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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
SILICON GRAPHICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
September 11, 1998
DEAR SILICON GRAPHICS STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders of
Silicon Graphics, Inc. to be held on Tuesday, October 27, 1998 at 2:00 p.m. in
the Grand Peninsula Ballroom of the Hyatt Regency, San Francisco Airport, 1333
Bayshore Highway, Burlingame, California 94010.
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,
/s/ RICHARD E. BELLUZZO
- ---------------------------------
RICHARD E. BELLUZZO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
SILICON GRAPHICS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1998
------------------------
TO THE STOCKHOLDERS OF SILICON GRAPHICS, INC.:
The Annual Meeting of Stockholders of SILICON GRAPHICS, INC. will be held on
Tuesday, October 27, 1998, at 2:00 p.m., local time, in the Grand Peninsula
Ballroom of the Hyatt Regency, San Francisco Airport, 1333 Bayshore Highway,
Burlingame, California, for the following purposes:
1. To elect a Class III director of the Company to serve for a three-year
term.
2. To approve the adoption of the Company's 1998 Employee Stock Purchase
Plan.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending June 30, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Proxy Statement accompanying this Notice describes these matters more
fully.
The close of business on September 11, 1998 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,
/s/ WILLIAM M. KELLY
---------------------
William M. Kelly
SECRETARY
Mountain View, California
September 11, 1998
<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 Tuesday, October 27, 1998, at 2:00
p.m., local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held in the Grand Peninsula Ballroom of the Hyatt
Regency, San Francisco Airport, 1333 Bayshore Highway, Burlingame, California
94010. The Company's principal offices are located at 2011 North Shoreline
Boulevard, Mountain View, California 94043-1389 and its telephone number at that
location is 650-960-1980.
These proxy solicitation materials will be mailed on or about September 16,
1998 to all stockholders entitled to vote at the meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
At the record date, there were issued and outstanding 186,062,597 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 64,442 votes.
As of September 1, 1998, 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>
Trimark Financial Corporation(1) ............................ Common Stock 18,809,100 10.1% 10.0%
One First Canadian Place, Suite 5600
Toronto, Ontario M5X 1E5
The Capital Group Companies, Inc.(2) ........................ Common Stock 17,759,500 9.6% 9.5%
333 South Hope Street, 52nd Floor
Los Angeles, CA 90071
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(3) 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 February 17, 1998, these shares are
beneficially owned by various entities and individuals associated with the
Trimark family of mutual funds.
(2) As reported on a Schedule 13G/A dated July 9, 1998, these shares are
beneficially owned by Capital Research and Management Company, an investment
adviser owned by The Capital Group Companies, Inc.
(3) See "Voting and Solicitation" for a description of the Series E Preferred
Stock.
REVOCABILITY OF PROXIES
Any proxy given in response 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.
<PAGE>
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
64,442 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 $26,000. 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.
INTERNET OR TELEPHONE VOTING
FOR SHARES DIRECTLY REGISTERED IN THE NAME OF THE STOCKHOLDER. Stockholders
with shares registered directly with Boston Equiserve, the Company's transfer
agent, may vote by telephone by calling 888-807-7699 or may vote on the Internet
at the following address on the World Wide Web: http://www.equiserve.com/proxy.
FOR SHARES REGISTERED IN THE NAME OF A BROKERAGE FIRM OR BANK. A number of
brokerage firms and banks are participating in a program for shares held in
"street name" that offers telephone and Internet voting options. This program is
different from the program provided by Boston Equiserve for shares registered in
the name of the stockholder. If your shares are held in an account at a
brokerage firm or bank participating in this program, you may vote those shares
by calling the telephone number referenced on your voting form. If your shares
are held in an account at a brokerage firm or bank participating in the street
name program, you already have been offered the opportunity to elect to vote
using the Internet. Votes submitted via the Internet through the street name
program must be received by midnight (Eastern Time) on October 26, 1998. The
giving of such a proxy will not affect your right to vote in person should you
decide to attend the annual meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been
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recorded properly. The Company has been advised by counsel that the telephone
and Internet voting procedures that have been made available through Boston
Equiserve are consistent with the requirements of applicable law. Stockholders
voting via the Internet through either of these programs should understand that
there may be costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies, that must be borne by the
stockholder.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting must be received by the Company no later than May 19, 1999.
PROPOSAL NO. 1--ELECTION OF DIRECTORS
DIRECTORS AND NOMINEE 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 one Class III director is to be elected, the Board will be
comprised of seven persons, three directors in Class I, three in Class II and
one in Class III. Allen Jacobson and James Treybig, currently Class III
directors, will not stand for re-election when their terms expire on October 27,
1998. The Board has adopted an amendment to the bylaws to reduce the number of
directors from nine to seven effective on the expiration of Mr. Jacobson's and
Mr. Treybig's term. Each director elected at the 1998 Annual Meeting of
Stockholders will serve until his or her term expires at the Annual Meeting of
Stockholders in 2001, or until his or her successor has been duly elected and
qualified.
Unless otherwise instructed, the proxy holders will vote for the nominee
named below. Mr. Belluzzo was appointed as a director by the Board effective
January 22, 1998. In the unexpected event that Mr. Belluzzo 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 Mr. Belluzzo.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ------------------------------------- --- ----------------------------------------------------------- -----------
<S> <C> <C> <C>
NOMINEE FOR CLASS III DIRECTOR
Richard E. Belluzzo.................. 44 Chairman and Chief Executive Officer, Silicon Graphics, 1998
Inc.
CONTINUING CLASS I DIRECTORS
C. Richard Kramlich.................. 63 General Partner, New Enterprise Associates (a venture 1984
capital firm)
Lucille Shapiro, Ph.D................ 58 Professor of Developmental Biology, Stanford University 1993
School of Medicine
Robert B. Shapiro.................... 60 Chairman and Chief Executive Officer, Monsanto Company 1996
CONTINUING CLASS II DIRECTORS
Robert R. Bishop..................... 55 Chairman, Silicon Graphics World Trade Corporation 1993
Robert A. Lutz....................... 66 Former President and Chief Operating Officer, Chrysler 1995
Corporation
James A. McDivitt.................... 69 Former Senior Vice President, Government Operations and 1987
International, Rockwell International Corporation
</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.
