Silicon Graphics granted court approval of $1.05 million hardware development agreement

By Caroline Salls

Pittsburgh, June 21 - Silicon Graphics, Inc. obtained court approval to assume a development and purchase agreement with D.E. Shaw Research, LLC that will pay Silicon Graphics $1.05 million and allow it to continue to provide and be paid for engineering services to D.E. Shaw, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Under the original development agreement, Silicon Graphics agreed to design and develop hardware that would be used in conjunction with a super computer designed by D.E. Shaw in exchange for $4 million to be paid in eight $500,000 installments.

If Silicon Graphics completes a stage of development after an applicable milestone date, D.E. Shaw is only obligated to pay 50% of the related payment.

As consideration for the external license granted to D.E. Shaw, upon its receipt and acceptance of the completed hardware, D.E. Shaw is required to pay Silicon Graphics $1 million.

Silicon Graphics said it completed the required work for the first four milestone dates, but the companies disputed the requirements for future milestones, and Silicon Graphics believed that D.E. Shaw was requesting services beyond those set forth in the agreement.

As a result, the parties negotiated amendments to the agreement, under which Silicon Graphics will have no obligation to continue development of the hardware after the fifth milestone date, D.E. Shaw will pay 100% of the remaining milestone payment in connection with the fifth milestone date within 15 days and will not assert any default with respect to the fifth or any other milestone date.

Also, a development fee will be reduced to $2.5 million from $4 million, Silicon Graphics will provide up to 200 hours of consulting services to D.E. Shaw at the rate of $200.00 per hour through Nov. 15, and the licensing fee will be reduced to $800,000 from $1 million and will be paid to D.E. Shaw within 15 days.

Silicon Graphics, a Mountain View, Calif., technology provider, filed for bankruptcy on May 29. The company's Chapter 11 case number is 06-10977.

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