Silicon Graphics extends and amends exchange offer for 5 ¼% 04 converts

New York, July 3 - Silicon Graphics, Inc. said that it has extended its previously announced offer to exchange new senior notes or new convertible notes for its outstanding 5 ¼% senior convertible notes due 2004, and had amended the terms of the offer as well.

The offer, which had been scheduled to expire on June 27, will now expire at midnight ET on July 14, subject to possible further extension.

The company said that the exchange offer had been amended to reflect changes proposed by holders of a significant amount of the 5 ¼% convertibles. These holders have agreed to tender their notes for exchange under the amended terms of the offer

The company is offering to exchange either new 6 ½% senior convertible notes due 2009 or new 11 ¾% senior notes due 2009 for the existing 5 ¼% convertibles, at the option of the tendering noteholder.

The revised terms of the offer include a reduction in the price at which the 6 ½% convertibles may be converted into shares of SGI common stock, from $3 to $1.85 per share, as well as a corresponding reduction in the maximum aggregate principal amount of 6 ½% convertibles that the company will issue in the exchange offer, from $120 million to $78 million (if more than $78 million principal amount of 5 ¼% convertibles are tendered with the holders specifying they want the 6 ½% convertibles, SGI will accept the tendered notes in exchange for the 6 ½% convertibles on a pro-rata basis, with all such tendered notes not accepted for exchange into the 6 ½% convertibles because of proration instead to be exchanged for the 11 ¾% notes).

Additionally, under the terms of the amended offer, Silicon Graphics has agreed to meet financial performance and debt reduction conditions which, if not satisfied, will result in an increase in the interest rate payable on the 11 ¾% notes and a further reduction in the conversion price of the 6 ½% convertible notes for the fiscal quarter in which the conditions have not been satisfied.

The company said it would also agree to use the proceeds of certain asset sales to reduce its debt, and to provide for exchanging holders to nominate two persons to serve on its Board of Directors.

It said that the changes in the terms of the offer were reflected in an amendment to the exchange offer that SGI filed with the Securities and Exchange Commission.

It advised holders who had already validly tendered their 5 ¼% convertibles that they need take no further action to enjoy the improved offer terms. Holders may withdraw any notes tendered - including any notes previously tendered - until the July 14 expiration deadline.

Silicon Graphics said that as of the previous expiration deadline at 12 midnight ET on June 27, approximately $111.4 million of the 5 ¼% convertibles, or about 48% of the outstanding notes, had been tendered under the terms of the exchange offer. Of the notes that had been tendered, approximately $98.7 million were tendered in exchange for the 11 ¾% notes, and approximately $12.7 million were tendered for the 6 ½% convertible notes. Additionally, the company has received letters from holders of an aggregate of $44.2 million principal amount of the 5 ¼% convertibles indicating that they will tender their notes in the amended exchange offer.

As previously announced, Silicon Graphics, a Mountainview, Calif. Computing systems company, said on April 21 that it had filed a registration statement, and a tender offer statement and other related documents with the Securities and Exchange Commission for an exchange offer for its 5 ¼% convertible notes.

The company said that it would offer to exchange either new 11 ¾% senior notes or new 6 ½% senior convertible notes, at the tendering noteholder's choice (within specified limits) for up to $230 million principal amount of its existing 5 ¼% convertible notes. The new notes would be issued in principal amounts equal to the principal amounts of existing notes tendered.

It initially said that the 6 ½% notes would be convertible into SGI common stock at $3 per share, although this was subsequently revised downward, as indicated, and said that the maximum principal amount of 6 ½% convertible notes that it would issue in the exchange offer would be $120 million (this amount was subsequently revised downward) ; if more than that principal amount of the existing notes were to be tendered in exchange for the 6 ½% convertibles, Silicon Graphics would allot the 6 ½% convertibles on pro-rata basis. Existing 5 ¼% convertible notes not exchanged for 6 ½% convertibles because of proration would be exchanged for 11 ¾% notes.

The company said that the purpose of the exchange offer was to offer holders of the existing notes an increase in yield and (in the case of the 6 ½% convertibles, a decrease in the conversion price of their investment), in return for an extension of the maturity.

Silicon Graphics said the exchange offer would be subject to the satisfaction or waiver of several conditions, including that a minimum of 90% of the principal amount of the existing convertible notes being validly tendered and not withdrawn. It said that Highfields Capital, a holder of approximately $68 million in principal amount of the existing convertible notes, had agreed to tender and not to withdraw its notes in exchange for the 11 ¾% notes.

SGI further said that a registration statement relating to the proposed exchange offer had been filed with the SEC, but had not yet become effective.

Silicon Graphics did not formally publicly announce the actual start of the exchange offer, but did announce on May 19 that it had been extended to midnight ET on June 13 (the offer was subsequently further extended).

The company said that the offer had been extended past its original expiration date for a number of reasons, among them to enable non-institutional holders of the 5 ¼% convertibles a better opportunity to tender their notes (it estimated that approximately 20% of the notes were beneficially owned by such non-institutional holders).

It also amended the terms of the exchange offer to provide for the payment of a fee to soliciting dealers in connection with the tender by their clients (in amounts of $250,000 or less) of the 5 ¼% convertibles. The fee to be paid to dealers would be $5 per $1,000 principal amount solicited from and tendered by beneficial holders of accounts of $50,000 or less in principal amount and would be $2.50 per $1,000 principal amount solicited from accounts holding more than $50,000 and up to $250,000 in principal amount of the notes, for notes accepted in the exchange offer.

All other terms and conditions of the exchange offer were to remain unchanged.

On June 16, Silicon Graphics announced a further extension of the offer, to June 27, in order to continue informal discussions initiated with a group of significant bondholders the previous week about revising the terms of the offer.

It advised investors that as a result of the discussions, the company might further amend the offer to reduce the conversion price of the 6 ½% convertible notes, add certain provisions to permit holders to monitor Silicon Graphics' near-term financial performance and include certain governance- related matters. It said that any changes in the terms of the offer would be reflected in an amendment to the exchange offer and would be available to all holders of the 5 ¼% convertibles during an additional extension. It said the purpose of the amendment would be "to attract tenders from the greatest possible number of holders."

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