Mr. Belluzzo was appointed Chairman and Chief Executive Officer of the
Company in January 1998. Prior to that, he was employed by the Hewlett-Packard
Company for twenty-two years, serving since 1995
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<PAGE>
as Executive Vice President and General Manager of the computer organization.
From 1993 to 1995, Mr. Belluzzo was General Manager of the Computer Products
Organization and he served as General Manager of the InkJet Products Group from
1991 to 1993. He was elected a Vice President in 1992 and a Senior Vice
President in January 1995. He also serves as a director of Imation Corp.
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. Kramlich is also a director of Ascend Communications, Chalone Inc.,
Com21, Inc., Lumisys, Inc., and SyQuest Technology, Inc.
Mr. Lutz was the Vice Chairman of Chrysler Corporation from 1997 until his
retirement in 1998. From 1991 to 1997, he was President of Chrysler and also
served as its Chief Operating Officer and a member of the Office of the Chairman
from 1993 to 1997. Mr. Lutz also serves as a director of ASCOM Holdings AG and
Northrop Grumman.
Mr. McDivitt was Senior Vice President, Government Operations and
International, of Rockwell International Corporation until his retirement in
April 1995. Mr. McDivitt also served as a director of Octel Communications Corp.
until its acquisition by Lucent Technologies, Inc. in 1997.
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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held eleven meetings during fiscal
1998. The Board has an Audit Committee and a Compensation and Human Resources
Committee, which also performs the functions of a nominating committee.
The Audit Committee consists of three non-employee directors. During fiscal
1998, the members of the Audit Committee were Mr. Jacobson (chair), Mr. Lutz and
Dr. Shapiro, and the Committee held seven meetings. 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. During fiscal 1998, the members of the Compensation and
Human Resources Committee were Mr. Kramlich (chair), Mr. Shapiro and Mr. Treybig
and the Committee held six meetings. The Committee's responsibilities include
approving compensation arrangements for senior executives, and recommending such
arrangements to the Board for the chief executive officer; 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.
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 during fiscal 1998, except for Mr. Shapiro, who attended eight of
the eleven Board meetings and three of the six Compensation and Human Resources
Committee meetings.
4
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Human Resources Committee during fiscal
1998 were Mr. Kramlich, Mr. Shapiro and Mr. Treybig. No interlocking
relationship exists between the Company's Board of Directors or Compensation and
Human Resources Committee 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
October 29, 1997, each of the Company's non-employee directors was automatically
granted an option to purchase 10,000 shares at an exercise price of $15.75 per
share.
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.
In April 1998, the Compensation and Human Resources Committee approved a
$1,000 per diem reimbursement program for non-employee directors who perform
services for the Company outside the scope of normal board duties at the
specific request of the Chief Executive Officer. During fiscal 1998, Mr.
McDivitt received $9,000 for a nine-day business trip he made to Japan and China
on behalf of the Company.
PROPOSAL NO. 2--ADOPTION OF
1998 EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan is designed to encourage stock ownership
broadly among the Company's employees. Approximately 65% of employees worldwide
participate in the Company's current plan. The Company believes that the
Employee Stock Purchase Plan is a key component of its strategy to attract and
retain skilled employees and quality management. The Board of Directors believes
it is in the Company's best interests to adopt the 1998 Employee Stock Purchase
Plan so that the Company may continue to provide eligible employees the
opportunity to purchase the Company's Common Stock through payroll deductions,
thereby aligning their individual financial interests more closely with those of
the stockholders. With the demand for highly skilled employees at an all-time
high, especially in the technology industries, management believes it is
critical to the Company's success to maintain competitive employee compensation
programs.
The 1998 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors in July 1998. No shares have been issued pursuant to the
Purchase Plan. The Purchase Plan will
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<PAGE>
replace the Company's existing Employee Stock Purchase Plan (the "Existing
Plan") with respect to future offerings to employees. As of September 1, 1998,
an aggregate of 2,556,986 shares were available for issuance under the Existing
Plan. Based on present participation levels, the Company expects that it will
issue all such available shares pursuant to current obligations under the
Existing Plan within the next several months, and the Existing Plan will
terminate when all such shares have been issued. The Purchase Plan is
substantially identical to the Existing Plan except that the Purchase Plan shall
initially have 4,000,000 shares of Common Stock reserved for issuance thereunder
and the Purchase Plan shall include a Renewal Feature (as described below).
During any period of overlap in the existence of the Existing Plan and the
Purchase Plan, each employee will be restricted to participation in the plans
only to the extent permitted under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code").
For future issuances, the stockholders are being asked to approve the
adoption of the Purchase Plan and the reservation of 4,000,000 shares
thereunder, plus any shares available for issuance under the Existing Plan at
the date of its termination, plus an annual increase (the "Renewal Feature") to
be made as of the last day of each fiscal year through fiscal 2002 equal to 2%
of: (i) the total number of shares of Common Stock outstanding on such date,
plus (ii) any shares reacquired by the Company during the fiscal year ending on
such date, subject to an aggregate maximum of 24,000,000 shares available for
issuance under the Plan.
SUMMARY OF 1998 EMPLOYEE STOCK PURCHASE PLAN
ADMINISTRATION. The Purchase Plan is administered by the Board of Directors
or a committee appointed by the Board (the "Administrator"). Every finding,
decision and determination by the Administrator shall, to the full extent
permitted by law, be final and binding upon all parties.
ELIGIBILITY. All persons who are employed by the Company on a given
enrollment date and who are customarily employed by the Company for at least
twenty hours per week and more than five months per calendar year are eligible
to participate in the Purchase Plan. Participation in the Purchase Plan ends
automatically on termination of employment with the Company. An eligible
employee may become a participant by completing a subscription agreement
authorizing payroll deductions and filing it with the Company's payroll office
prior to the applicable enrollment date.
