================================================================= SILICON GRAPHICS BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2006 (ISSN XXXX-XXXX) May 9, 2006 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- SILICON GRAPHICS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Gracele D. Canilao, Julie Anne G. Lopez, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of SILICON GRAPHICS BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO SILICON GRAPHICS BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF SILICON GRAPHICS [00002] SILICON GRAPHICS' BALANCE SHEET AS OF MARCH 31, 2006 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] SILICON GRAPHICS' CHAPTER 11 DATABASE [00005] LIST OF SILICON GRAPHICS' 30 LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] STANDARD & POOR'S LOWERS SILICON GRAPHICS' RATINGS TO D [00008] SILICON GRAPHICS ESTIMATES RESTRUCTURING TO COST $15 MIL. [00009] SILICON GRAPHICS REPORTS PRELIMINARY 3Q FINANCIAL RESULTS KEY DATE CALENDAR ----------------- 05/08/06 Voluntary Petition Date 05/23/06 Deadline to File Schedules of Assets & Liabilities 05/23/06 Deadline to File Statements of Financial Affairs 05/23/06 Deadline to File Lists of Leases and Contracts 06/07/06 Deadline to Provide Utilities With Adequate Assurance 08/06/06 Deadline to remove actions under FRBP 9027 09/05/06 Deadline to make decisions about lease depositions 09/05/06 Expiration of Exclusive Plan Proposal Period 11/04/06 Expiration of Exclusive Solicitation Period 05/07/08 Deadline to Commence Avoidance Actions Organizational Meeting to Form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO SILICON GRAPHICS BANKRUPTCY NEWS ----------------------------------------------------------------- SILICON GRAPHICS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) SILICON GRAPHICS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of SILICON GRAPHICS BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF SILICON GRAPHICS ----------------------------------------------------------------- SILICON GRAPHICS, INC. 1500 Crittenden Lane Mountain View, California 94043-1351 Telephone (650) 960-1980 http://www.sgi.com/ Silicon Graphics, Inc., was founded in 1981. The company began as a manufacturer of graphic display terminals based on proprietary software and hardware that accelerated the display of three-dimensional images. It is a leading provider of high- performance computing servers, visualization solutions (like the computerized special effects in movies like "Jurassic Park" and "The Lord of the Rings"), and storage products and services. According to Kathy Lanterman, senior vice president and chief financial officer, SGI's systems are designed to compute vast amounts of data, translate data into high-resolution images in a realistic time frame and scale, and provide high-speed storage. SGI operates through three business segments: (1) High-Performance Systems High-performance computing is characterized by massive data sets, immense quantities of mathematical calculations, and high-speed data transfer. HPC has typically addressed technical problems including weather forecasting, nuclear fusion simulation, molecular modeling, and cryptoanalysis. HPC is also being applied to commercial applications including data warehousing and analytics, real-time enterprise infrastructure, and digital imaging and analysis. SGI designs and manufactures supercomputers that not only are among the fastest computers in the world, they are built to be flexibly configured and scalable to meet specific customer needs. (2) Software and Storage SGI manufactures a line of scalable, high-performance storage solutions built specifically for data-intensive environments. The Storage and Software segment also produces the proprietary software necessary to facilitate rapid and efficient data access. (3) Global Services The Global Services segment assists customers with the design, installation, and support of SGI's computer systems, software, and storage products. SGI provides customer support services online, through SGI global support centers, and through authorized local service providers in countries where SGI does not have a local office. SGI targets five market segments: (a) Defense and Security; (b) Science and Research; (c) Manufacturing; (d) Energy; and (e) Media. SGI's customers include many Fortune 1,000 corporations, world- leading research organizations, and numerous government agencies, including NASA. Organizational Structure __________________ | | | Silicon Graphics | | Inc. (Delaware) | |__________________| | _______________________|____________ ______|___________ __________________ | __________________ | | | | | | | | Silicon Graphics | | Silicon Graphics | | | Silicon Graphics | | World Trade Corp.