exercise of this Option, SGI may require Optionee to make any representation and warranty to SGI as may be required by any Applicable Law or regulation.

7.Termination of Status as an Employee.  If Optionee ceases to serve as an Employee, he or she may, but only within three (3) months after the date he or she ceases to be an Employee of the Company, exercise this Option to the extent that he or she was entitled to exercise it at the date of such termination.  To the extent that he or she was not entitled to exercise this Option at the date of such termination, or if he or she does not exercise this Option within the time specified herein, the Option shall terminate.

8.Disability of Optionee.  Notwithstanding the provisions of Section 7 above, if Optionee is unable to continue his or her employment relationship with the Company as a result of his or her Disability, the Optionee may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise the Option at the date of such termination.  To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option within the time specified herein, the Option shall terminate.

9.Death of Optionee.  In the event of the death of Optionee during the term of this Option, the Option may be exercised, at any time within twelve (12) months following the date of death, by Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued as of the date of death.

10.Transferability of Option.  Unless otherwise determined by the Committee to the contrary, this Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee.  The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

11.Term of Option.  This Option may not be exercised more than seven (7) years from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

12.Taxation Upon Exercise of Option.  Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the shares over the exercise price.  The

3

Company will be required to withhold tax from Optionee’s current compensation with respect to such income; to the extent that Optionee’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Optionee to make a cash payment to cover such liability as a condition of exercise of this Option.  Upon a resale of such shares by the Optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the Option will be treated as capital gain or loss.

13.Acceleration Upon Change of Control.  Notwithstanding provisions of Section 3(a) with respect to Option exercisability, in the event of a Change of Control of SGI, this Option shall automatically become exercisable in full if, within twenty-four (24) months after a Change of Control Date, (i) the Optionee is involuntarily terminated by the Company or any successor company (hereinafter, the “Employer”) without Cause or (ii) the Optionee voluntarily resigns from the Employer for Good Reason.

14.Definitions.  For purposes of Section 13, the terms “Cause,” “Change of Control,” “Change of Control Date,” and “Good Reason” shall have the meanings set out below:

(a)“Cause” means the termination of employment of an Optionee shall have taken place as a result of:

(i)an act or acts of dishonesty undertaken by such Optionee and intended to result in gain or personal enrichment of the Optionee, or

(ii)persistent failure to perform the duties and obligations of such Optionee which is not remedied in a reasonable period of time after receipt of written notice from the Employer, or

(iii)violation of confidentiality or proprietary information obligations to or agreements entered into with the Employer, or

(iv)use, sale or distribution of illegal drugs on the Employer’s premises, or

(v)threatening, intimidating, or coercing or harassing fellow employees, or

(vi)the conviction of such Optionee of a felony.

(b)“Change of Control” of SGI means:

(i)the acquisition by any Person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as Beneficial Owner (as such term is used in Rule 13d-3 promulgated under the Exchange

4

Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the outstanding shares of capital stock of SGI’s then outstanding securities with respect to the election of the directors of the Board.

(ii)During any period of three (3) consecutive years individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director of the Board subsequent to the date of the NOTICE whose election, or nomination for election by SGI’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for these purposes, considered as though such person were a member of the Incumbent Board.

(c)“Change of Control Date” means the effective date of the Change of Control or such date which the Board shall, by resolution, deem to be the Change of Control Date.

(d)“Good Reason” for voluntary resignation means (i) the Employer reduces by ten percent (10%) or more the Optionee’s compensation at the rate in effect immediately prior to the Change of Control or (ii) without the Optionee’s express written consent, the Employer requires the Optionee to change the location of his or her job or office, so that he or she will be based at a location more then fifty (50) miles from the location of his or her job or office immediately prior to the Change of Control.  For these purposes, “Compensation” includes base salary, exclusive of bonus, incentive compensation and shift differential, paid by the Employer as consideration for the Optionee’s service.

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EX-10.5

Exhibit 10.5

DESCRIPTION OF EXECUTIVE INCENTIVE PLAN
AND SUMMARY FORMS OF NOTICE

Date:                      

To:                      

From:                      

Re:Executive Incentive Plan for FY     

The Board of Directors has approved our Executive Incentive Plan for FY       .  Your annual target bonus under this plan is      % of your annual base salary.  The provisions of the plan are listed below:

• Payout requires achievement of both plan revenue and operating profit for the Company.

• We must also have a positive operating profit for payout.

