<PAGE>
[LOGO]
September 20, 1996
DEAR SILICON GRAPHICS STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders of
Silicon Graphics, Inc. to be held on Wednesday, October 30, 1996 at 2:00 p.m. at
the Company's headquarters, Building 5, Shoreline Technology Park, 2011 North
Shoreline Boulevard, Mountain View, California 94043-1389.
The Notice of Annual Meeting and Proxy Statement accompany this letter and
provide an outline of the business to be conducted at the meeting. In addition
to the matters to be voted on, there will be a report on the progress of the
Company and an opportunity for stockholders to ask questions.
We hope you will be able to join us. To ensure your representation at the
meeting, we urge you to return the enclosed proxy promptly. Your vote is very
important.
Sincerely,
[SIG]
EDWARD R. McCRACKEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
SILICON GRAPHICS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1996
------------------------
TO THE STOCKHOLDERS OF SILICON GRAPHICS, INC.:
The Annual Meeting of Stockholders of SILICON GRAPHICS, INC. will be held on
Wednesday, October 30, 1996, at 2:00 p.m., local time, in Building 5 at the
Company's principal offices at 2011 North Shoreline Boulevard, Mountain View,
California 94043-1389, for the following purposes:
1. To elect four Class I directors of the Company to serve for a three-year
term.
2. To approve an amendment increasing the number of shares of Common Stock
available for issuance under the Company's Employee Stock Purchase Plan
by 8,000,000 shares.
3. To approve an amendment increasing the number of shares of Common Stock
available for issuance under the Company's Directors' Stock Option Plan
by 800,000 shares.
4. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment.
The Proxy Statement accompanying this Notice describes these matters more
fully.
The close of business on September 3, 1996 is the record date for notice and
voting.
We invite all stockholders to attend the meeting in person. Even if you plan
to attend, please sign and return the enclosed proxy as promptly as possible in
the envelope provided. Any stockholder attending the meeting may vote in person
even if he or she has returned a proxy.
Sincerely,
[SIG]
William M. Kelly
SECRETARY
Mountain View, California
September 20, 1996
<PAGE>
SILICON GRAPHICS, INC.
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
Silicon Graphics, Inc. is soliciting the enclosed proxy for use at the
Annual Meeting of Stockholders to be held on Wednesday, October 30, 1996, at
2:00 p.m., local time, or at any adjournment of that meeting. The Annual Meeting
will be held at the principal offices of the Company in Building 5, Shoreline
Technology Park, 2011 North Shoreline Boulevard, Mountain View, California
94043-1389. The Company's telephone number at that location is 415-960-1980.
These proxy solicitation materials will be mailed on or about September 26,
1996 to all stockholders entitled to vote at the meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
At the record date, there were issued and outstanding 173,158,255 shares of
the Company's Common Stock, $0.001 par value, 17,500 shares of the Company's
Series A Preferred Stock, $0.001 par value, and one share of the Company's
Series E Preferred Stock, $0.001 par value. Each share of Common Stock is
entitled to one vote; each share of Series A Preferred Stock is entitled to 80
votes; and the outstanding share of the Company's Series E Preferred Stock is
entitled to 120,688 votes.
As of September 3, 1996, the following persons were known by the Company to
be the beneficial owners of more than 5% of any class of the Company's voting
securities:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
SHARES OF TOTAL
CLASS OF BENEFICIALLY PERCENT VOTING
SECURITIES OWNED OF CLASS POWER
--------------- ------------ -------- --------
<S> <C> <C> <C> <C>
FMR Corporation (1)............................... Common Stock 9,291,457 5.4 5.3
82 Devonshire Street
Boston, MA 02109
NKK U.S.A. Corporation............................ Series A 17,500 100.0 *
450 Park Avenue Preferred Stock
New York, NY 10022
Montreal Trust Company............................ Series E 1 100.0 *
of Canada, as Trustee (2) Preferred Stock
151 Front Street West, Suite 605
Toronto, Ontario M5J 2N1
</TABLE>
- ------------------------
* Less than 1%.
(1) As reported on a Schedule 13G/A dated January 10, 1996, these shares are
beneficially owned by various entities and individuals associated with the
Fidelity family of mutual funds.
(2) See "Voting and Solicitation" for a description of the Series E Preferred
Stock.
<PAGE>
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company at its principal offices a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
The Company's certificate of incorporation provides for cumulative voting
for the election of directors. Stockholders may allocate among one or more
candidates the number of votes equal to the number of directors to be elected
multiplied by the number of shares or equivalent shares of Common Stock held.
However, no stockholder may cumulate votes unless prior to the voting the
candidate's name has been placed in nomination and a stockholder has given
notice at the meeting of the intention to cumulate votes.
On all other matters, each share of Common Stock has one vote, each share of
Series A Preferred Stock has 80 votes, and the Series E Preferred Stock has
120,688 votes. Except as otherwise required by law, the Series A and the Series
E Preferred Stock vote with the Common Stock as one class.
Montreal Trust Company of Canada holds the Series E Preferred Stock as
trustee under a voting trust for the benefit of holders of Exchangeable Shares
issued in connection with the Company's acquisition of Alias Research Inc. in
June 1995. Each holder of Exchangeable Shares (other than the Company and its
affiliates) will receive a proxy on which it can give Montreal Trust voting
instructions for a number of Series E Preferred Stock votes equal to the number
of Exchangeable Shares owned by that holder. Montreal Trust will only cast votes
for which it receives instructions.
The Company will pay the cost of soliciting proxies. The Company will pay
Georgeson & Company Inc., a proxy solicitation firm, a fee expected not to
exceed $9,000 for its services in the solicitation of proxies from brokers, bank
nominees and other institutional owners and will reimburse the firm for certain
out-of-pocket expenses expected not to exceed an additional $16,000. The Company
may also reimburse intermediaries for their expenses in forwarding solicitation
materials to beneficial owners. The Company's directors, officers and employees
may also solicit proxies, without additional compensation.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The quorum required for the transaction of business at the Annual Meeting is
a majority of the shares or equivalent shares of Common Stock outstanding on the
record date. All shares voted, whether "For" or "Against" or abstentions, will
count for purposes of establishing a quorum and, except as described below, for
determining the number of votes cast with respect to a matter.
In the absence of controlling precedent to the contrary, the Company intends
not to consider broker non-votes in determining whether the requisite majority
of votes cast has been obtained with respect to a particular matter.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 1997
Annual Meeting must be received by the Company no later than May 23, 1997, in
order to be included in the proxy materials for that meeting.
2
<PAGE>
PROPOSAL NO. 1--ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
The Company's Board of Directors currently consists of nine persons, divided
into three classes serving staggered terms of office. Following the Annual
Meeting, at which four Class I directors are to be elected, the Board will be
comprised of four directors in Class I, three in Class II and two in Class III.
Each director elected at the 1996 Annual Meeting of Stockholders will serve
until his or her term expires at the Annual Meeting of Stockholders in 1999, or
until his or her successor has been duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote for the four
nominees named below. The four Class I director nominees currently are directors
of the Company. Robert B. Shapiro was appointed as a director by the Board
effective February 1, 1996. In the unexpected event that any such nominee
becomes unavailable or declines to serve, the proxy holders will vote the
proxies in their discretion for any nominee designated by the Board to fill the
vacancy. If additional persons are nominated, the proxy holders intend to
cumulate their votes if necessary to elect as many of the nominees listed below
as possible, in which event the specific nominees to be voted for will be
determined by the proxy holders.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ----------------------------------- --- -------------------------------------------------- -----------
<S> <C> <C> <C>
NOMINEES FOR CLASS I DIRECTORS
C. Richard Kramlich................ 61 Managing General Partner, New Enterprise
Associates (a venture capital firm) 1984
Edward R. McCracken................ 52 Chairman and Chief Executive Officer, Silicon
Graphics, Inc. 1984
Lucille Shapiro, Ph.D.............. 56 Professor and Chairman of the Department of
Developmental Biology, Stanford University
School of Medicine 1993
Robert B. Shapiro.................. 58 Chairman and Chief Executive Officer, Monsanto
Company 1996
CONTINUING CLASS II DIRECTORS
Robert R. Bishop................... 53 Chairman, Silicon Graphics World Trade Corporation 1993
Robert A. Lutz..................... 64 President and Chief Operating Officer, Chrysler
Corporation 1995
James A. McDivitt.................. 67 Former Senior Vice President, Government
Operations and International, Rockwell
International Corporation 1987
CONTINUING CLASS III DIRECTORS
Allen F. Jacobson.................. 69 Former Chairman of the Board and Chief Executive
Officer, Minnesota Mining & Manufacturing
Company (3M) 1992
James G. Treybig................... 55 Former President and Chief Executive Officer,
Tandem Computers Incorporated 1992
</TABLE>
Except as indicated below, each nominee or incumbent director has been
engaged in the principal occupation set forth above during the past five years.