| | Federal, Inc. |__|_| Real Estate Inc. | | (Delaware) | | (Delaware) | | | (Delaware) | |__________________| |__________________| | |__________________| | | ______|___________ __________________ | __________________ | | | | | | | | Silicon Graphics | | Silicon Studio |__|_| Paragraph Int'l. | | World Trade B.V. | | Inc. (Delaware) | | | Inc. (California)| | (Netherlands) | |__________________| | |__________________| |__________________| | | | ______|___________ __________________ | __________________ | | | | | | | | Foreign | | Cray Research |__|_| WTI Developments | | Subsidiaries | | LLC (Delaware) | | Inc. (California)| |__________________| |__________________| |__________________| | | _______|__________ ________|_________ | | | | | Cray Subsidiaries| | Alias/Wavefront | | | | N/V (Belgium) | |__________________| |__________________| In the United States, SGI is headquartered in Mountain View, California, and has its U.S. sales headquarters in Silver Spring, Maryland. SGI also has sales offices, customer training centers, and engineering capabilities in New York, Maryland, Massachusetts, Texas and Minnesota. SGI owns a manufacturing facility and maintains a significant presence of engineering and administrative staff in Chippewa Falls, Wisconsin. Silicon Graphics, the ultimate parent corporation of all SGI entities, is primarily responsible for SGI's manufacturing operations and is party to the majority of contracts with SGI's suppliers and vendors. Silicon Graphics also owns, maintains, and operates, on its own behalf and for the benefit of all subsidiaries, the majority of the information systems technology that is required to operate its global business. Silicon Graphics Federal, Inc., is responsible for SGI's defense and security market segment and is party to various contracts with the federal government and other third parties that contract directly with the government. SGI has direct sales and distribution in approximately 50 countries around the world. SGI's foreign subsidiaries are located in approximately 27 countries. In addition to its direct sales force, SGI utilizes indirect channels, including resellers and authorized distributors, throughout the world. SGI has assets in numerous locations outside the United States. The aggregate net book value of all assets located outside the United States as of March 31, 2006 is approximately $170,000,000. As of the April 28, 2006, SGI had 1,858 employees, consisting of 1,237 employees in the United States and 621 employees abroad. Road to Bankruptcy Ms. Lanterman recounts that in the late 1990s, SGI made a series of investments in strategies and technologies that yielded less than the expected results. "In addition, from 2001 throughout 2002, the technology and computer industry experienced a significant decline, which was caused, in large measure, by the downturn in the global economy. As a result, SGI's customers significantly reduced their capital expenditures, which, in turn, negatively impacted revenue. The combination of these factors, limited the research and development resources available for core processor development for future products. As a result, SGI's core processor technology lost momentum in the market." Recently, Ms. Lanterman says, SGI has been challenged by delays in the introduction of new technology, a focus on more specialized markets, fierce competition from larger companies -- International Business Machines Corp., Hewlett-Packard Co., Dell Inc. and Sun Microsystems Inc. -- leading to reduced market share, an overleveraged capital structure, and a burdensome cost structure, including legacy real estate and high corporate overhead. "All of these issues have culminated in customer concerns regarding SGI's future, which has impacted SGI's ability to sell its products." Turnaround Efforts In May 2005, SGI engaged AlixPartners, LLC to help develop and implement strategies to reduce its costs and simplify its operations. In addition, in October 2005, AlixPartners assisted SGI in refinancing its obligations under SGI's then-existing secured credit facility. In January 2006, SGI's Board of Directors changed SGI's leadership and Dennis McKenna assumed the responsibilities of Chairman and Chief Executive Officer. On March 2, 2006, SGI began implementation of a broad sweeping cost reduction and organizational