OFFERING AND EXERCISE PERIODS. The Purchase Plan is implemented by
overlapping offering periods of 24 months each ("Offering Periods"). Offering
Periods commence every six months, beginning on November 1, 1998, and consist of
four purchase periods of six months each ("Purchase Periods"). The Board may
change the duration of the Purchase Periods or the length or date of
commencement of an Offering Period. If the fair market value of the Common Stock
on any Exercise Date in an Offering Period is lower than the fair market value
of the Common Stock on the first day of the Offering Period, then all
participants in such Offering Period will be automatically withdrawn from such
Offering Period immediately after the exercise of their options and
automatically re-enrolled in the immediately following Offering Period as of the
first day thereof.
GRANT OF OPTION; PURCHASE PRICE. On the first day of each Offering Period
(the "Offering Date"), each eligible employee participating in the Purchase Plan
is granted an option to purchase on the last day of each Exercise Period in such
Offering Period (the "Exercise Date") a number of shares of Common Stock of the
Company determined by dividing such employee's accumulated payroll deductions by
the lower of: (i) 85% of the fair market value of one share of the Company's
Common Stock on the Offering Date or (ii) 85% of the fair market value of one
share of the Company's Common Stock on the applicable Exercise Date. Unless a
participating employee withdraws from the Purchase Plan, his or her option is
automatically exercised on each Exercise Date of the Offering Period; provided
that in no event will an employee be permitted to purchase during an Offering
Period a number of shares in excess of the number determined by dividing $40,000
by the fair market value of a share of the Company's Common Stock on the
Offering Date. The fair market value of the Common Stock on a given date is the
closing sale price of the Common Stock for such date on the New York Stock
Exchange.
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In addition, no employee will be permitted to subscribe for shares under the
Purchase Plan if, immediately after such subscription, the employee would own 5%
or more of the 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), nor will any employee be
permitted to participate to the extent such employee could buy under all
employee stock purchase plans of the Company more than $25,000 worth of stock
(determined at the fair market value of the shares at the time the option is
granted) in any calendar year.
PAYROLL DEDUCTIONS. The purchase price for the shares is accumulated by
payroll deductions during the Offering Period. The deductions may not exceed 10%
of a participant's eligible compensation, which is defined in the plan to
include all base straight time gross earnings, payments for overtime, shift
premium, bonuses and commissions (exclusive of incentive compensation, incentive
payments and other compensation) for a given Offering Period. A participant may
discontinue his or her participation in the Purchase Plan at any time during the
Offering Period. Payroll deductions commence on the first payday following the
Offering Date, and continue at the same rate with automatic enrollment in
subsequent Offering Periods, unless sooner terminated by the participant.
WITHDRAWAL; TERMINATION OF EMPLOYMENT. Employees may end their
participation in an offering at any time during the Offering Period, and
participation ends automatically on termination of employment with the Company
or failure of the participant to remain in the continuous scheduled employment
of the Company for at least 20 hours per week. Once a participant withdraws from
a particular offering, that participant may not participate again in the same
offering. A participant may withdraw all, but not less than all, of the payroll
deductions credited to such participant's account by giving written notice to
the Company.
TRANSFERABILITY. No rights or accumulated payroll deductions of a
participant under the Purchase Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or pursuant to the Purchase Plan), and any such attempt may be
treated by the Company as an election to withdraw from the Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE. The shares reserved under the Purchase Plan, as well as the price per
share of Common Stock covered by each option under the Purchase Plan which has
not yet been exercised, will be proportionately adjusted for any stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company. 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.
In the event of the proposed dissolution or liquidation of the Company, the
pending Offering Period will be shortened and a new Exercise Date will be set
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. In the event of a proposed sale of all or substantially
all the assets of the Company or a merger of the Company with or into another
corporation, the Purchase Plan provides that each option under the Purchase Plan
will be assumed or an equivalent option will be substituted by the successor or
purchaser corporation. If the successor or purchaser corporation refuses to
assume or substitute for the outstanding options, the pending Offering Period
will be shortened and a new Exercise Date will be set.
AMENDMENT AND TERMINATION. The Board of Directors of the Company may at any
time and for any reason terminate or amend the Purchase Plan. Except as provided
in the Purchase Plan, no termination can affect options previously granted, nor
may any amendment make any change in any option already granted which adversely
affects the rights of any participant. Shareholder approval may be required for
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certain amendments in order to comply with the federal securities or tax laws,
or any other applicable law or regulation.
Unless terminated sooner, the Purchase Plan will terminate 20 years from its
effective date.
FEDERAL TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 423 of the
Code. Under these provisions, no income will be taxable to a participant until
the shares purchased under the Purchase Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the holding period. If
the shares are sold or otherwise disposed of more than two years from the first
day of the Offering Period and one year from the date the shares are purchased,
the participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, and (b) an amount equal to fifteen (15%) of
the fair market value of the shares as of the first day of the Offering Period.
Any additional gain will be treated as long-term capital gain. Net capital gains
on shares held between 12 and 18 months may be taxed at a maximum federal rate
of 28%, while net capital gains on shares held for more than 18 months may be
taxed at a maximum federal rate of 20%. If the shares are sold or otherwise
disposed of before the expiration of these holding periods, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will 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 a sale or disposition of shares prior to the expiration of the
holding periods described above.
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 PURCHASE PLAN
Eligible employees participate in the Purchase Plan voluntarily and each
such employee determines his or her level of payroll deductions within the
guidelines fixed by the Purchase Plan. Accordingly, future purchases under the
Purchase Plan are not determinable at this time.
VOTE REQUIRED
The affirmative votes of a majority of the votes cast will be required to
approve the Board's adoption of the Purchase Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" ADOPTION OF THE PURCHASE PLAN.
8
<PAGE>
PROPOSAL NO. 3--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, 1999. 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 1999.