There are no family relationships among directors or executive officers of the
Company.
3
<PAGE>
Mr. Kramlich is also a director of Ascend Communications, Chalone Inc.,
Lumisys, Inc., Macromedia, Inc., Neopath, Inc., Sierra Monitor Corporation,
SyQuest Technology, Inc. and Telebit Corporation.
Mr. McCracken is also a director of National Semiconductor Corporation.
Dr. Shapiro is also a director of SmithKline Beecham plc.
Mr. Shapiro has been the Chairman, President and Chief Executive Officer of
Monsanto Company since April 1995, having previously served as its President and
Chief Operating Officer since 1993. He also served as Executive Vice President
and Advisory Director, Monsanto Company, and President, The Agricultural Group
of Monsanto Company between 1990 and 1993. In addition to serving as a director
of Monsanto Company, Mr. Shapiro is a director of Citicorp.
Mr. Bishop became the Chairman of the Board of Silicon Graphics World Trade
Corporation in July 1995. Prior to July 1995, Mr. Bishop served as President of
Silicon Graphics World Trade Corporation, a position he had held since July
1986.
Mr. Lutz, who has served as President of Chrysler Corporation since 1991,
also has served as Chief Operating Officer and a member of the Office of the
Chairman since January 1993. Mr. Lutz has been a director of Chrysler
Corporation since 1986.
Mr. McDivitt was Senior Vice President, Government Operations and
International, of Rockwell International Corporation until his retirement in
April 1995.
Mr. Jacobson was the Chairman of the Board and Chief Executive Officer of 3M
Company until his retirement in October 1991. Mr. Jacobson remains a director of
3M Company and is also a director of Abbott Laboratories, Deluxe Corporation,
Mobil Corporation, Northern States Power Company, Potlatch Corporation,
Prudential Insurance Company of America, Sara Lee Corporation, US WEST, Inc. and
Valmont Industries, Inc.
Mr. Treybig was President and Chief Executive Officer of Tandem Computers
Incorporated until his retirement in January 1996. Mr. Treybig resigned as a
director of Tandem in June 1996.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven meetings during fiscal
1996. The Board has an Audit Committee and a Compensation and Human Resources
Committee, which also serves as a nominating committee.
The Audit Committee consists of three non-employee directors, Mr. Jacobson
(chair), Mr. Lutz and Dr. Shapiro, and held eight meetings during fiscal 1996.
It recommends engagement of, and approves the services performed by, the
Company's independent auditors. The Committee also is responsible for reviewing
and evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation and Human Resources Committee consists of three
non-employee directors, Mr. McDivitt (chair), Mr. Kramlich, and Mr. Shapiro, and
held four meetings during fiscal 1996. The Committee's responsibilities include
recommending, subject to the Board's approval, executive compensation, including
stock option grants; administering the Company's stock incentive plans;
approving employee stock option grants; identifying and evaluating candidates to
fill vacancies on the Board and making recommendations regarding the size and
composition of the Board. Candidates for director suggested by stockholders will
be considered by the Committee. Such suggestions should include the candidate's
name and qualifications and may be submitted in writing to the Corporate
Secretary, Silicon Graphics, Inc., 2011 North Shoreline Boulevard, Mountain
View, CA 94043-1389.
4
<PAGE>
No director attended fewer than 75% of the aggregate number of meetings of
the Board of Directors and meetings of the Committees of the Board on which he
or she served, except that Mr. Shapiro, who was appointed as a director in
February 1996, did not attend the April 1996 meeting of the Board and of the
Compensation and Human Resources Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of Directors
or Compensation and Human Resources Committee (consisting of Mr. McDivitt, Mr.
Kramlich and Mr. Shapiro) and the board of directors or compensation committee
of any other company, nor has any such interlocking relationship existed in the
past.
DIRECTOR COMPENSATION
Employee directors are not compensated for their service on the Board of
Directors.
Each non-employee director receives a fee of $5,000 per quarter and $1,000
for each Board and committee meeting attended. The chair of each committee
receives an additional $1,000 for each committee meeting attended.
Under the Directors' Stock Option Plan, each non-employee director is
automatically granted an option to purchase 30,000 shares of Common Stock on the
date on which he or she first becomes a director. In addition, on the date of
the annual stockholders meeting in each year, each non-employee director
receives an option to purchase an additional 10,000 shares of Common Stock. On
November 1, 1995, Mr. Jacobson, Mr. Kramlich, Mr. McDivitt, Dr. Shapiro and Mr.
Treybig each were automatically granted options to purchase 10,000 shares at an
exercise price of $31.50 per share, and Mr. Lutz, who first became a director on
that date, was automatically granted an option to purchase 30,000 shares. Mr.
Shapiro was granted an option to purchase 30,000 shares at an exercise price of
$28.25 on February 1, 1996, the effective date of his appointment to the Board.
All options under the directors' plan are granted at the fair market value
of the Common Stock on the date of grant. Options become exercisable in
installments on the first three anniversary dates following the date of grant,
so long as the optionee remains a director.
Under the Silicon Graphics Non-Qualified Deferred Compensation Plan,
non-employee directors may elect in advance to defer all or a portion of their
cash compensation. Directors that participate in the deferral plan may direct
the investment of the assets in their deferral accounts among a variety of
mutual funds or may make an irrevocable election to credit the deferred fees to
a stock credit account based on the value of the Company's Common Stock.
Directors may elect to receive payment of their deferred compensation in a lump
sum or in annual installments not to exceed ten years, except in the case of
amounts in the stock credit account, which are distributed in a lump sum based
on the value of the Company's Common Stock at the time the director's service
terminates.
5
<PAGE>
OTHER INFORMATION
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of September 3, 1996 by each director or nominee director, by
each of the executive officers named in the table under "Executive Officer
Compensation" below, and by current all directors and executive officers as a
group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY PERCENT OF TOTAL VOTING
NAME OWNED(1) COMMON STOCK POWER
- ----------------------------------------------- -------------------- ------------- ---------------
<S> <C> <C> <C>
Robert R. Bishop............................... 3,771,098 2.2% 2.2%
Allen F. Jacobson.............................. 62,100 * *
Thomas A. Jermoluk............................. 370,678 * *
C. Richard Kramlich............................ 104,132 * *
Robert A. Lutz................................. 10,200 * *
Edward R. McCracken............................ 2,431,386 1.4% 1.4%
James A. McDivitt.............................. 178,104 * *
Lucille Shapiro................................ 30,000 * *
Robert B. Shapiro.............................. 1,000 * *
James G. Treybig............................... 60,100 * *
Robert K. Burgess.............................. 154,366 * *
Gary L. Lauer.................................. 287,946 * *
Teruyasu Sekimoto.............................. 158,422 * *
All executive officers and directors as a group 9,853,278
(23 persons)................................. 5.5% 5.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, the persons named have sole voting and
investment power over the shares shown as being beneficially owned by them,
subject to community property laws, where applicable. The table includes the
following shares issuable on exercise of options or other convertible
securities that were exercisable on September 3, 1996, or within 60 days
thereafter: Mr. Bishop, 54 shares; Mr. Jacobson, 60,100 shares; Mr.