re-alignment, which includes a reduction in over 12% its workforce, additional changes in leadership, including a flattening of SGI's senior leadership structure, changes in sales force organizational deployment, and changes in product strategy. "In conjunction with the actions already taken, the combined operational restructuring efforts underway are expected to reduce SGI's costs by over $150 million annually when complete in the second quarter of fiscal 2007," Ms. Lanterman says. New Strategies for Business Turnaround Mr. McKenna also identified and outlined strategies to grow revenue. Among others, SGI plans to broaden its product offerings in order to fill a larger portion of customers' information technology needs. SGI anticipates that these strategies will begin increasing revenues by the first fiscal quarter of 2007, with increasing benefits through the remainder of the fiscal year. Consideration of Alternative Transactions Beginning in 2005, SGI and its advisors explored various transactions, including possible M&A transactions, refinancing options, recapitalizations, and a potential chapter 11 filing, in an effort to maximize value for its stakeholders. SGI, through its financial advisor, Bear, Stearns & Co., contacted over 30 strategic and financial buyers, and received expressions of interest in purchasing SGI's assets. SGI also explored various refinancing alternatives in an effort to increase liquidity. SGI also engaged in extensive negotiations with an ad hoc committee of holders of the Senior Secured Notes regarding a recapitalization of SGI's significant indebtedness. Restructuring Agreement On May 5, 2006, SGI and the Ad Hoc Committee reached agreement on a term sheet, which sets forth the terms of a restructuring that will significantly delever SGI's balance sheet and provide SGI with adequate funding for the chapter 11 process. On May 7, 2006, SGI entered into a restructuring agreement with certain members of the Ad Hoc Committee that provides for those members' support of a chapter 11 plan of reorganization consistent with the Term Sheet. The Restructuring Agreement and Term Sheet generally provide that: * Certain holders of the Senior Secured Notes will provide SGI with a $70 million debtor-in-possession financing facility, which will be used for general corporate purposes and to pay down an additional $20 million of existing indebtedness under the Credit Agreement. These holders have also committed to fully-backstop a $50 million rights offering; * Claims of the Prepetition Lenders under the Credit Agreement will be paid in full in cash on the Effective Date of the Plan; * Senior Secured Noteholders' claims under the Senior Secured Notes indentures will be exchanged for a portion of the new equity in reorganized SGI and will be offered the opportunity to purchase the majority of the remaining new equity of reorganized SGI in a fully backstopped $50 million rights offering; * General unsecured claims (excluding the Senior Secured Noteholders' deficiency claims) will receive their ratable share of approximately $1.5 million; * Subordination provisions in the Subordinated Debenture Indenture will be enforced and, as a result, the holders of the Subordinated Debentures will receive no recovery; and * Holders of SGI's common stock will receive no recovery. Chapter 11 Plan to be Filed Next Month SGI anticipates that, within the 30-day period following its bankruptcy filing, it will file a proposed plan of reorganization to implement the provisions of the Restructuring Agreement and the Term Sheet. "Implementing such restructuring is a significant step in effectuating SGI's turnaround and will enable SGI to emerge as a healthy, viable enterprise that can continue its dominance in world-class computing solutions," Ms. Lanterman says. Transactions Within the Next Month During the 30-day period from ending June 7, 2006, SGI expects to consume more than $20 million in cash: Cash Receipts $12,818,000 Cash Disbursements 34,487,000 ----------- Net Cash Loss $21,670,000 SGI projects that, at June 7, Unpaid Obligations will total $19,302,000 and Unpaid Receivables will total $26,400,000. SGI estimates it will pay these amounts to its employees, officers, stockholders, directors, and financial and business consultants: Employees: 5/08/06 - 5/14/06: $2,370,000 5/15/06 - 5/21/06: $2,370,000 5/22/06 - 5/28/06: $2,370,000 5/29/06 - 6/04/06: $2,370,000 Officers, Directors and Stockholders: Officers: $150,000 Directors: $40,000 Stockholders: None Financial and Business Consultants: Bear Stearns & Co. Inc.: $105,000 AlixPartners, LLC: $345,000 Ernst & Young LLP: $250,000 ----------------------------------------------------------------- [00002] SILICON GRAPHICS' BALANCE SHEET AS OF MARCH 31, 2006 ----------------------------------------------------------------- SILICON GRAPHICS, INC. PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS As of March 31, 2006 (Unaudited) ASSETS Current assets: Cash and cash equivalents $54,257,000 Short-term marketable investments 601,000 Short-term restricted investments 40,641,000 Accounts receivable, net 58,035,000 Inventories 71,911,000 Prepaid expenses & other current assets 38,067,000 ------------- Total current assets 263,512,000 ------------- Restricted investments 409,000 Net property and equipment 37,134,000 Other assets 68,362,000 ------------- $369,417,000 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $57,782,000 Accrued compensation 25,384,000 Income taxes payable 2,426,000 Other current liabilities 68,581,000 Current portion of long-term debt 38,293,000 Current portion of deferred revenue 104,887,000 ------------- Total current liabilities 297,353,000 ------------- Long-term debt 253,078,000 Long-term deferred revenue 48,458,000 Other liabilities 65,380,000 ------------- Total liabilities 664,269,000 ------------- Total stockholders' deficit (294,852,000) ------------- $369,417,000 ============= ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- SGI Takes Action to Reduce Debt SGI Announces Pre-Negotiated Reorganization MOUNTAIN VIEW, California -- May 8, 2006 -- Silicon Graphics (OTC: SGID) today announced that it has reached an agreement with all of its Senior Secured bank lenders and with holders of a significant amount of its Senior Secured debt on the terms of a reorganization plan that will reduce its debt by approximately $250 million, greatly simplifying its capital structure. As part of this agreement with many of its major stakeholders, and as the next step in its previously announced plan to reorganize its businesses, the Company and its U.S. subsidiaries have filed voluntary petitions under chapter 11 of the U.S. Bankruptcy Code. SGI's non-U.S. subsidiaries, including European, Canadian, Mexican, South American and Asia Pacific subsidiaries were not included in the filing; will continue their business operations without supervision from the U.S. courts; and will not be subject to the requirements of chapter 11. The Company expects to file its Plan of Reorganization reflecting the agreement shortly, and to emerge from Chapter 11 within six months. "We want to assure our customers, our employees and our communities that SGI is operating-business as usual," Dennis P. McKenna, the recently appointed, Chairman and CEO of SGI, stated. "Our customers can continue to rely on SGI for its mission- critical products, services, and support." This reorganization is planned with no disruption to day-to- day customer and partner activities as the Company positions itself to recapture mindshare and market share. Over the last 100 days, the Company under the leadership of its new management team has had several significant achievements. During this time it has: * Assembled a new management team including a new Chief Executive Officer and Chief Financial Officer, as well as the appointment of other experienced executives; * Closed on some significant sales orders reflecting continued customer confidence in SGI; * Completed a program that has resulted in $100 million in annualized cost savings with an additional $50 million in savings underway; * Identified additional paths to streamline operating and administrative costs; * Improved efficiencies in its manufacturing operations; * Strengthened and expanded its product roadmap; and * Implemented a plan to reposition its product and market focus to take advantage of the Company's significant technology and market potential. "This is a necessary and responsible step that will strengthen the Company and foster a sustained turnaround at SGI. This milestone marks a fundamental and comprehensive change," McKenna continued. "Our customers and partners want the Company to succeed because of the value SGI continues to bring to the disciplines and capabilities of discovery, innovation, engineering and information transformation which are at the center of the world's achievements and business processes." "We expect to proceed quickly and will emerge from these proceedings with a significantly improved balance sheet and, as a result, greater operating flexibility. I am confident in SGI's future. The new direction