• This year we will divide the plan into both a quarterly and an annual plan (both based on the above criteria).

• 50% of your target incentive will be for the quarterly plan (i.e., 1/8 per quarter) and 50% of your target incentive will be for the annual plan.

Date:                      

To:                      

From:                      

Re:Your FY      Compensation Plan

Attached is your compensation plan for FY     .  The Board of Directors recently approved this in the            meeting.  In addition, you are eligible to participate in the Corporate Executive Incentive plan with a target bonus of      % of your annual base salary.  The criteria for the corporate plan are as follows:

• Measurement will be on an annual basis.

• Payout requires achievement of both annual revenue and operating profit plan.

• We must have a positive operating profit for payout.

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EX-10.6

EXHIBIT 10.6

Description of Sales Executive Compensation Plan

And Summary Forms of Notice

[Name]

Annual Target Compensation Mix

Base Salary:                                                                                           

Target Incentive (TI):                                                              % of Base Salary

On Target Earnings (OTE):                                                                

OTE Quarterly Plan Components

I. Quarterly Geographic (Products & Service) Revenue Bonus:

•Quarterly Revenue Bonus equals      % of TI (     % of TI each quarter).

•Paid quarterly based on performance against quarterly revenue plan.

•Quarterly bonus payment per Table I, Schedule A

•If both the Quarterly Revenue and the Quarterly Geographic Contribution Margin (dollar) plans are met or exceeded (i.e. achievement on both is >100%) in the same quarter, payment for the revenue bonus will be paid on a higher schedule.  (Table I, Schedule B).

II. Quarterly Geographic Contribution Margin:

•The Quarterly Geographic Contribution Margin represents      % of TI (     % TI each quarter).

•Paid quarterly based on performance against Quarterly Geographic Contribution Margin Plan.

•Quarterly bonus payment per Table II.

•Measurement is based on Geographic Contribution Margin dollars.

Approved by:                                                           Date:                                                       

Definitions:

Base Salary: The non-variable portion of total on-target earnings (OTE).

Target Incentive (TI): Total variable amount an Executive would receive by meeting his/her targets.

On-Target-Earnings (OTE): Total cash paid to an Executive for meeting specified individual targets.

TABLE I: Quarterly Revenue Bonus Payment Schedules			TABLE II: Quarterly Geographic Contribution Margin Payment Schedule
% Achieved	Schedule A % of Quarterly Revenue Bonus Paid	Schedule B % of Quarterly Revenue Bonus Paid When Quarterly Contribution Margin is Met	% Achieved	% of Quarterly Contribution Margin Bonus Paid

Payment Calculations: For purposes of bonus payment calculations, actual achievement will be rounded to a whole number using conventional rounding (i.e. .01 - .49 will be rounded DOWN .5 - .99 will be rounded UP)

FY ‘05 Executive Compensation Plan

[Name]

Annual Target Compensation Mix

Base Salary:                                                                                        

Target Incentive (TI):                                                                              % of Base Salary

On Target Earnings (OTE):                                                             

OTE Quarterly Plan Components

I. Quarterly Product Group Revenue Bonus:

•Quarterly Revenue Bonus equals      % of TI(     % of TI each quarter).

•Paid quarterly based on performance against quarterly Product Group revenue plan.

•Quarterly bonus payment per Table I

II. Quarterly Product Group Gross Margin:

•The Quarterly Product Group Gross Margin represents      % of TI (     %TI each quarter).

•Paid quarterly based on performance against Quarterly Product Group Gross Margin Plan.

•Quarterly bonus payment per Table II.

Approved by:                                                 Date:                                                  

Definitions:

Base Salary: The non-variable portion of total on-target earnings (OTE).

Target Incentive (TI): Total variable amount an Executive would receive by meeting his/her targets.

On-Target-Earnings (OTE): Total cash paid to an Executive for meeting specified individual targets.

TABLE I: Quarterly Revenue Bonus Payment Schedules		TABLE II: Quarterly Product Group Gross Margin Bonus Payment Schedule
% Achieved	% of Quarterly Product Revenue Bonus Paid	% Achieved	% of Quarterly Gross Margin Bonus Paid

Payment Calculations: For purposes of bonus payment calculations, actual achievement will be rounded to a whole number using conventional rounding (i.e. .01 - .49 will be rounded DOWN .5 - .99 will be rounded UP)

FY ‘05 Executive Compensation Plan

[Name]

Annual Target Compensation Mix

Base Salary:

Target Incentive (TI): % of Base Salary

On Target Earnings (OTE):

OTE Quarterly Plan Components

I. Quarterly Strategic Technology Initiative Contract Bonus (Q1 & Q2 only):

•      Quarterly Contract Bonus equals     % of TI.