Jermoluk, 359,948 shares; Mr. Kramlich, 50,100 shares; Mr. Lutz, 10,200
shares; Mr. McCracken, 2,132,670 shares; Mr. McDivitt, 39,100 shares; Dr.
Shapiro, 30,000 shares; Mr. Treybig, 60,100 shares; Mr. Burgess, 152,980
shares; Mr. Lauer, 284,854 shares; Mr. Sekimoto, 155,355 shares; and all
directors and executive officers as a group, 5,388,442 shares.
6
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and equity compensation for the
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (determined at the end of the fiscal year) for
the three fiscal years ended June 30, 1996.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------------------------- ----------------------
OTHER RESTRICTED
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(2) COMPENSATION(3) STOCK OPTIONS
- --------------------------------- ----------- ---------- ---------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward R. McCracken,............. 1996 $ 755,000 -- $ 42,526 -- 200,000
Chairman and 1995 717,500 $ 690,787 37,384 -- 200,100
Chief Executive Officer 1994 675,115 556,875 24,385 -- 200,000
Thomas A. Jermoluk,.............. 1996 $ 703,846 -- $ 18,577 -- 200,000
Former President and 1995 612,501 $ 602,213 36,283 -- 300,100
Chief Operating Officer 1994 492,615 407,087 17,467 -- 160,000
Teruyasu Sekimoto,............... 1996 $ 429,072 $ 20,303 $ 67,656 --
Senior Vice President, 1995 476,453 300,136 2,184 -- 50,100
East Asia(4) 1994 378,516 76,896 1,910 -- 40,000
Robert K. Burgess,............... 1996 $ 305,928 $ 133,667 $ 83,300 25,000 300,000
Former Senior 1995 -- -- -- -- --
Vice President(5) 1994 -- -- -- -- --
Gary L. Lauer,................... 1996 $ 375,000 $ 37,500 $ 14,582 -- 100,000
Executive Vice President, 1995 280,192 377,232 19,382 -- 100,100
Worldwide Field Operations 1994 230,231 295,119 12,947 -- 100,000
</TABLE>
- ------------------------
(1) The Company has no pension, retirement, annuity or similar benefit plan.
Includes amounts deferred under the Company's non-qualified deferred
compensation plan.
(2) Includes variable compensation plans for certain executives.
(3) Other compensation includes relocation costs and executive perquisites.
(4) Mr. Sekimoto's cash compensation is determined in Japanese Yen and Hong Kong
Dollars. The dollar amounts shown are based on the exchange rates at the
times of payment.
(5) Mr. Burgess joined the Company in June of 1995 as a result of the
acquisition of Alias Research Inc.
7
<PAGE>
OPTION GRANTS IN FISCAL 1996
The following table provides details regarding all stock options granted to
the named executive officers in fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
- ------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE(3) 5% 10%
- --------------------------------- ----------- ----------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Edward R. McCracken.............. 200,000 1.9% $ 27.00 01/29/06 $ 3,396,031 $ 8,606,209
Thomas A. Jermoluk............... 200,000 1.9% 27.00 11/30/96 3,396,031 8,606,209
Teruyasu Sekimoto................ 75,000 * 27.00 01/29/06 1,273,512 3,227,328
Robert K. Burgess................ 200,000 1.9% 39.00 11/27/96 4,905,378 12,431,191
50,000 * 27.00 11/27/96 849,008 2,151,552
50,000 * 13.50 11/27/96 1,524,008 2,826,552
Gary L. Lauer.................... 100,000 * 27.00 01/29/06 1,698,015 4,303,105
</TABLE>
- ------------------------
* Less than 1%.
(1) The options in this table, other than 50,000 shares granted to Mr. Burgess
in January 1996, were granted under the 1993 Long-Term Incentive Stock Plan
and have exercise prices equal to the fair market value on the date of
grant. The option to purchase 50,000 shares at an exercise price of $13.50
per share granted to Mr. Burgess in January 1996 was granted under the 1985
Stock Incentive Program and has an exercise price of 50% of the fair market
value on the date of grant. The options become exercisable at a rate of 2%
per month over a period of fifty months and expire ten years from the date
of grant.
(2) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual rate
specified (5% and 10%). The 5% and 10% assumed annual rates of appreciation
are mandated by SEC rules and do not represent the Company's estimate or
projection of the future Common Stock price. The Company does not believe
that this method accurately illustrates the potential value of a stock
option.
(3) The options generally expire on the earlier of ten years from the date of
grant or three months after the termination of an optionee's employment with
the Company. Accordingly, the options granted to Mr. Burgess and Mr.
Jermoluk will terminate in November 1996 as a result of their respective
resignations.
OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT JUNE 30, 1996 JUNE 30, 1996(2)
ON VALUE ------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- --------- ------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward R. McCracken.............. -- -- 2,064,660 432,056 $ 33,092,224 $ 594,000
Thomas A. Jermoluk(3)............ -- -- 575,544 478,056 5,937,828 2,215,125
Teruyasu Sekimoto................ 12,400 $ 374,375 137,345 130,955 1,044,648 169,200
Robert K. Burgess(3)............. 250,000 6,282,970 74,499 250,000 347,958 472,500
Gary L. Lauer.................... -- -- 252,844 215,256 1,844,972 255,900
</TABLE>
- ------------------------
(1) Reflects the difference between the closing market price on the date of
exercise and the option exercise price and may not represent amounts
actually realized by the named individuals.
8
<PAGE>
(2) The amounts in this column reflect the difference between the closing market
price of the Common Stock on June 30, 1996, which was $24.00, and the option
exercise price. The actual value of unexercised options fluctuates with the
market price of the Common Stock.
(3) Mr. Burgess resigned from the Company in August 1996, as a result of which
unvested options and restricted stock for an aggregate of 315,000 shares
automatically lapsed. Mr. Jermoluk resigned in July 1996, as a result of
which unvested options for an aggregate of 443,652 shares automatically
lapsed.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Forms 4 or 5 with the SEC and the New York Stock
Exchange, and to give the Company copies of these filings. Based on the written
representations of its directors and officers and a review of the copies of such
forms furnished to the Company during the fiscal year ended June 30, 1996, the
Company believes that its officers, directors and ten percent stockholders
complied with all Section 16(a) filing requirements. One former officer of the
Company, Wei Yen, filed a late Form 4 after he left the employ of the Company.
CERTAIN TRANSACTIONS
NKK U.S.A. Corporation, a wholly-owned subsidiary of NKK Corporation, holds
all of the Company's outstanding Series A Preferred Stock, which it purchased in
1990. The Series A Preferred Stock carries a 3% cumulative annual dividend and
is convertible into Common Stock. During fiscal 1995 NKK converted half of its
shares into Common Stock and sold such shares in the open market; it continues
to hold the balance of its Series A Preferred Shares, with an aggregate
liquidation preference of $17,500,000. NKK is a distributor and value-added
reseller of the Company's products in Japan. During the fiscal year ended June
30, 1996, NKK purchased approximately $20,206,170 in products from the Company.
The Company believes that the terms of its transactions with NKK are no more
favorable to either party than would be available from an unaffiliated party.
James G. Treybig, a current director of the Company, is the former President
and Chief Executive Officer of Tandem Computers Incorporated, an OEM distributor
of the Company's products. During the year ended June 30, 1996, the Company
recognized revenue of approximately $38,831,554 from Tandem, primarily from
system sales and related software and technology licenses. The Company believes
that the terms of its transactions with Tandem are no more favorable to either
party than would be available from an unaffiliated party.