I have set is comprehensive, the product portfolio we will unveil is expansive and our dedication to customer satisfaction is unwavering," McKenna added. Certain holders of the Company's existing Senior Secured notes are providing SGI with a $70 million financing facility. The Senior Secured notes represent a majority of the Company's total outstanding debt. Subject to court approval, the proceeds from the financing together with cash generated from daily operations and cash on hand, will be used to paydown a portion of SGI's pre-petition debt and to fund operating expenses including post-petition supplier payments, employee wages and benefits, and other operating expenses. The agreement contemplates that the Company's existing Senior Secured bondholders will be converting their existing debt into the new equity of SGI and, through a rights offering, will have the opportunity to purchase $50 million of additional new equity. The $50 million rights offering is being backstopped by certain of these bondholders to ensure that the Company raises the full $50 million of new equity capital. It is contemplated that the $50 million of new capital will be used to reduce debt and further enhance the Company's liquidity. Upon confirmation of the plan, the new common stock of the Company will be issued to the holders of SGI's Senior Secured bonds. All of SGI's existing common stock and the unsecured subordinated debentures will be cancelled upon confirmation of the plan by the court and receive no recovery. Accordingly, the Company believes that SGI's currently outstanding common stock and unsecured subordinated debentures have no value. McKenna concluded by stating "We regret the effect that this will have on SGI's shareholders and other unsecured creditors. SGI plays a critical role in the world's infrastructure. This needs to be preserved." SGI's principal bankruptcy counsel is Weil, Gotshal & Manges LLP. The filings were made today in the U.S. Bankruptcy Court for the Southern District of New York. More information about SGI's reorganization is available on the Internet at http://www.sgi.com/reorg ----------------------------------------------------------------- [00004] SILICON GRAPHICS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor: Silicon Graphics, Inc. dba Silicon Graphics Computer Systems dba SGI, Inc. dba SGI 1500 Crittenden Lane Mountain View, California 94043-1351 Tel: (650) 960-1980 Bankruptcy Case No.: 06-10977 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Silicon Graphics Federal, Inc. 06-10978 Cray Research, LLC 06-10979 Silicon Graphics Real Estate, Inc. 06-10980 Silicon Graphics World Trade Corporation 06-10981 Silicon Studio, Inc. 06-10982 Cray Research America Latina Ltd. 06-10983 Cray Research Eastern Europe Ltd. 06-10984 Cray Research India Ltd. 06-10985 Cray Research International, Inc. 06-10986 Cray Financial Corporation 06-10987 Cray Asia/Pacific, Inc. 06-10988 ParaGraph International, Inc. 06-10989 WTI-Development, Inc. 06-10990 Chapter 11 Petition Date: May 8, 2006 Court: Southern District of New York (Manhattan) Judge: Allan L. Gropper Debtor's Counsel: Gary Holtzer, Esq. Shai Y. Waisman, Esq. Weil Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Tel: (212) 310-8463 Fax: (212) 310-8007 ----------------------------------------------------------------- [00005] LIST OF SILICON GRAPHICS' 30 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ JPMorgan Chase Bank and Bond Debt $56,776,000 JPMorgan Institutional Trust Services 2001 Bryan Street, 10th Floor Dallas, TX 75201 Solectron Trade Debt $10,088,793 847 Gibraltar Drive Milpitas, CA 95035 Engenio Information Trade Debt $4,623,372 Technologies 1621 Barber Lane Milpitas, CA 95035 IBM Trade Debt $2,262,177 1133 Westchester Avenue White Plains, NY 10604 United Properties Trade Debt $2,058,803 3500 West American Boulevard Suite 200 Bloomington, MN 55431 Datadirect Networks Trade Debt $1,724,720 9230 Lurline Avenue Chatsworth, CA 91311-6041 Celestica Trade Debt $1,349,152 1150 Eglinton Avenue East Toronto, Ontario M3C 1H7 Canada Xyratex Trade Debt $919,897 2031 Concourse Drive San Jose, CA 95131 Storage Technology Trade Debt $711,340 1 Storage Tek Drive Louisville, CO 80028-0001 SPL Integrated Solutions Trade Debt $696,576 9180 Rurnsey Road, Suite D4 Columbia, MD 21045 Smart Modular Technologies Trade Debt $695,781 4211 Starboard Drive Fremont, CA 94538 Avago Technologies U.S., Inc. Trade Debt $687,500 350 West Trimble Road Building 90 San Jose, CA 95131 Christie Digital Systems Trade Debt $678,700 10550 Camden Drive