•      A one-time payment based on the successful completion of the contract. Determination of the successful completion will be made by Finance and Legal.

•      The maximum payout for this opportunity is    % of TI.

II. Quarterly Strategic Technology Initiative Revenue Bonus (Q3 & Q4 only):

•      Quarterly Revenue Bonus equals of TI (     % of TI each quarter).

•      Paid quarterly based on performance against quarterly Strategic Technology Initiative revenue plan.

•      Quarterly bonus payment per Table I

III. Quarterly Strategic Technology Initiative Gross Margin (Q3 & Q4 only):

•      The Quarterly Product Group Gross Margin Bonus represents     % of TI (     %TI each quarter).

•      Paid quarterly based on performance against Quarterly Strategic Technology Initiative Gross Margin Plan.

•      Quarterly bonus payment per Table II.

Approved by: Date:

Definitions:

Base Salary: The non-variable portion of total on-target earnings (OTE).

Target Incentive (TI): Total variable amount an Executive would receive by meeting his/her targets.

On-Target-Earnings (OTE): Total cash paid to an Executive for meeting specified individual targets.

TABLE I: Quarterly Revenue Bonus Payment Schedule		TABLE II: Quarterly Product Group Gross Margin Bonus Payment Schedule
% Achieved	% of Quarterly Product Revenue Bonus Paid	% Achieved	% of Quarterly Gross Margin Bonus Paid

Payment Calculations: For purposes of bonus payment calculations, actual achievement will be rounded to a whole number using conventional rounding (i.e. .01 - .49 will be rounded DOWN .5 - .99 will be rounded UP)

EX-10.8

Exhibit 10.8

AMENDMENT NUMBER ELEVEN TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

THIS AMENDMENT NUMBER ELEVEN TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of January 31, 2005, 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, Borrowers 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, Borrowers have requested that the Lender Group (i) waive Borrowers’ default resulting from Borrowers’ breach of the covenant set forth in Section 7.20(a) (Minimum EBITDA) of the Loan Agreement for the three (3) month period ending on December 24, 2004 (the “Designated Event of Default”) and (ii) confirm and adjust the minimum cash collateral required to support L/C’s which expire after the Maturity Date;

WHEREAS, subject to the satisfaction of the conditions set forth herein, the Lender Group is willing so to consent to the waiver of the Designated Event of Default and 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.

Subject to the cash collateral requirements set forth in Sections 2.4(b) and 3.6 of the Loan Agreement, the parties hereto acknowledge that: (a) the Agent’s requirements for cash collateral for each Extended L/C are hereby eliminated, and (b) the limitations on the Letter of Credit Usage set forth in Section 2.12 of the Loan Agreement are hereby confirmed.  As used herein, “Extended L/C” means an L/C which expires on a date after the Maturity Date.

3.             WAIVER.

The Lender Group grants to Borrowers a waiver of the Designated Event of Default.  This waiver is not a waiver of any subsequent Default or Event of Default arising from a breach of Section 7.20(a) of the Loan Agreement, nor is it a waiver of any other current or future Default or Event of Default. Lender 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)           Except for the Designated Event of Default, 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 Borrowers or the Lender Group; and

(d)           Borrowers pay Agent a non-refundable fee of $25,000 (the “Waiver Fee”); upon Agent’s receipt of a copy of this Amendment executed by Borrowers, Agent shall be authorized to charge Borrowers’ Loan Account the Waiver Fee, which Waiver Fee shall be non-refundable when charged; provided, however, that if Borrowers extend the credit facility provided by the Loan Agreement for a period of no less than three (3) years on terms satisfactory to Borrower and the Lender Group (the “Extension”), then the Waiver Fee shall be deemed to be a partial payment of the extension fee charged in connection with the Extension, as and when such extension fee is due and payable.

5.             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.

6.             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 amendment 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.

7.             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.

8.             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.

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. Shaghrue
Name:		Thomas P. Shaghrue
Title:		Vice President
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

EX-10.9

EXHIBIT 10.9

SILICON GRAPHICS, INC.

AMENDED AND RESTATED

1998 EMPLOYEE STOCK PURCHASE PLAN

(as of February 1, 2005)

The following constitutes the provisions of the Employee Stock Purchase Plan (herein called the “Plan”) of Silicon Graphics, Inc.