The Company has entered into employment continuation agreements with its
executive officers with the goal of encouraging the continued employment of key
executives in the event of a potential change in control of the Company. Under
the agreements, each executive officer (i) is entitled to a termination payment
equal to two years of his or her compensation if employment with the Company is
terminated within twenty-four months after such a change in control and (ii) is
granted full vesting of options effective after such a change in control.
In February 1995 the Company entered into an employment agreement with
Thomas A. Jermoluk, then the Company's President and Chief Operating Officer.
This agreement, which established certain target levels for cash and other
compensation (including the value of stock options) for Mr. Jermoluk over a
five-year period if he continued in the Company's employ through June 1999, was
terminated by his resignation in July 1996. Although no payments were or will be
made to Mr. Jermoluk under the agreement, the Company recorded $771,339 in
compensation expense during fiscal 1996 as the result of fluctuations in the
market value of the Company's Common Stock.
In February 1995, Javaid Aziz joined the Company as its Senior Vice
President, Europe. In the event that the Company terminates Mr. Aziz's
employment before February 1998, he will receive a severance
9
<PAGE>
payment equal to two years' base salary. After February 1998, this severance
payment will equal one year's base salary.
In May 1995, the Company made a residential loan to Gary L. Lauer, its
Executive Vice President. The loan bears interest at the rate of 7.12% annually
and is secured by a second mortgage and Mr. Lauer's options to purchase Common
Stock. The loan is due in full on the earliest of the fifth anniversary, the
date Mr. Lauer leaves the Company's employ or the date on which the residence
securing the loan is sold. Payments of principal are to be made in connection
with the sale of shares of the Company's Common Stock. The largest principal
amount outstanding to Mr. Lauer during fiscal 1996 was $500,000, all of which
was outstanding as of June 30, 1996.
In July 1995, the Company entered into an agreement with Robert K. Burgess,
then the President of the Company's Alias--Wavefront subsidiary, providing for a
severance payment in the event that the Company terminated his employment other
than for "cause" as defined in the employment continuation agreements described
above. This agreement was terminated by Mr. Burgess' resignation in August 1996.
In March 1996, the Company made a $2,000,000 residential loan to Mr. Burgess
in connection with his relocation to California. The residential loan, which was
outstanding at June 30, 1996, was interest-free and is secured by a second
mortgage. In connection with his resignation from the Company in August 1996,
Mr. Burgess agreed to repay the loan in full on or before September 30, 1996,
with interest at the statutory rate from the date his employment terminated. The
Company also agreed to reimburse Mr. Burgess for certain costs incurred in
connection with his relocation to California and the maintenance of his Canadian
residence through the date his employment terminated, including taxes associated
with these payments and the interest-free loan.
REPORT OF THE COMPENSATION
AND HUMAN RESOURCES COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation and Human Resources Committee of the Board of Directors
recommends, subject to the Board's approval, executive compensation and stock
option grants to the Chief Executive Officer. The Committee administers the
Company's stock incentive plans and approves stock option grants for all other
employees. The Committee is currently composed of three independent,
non-employee directors who have no interlocking relationships as defined by the
SEC. Mr. Shapiro joined the Committee in April 1996.
COMPENSATION PHILOSOPHY
The Company operates in the highly competitive and rapidly changing high
technology industry. The Committee seeks to establish compensation policies that
allow the Company flexibility to respond to changes in its business environment.
The goals of the Company's compensation program are to align compensation with
the Company's overall business objectives and performance, to foster teamwork
and to enable the Company to attract, retain and reward employees who contribute
to its long-term success.
COMPENSATION COMPONENTS
Compensation for the Company's executive officers generally consists of
salary, annual incentive and stock option awards. The Committee assesses the
past performance and anticipated future contribution of each executive officer
in establishing the total amount and mix of each element of compensation.
SALARY. The salaries of the executive officers, including the Chief
Executive Officer, are determined annually by the Committee with reference to
several surveys of salaries paid to executives with similar responsibilities at
comparable companies, primarily in the high technology industry. The peer group
for each executive officer is composed of executives whose responsibilities are
similar in scope and content.
10
<PAGE>
The Company seeks to set executive compensation levels that are competitive with
the average levels of peer group compensation.
ANNUAL INCENTIVE. The Committee annually reviews and approves an executive
incentive plan. A target, expressed as a percentage of salary, is established
for each officer, based on the scope of his or her responsibility. For fiscal
1996, the targets for executive officers ranged from 35% to 60% of salary. The
actual payment amount is computed as a percentage of that target, based on the
Company's performance in achieving specified objectives. The fiscal 1996 plan
contained a matrix based upon revenue growth and operating margin, reflecting a
range of 33% to 200% of target. Because the objectives specified in the
incentive plan were not achieved, no incentive payments were made under the
fiscal 1996 plan.
An additional bonus of up to 10% of salary also may be awarded in the
discretion of the Chief Executive Officer to recognize the contributions and
efforts of individual executive officers. Such additional bonuses equal to 5% of
salary were awarded in fiscal 1996 to the Company's executive officers other
than Mr. McCracken, Mr. Jermoluk and Mr. Bishop.
STOCK OPTIONS. Stock option awards are designed to align the interests of
executives with the long-term interests of the stockholders. The Committee
approves option grants subject to vesting periods (usually 50 months) to retain
executives and encourage sustained contributions. The exercise price of most
options is the market price on the date of grant.
The Company is subject to Section 162(m) of the U.S. Internal Revenue Code,
adopted in 1993, which limits the deductibility of certain compensation payments
to its executive officers. The Company does not have a policy requiring the
Committee to qualify all compensation for deductibility under this provision.
The Committee's current view is that any non-deductible amounts will be
immaterial to the Company's financial or tax position, and that the Company
derives substantial benefits from the flexibility provided by the current
system, in which the selection and quantification of performance targets are
modified from year to year to reflect changing conditions. However, the
Committee considers the net cost to the Company in making all compensation
decisions and will continue to evaluate the impact of this provision on its
compensation programs. The Company believes that any compensation expense
incurred in connection with the exercise of stock options granted under its 1993
Long-Term Incentive Stock Plan will continue to be deductible as
performance-based compensation.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. McCracken's salary, annual incentive and stock option grant for fiscal
1996 reflect the Committee's evaluation of his overall leadership of the Company
and contribution to shareholder value. In January 1996, the Committee reviewed
Mr. McCracken's salary, considering the Company's interim financial results as
compared to industry averages, his individual performance and his salary
relative to those for comparable positions, primarily in the high technology
industry. Based on this review, the Committee increased Mr. McCracken's
annualized salary from $735,000 to $775,000, effective January 1, 1996. The
Committee also granted Mr. McCracken an option under the 1993 Long-Term
Incentive Stock Plan to purchase 200,000 shares of the Company's common stock at
the market price on the date of grant. The Committee based this grant on an
evaluation of Mr. McCracken's overall leadership of the Company, the number of
unvested options held by him, and competitive data for comparable positions
within the high technology industry.
COMPENSATION AND HUMAN RESOURCES
COMMITTEE
James A. McDivitt, CHAIRMAN
C. Richard Kramlich
Robert B. Shapiro
11
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
In accordance with SEC rules, the Company is required to present a table
showing a line-graph presentation comparing cumulative, five-year returns on an
indexed basis with a broad equity market index and either a nationally
recognized industry standard or an index of peer companies selected by the
Company. The Company has selected the S&P 500 Index for the broad equity index
and the Hambrecht & Quist ("H&Q") Technology Index as an industry standard for
the five fiscal year period commencing June 30, 1991 and ending June 30, 1996.