Cypress, CA 90630 Micron Semiconductor Products Trade Debt $625,053 8000 South Federal Way Boise, ID 83707-0006 Act 1 Trade Debt $591,974 1999 West 190th Street Torrance, CA 90504-6202 Electronic Data Systems Trade Debt $588,109 5400 Legacy Drive Plano, TX 75024-3199 PDSI Trade Debt $581,537 664 Southeast Bayberry Lane Suite 105 Lee's Summit, MO 64063 Trident Computer Trade Debt $528,382 Resources, Inc. 151 Industrial Way East Building A Eatontown, NJ 07724 GyroGroup Trade Debt $510,443 30 Maiden Lane, Suite 500 San Francisco, CA 94108 EBM-Papst Trade Debt $474,264 100 Hyde Road Farmington, CT 06032-2835 Trilogy Computer Trade Debt $450,000 Industry Solutions 6011 West Courtyard Drive Austin, TX 78730 Harwood International Corp. Trade Debt $438,850 2828 North Harwood 16th Floor Dallas, TX 75201 Meritec Trade Debt $385,424 c/o Ohio Associated Enterprises LLC 1382 West Jackson Street Painesville, OH 44077-1306 Synopsys Trade Debt $375,000 700 East Middlefield Road Mountain View, CA 94043-4024 Interactive Supercomputing LLC Trade Debt $362,500 135 Beaver Street Waltham, MA 02452 Q-Logic Trade Debt $314,940 26650 Aliso Viejo Parkway Aliso Viejo, CA 92656 Crenlo LLC Trade Debt $308,640 1600 4th Avenue, Northwest Rochester, MN 55091 Davis Polk & Wardwell Trade Debt $294,087 1600 El Camino Real Menlo Park, CA 94025 Atlas Manufacturing Trade Debt $247,576 81 Somerset Place Clifton, NJ 07012-1197 Securitas Security Trade Debt $243,285 Services USA Inc. 2 Campus Drive Parsippany, NJ 07054 ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Rule 1015(b) of the Federal Rules of Bankruptcy Procedure provides, in relevant part, that if "two or more petitions are pending in the same court by or against . . . a debtor and an affiliate, the court may order a joint administration of the estates." Kathy Lanterman, senior vice president and chief financial officer of Silicon Graphics, Inc., tells the Court that Silicon Graphics, Inc., and its 13 debtor-affiliates are "affiliates" as that term is defined in Section 101(2) of the Bankruptcy Code. Joint administration of the Debtors' cases is warranted, Ms. Lanterman says, because it will avoid the preparation, replication, filing, and service, as applicable, of duplicative notices, applications, and orders, thereby saving the Debtors and their estates considerable time and expense. Ms. Lanterman points out that creditors won't be adversely affected because the Debtors seek only administrative consolidation of their cases -- not substantive consolidation of the estates. Each creditor may still file its claim against a particular estate. According to Ms. Lanterman, the rights of all creditors will be enhanced by the reduced costs that will result from the joint administration of the Debtors' cases. "The Court also will be relieved of the burden of entering duplicative orders and maintaining duplicative files. Finally, supervision of the administrative aspects of these chapter 11 cases by the United States Trustee for the Southern District of New York will be simplified. By this motion, the Debtors ask the Court to rule that all pleadings and papers filed in their cases will be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------x In re : Chapter 11 Case No. : SILICON GRAPHICS, INC., et al., : 06-10977 (ALG) : Debtors. : (Jointly Administered) ---------------------------------x The Debtors also seek the Court's authority to file the monthly operating reports required by the U.S. Trustee Operating Guidelines on a consolidated basis if the Debtors determine, after consultation with the U.S. Trustee, that consolidated reports would further administrative economy and efficiency without prejudice to any party-in-interest and that the reports would accurately reflect the Debtors' consolidated business operations and financial affairs. ----------------------------------------------------------------- [00007] STANDARD & POOR'S LOWERS SILICON GRAPHICS' RATINGS TO D ----------------------------------------------------------------- NEW YORK, New York -- May 8, 2006 -- On May 8, 2006 Standard & Poor's Ratings Services lowered its 'CCC+' corporate credit rating and all related ratings on Mountain View, Calif.