1.             Purpose.  The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through payroll deductions.  It is the intention of the Company that the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended.  The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

2.             Definitions.

(a)           “Board” means the Board of Directors of the Company or, to the extent authorized by the Board, a committee of the Board.

(b)           “Code” means the Internal Revenue Code of 1986, as amended.

(c)           “Common Stock” means the Common Stock, $0.001 par value, of the Company.

(d)           “Company” means Silicon Graphics, Inc. and Designated Subsidiaries of the Company.

(e)           “Compensation” means base pay, plus any amounts attributable to overtime, shift premium, incentive compensation, bonuses and commissions (exclusive of “spot bonuses” and any other such item specifically directed for all Employees by the Board or its committee).

(f)            “Designated Subsidiaries” means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.

(g)           “Employee” means any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in a calendar year.  For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence approved in writing by the Company.  Where the period of leave (other than a personal leave of absence) exceeds 90 days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave.  In the case of a personal leave of absence, the employment relationship shall be deemed to have terminated on the commencement date.

(h)           “Enrollment Date” means the first Trading Day of each Offering Period.

(i)            “Exercise Date” means the last Trading Day of each Offering Period.

(j)            “Fair Market Value” means, as of any date, the value of the Common Stock determined by the Board based on such factors as the Board determines relevant, provided

however, that if there is a public market for the Common Stock the fair market value will be determined as follows:

(1)           If the Common Stock is listed on any established stock exchange or a national market system, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on or prior to the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or

(2)           If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on or prior to the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.

(k)           “Maximum Amount” means, subject to applicable law, the maximum number of shares of Common Stock that a participant may purchase on any given Exercise Date or the maximum contribution amounts, as determined by the Board or its committee in its sole discretion.

(l)            “Offering Period” means the approximately six-month period commencing after one Exercise Date and ending with the next Exercise Date.  The duration and timing of Offering Periods may be changed pursuant to Sections 4 and 19 of this Plan.

(m)          “Plan” means this 1998 Employee Stock Purchase Plan, as amended.

(n)           “Purchase Price” means 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Board pursuant to Section 19.

(o)           “Reserves” means the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised and the number of shares of Common Stock that have been authorized for issuance under the Plan but not yet placed under option.

(p)           “Subsidiary” means any corporation, domestic or foreign, in which the Company or a Subsidiary owns, directly or indirectly, 50% or more of the voting shares, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

(q)           “Trading Day” means a day on which national stock exchanges and the Nasdaq System are open for trading.

3.             Eligibility.

(a)           General Rule.  Any Employee who is employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code.

(b)           Exceptions.  Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if (i) immediately after the grant, such Employee (or any other person whose stock ownership would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock and/or hold outstanding options to purchase shares possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) the rate of withholding under such option would permit the employee’s rights to purchase shares under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its

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subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

(c)           Highly Compensated Employees.  The Board may determine that a designated group of highly compensated Employees are ineligible to participate in the Plan so long as the excluded category fits within the definition of “highly compensated employee” in Section 414(q) of the Code.

4.             Offering Periods.  The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 1 and August 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 19.  The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval, if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter or at any time as provided in Section 19.

5.             Participation.

(a)           An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form provided by the Company and filing it with the Company prior to the applicable Enrollment Date, unless a later time for filing the subscription agreement is set for all eligible Employees with respect to such Offering Period.  Unless otherwise determined by the Board, an eligible Employee may participate in only one Offering Period at a time.

(b)           Payroll deductions for a participant shall commence with the first payroll following the Enrollment Date (or as soon as administratively feasible) and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless the participant withdraws from the Plan as provided in Section 10.

6.             Payroll Deductions.

(a)           At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each payday during all subsequent Offering Periods at a rate not exceeding ten percent (10%) nor less than one percent (1%), or such other rate as may be determined from time to time by the Board, of the Compensation which he or she would otherwise receive on such payday without regard to deferral elections, provided that the aggregate of such payroll deductions during any Offering Period shall not exceed ten percent (10%), or such other percentage as may be determined from time to time by the Board, of the aggregate Compensation which he or she would otherwise have received during said Offering Period.

(b)           All payroll deductions authorized by a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only.  A participant may not make any additional payments into such account.