OTHER INFORMATION
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of September 1, 1998 by each director or nominee director, by
each of the current and former executive officers named in the table under
"Executive Officer Compensation" below, and by all such persons and all current
executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
BENEFICIALLY COMMON TOTAL VOTING
NAME OWNED(1) STOCK POWER
- -------------------------------------------------- ----------------- ------------- ---------------
<S> <C> <C> <C>
Richard E. Belluzzo............................... 540,000 * *
Robert R. Bishop.................................. 3,771,144 2.0% 2.0%
Allen F. Jacobson................................. 78,734 * *
C. Richard Kramlich............................... 70,114 * *
Robert A. Lutz.................................... 80,134 * *
Edward R. McCracken............................... 1,728,233 * *
James A. McDivitt................................. 201,738 * *
Lucille Shapiro, Ph.D............................. 38,734 * *
Robert B. Shapiro................................. 31,134 * *
James G. Treybig.................................. 76,734 * *
Robert H. Ewald................................... 376,863 * *
Steven J. Gomo.................................... 107,000 * *
William M. Kelly.................................. 236,979 * *
Keith H. Watson................................... 82,200 * *
All executive officers and directors as a group
(16 persons).................................... 7,851,893 4.1% 4.1%
</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 that were exercisable on
September 1, 1998, or within 60 days thereafter, and in the case of Messrs.
Belluzzo, Gomo and Watson gives effect to vesting that would have occurred
but for a ten-month delay in vesting applicable to options granted to new
employees: Mr. Belluzzo, 540,000 shares; Mr. Bishop, 100 shares; Mr.
Jacobson, 36,734 shares; Mr. Kramlich, 36,734 shares; Mr. Lutz, 30,134
shares; Mr. McCracken, 1,199,045 shares; Mr. McDivitt, 36,734 shares; Dr. L.
Shapiro, 36,734 shares; Mr. R. Shapiro, 30,134 shares; Mr. Treybig, 36,734
shares; Mr. Ewald, 288,800 shares; Mr. Gomo, 32,000 shares; Mr. Kelly,
182,200 shares; Mr. Watson, 22,200 shares; and all directors and executive
officers as a group, 2,894,502 shares.
9
<PAGE>
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.
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.
MANAGEMENT TRANSITION
The Company experienced a number of significant changes in its senior
management team during fiscal 1998. In October 1997, Edward R. McCracken
announced his intention to resign as Chairman and Chief Executive Officer of the
Company. Mr. McCracken agreed at the request of the Board to continue to serve
during the search for a successor. Gary Lauer, Executive Vice President of
Worldwide Marketing and Sales, also resigned and Robert H. Ewald, Executive Vice
President, Computer Systems Group, assumed the interim role of chief operating
officer. The Board formed a search committee consisting of Mr. McDivitt (CHAIR),
Mr. Kramlich and Dr. Shapiro, which engaged in a nationwide search culminating
in the appointment of Richard E. Belluzzo as Chairman and Chief Executive
Officer in January 1998. Since Mr. Belluzzo's appointment, Steven J. Gomo and
Keith Watson have joined the Company as Senior Vice President, Finance and Chief
Financial Officer and Executive Vice President, Worldwide Sales and Marketing,
respectively, and Mr. Ewald has resigned.
In managing through these changes the Board of Directors and the Committee
sought to attract high quality new members to the management team, to provide
appropriate incentives to retain the balance of the management team through an
uncertain transition, and to secure the cooperation and interim leadership of
departing members of the management team. With these goals in mind, the
Committee determined it was appropriate to enter into retention arrangements
with members of the existing management team, to make certain one-time payments
to reflect, in the Committee's judgment, the amount necessary to attract new
employees to the Company and to compensate them for amounts forfeited as a
result of leaving their former employers. In addition, the Company made
severance and other termination payments to departing executives. These
arrangements are described under "Certain Transactions--Arrangements with
Executive Officers."
The Board of Directors and the Committee believe that these arrangements
have generally had the desired effect, and that the Company has emerged from a
difficult management transition positioned for long-term success.
EMPLOYEE STOCK OPTION EXCHANGE PROGRAM
The Company has a broadly based employee stock option program intended to
provide equity incentives to officers and employees. The Committee believes that
these equity incentives are a significant factor in the Company's ability to
attract, retain and motivate employees who are critical to the Company's
long-term success.
In the difficult environment in which the Company has operated in the past
several years, the management and the Committee have been acutely aware of the
employee retention problems caused by the disparity between the original
exercise prices of the Company's outstanding stock options and the prevailing
market prices for the Common Stock. The Committee has twice concluded that it
was in the best
10
<PAGE>
interests of the Company to adjust the exercise prices of outstanding options as
part of an option exchange program designed to provide meaningful equity
incentives to its employees. In the first case, in April 1997, the Committee
approved an exchange program under which approximately 13,554,514 outstanding
options at above market prices were exchanged for approximately 10,157,554
options priced at $18.875, subject to new minimum two-year vesting provisions
and with a 12 month blackout period for exercise. Senior executives of the
Company were not eligible to participate in this program.
In July 1998, with the Company under new leadership and with a new long-term
growth strategy in place, the Committee again considered the retention
implications of the outstanding stock options and approved a further exchange
program under which outstanding options were exchanged for new options priced at
$11.125, the fair market value of the Common Stock on July 31, 1998. Outstanding
options priced at or below $12.875 were not eligible for the exchange. The new
options are subject to new minimum two-year vesting provisions and with a six
month blackout period for exercise. As in the case of the prior program, the
Company's senior executives were not eligible to participate in the 1998
exchange program.
In approving these programs, the Committee considered the impact of the
exchanges on all of the Company's stockholders, including the potential dilution
associated with the lower exercise prices. The Committee concluded that employee
retention is such a fundamental strategic requirement that these programs are in
the interests of the Company's shareholders.
As of September 1, 1998, the Company had 33,651,040 shares reserved for
issuance under outstanding employee options, and an additional 9,984,505 shares
authorized for future grants. The Committee and the Board regularly review the
plans and may authorize additional shares from time to time as the Company's
business may require. The Board plans to submit to stockholder approval any
plans under which options may be granted to executive officers and any plans
where approval is required by law or securities exchange rule.
EXECUTIVE COMPENSATION COMPONENTS
Compensation for the Company's executive officers generally consists of base
salary and annual incentive plans, combined with restricted stock 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. 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
1998, the targets for executive officers ranged from 40% to 100% of salary. The
actual payment amount is computed as a percentage of that target, based on the
Company's performance in achieving specified objectives. For fiscal 1998 these
objectives included the achievement by the Company of certain revenue growth,
operating profit, customer satisfaction and other operating goals. No payments
were made under the fiscal 1998 incentive plan.