The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SILICON GRAPHICS,
INC. H&Q TECHNOLOGY INDEX S&P 500 STOCK INDEX
<S> <C> <C> <C>
Jun-91 100 100 100
Sep-91 150.22 104.23 104.5
Dec-91 159.47 119.91 112.37
Mar-91 145.37 123.89 108.76
Jun-92 118.06 113.63 109.96
Sep-92 132.16 118.48 112.57
Dec-92 201.76 137.92 117.39
Mar-93 200.88 135.91 121.69
Jun-97 263.44 138.83 121.38
Sep-93 303.08 141.31 123.65
Dec-93 348.9 150.51 125.67
Mar-94 340.09 151.88 120.1
Jun-94 311.89 140.86 119.7
Sep-94 363 160.7 124.67
Dec-94 439.2 174.7 123.74
Mar-95 498.68 194.45 134.9
Jun-95 562.11 235.88 146.77
Sep-95 484.58 268.62 157.46
Dec-95 389.43 262.31 165.95
Mar-96 352.42 267.55 173.91
Jun-96 338.33 279.83 180.68
</TABLE>
- ------------------------
* Assumes $100 invested on June 31, 1991 in the Company's Common Stock, the S&P
500 Stock Index and the H&Q Technology Index, with reinvestment of dividends.
12
<PAGE>
PROPOSAL NO. 2--AMENDMENT
TO EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The purpose of the Purchase Plan is to provide employees of the Company who
participate in the plan with an opportunity to purchase Common Stock of the
Company through payroll deductions. Since its adoption in 1986, the Board of
Directors and stockholders have periodically approved increases in the number of
shares reserved for issuance under the Employee Stock Purchase Plan (the
"Purchase Plan") in order to continue to implement the Company's policy of
providing equity incentives to its employees. Since the last such increase was
approved in 1993, the number of employees eligible to participate in the
Purchase Plan has more than doubled as the Company has grown from about 4,000
employees to over 10,000.
As of June 30, 1996, a total of 11,972,311 shares had been purchased under
the Purchase Plan at a weighted average purchase price of $10.00 per share. At
June 30, 1996, approximately 10,485 employees were eligible to participate in
the Purchase Plan, 5,408 of whom were participating in the then-current offering
periods.
The Board believes that the equity incentive opportunity represented by the
Purchase Plan is an important factor in attracting, retaining and motivating the
best available talent. Accordingly, to provide for the future issuance of shares
under the Purchase Plan, the Board has approved an amendment to the Purchase
Plan reserving an additional 8,000,000 shares, thereby increasing the total
number of shares reserved for issuance under the Plan to 14,480,000 shares. The
Company expects that this increase will meet its goals for employee
participation through approximately the next three years. The stockholders are
being asked to approve this amendment at the meeting.
ADMINISTRATION
The Purchase Plan, and the rights of the participants to make purchases
thereunder, are intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code. The Purchase Plan may be administered by the Board
of Directors or by a committee of the Board, and is currently being administered
by the Compensation Committee. All questions of interpretation of the Purchase
Plan are determined by the Board of Directors or the committee. No charges for
administrative or other costs may be made against the payroll deductions of a
participant in the Purchase Plan.
Members of the Board of Directors who are eligible employees are permitted
to participate in the Purchase Plan. Members of the Board who are eligible to
participate in the Purchase Plan may not vote on any matters affecting the
Purchase Plan. No member of the Board who is eligible to participate in the
Purchase Plan may be a member of a committee established to administer the
Purchase Plan.
ELIGIBILITY
Any person who is customarily employed by the Company (or any of its
majority-owned subsidiaries) for at least 20 hours per week and more than five
months in a calendar year is eligible to participate in the Purchase Plan,
provided that the employee is employed on the first day of an offering period
and subject to certain limitations imposed by Section 423(b) of the Code.
OFFERING PERIODS
The Purchase Plan is implemented by overlapping twenty-four month offering
periods ("Offering Periods"), each divided into four six-month exercise periods.
Shares are issued on the last day of each six-month exercise period (the
"Exercise Date"). A new Offering Period commences every six months, generally at
May 1 and November 1 of each year, although a special, short offering period
commenced July 1, 1996 to permit former employees of Cray Research, Inc. (and
all other employees of the Company who elected to participate) to participate in
the plan prior to commencement of the next regularly
13
<PAGE>
scheduled Offering Period in November 1996. Employees may commence their
participation in the Purchase Plan only at the beginning of an Offering Period
and may participate in only one Offering Period at one time. The Purchase Plan
provides that the Board of Directors or the committee may set the duration of
the Offering Periods at any period of time in its discretion, without
stockholder approval.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering to
the Company a subscription agreement authorizing payroll deductions for the
purchase of shares under the Plan not less than 15 days prior to the beginning
of an Offering Period, unless a later time for filing the subscription agreement
has been set by the Board for all eligible employees with respect to a given
Offering Period. A person who becomes employed after the commencement of an
Offering Period may not participate in the Plan until the commencement of the
next Offering Period. Unless the participant's participation is discontinued,
the purchase of shares occurs automatically on the next Exercise Date in the
Offering Period.
PURCHASE PRICE
The purchase price per share at which shares are sold under the Purchase
Plan is 85% of the lower of the fair market value of the Common Stock (a) on the
date of commencement of the Offering Period or (b) on the applicable Exercise
Date within such Offering Period. The applicable "Exercise Date" is the last day
of the particular six-month exercise period within the Offering Period. The fair
market value of the Common Stock on a given date is the closing sales price on
the New York Stock Exchange as of such date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions during
the Offering Period. The deductions may not exceed 10% of a participant's
eligible compensation. The Board of Directors currently has defined eligible
compensation to mean base pay, plus all other amounts attributable to overtime,
shift premium, incentive compensation, regular bonuses and commissions,
exclusive of "spot bonuses" and any other such similar items. A participant may
discontinue his or her participation in the Plan or may increase or decrease the
rate of payroll deductions at any time during the Offering Period. Payroll
deductions generally commence on the first payday following the commencement of
the Offering Period, and continue at the same rate until the end of the Offering
Period unless sooner terminated as provided in the Purchase Plan. All payroll
deductions are credited to the participant's account under the Purchase Plan and
are deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
The maximum number of shares issuable to a participant in an Offering Period
is the lesser of (i) the number of shares purchasable by dividing $50,000 by the
fair market value of the Company's Common Stock on the first day of the Offering
Period, or (ii) to the extent such limit is imposed by law, the number of shares
purchasable without allowing a participant to accrue the right to purchase
shares under the Purchase Plan at a rate exceeding $25,000 of fair market value
of such shares (determined at the first day of the Offering Period) for each
calendar year in which the option is outstanding at any time. See discussion
below under "Withdrawal."
Notwithstanding the foregoing, no participant will be permitted to subscribe
for shares under the Purchase Plan if, immediately after the grant of the
option, the participant would own 5% or more of the combined voting power or
value of all classes of stock of the Company or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options). Furthermore, if the total number of shares issuable on an
Exercise Date exceeds the number of shares then available under the Purchase
Plan, a pro rata allocation of the available shares will be made in as uniform a
manner as is practicable.
14
<PAGE>
WITHDRAWAL
A participant's interest in a given offering may be terminated in whole, but
not in part, at any time during an Offering Period by signing and delivering to
the Company a notice of withdrawal from the Purchase Plan. Any withdrawal by the
participant of accumulated payroll deductions for a given Offering Period
automatically terminates the participant's participation in that Offering
Period. The failure to remain in the continuous employ of the Company for at
least 20 hours per week during an Offering Period will be deemed to be a
withdrawal from that Offering Period.
A participant's withdrawal from an Offering Period does not have any effect
upon such participant's eligibility to participate in subsequent Offering
Periods under the Purchase Plan.
AUTOMATIC TRANSFER TO LOWER PRICE OFFERING PERIOD
If the fair market value of the Company's Common Stock on the first day of
any exercise period is less than on the first day of that Offering Period, all
employees participating in the Plan on the first day of such exercise period
will be deemed to have withdrawn from the Offering Period on the first day of
such exercise period and to have enrolled in the new Offering Period commencing
on that date. A participant may elect to remain in the previous Offering Period
by delivery of a written notice to the Company declaring such election prior to
the time of the automatic change to the new Offering Period.