(c)           A participant may discontinue his or her participation in the Plan as provided in Section 10, or, subject to paragraph (a), may change the rate of his or her payroll deductions during an Offering Period by completing and filing with the Company a new authorization for payroll deduction.  The Board may, in its discretion, limit the number of participation rate changes in any Offering Period.  A change in rate shall be effective as soon as administratively feasible following the Company’s receipt of the new authorization.  A participant’s subscription agreement shall remain in effect for successive Offering Periods unless the participant withdraws from the Plan as provided in Section 10.

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(d)           Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code, Section 3(b) of the Plan or the Board’s determination of the Maximum Amount, a participant’s payroll deductions may be automatically decreased to zero percent (0%) at any time during an Offering Period.  Payroll deductions shall recommence at the rate provided in such participant’s subscription agreement at the beginning of the first Offering Period when allowed by such sections, unless the participant has withdrawn pursuant to Section 10.

(e)           At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state or other tax withholding obligations, if any, which arise on the exercise of the option or the disposition of the common Stock.  At any time the Company may, but shall not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.

7.             Grant of Option.

(a)           On each Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) a number of full shares of the Company’s Common Stock arrived at by dividing such Employee’s payroll deductions to be accumulated prior to such Exercise Date and retained in the Employee’s account as of the Exercise Date by the applicable Purchase Price; provided that the maximum number of shares a participant may purchase during each Offering Period shall be determined by (i) dividing $40,000 by the Fair Market Value of a share of the Company’s Common Stock on the Enrollment Date or (ii) if less, by the “Maximum Cap” set for such Offering Period; and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12.  The “Maximum Cap” for each Offering Period shall be the number of shares purchasable under the Plan during that Offering Period with the maximum payroll deductions permitted by Section 6(d) (including the Maximum Amount), based on the Fair Market Value of the Common Stock at the beginning of the Offering Period.  The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock an Employee may purchase during each Offering Period.  Exercise of the option shall occur as provided in Section 8 of the Plan, unless the participant has withdrawn pursuant to Section 10.  The option shall expire on the last day of the Offering Period.

8.             Exercise of Option.

(a)           Unless a participant withdraws from the Offering Period as provided in Section 10, his or her option for the purchase of shares will be exercised automatically at each Exercise Date, and the maximum number of full shares subject to option will be purchased at the applicable Purchase Price with the accumulated payroll deductions in his or her account.  No fractional shares will be purchased.  The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date.  During his or her lifetime, a participant’s option to purchase shares hereunder is exercisable only by the participant.

(b)           If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall

4

determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and (x) continue all Offering Periods then in effect, or (y) terminate any or all Offering Periods then in effect pursuant to Section 19.  The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.

9.             Delivery.  As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange for the shares purchased upon exercise of his or her option to be electronically credited to the participant’s designated brokerage account at one of the securities brokerage firms participating in the Company’s direct deposit program from time to time.  Any cash remaining to the credit of a participant’s account under the Plan after a purchase by him or her of shares at the Exercise Date of each Offering Period which merely represents a fractional share shall be credited to the participant’s account for the next subsequent Offering Period; any additional cash shall be returned to said participant.

10.           Withdrawal; Termination of Employment.

(a)           A participant may withdraw all, but not less than all, the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company on a form provided for such purpose.  All of the participant’s payroll deductions credited to his or her account will be paid to the participant as soon as practicable after receipt of the notice of withdrawal, his or her option for the current Offering Period will be automatically canceled, and no further payroll deductions for the purchase of shares will be made during such Offering Period.  If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.

(b)           Upon a participant’s ceasing to be an Employee for any reason, including retirement or death, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions accumulated in his or her account during the Offering Period but not yet used to exercise the option will be returned to him or her as soon as practicable after such termination or, in the case of death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically canceled.  The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant’s customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice.

(c)           A participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding Offering Period or in any similar plan which may hereafter be adopted by the Company.

11.           Interest.  No interest shall accrue on the payroll deductions of a participant in the Plan.

12.           Stock.

(a)           Subject to adjustment upon changes in capitalization of the Company as provided in Section 18, the maximum number of shares of the Company’s Common Stock which shall be reserved for sale under the Plan after July 30, 2003 shall be 12,000,592 shares.  “Issued Shares” shall mean the number of shares of Common Stock of the Company outstanding on such date plus any shares reacquired by the Company during the fiscal year that ends on such date.  The shares to be sold to participants in the Plan may be, at the election of the Company, either treasury shares or shares authorized but unissued.  If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof on the Enrollment Date of

5

an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform and equitable a manner as is practicable.  In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each participant affected thereby and shall similarly reduce the rate of payroll deductions if necessary and return any excess funds accumulated in each participant’s account as soon as practicable after the affected Exercise Date of such Offering Period.