An additional fiscal 1998 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. Mr. Ewald and Mr. Kelly each
received such a bonus, approved by Mr. Belluzzo and the Committee, to reflect
their respective contributions as interim chief operating officer and head of
finance and corporate operations during the management transition discussed
above.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS. Stock option and restricted
stock awards are designed to align the interests of executives with the
long-term interests of the stockholders. The Committee approves
11
<PAGE>
option grants subject to vesting periods (usually 50 months) to retain
executives and encourage sustained contributions. In July and November 1997, the
Company granted options to executives subject to three or five-year cliff
vesting, to be accelerated in installments if certain stock price appreciation
targets are attained. The exercise price of most options is the market price on
the date of grant. Restricted stock awards are also subject to vesting, based
generally on the passage of time and in some instances subject to accelerated
vesting if certain stock price appreciation targets are attained.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
As noted above, Mr. McCracken was Chief Executive Officer of the Company
until his resignation effective January 22, 1998. Mr. McCracken's fiscal 1998
base salary prior to the October 1997 announcement of his intention to resign
was $775,000, unchanged since January 1996. In July 1997, Mr. McCracken received
a grant of 30,000 shares of restricted stock, subject to three-year cliff
vesting to be accelerated in installments if certain stock price appreciation
targets are attained. This restricted stock award was cancelled in June 1998 in
connection with his resignation.
In fiscal 1998, the Company made severance and bonus payments to Mr.
McCracken in accordance with a negotiated separation agreement. These amounts
are described under "Certain Transactions-- Arrangements with Executive
Officers."
In January 1998, Mr. Belluzzo joined the Company as Chairman and Chief
Executive Officer at an initial base salary of $990,000. He received a
$1,000,000 one-time bonus and was granted options to purchase 3,000,000 shares
of Common Stock at an exercise price of $11.25, the fair market value on the
date of grant. The options were granted under the 1993 Long-Term Incentive Stock
Plan as to 2,000,000 shares, the maximum grant permitted under the terms of that
Plan, and the remaining options were granted under the 1989 Amended and Restated
Employee Benefit Stock Plan. Compensation expense incurred in the future in
connection with the exercise of the option granted under the 1989 Plan will not
be performance-based compensation under Section 162(m), as described below. The
options vest over 50 months, with 20% vesting after 10 months and 2% per month
thereafter.
The Company also made Mr. Belluzzo a short-term loan, which has since been
repaid, to facilitate the exercise of options of his former employer's stock,
and purchased an annuity on his behalf pursuant to an employment agreement.
These arrangements are described under "Certain Transactions--Arrangements with
Executive Officers."
SECTION 162(M)
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 AND HUMAN RESOURCES
COMMITTEE
C. Richard Kramlich, CHAIRMAN
Robert B. Shapiro
James G. Treybig
12
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and equity compensation for the
three fiscal years ended June 30, 1998 for Richard E. Belluzzo, who became Chief
Executive Officer in January 1998, Edward R. McCracken, the former Chief
Executive Officer, and each of the four other most highly compensated executive
officers of the Company (determined at the end of fiscal 1998).
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
--------------------------------------- AWARDS
OTHER -------------------------
FISCAL ANNUAL RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION(2) YEAR SALARY ($) BONUS ($) COMP ($)(3) OPTIONS (#) STOCK ($)(4) COMP ($)
- ------------------------------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard E. Belluzzo(5) ........ 1998 $ 426,462 $ 1,000,000 $ 45,567 3,000,000 -- $ 1,250,000
Chairman and Chief Executive 1997 -- -- -- -- --
Officer 1996 -- -- -- -- --
Edward R. McCracken(6) . 1998 $ 1,098,802 -- $ 32,385 -- $ 731,220 $ 5,300,000
Former Chairman and Chief 1997 775,000 $ 203,438 31,059 200,000 --
Executive Officer 1996 755,000 -- 42,526 200,000 --
Keith H. Watson ............... 1998 $ 90,340 $ 850,000 $ 3,740 185,000 $ 813,690
Executive Vice President, 1997 -- -- -- -- --
Worldwide Sales and Marketing 1996 -- -- -- -- --
Steven J. Gomo ................ 1998 $ 138,462 $ 750,000 $ 38,954 200,000 $ 1,068,675
Senior Vice President and Chief 1997 -- -- -- -- --
Financial Officer 1996 -- -- -- -- --
Robert H. Ewald(7) ............ 1998 $ 573,750 $ 58,000 $ 218,259 150,000 -- $ 1,856,272
Executive Vice President, 1997 441,107 132,185 60,626 130,000 $ 681,200
Computer Systems 1996 -- -- -- -- --
William M. Kelly .............. 1998 $ 457,945 $ 46,000 $ 19,969 100,000 $ 633,724
Senior Vice President, 1997 360,481 64,094 17,029 105,000 340,600
Corporate Operations 1996 325,000 16,250 11,239 50,000 --
</TABLE>
- ------------------------
(1) The Company has no pension, retirement, annuity or similar benefit plan.
(2) Mr. McCracken and Mr. Ewald resigned from the Company effective January 22,
1998 and June 30, 1998, respectively. Mr. Belluzzo, Mr. Gomo and Mr. Watson
joined the Company as executive officers in January, February and April,
1998, respectively, and received the one-time bonuses on joining the Company
shown in the bonus column. Mr. Gomo's bonus is subject to repayment on a
prorated basis if he terminates his employment prior to February 2000.
(3) Other compensation generally includes relocation assistance and executive
perquisites. Messrs. Belluzzo, Gomo and Ewald received relocation assistance
to move to Northern California in the amounts of $38,730, $35,445 and
$93,919, respectively. Mr. Ewald also received compensation in the form of a
loan originally extended in connection with his relocation to California in
1997 which was forgivable in monthly installments during his employment. The
aggregate amount of this forgiveness in fiscal 1998 was $83,333. See
"Certain Transactions--Arrangements with Executive Officers."