ADJUSTMENT ON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization, such as a
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration by
the Company, appropriate adjustments will be made by the Board of Directors in
the shares subject to purchase under the Purchase Plan and in the purchase price
per share. In the event of the proposed dissolution or liquidation of the
Company, the offering periods will terminate immediately prior to such
dissolution or liquidation, unless the Board provides otherwise. The Board may
also, in the exercise of its sole discretion, adjust the number of shares of
Common Stock available for issuance under the Purchase Plan as well as the
purchase price per share for outstanding options in the event the Company
effects a reorganization, recapitalization, rights offering or other increase or
reduction of shares of outstanding Common Stock, and in the event of the Company
being consolidated with or merged into any other corporation.
ACCELERATION OF OPTIONS
In the event of a proposed sale of all or substantially all of the assets of
the Company or the merger of the Company with or into another corporation, each
option under the Purchase Plan will be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
successor corporation unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
will have the right to exercise the option as to all of the optioned stock,
including shares as to which the option would not otherwise be exercisable.
NON-ASSIGNABILITY
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned or transferred for any reason, and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Purchase Plan may be amended by the Board of Directors without prior
approval of the stockholders of the Company unless such approval is required by
applicable law or regulation, including
15
<PAGE>
the rules of the New York Stock Exchange (such as an amendment that would
increase the number of shares reserved under the Plan).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of purchase of shares. Upon disposition of the shares, the
participant will be subject to tax and the amount of the tax will depend on the
holding period. If the shares are disposed of by the participant at least two
years after the beginning of the Offering Period and at least one year from the
date the shares are purchased, the lesser of (a) the excess of the fair market
value of the shares at the time of such disposition over the purchase price, or
(b) 15% of the fair market value of the shares on the first day of the Offering
Period will be treated as ordinary income and any further gain will be taxed at
long-term capital gain rates. If the shares are sold after such time and the
sales price is less than the purchase price, the participant recognizes no
ordinary income but instead a capital loss.
If the shares are sold or otherwise disposed of before the expiration of
such two-year and one-year periods, the excess of the fair market value of the
shares on the exercise date over the purchase price will be treated as ordinary
income. Any additional gain or loss on such sale or disposition shall be
long-term or short-term capital gain or loss, depending on the holding period.
The Company is not entitled to a deduction for amounts taxed as ordinary income
or capital gain to a participant except to the extent of ordinary income
recognized by participants upon disposition of shares within two years from the
date of grant or within one year of the date of purchase.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
PARTICIPATION IN THE EMPLOYEE STOCK PURCHASE PLAN
The following table sets forth, as to the executive officers named in the
table under "Executive Officer Compensation" above, all current executive
officers as a group, and all other employees who participated in the Purchase
Plan: (i) the value and number of shares of the Company's Common Stock purchased
under the Purchase Plan during the period from May 1, 1995 to April 30, 1996;
and (ii) the amount of payroll deductions accumulated through September 20, 1996
for the current exercise periods under the Purchase Plan which end October 31,
1996.
<TABLE>
<CAPTION>
CURRENT
ACCUMULATED
DOLLAR NUMBER OF SHARES PAYROLL
NAME VALUE(1) PURCHASED DEDUCTIONS
- ------------------------------------------------------------ -------------- ---------------- -----------------
<S> <C> <C> <C>
Edward R. McCracken......................................... $ 7,791 980 --
Thomas A. Jermoluk.......................................... 7,791 980 --
Teruyasu Sekimoto........................................... 5,583 575 $ 3,985
Robert K. Burgess........................................... 6,481 1,386 --
Gary L. Lauer............................................... -- -- --
All current executive officers as a group ( persons)....... 117,253 14,189 77,169
All employees (including all current officers who are not
executive officers) as a group............................ 12,347,185 1,543,567 14,666,362
</TABLE>
- ------------------------
(1) The amounts in this column reflect the difference between the market value
on the date of purchase and the purchase price under the Purchase Plan and
may not represent amounts actually realized by the participants.
16
<PAGE>
VOTE REQUIRED
Approval of the amendment to increase the number of shares of Common Stock
reserved for issuance under the Employee Stock Purchase Plan requires the
affirmative votes of a majority of the votes cast.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE AMENDMENT INCREASING THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE EMPLOYEE STOCK
PURCHASE PLAN.
PROPOSAL NO. 3--AMENDMENT
TO DIRECTORS' STOCK OPTION PLAN
GENERAL
The Directors' Stock Option Plan (the "Directors' Plan") was adopted by the
Board of Directors in July 1990 and approved by the stockholders in October
1990. The Directors' Plan provides for the automatic grant of an initial option
to purchase 30,000 shares of Common Stock to each non-employee director at the
time he or she joins the Board and on the date of each annual meeting
thereafter, an option to purchase 10,000 shares of Common Stock to continuing
directors. In order to provide for future grants, the Board has approved an
amendment to the Director's Plan reserving an additional 800,000 shares for
issuance thereunder, thereby increasing the total number reserved for issuance
under the Directors' Plan to 1,000,000 shares of Common Stock.
PURPOSE
The purposes of the Plan are to attract the best available individuals for
service as directors of the Company, to align further the interests of the Board
of Directors with those of the stockholders, and to encourage their continued
service on the Board.
ADMINISTRATION
The Directors' Plan is designed to work automatically. However, where
administration is necessary, it will be provided by the Board of Directors of
the Company. No discretion concerning decisions regarding the Directors' Plan is
offered to any person who is not a "disinterested" person under Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act). Members of
the Board receive no additional compensation for their services in connection
with the administration of the Directors' Plan.
ELIGIBILITY
The Directors' Plan provides for the grant of nonstatutory stock options to
non-employee directors of the Company. Each such director is granted an option
to purchase 30,000 shares of Common Stock upon the date on which such person
first becomes a director, whether through election by the stockholders or
appointment by the board to fill a vacancy. On the date of the annual
stockholders meeting each year, each non-employee director who has served for at
least six months is granted an option to purchase an additional 10,000 shares of
Common Stock. The Directors' Plan provides for neither a maximum nor a minimum
number of option shares that may be granted to any one non-employee director,
but does provide restrictions on the number of shares which may be included in
any grant and the method of making a grant.
TERMS OF OPTIONS
Options granted under the Directors' Plan have a term of five years. Each
option is evidenced by a stock option agreement between the Company and the
director to whom such option is granted.
17
<PAGE>
RULE 16b-3. Options granted to directors must comply with the applicable
provision of Rule 16b-3 or any successor thereto and must contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Directors' Plan transactions.
EXERCISE OF THE OPTIONS. The options become exercisable in installments
cumulatively as to 34% of the shares subject to the option on the first
anniversary of the date of grant of the option and as to 33% of the remaining
shares subject to the option for each year thereafter that the optionee remains
a director.
FORM OF CONSIDERATION. The consideration to be paid for shares issued upon
exercise of options granted under the Directors' Plan, including the method of
payment, is determined by the administrators and may consist entirely of cash,
check, promissory note or shares of Common Stock (which in the case of shares
acquired upon exercise of an option, have been beneficially owned for at least
six months or which were not acquired directly or indirectly from the Company),
with a fair market value on the exercise date equal to the aggregate exercise
price of the shares being purchased. The Company may also authorize as payment
the retention from the total number of shares for which an option is exercised
that number of shares with a fair market value equal to the aggregate exercise
price of the shares as to which the option is exercised, the delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price or the delivery of a subscription agreement
for the shares which irrevocably obligates the optionee to take and pay for the
shares not more than 12 months after delivery of the subscription agreement. The
Company may also authorize payments by any combination of the foregoing methods
or by any other method permitted by applicable laws.
OPTION PRICE. The per share exercise price of options is 100% of the fair
market value of the Company's Common Stock on the date of grant. As long as the
Common Stock of the Company is traded on the New York Stock Exchange, the fair
market value of a share of Common Stock of the Company is the closing sales
price for such stock (or the closing bid, if no sales are reported, as quoted on
such system) on the date of grant as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable.