(b)           The participant will have no interest or voting rights in shares covered by his or her option until such option has been exercised.

(c)           Shares to be delivered to a participant under the Plan will be credited electronically to a brokerage account in the name of the participant at one of the brokerage firms participating from time to time in the Company’s direct deposit program.

13.           Administration.  (a) The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board.  The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan.  Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties.

(b)           Notwithstanding any provision to the contrary in this Plan, the Board or its designee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures.  In addition, the Board may also adopt rules, procedures or sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code.  To the extent inconsistent with the requirements of Section 423 of the Code, such sub-plans shall not be considered part of the Plan under Section 423 of the Code, and the options granted thereunder shall not be considered to comply with Section 423 of the Code.

14.           Designation of Beneficiary.

(a)           A participant may file a written designation of a beneficiary who is to receive shares and/or cash, if any, from the participant’s account under the Plan in the event of such participant’s death at a time when cash or shares are held for his or her account.

(b)           Such designation of beneficiary may be changed by the participant at any time by written notice.  In the event of the death of a participant in the absence of a valid designation of a beneficiary who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other  person as the Company may reasonably designate.

15.           Transferability.  Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14 hereof) by the participant.  Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.

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16.           Use of Funds.  All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

17.           Reports.  Individual accounts will be maintained for each participant in the Plan.  Statements of account will be given to participating Employees at least annually, and will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.

18.           Adjustments Upon Changes in Capitalization.

(a)           Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Offering Period (under Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to option.

(b)           Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress will be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless otherwise provided by the Board.  The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation.  The Company shall notify each participant in writing prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10.

(c)           Merger or Asset Sale.  In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of the successor corporation.  If the successor corporation refuses to assume or substitute for the option, any Offering Periods then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”) and any Offering Periods then in progress shall end on the New Exercise Date.  The New Exercise Date shall be before the date of the Company’s proposed sale or merger.  The Board shall notify each participant in writing prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option has been changed to the New Exercise Date and that the participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10.

The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding

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Common Stock, and in the event of the Company being consolidated with or merged into any other corporation.

19.           Amendment or Termination.

(a)           The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan.  Except as provided in Section 18, no such termination will affect options previously granted, provided that an Offering Period may be terminated by the Board on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders.   Except as provided in Section 18 and this Section 19, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant.  In addition, to the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required.

(b)           Without stockholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation and establish such other limitations or procedures as the Board or its committee determines in its sole discretion advisable which are consistent with the Plan.

(c)           In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i)            altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

(ii)           shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and

(iii)          allocating shares.

Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.

20.           Notices.  All notices or other communications by a participant to the Company in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.  Notices given by means of the Company’s online HR or similar system will be deemed to be written notices under the Plan.

21.           Stockholder Approval.  Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date the Plan is initially adopted.  Such stockholder approval shall be obtained in the manner and degree required under the Delaware General Corporate Law.

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22.           Conditions Upon Issuance of Shares.  Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, if required by applicable securities laws, the Company may require the participant for whose account the option is being exercised to represent and warrant at the time of such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

23.           Term of Plan.  The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 21. It shall continue in effect for a term of twenty (20) years from its initial effectiveness unless sooner terminated under Section 19.

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EX-31.1

Exhibit 31.1

Certification

I, Robert R. Bishop, the principal executive officer of Silicon Graphics, Inc., certify that:

1)I have reviewed this Quarterly Report on Form 10-Q 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.

	By:	/s/ ROBERT R. BISHOP
		Robert R. Bishop
Dated: February 2 , 2005		Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Jeffrey V. Zellmer, the principal financial officer of Silicon Graphics, Inc., certify that:

1)I have reviewed this Quarterly Report on Form 10-Q 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.

	By:	/s/ JEFFREY V. ZELLMER
		Jeffrey V. Zellmer
Dated: February 2, 2005		Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32.0

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)

Certification

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.

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.

	By:	/s/ ROBERT R. BISHOP
		Robert R. Bishop
Dated: February 2, 2005		Chairman and Chief Executive Officer
	By:	/s/ JEFFREY V. ZELLMER
		Jeffrey V. Zellmer
Dated: February 2, 2005		Senior Vice President and 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.