(4) Values based on the closing market price of the Common Stock on the date of
grant. The aggregate number of shares of restricted stock held at June 30,
1998 and the value of those shares based on the June 30, 1998 closing price
of $12.125 per share was: Mr. McCracken, 30,000 shares, $363,720; Mr.
Watson, 60,000 shares, $727,440; Mr. Gomo, 75,000 shares, $909,300; Mr.
Ewald, 42,500 shares,
13
<PAGE>
$515,270; and Mr. Kelly, 44,750 shares, $542,549. These restricted stock
awards vest in four annual installments, with the exception of Mr. Watson's
restricted stock award which vests 25% on the first anniversary of the date
of grant and the remainder on the second anniversary. In July 1997, Mr.
McCracken and Mr. Kelly were granted restricted stock awards that vest in
July 2000 or in earlier installments on the attainment of stock price
appreciation targets.
(5) Other compensation consists of the purchase of an annuity for Mr. Belluzzo
pursuant to an employment agreement. See "Certain Transactions--Arrangements
with Executive Officers."
(6) Amounts in the salary and other compensation columns include bonus and
severance payments pursuant to the separation agreement between Mr.
McCracken and the Company. See "Certain Transactions--Arrangements with
Executive Officers."
(7) Other compensation consists of severance payments to be paid through June
1999 pursuant to the retention agreements approved by the Board in November
1997 in connection with the Company's management transition, and the
forgiveness of indebtedness to the Company in connection with the
termination of Mr. Ewald's employment. See "Certain
Transactions--Arrangements with Executive Officers."
OPTION GRANTS IN FISCAL 1998
The following table provides details regarding all stock options granted to
the named executive officers in fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
- ---------------------------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------------
NAME GRANTED YEAR ($/SHARE) DATE 5% 10%
- ----------------------------------- ---------- ------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Belluzzo................ 3,000,000 26.0% $ 11.25 1/22/08 $ 21,225,194 $ 53,788,808
Edward R. McCracken................ 0 -- -- -- -- --
Keith H. Watson.................... 185,000 1.6% 13.563 4/20/08 1,577,936 3,998,799
Steven J. Gomo..................... 200,000 1.7% 14.25 3/05/08 1,792,350 4,542,166
Robert H. Ewald.................... 150,000 1.3% 12.875 9/30/99 185,467 378,867
William M. Kelly................... 100,000 * 12.875 11/13/07 809,702 2,051,943
</TABLE>
- ------------------------
* Less than 1%.
(1) The options in this table were granted under the 1993 Long-Term Incentive
Stock Plan and the 1989 Stock Incentive Program and have exercise prices
equal to the fair market value on the date of grant. The options generally
become exercisable at a rate of 2% per month over a period of fifty months
and expire ten years from the date of grant. The options granted to Mr.
Ewald and Mr. Kelly become exercisable on the fifth anniversary of the date
of grant or earlier in installments if specified stock price appreciation
targets are achieved. Mr. Ewald's options will cease vesting on June 30,
1999 and terminate ninety days thereafter in connection with the termination
of his employment.
(2) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (up to 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
believes that this method does not accurately illustrate the potential value
of a stock option.
14
<PAGE>
OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 1998 JUNE 30, 1998(1)
ACQUIRED VALUE ------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------ ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Belluzzo............. -- -- 0 3,000,000 $ 0 $ 2,625,000
Edward R. McCracken............. 79,055 $ 1,002,273 1,199,045 0 3,087,636 0
Keith H. Watson................. -- -- 0 185,000 0 0
Steven J. Gomo.................. -- -- 0 200,000 0 0
Robert H. Ewald................. -- -- 267,200 307,800 0 0
William M. Kelly................ -- -- 162,992 195,308 0 0
</TABLE>
- ------------------------
(1) The amounts in this column reflect the difference between the closing market
price of the Common Stock on June 30, 1998, which was $12.125, and the
option exercise price. The actual value of unexercised options fluctuates
with the market price of the Common Stock.
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, 1998, the
Company believes that its officers, directors and ten percent stockholders
complied with all Section 16(a) filing requirements, with the exception of one
late filing of a Form 4 by Mr. McDivitt reflecting the purchase of shares on the
open market.
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
an aggregate liquidation preference of $17,500,000, and is convertible into
Common Stock. NKK is a distributor and value-added reseller of the Company's
products in Japan. 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.
ARRANGEMENTS WITH EXECUTIVE OFFICERS
EMPLOYMENT CONTINUATION AGREEMENTS. 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 and
restricted stock effective after such a change in control.
MANAGEMENT RETENTION AGREEMENTS. In November 1997, in connection with Mr.
McCracken's announcement of his intention to resign and the related management
transition, the Company entered into retention agreements with certain senior
executives, including Kenneth L. Coleman (Senior Vice President, Customer and
Professional Services), Mr. Ewald and Mr. Kelly. Under the agreements, which
terminate in December 1999, each executive officer is entitled to (i) a
severance payment equal to two years of his or her compensation if employment
with the Company is involuntarily terminated on or prior to December 31, 1998 or
one year if terminated between December 31, 1998 and 1999 and (ii) continued
15
<PAGE>
vesting of options and restricted stock for one year following such termination.
These agreements also include an agreement not to solicit the Company's
employees to leave their employment for one year following the termination of
his or her employment for any reason.
EMPLOYMENT AGREEMENT WITH MR. BELLUZZO. In January 1998, the Company
entered into an employment agreement with Mr. Belluzzo containing the following
provisions:
- The Company purchased for $1,250,000 an annuity for Mr. Belluzzo's
benefit, in order to compensate him for long-term compensation
arrangements foregone when he left his former employment.
- The agreement established a target value of $10,000,000 for Mr. Belluzzo's
equity position to be measured at specified times based on the vesting
schedule of his initial option grant (or earlier in the event his
employment terminated other than for cause or voluntary resignation) and
provided for the Company to make a supplemental payment in the event of a
shortfall. The agreement was amended at Mr. Belluzzo's request in April
1998 to eliminate this provision.
