APPLICATIONS

Today, Silicon Graphics disclosed that it received a notice of default from a purported holder of more than 25% of its 6.125% Convertible Subordinated Debentures due 2011 (the "2011 Debentures"), which SGI assumed when it acquired Cray Research in 1996. The notice alleged that the indenture for the 2011 Debentures was breached in 2000 when SGI sold assets relating to certain former Cray Research product lines to Tera Computer Company (now known as Cray, Inc.) without causing Tera to assume the indenture. As a result of the notice and the expiration of the applicable cure period, such holder may now seek to accelerate the maturity of the 2011 Debentures. The Company strongly disagrees with the claims made in the notice and intends to vigorously challenge any claim of an event of default. There are currently approximately $57 million outstanding principal amount of 2011 Debentures, and all required interest and principal payments have been timely made. The indenture provides that upon an event of default the indenture trustee or the holders of at least 25% of the 2011 Debentures may cause the outstanding principal amount plus accrued interest to be immediately due and payable. The 2011 Debentures are unsecured and subordinated. The debenture holders or trustee would be required to commence legal proceedings and obtain a judgment in order to enforce their claim on the assets of SGI. A default entitling acceleration under the indenture for the 2011 Debentures triggers an event of default under SGI's asset-backed credit agreement with Wells Fargo Foothill, Inc. Acceleration of the maturity of the 2011 Debentures would trigger an event of default under lease agreements with respect to SGI's principal facilities in Mountain View, California. SGI's borrowings under the asset-backed credit agreement are primarily to support letters of credit required under the lease agreements. SGI has reviewed the claimed default with these parties and has requested that they refrain from exercising any rights they may have arising from the claimed default. SGI is not aware that any of them intends to take any action at this time. SGI's 6.50% Senior Secured Convertible Notes due 2009 and 11.75% Senior Secured Notes due 2009 do not contain similar provisions.