-based Silicon Graphics, Inc. to 'D'. "The downgrade follows the company's announcement that it has filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code," said Standard & Poor's credit analyst Martha Toll-Reed. SGI also announced that it has reached an agreement with all of its senior secured bank lenders and with holders of a significant amount of its senior secured debt on the terms of a reorganization plan that will reduce its debt by approximately $250 million. SGI is a provider of high-performance computer products, and related services and solutions. ----------------------------------------------------------------- [00008] SILICON GRAPHICS ESTIMATES RESTRUCTURING TO COST $15 MIL. ----------------------------------------------------------------- Silicon Graphics, Inc.'s restructuring plan, in addition to the headcount reductions, includes initiatives to implement operating asset write downs for fixed assets and demonstration units, excess product inventory, purchase commitments and contract cancellations associated with the end of production of existing Prism and Prism Deskside products and the cancellation of future Prism products and termination costs for vacating various leased facilities. Kathy Lanterman, Senior Vice President, Chief Financial Officer & Controller, discloses in a regulatory filing with the Securities and Exchange Commission that the company currently estimates that the total restructuring costs to be incurred in connection with these restructuring actions will be approximately $15 million. "Of this total, we estimate that approximately $10 million principally relates to severance benefits, approximately $4.5 million represents operating asset write downs for fixed assets and demonstration units, purchase commitments, contract cancellations and excess product inventory associated with the end of production of existing Prism and Prism Deskside products and the cancellation of future Prism products and that approximately $0.5 million relates to facilities charges," Ms. Lanterman says. The estimate for excess product inventory of $1.5 million may be adjusted in the future depending on the demand for the Prism product line through the end of production in the first quarter of fiscal 2007. According to Ms. Lanterman, the Company's financial results for the quarter ending March 31, 2006, reflected $8 million in restructuring charges for the new restructuring actions, primarily for severance benefits. The Company expects the majority of the remaining charges for severance benefits to be reflected in its financial results for the quarter ending June, 2006 and the restructuring to be principally completed by the end of the fiscal quarter ending December 2006. ----------------------------------------------------------------- [00009] SILICON GRAPHICS REPORTS PRELIMINARY 3Q FINANCIAL RESULTS ----------------------------------------------------------------- MOUNTAIN VIEW, California -- May 8, 2006 -- Silicon Graphics (OTC: SGID) today announced updated preliminary results for its third fiscal quarter which ended March 31, 2006. The financial information included in this release is preliminary in that it does not reflect any potential adjustments that may be required to our interim condensed consolidated financial statements as of and for the three and nine months ended March 31, 2006, following the completion of an asset impairment evaluation that must be performed in order for those financial statements to be stated in accordance with U.S. generally accepted accounting principles. Revenue for the three months ended March 31, 2006 was $108 million, in line with the preliminary results announced April 25, 2006. For comparison, revenue was $144 million in the prior quarter and $159 million in the same quarter one year ago. On a GAAP basis, net loss for the three months ended March 31, 2006 was $43 million or $0.16 per share, compared to a net loss of $45 million or $0.17 per share in the same quarter one year ago. Gross margin for the third quarter fiscal year 2006 was 36%, compared to 42% in the prior quarter and 35% in the same quarter one year ago. Operating expenses for the third fiscal quarter were $82 million compared with $89 million in the prior quarter and $100 million one year ago. Unrestricted cash, cash equivalents and marketable investments on March 31, 2006 were $55 million compared with $66 million on December 30, 2005 and $84 million on March 25, 2005. SGI has received a limited forbearance under its asset-based credit agreement in light of not meeting the EBITDA covenant in that agreement. In conjunction with the forbearance, SGI has paid down the amount drawn under the term loan by $20 million using $10 million from unrestricted cash and $10 million of previously restricted cash. SGI's Annual Meeting of Shareholders and its regularly scheduled quarterly conference call have been suspended until further notice. *** End of Issue No. 1 ***