- If Mr. Belluzzo's employment is involuntarily terminated prior to July 1,
2005, he will be entitled to twenty-four months of continued salary, a pro
rated bonus for the fiscal year in which the termination occurs, and six
months' additional vesting of his outstanding stock options or other
equity-based compensation. These payments are conditioned on a
non-competition and non-solicitation agreement. If Mr. Belluzzo's
employment terminates due to permanent disability, Mr. Belluzzo (or his
estate if he dies before the final payments are made) will be entitled
under the agreement to two years' continued salary and any bonus earned
before such termination.
- The agreement also includes the employment continuation provisions that
generally apply to the Company's executive officers in the event of a
change in control of the Company.
The Company also made Mr. Belluzzo a short-term loan in connection with the
exercise of options to purchase his former employer's stock as described below
under "Management Indebtedness."
SEPARATION AGREEMENT WITH MR. MCCRACKEN. The Company and Mr. McCracken
entered into an agreement pursuant to which Mr. McCracken agreed to continue to
serve as Chairman and Chief Executive Officer of the Company until his successor
was appointed and to make himself available to facilitate the management
transition through June 1998. Mr. McCracken also agreed to abide by non-compete
and non-hire provisions with respect to the Company's business, customers and
employees and to make himself available as a consultant through June 1999. Under
the agreement, Mr. McCracken received monthly compensation of $100,000 per month
through June 1998 and will receive monthly payments of $10,000 per month from
July 1998 to June 1999. Mr. McCracken also was paid a $3,250,000 severance
payment under the agreement and was entitled to receive a bonus in an amount up
to $2,800,000, of which $1,300,000 was deemed earned as of the time of the
execution of the agreement. The remaining up to $1,500,000 was to be payable
based upon an assessment by the Board of Mr. McCracken's contribution during the
transition period to the attainment of the Company's strategic goals. In July
1998, the Board approved and paid Mr. McCracken a bonus of $750,000 under the
agreement. The agreement also provided for Mr. McCracken's unvested stock
options to become fully vested on the appointment of his successor and for such
options to remain exercisable through the earlier of their normal term or July
1999. Mr. McCracken's restricted stock award was cancelled in June 1998. The
Company recorded the full compensation expense associated with this agreement in
fiscal 1998, including a $5,500,000 non-cash expense associated with the vesting
of Mr. McCracken's stock options.
SEPARATION AGREEMENT WITH MR. EWALD. The Company and Mr. Ewald entered into
a separation agreement in connection with the termination of his employment
effective June 30, 1998. As provided by the November 1997 retention agreement
described above, Mr. Ewald will receive severance payments equal to $1,155,000
or two years base salary, payable in a lump sum of $577,500 with the balance to
be paid in monthly installments through June 1999, and his outstanding stock
options and restricted stock awards
16
<PAGE>
will continue to be outstanding and vest according to their terms through June
1999. In addition, the Company forgave $701,272 of Mr. Ewald's outstanding
relocation loan described below and Mr. Ewald repaid the balance of $683,969 in
July 1998.
MANAGEMENT INDEBTEDNESS. The Company loaned Mr. Belluzzo $3,400,000 at an
interest rate of 6% in January 1998 to facilitate the exercise of options to
purchase his former employer's stock. The loan was repaid in March 1998. The
largest amount of indebtedness outstanding on this loan during fiscal 1998 was
$3,424,033.
The Company loaned Mr. Ewald $806,250 at an interest rate of 7.4% and
$1,000,000 interest-free (the "Forgiveable Loan") in October 1997 for the
purchase of real property for the construction of a primary residence and agreed
to pay him a housing allowance of $8,333 per month for 60 months from the date
of the loans. The loans were secured by a second mortgage and Mr. Ewald's
options to purchase Common Stock. During the term of Mr. Ewald's employment, the
Forgiveable Loan was forgiven in monthly installments of $16,667. In April 1998,
the loans were repaid in connection with the purchase of a primary residence and
a new loan was extended in the amount of $1,351,500 at an interest rate of
7.19%. This loan was repaid in part and the balance was forgiven in July 1998 in
connection with the termination of Mr. Ewald's employment as described above.
Mr. Ewald also received an interim housing allowance of $6,850 per month from
August 1997 to April 1998 to lease a temporary residence. The largest amount of
indebtedness outstanding during fiscal 1998 was $1,835,915.
The Company loaned Mr. Gomo $200,000 interest-free as a bridge loan for the
purchase of a primary residence in July 1998. The loan is secured by a second
mortgage on an investment property owned by Mr. Gomo and is due on the earlier
of the sale of the investment property, July 1999 or the termination of Mr.
Gomo's employment.
The Company loaned Mr. Kelly $400,000 at an interest rate of 7.45% annually
for residential improvements in July 1997. The loan is secured by a second
mortgage and Mr. Kelly's options to purchase Common Stock and is due on the
fifth anniversary, or earlier if Mr. Kelly leaves the Company's employ or sells
the residence. Payments of principal are to be made in connection with the sale
of shares of the Company's Common Stock. The largest amount of indebtedness
outstanding on this loan during fiscal 1998 was $429,800.
The Company loaned Mr. Watson $118,649 at an interest rate of 5.51% annually
in April 1998 to facilitate the exercise of options to purchase stock of his
former employer. The loan is due on or before December 31, 1998. The largest
amount of indebtedness outstanding on this loan during fiscal 1998 was $119,921.
17
<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, 1993 and ending June 30, 1998.