TERMINATION OF STATUS AS A DIRECTOR. The Directors' Plan provides that if
the optionee ceases to serve as a director of the Company, the option may be
exercised within three months after the date he or she ceases to be a director
as to all or part of the shares that the optionee was entitled to exercise at
the date of such termination.
DEATH AND DISABILITY. In the event of the death or permanent and total
disability of an optionee, the option may be exercised at any time within six
months, but only to the extent that the option would have been exercisable at
the time of death or disability.
NONTRANSFERABILITY OF OPTIONS. An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the event of
death, by a person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
ACCELERATION OF OPTIONS. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option shall be substituted by an equivalent option by such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, that the participant will have
the right to exercise the option as to all shares subject to such option,
including shares as to which the option would not otherwise be exercisable. If
the Board determines that options will be fully exercisable in lieu of
assumption or substitution, the Company
18
<PAGE>
will notify the participant that the option will be fully exercisable for a
specified period from the date of such notice and will terminate upon the
expiration of such period.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment will be made in the number of shares which
have been reserved for issuance under the Directors' Plan and the price per
share covered by each outstanding option. In the event of the proposed
dissolution or liquidation of the Company, all outstanding options will
terminate immediately before the consummation of such proposed action, unless
otherwise provided by the Board. The Board of Directors may, in its discretion,
make provision for accelerating the exercisability of shares subject to options
under the Directors' Plan in such event.
AMENDMENT AND TERMINATION
The Board may amend or discontinue the Directors' Plan at any time, but such
amendment or discontinuation shall not adversely affect any stock options then
outstanding under the Directors' Plan, without the participants' consent. The
Directors' Plan may be amended by the Board of Directors without prior approval
of the stockholders of the Company unless such approval is required by
applicable tax, securities or state corporate law.
FEDERAL INCOME TAX ASPECTS OF THE DIRECTORS' STOCK OPTION PLAN
Options granted under the Directors' Plan are nonstatutory options. An
Outside Director does not recognize any taxable income at the time he or she is
granted a nonstatutory option. Upon exercise of a nonstatutory option, an
Outside Director generally recognizes ordinary income measured for tax purposes
by the excess of the then fair market value of the shares over the exercise
price. If a sale of shares acquired upon exercise of an option could subject the
director to suit under Section 16 of the Exchange Act, the date of recognition
of such ordinary income may be deferred for up to six months unless the director
files an election with the Internal Revenue Service under Section 83(b) of the
Code.
The Outside Director's holding period for long-term capital gain purposes
begins when he or she recognizes ordinary income with respect to an option
exercise. When the Outside Director resells the shares, he or she recognizes as
capital gain or loss any difference between the sales price and the exercise
price, to the extent not recognized as ordinary income as provided above. Such
capital gain or loss will qualify for long-term capital gain or loss treatment
if the shares have been held for more than one year. Currently, tax on net
capital gain (net long-term capital gain minus net short-term capital loss) is
capped at 28%. Capital losses are allowed in full against capital gains plus
$3,000 of other income.
The Company will be entitled to a tax deduction in the amount and at the
time that the director recognizes ordinary income with respect to shares
acquired upon exercise of a non-statutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Director's Plan. It does not purport to be complete, and it
does not discuss the tax consequences of the optionee's death or the income tax
laws of any municipality, state or foreign country in which an optionee may
reside.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE AMENDMENT INCREASING THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE DIRECTORS'
STOCK OPTION PLAN.
19
<PAGE>
PROPOSAL NO. 4--RATIFICATION OF
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 1997. In the event of a majority vote against
approval, the Board will reconsider its selection, and in any event is entitled
to change auditors at a later date. Ernst & Young LLP, has audited the Company's
financial statements since the fiscal year ended June 30, 1982. Representatives
of Ernst & Young LLP, are expected to be present at the meeting with the
opportunity to make a statement, and to be available to respond to appropriate
questions.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE APPOINTMENT OF ERNST &
YOUNG LLP, AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL YEAR 1997.
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, the persons named in the
enclosed form of proxy intend to vote the shares they represent as Management
may recommend.
Dated: September 20, 1996 BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
William M. Kelly
SECRETARY
20
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF
SILICON GRAPHICS, INC.
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Silicon Graphics, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated September 20, 1996, and hereby
appoints Edward R. McCracken and William M. Kelly, or either of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf and
in the name of the undersigned, to represent the undersigned at the 1996
Annual Meeting of Stockholders of Silicon Graphics, Inc. to be held on
October 30, 1996, at 2:00 p.m. local time, at the Company's principal
offices, 2011 North Shoreline Boulevard, Shoreline Technology Park, Building
5, Mountain View, California, and at any adjournment(s) thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, AND FOR THE AMENDMENT
TO THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN, FOR THE AMENDMENT TO THE
COMPANY'S DIRECTORS' STOCK PLAN, FOR RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG LLP AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
SILICON GRAPHICS, INC.
Silicon Graphics provides computing solutions that range from cost-effective,
high-performance desktop workstations to database and compute servers to the
Cray Research supercomputers. Our computing tools combine power and
interactive visualization to accelerate our customers' "time to insight" in
applications as diverse as manufacturing, entertainment, science and the
World Wide Web.
Silicon Graphics' Cray Research subsidiary, acquired in fiscal 1996, provides
supercomputing tools and services to help solve customers' most challenging
problems. Another subsidiary, MIPS Technologies, designs the industry-
leading MIPS-Registered Trademark- RISC microprocessor. The Company licenses
its designs to semiconductor partners, who manufacture MIPS microprocessors
for use in the computer and consumer markets. Our Alias|Wavefront subsidiary
provides innovative animation and advanced modeling software for
entertainment and industrial applications.
Headquartered in Mountain View, California, Silicon Graphics sells its
products worldwide and employs more than 10,000 people. Silicon Graphics
stock trades on the New York Stock Exchange under the symbol "SGI."
[X] Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, AND FOR THE
APPROVAL OF EACH OF PROPOSALS 2, 3 AND 4 SET FORTH BELOW, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
1. ELECTION OF DIRECTORS
Nominees for Class I Directors: C. Richard Kramlich, Edward R. McCracken,
Lucille Shapiro and Robert B. Shapiro
FOR WITHHELD
[__] [__]
[__] ___________________________________________________________________
For all nominees except as noted above
<PAGE>
2. PROPOSAL TO APPROVE AN AMENDMENT INCREASING THE NUMBER OF SHARES OF COMMON
STOCK AVAILABLE FOR ISSUANCE UNDER THE COMPANY'S EMPLOYEE STOCK PURCHASE
PLAN BY 8,000,000 SHARES.
FOR AGAINST WITHHELD
[__] [__] [__]
3. PROPOSAL TO APPROVE AN AMENDMENT INCREASING THE NUMBER OF SHARES OF COMMON
STOCK AVAILABLE FOR ISSUANCE UNDER THE COMPANY'S DIRECTORS' STOCK OPTION
PLAN BY 800,000 SHARES.
FOR AGAINST WITHHELD
[__] [__] [__]
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR FISCAL YEAR 1997.
FOR AGAINST WITHHELD
[__] [__] [__]
In their discretion, the proxies are authorized to vote upon such other
matter or matters which may properly come before the meeting and any
adjournment(s) thereof.
Signature:__________________________ Date:_____________________
Signature:__________________________ Date:_____________________
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
[__] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
<PAGE>
INSTRUCTION TO TRUSTEE
SILICON GRAPHICS, INC. ANNUAL MEETING
TO: Montreal Trust Company of Canada, as Trustee, c/o Boston EquiServe
The undersigned holder of Exchangeable Non-Voting Shares of Silicon
Graphics Limited hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement dated September 20, 1996 of Silicon
Graphics, Inc. ("SGI"). I hereby direct you, as Trustee under the Voting
Trust and Exchange Agreement relating to the Exchangeable Shares, to cast as
I have indicated on the reverse side the number of Series E Preferred Stock
votes (the "Directed Votes") that I am entitled as a holder of Exchangeable
Shares to direct you to vote at the SGI 1996 Annual Meeting of Stockholders
to be held on October 30, 1996 at 2:00 p.m. local time at the principal
offices of SGI, 2011 North Shoreline Boulevard, Shoreline Technology Park,
Building 5, Mountain View, California, and at any adjournment(s) thereof.
