Silicon Graphics Files for Chapter 11 Bankruptcy Protection

Silicon Graphics Inc. (SGID) has filed for Chapter 11 bankruptcy protection, after a group of bondholders agreed to trade their debt for a stake in the company.

The maker of high-performance computers filed for Chapter 11 protection Monday in U.S. Bankruptcy Court in Manhattan.

The Mountain View, Calif.-based company said its bankruptcy filing was prompted by declining revenue caused by poor investments made in the 1990s and competition from larger rivals such as International Business Machines Corp. (IBM), Hewlett-Packard Co. (HPQ), Dell Inc. (DELL) and Sun Microsystems Inc. (SUNW).

A Silicon Graphics representative wasn't immediately available for comment.

The company, a stalwart of Silicon Valley, provides high-performance computers used in graphics and cinematic special effects. The company has struggled in recent years as Hollywood moved to less costly effects created on desktop computers.

Silicon Graphics, which employs more than 1,800 people worldwide, listed assets of $369.4 million and debt of $664.3 million in its bankruptcy filing. It posted a $76 million net loss on sales of $730 million in 2005.

Shares of Silicon Graphics tumbled 25 cents, or 78 percent, to finish at 7 cents Monday in over-the-counter trading.

Under the broad outlines of the debt-for-equity plan, holders of Silicon Graphics' 6.5 percent and 11.75 percent secured notes due 2009 will swap their claims for a 25 percent stake in the reorganized company. The plan requires bankruptcy court approval.

The bondholders, who are owed about $191 million, will also receive the right to buy the remaining 75 percent of new shares in the reorganized Silicon Graphics.

The bondholders will also provide Silicon Graphics with $70 million in debtor-in-possession, or DIP, financing and will backstop a $50 million rights offering. The company plans to issue 10 million shares in the reorganized Silicon Graphics with an overallotment of 1.125 million shares.

A group of subordinated bondholders, owed $56.8 million, will receive nothing under the proposed plan. J.P. Morgan Chase Bank is the trustee for this group of holders of the subordinated 6.125 percent notes due 2011.

A portion of the DIP financing will go to pay $20 million to senior lenders Wells Fargo Foothill and Ableco Finance LLC, which are owed a total of about $76 million.

Unsecured creditors will receive a share of $1.5 million, and all existing equity interest will be canceled.