You may cast my Directed Votes in person or by proxy unless I have requested
on the reverse side that you deliver a proxy for such votes to me or my
specified representative. Unless I have so requested a proxy for my Directed
Votes, you may vote according to your discretion (or that of your proxy
holder) on any other matter that may properly come before the meeting.
The Directed Votes will be cast as indicated on the reverse side, or if no
contrary direction is indicated, will be voted FOR the election of directors,
FOR the amendment to the Company's Employee Stock Purchase Plan, FOR the
amendment to the Company's Directors' Stock Plan, FOR the ratification of the
appointment of Ernst & Young LLP as independent auditors, and as said proxies
deem advisable on such other matters as may properly come before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
SILICON GRAPHICS, INC.
Silicon Graphics provides computing solutions that range from cost-effective,
high-performance desktop workstations to database and compute servers to the
Cray Research supercomputers. Our computing tools combine power and
interactive visualization to accelerate our customers' "time to insight" in
applications as diverse as manufacturing, entertainment, science and the
World Wide Web.
Silicon Graphics' Cray Research subsidiary, acquired in fiscal 1996, provides
supercomputing tools and services to help solve customers' most challenging
problems. Another subsidiary, MIPS Technologies, designs the industry-
leading MIPS-Registered Trademark- RISC microprocessor. The Company licenses
its designs to semiconductor partners, who manufacture MIPS microprocessors for
use in the computer and consumer markets. Our Alias|Wavefront subsidiary
provides innovative animation and advanced modeling software for entertainment
and industrial applications.
Headquartered in Mountain View, California, Silicon Graphics sells its
products worldwide and employs more than 10,000 people. Silicon Graphics
stock trades on the New York Stock Exchange under the symbol "SGI."
/X/ Please mark votes as in this example.
1. ELECTION OF DIRECTORS
Nominees for Class I Directors: C. Richard Kramlich, Edward R. McCracken,
Lucille Shapiro and Robert B. Shapiro
FOR WITHHELD
[__] [__]
[__] ___________________________________________________________________
For all nominees except as noted above
<PAGE>
OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN BY 8,000,000 SHARES.
FOR AGAINST WITHHELD
[__] [__] [__]
3. PROPOSAL TO APPROVE AN AMENDMENT INCREASING THE NUMBER OF SHARES OF COMMON
STOCK AVAILABLE FOR ISSUANCE UNDER THE COMPANY'S DIRECTORS' STOCK OPTION
PLAN BY 800,000 SHARES.
FOR AGAINST WITHHELD
[__] [__] [__]
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR FISCAL YEAR 1997.
FOR AGAINST WITHHELD
[__] [__] [__]
In their discretion, the proxies are authorized to vote upon such other
matter or matters which may properly come before the meeting and any
adjournment(s) thereof.
/ / Mark this box only to request a proxy for your Directed Votes. A proxy
is necessary only if you wish to appear at the meeting in person to cast your
Directed Votes or if you want to authorize a specific person other than the
Trustee (or its proxy) to cast your Directed Votes. You must provide the
name, mailing address and phone number of the person to be authorized to cast
your Directed Votes, even if you are requesting the proxy for your own
use:__________________________________________________________________.
(This Instruction to Trustee should be marked, dated and signed by the
stockholder or his attorney authorized in writing, or, if the stockholder is
a corporation, by any officer or attorney thereof duly authorized, and the
corporate seal affixed.)
Signature: ______________________________________ Date: _______________
Signature: ______________________________________ Date: _______________
<PAGE>
NOTICE
TO:
ALL HOLDERS OF NON-VOTING EXCHANGEABLE SHARES IN
THE CAPITAL OF SILICON GRAPHICS LIMITED RESIDENT IN CANADA
===============================================================================
Enclosed with this Notice, as required by an order dated June 13, 1995 of the
Ontario Securities Commission and an order dated May 30, 1995 of the Manitoba
Securities Commission (collectively the "Orders"), are proxy materials
relating to Silicon Graphics, Inc. ("SGI"), the parent company of Silicon
Graphics Limited (the "Corporation"), and SGI's upcoming annual meeting of
stockholders to be held on October 30, 1996 (the "Meeting") in partial
satisfaction of SGI's obligation pursuant to the Orders to provide holders of
the Corporation's non-voting exchangeable shares (the Exchangeable Shares")
with a copy of all disclosure material furnished to holder of SGI's common
shares resident in the United States. Materials relating to SGI are being
sent to you because, as a holder of Exchangeable Shares, you have in essence
a participatory interest in SGI rather than the Corporation, as described
more fully below, and as a result, certain disclosure required to be provided
in respect of the Corporation under applicable Canadian securities
legislation would not be meaningful or relevant to you.
ECONOMIC EQUIVALENCY OF EXCHANGEABLE SHARES AND SGI COMMON SHARES
The Exchangeable Shares have been structured so as to provide holders with
dividend rights that are, as nearly as possible, the equivalent of those
attaching to SGI's common shares. As a holder of Exchangeable Shares, you
are entitled to a dividend from the Corporation payable at the same time as,
and in the Canadian dollar equivalent of, each dividend paid by SGI on an SGI
common share. Further, dividends on the SGI common shares may not be
declared or paid unless the Corporation has sufficient resources available to
pay simultaneous and equivalent dividends on the Exchangeable Shares and the
Corporation simultaneously declares or pays, as the case may be, such
equivalent dividends. In addition, without the prior approval of holders of
Exchangeable Shares as evidenced by not less than two-thirds of the votes
cast at a meeting of such holders at which the holders of at least 50 per
cent of the outstanding Exchangeable Shares at that time are present or
represented by proxy, actions such as distributions of stock dividends,
options, rights and warrants for the purchase of securities or other assets
(other than cash dividends in the ordinary course), reclassifications,
reorganizations and other changes cannot be taken with respect to the SGI
common shares generally without the same or an economically equivalent action
being taken with respect to the Exchangeable Shares.
<PAGE>
RIGHT TO DIRECT VOTING AT MEETINGS OF SGI STOCKHOLDERS
As a holder of Exchangeable Shares, you are entitled, with respect to all
meetings of SGI stockholders at which holders of common shares of SGI are
entitled to vote, to direct Montreal Trust Company of Canada ("Montreal
Trust"), c/o Boston EquiServe, to cast one vote for each Exchangeable Share
that you own of record on the record date established for such meetings.
However, failure to provide Montreal Trust, c/o Boston EquiServe, with voting
instructions will result in no votes being cast on your behalf.
Please note that in order for your voting instructions relating to matters
that will be considered at the Meeting to be binding on Montreal Trust, the
enclosed Instruction to Trustee must be completed, signed and received by
Montreal Trust, c/o Boston EquiServe, by no later than 5:00 p.m. on October
28, 1996. The Instruction to Trustee should be forwarded to the following
address:
Montreal Trust Company of Canada
c/o Boston EquiServe
Proxy Services
P. O. Box 1628
Boston, MA 02105-9903
A holder of Exchangeable Shares who has delivered a duly completed and signed
Instruction to Trustee to Montreal Trust, c/o Boston EquiServe, may revoke or
amend that Instruction by delivering to Montreal Trust, c/o Boston EquiServe,
an instrument in writing executed by the holder or by his attorney authorized
in writing or, if the holder is a corporation, under its corporate seal or by
an officer or attorney thereof duly authorized. However, in order for the
written revocation or amendment to be effective, it must be received by
Montreal Trust, c/o Boston EquiServe, at the address set out above at or
prior to 5:00 p.m. on October 28, 1996.