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>
SGI S & P H & Q
<S> <C> <C> <C>
Jun-93 100 100 100
Jul-93 90.9699 99.4673 94.9022
Aug-93 106.0201 102.8922 99.9305
Sep-93 115.0502 101.8645 101.7027
Oct-93 116.388 103.8399 104.4744
Nov-93 117.0569 102.4993 105.7907
Dec-93 132.4415 103.5336 108.2687
Jan-94 137.1237 106.8985 114.639
Feb-94 127.7592 103.6868 115.9527
Mar-94 129.097 98.9435 109.1652
Apr-94 134.4482 100.0843 106.973
May-94 122.408 101.3251 107.5964
Jun-94 118.3947 98.6105 101.1824
Jul-94 126.4214 101.7158 104.9947
Aug-94 140.4682 105.5402 115.4813
Sep-94 137.7926 102.699 115.3499
Oct-94 162.5418 104.8432 123.4899
Nov-94 164.5485 100.7014 122.5883
Dec-94 166.7224 101.9399 125.3059
Jan-95 167.2241 104.4148 124.716
Feb-95 185.2843 108.1815 134.046
Mar-95 189.2977 111.138 139.3782
Apr-95 200.6689 114.2455 148.2136
May-95 208.0268 118.3939 152.5695
Jun-95 213.3779 120.9132 168.973
Jul-95 224.7492 124.7553 183.6017
Aug-95 226.0869 124.7153 187.0586
Sep-95 183.9465 129.7161 192.3418
Oct-95 177.2575 129.07 194.776
Nov-95 194.6488 134.3684 193.6375
Dec-95 147.8261 136.7123 187.7
Jan-96 151.1706 141.1715 191.86
Feb-96 133.7793 142.1504 199.1757
Mar-96 133.7793 143.2757 191.399
Apr-96 158.5284 145.2 212.2485
May-96 146.4883 148.5184 215.198
Jun-96 128.4281 148.8536 197.4305
Jul-96 139.1304 142.0438 179.2205
Aug-96 124.4147 144.7162 193.4268
Sep-96 117.7258 152.5559 214.1797
Oct-96 98.9967 156.5423 206.445
Nov-96 106.3545 168.0288 227.0627
Dec-96 136.4548 164.4152 225.682
Jan-97 146.4883 174.4967 245.1328
Feb-97 129.097 175.531 230.2826
Mar-97 104.3478 168.051 251.2764
Apr-97 79.5987 177.8661 247.5774
May-97 101.0034 188.2849 291.4119
Jun-97 80.2676 196.4664 293.1686
Jul-97 134.4482 211.815 339.0948
Aug-97 146.8227 199.6471 341.7429
Sep-97 140.4682 210.259 362.5718
Oct-97 78.5953 203.01 309.7731
Nov-97 70.2341 212.0614 312.5216
Dec-97 65.8863 215.3974 299.2685
Jan-98 82.2743 217.5838 316.795
Feb-98 80.602 232.9124 360.3591
Mar-98 74.5819 244.5453 360.1659
Apr-98 69.8997 246.7649 374.2794
May-98 64.214 242.1193 355.081
Jun-98 64.883 251.668 372.9244
</TABLE>
* Assumes $100 invested on June 1, 1993 in the Company's Common Stock, the S&P
500 Stock Index and the H&Q Technology Index, with reinvestment of dividends.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Company or Management may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ WILLIAM M. KELLY
---------------------
William M. Kelly
SECRETARY
Dated: September 11, 1998
18
<PAGE>
Appendix A
SILICON GRAPHICS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Employee Stock Purchase Plan
(herein called the "Plan") of Silicon Graphics, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through payroll deductions. It is the intention of the Company that
the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, or to the
extent authorized by the Board, a Committee of the Board.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock, $0.001 par value, of the
Company.
(d) "Company" means Silicon Graphics, Inc. and Designated Subsidiaries
of the Company.
(e) "Compensation" means base pay, plus any amounts attributable to
overtime, shift premium, incentive compensation, bonuses and commissions
(exclusive of "spot bonuses" and any other such item specifically directed
for all Employees by the Board or its committee).
(f) "Designated Subsidiaries" means the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible
to participate in the Plan.
(g) "Employee" means any individual who is an Employee of the Company
for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in a calendar year.
For purposes of the Plan, the employment relationship will be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved in writing by the Company. Where the period of leave (other
than a personal leave of absence) exceeds 90 days and the individual's right
to reemployment is not guaranteed either by statute or by contract, the
employment relationship shall be deemed to have terminated on the 91st day
of such leave. In the case of a personal leave of absence, the employment
relationship shall be deemed to have terminated on the commencement date.
(h) "Enrollment Date" means the first Trading Day of each Offering
Period.
(i) "Exercise Date" means the last Trading Day of each Purchase Period.
(j) "Fair Market Value" means, as of any date, the value of the Common
Stock determined by the Board based on such factors as the Board determines
relevant, provided however, that if there is a public market for the Common
Stock the fair market value will be determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market
trading day on or prior to the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
or
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the
Common Stock on or prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems
reliable.
<PAGE>
(k) "Offering Date" means the first day of each Offering Period of the
Plan.
(l) "Offering Period" means a period of twenty-four (24) months
consisting of four six-month Purchase Periods during which options granted
pursuant to the Plan may be exercised. The duration and timing of Offering
Periods may be changed pursuant to Sections 4 and 20 of this Plan.
(m) "Plan" means this 1998 Employee Stock Purchase Plan.
(n) "Purchase Period" means the approximately six-month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period will commence
on the Enrollment Date and end with the next Exercise Date.
(o) "Purchase Price" means 85% of the Fair Market Value of a share of
Common Stock on the Enrollment Date or on the Exercise Date, whichever is
lower; provided however, that the Purchase Price may be adjusted by the
Board pursuant to Section 20.
(p) "Reserves" means the number of shares of Common Stock covered by
each option under the Plan that has not yet been exercised and the number of
shares of Common Stock that have been authorized for issuance under the Plan
but not yet placed under option.
(q) "Subsidiary" means any corporation, domestic or foreign, in which
the Company or a Subsidiary owns, directly or indirectly, 50% or more of the
voting shares, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(r) "Trading Day" means a day on which national stock exchanges and the
Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) GENERAL RULE. Any Employee who is employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan, subject
to the requirements of Section 5(a) and the limitations imposed by Section
423(b) of the Code.
(b) EXCEPTIONS. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan if
(i) immediately after the grant, such Employee (or any other person whose
stock ownership would be attributed to such Employee pursuant to Section
424(d) of the Code) would own capital stock and/or hold outstanding options
to purchase shares possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) the rate of withholding under such
option would permit the employee's rights to purchase shares under all
employee stock purchase plans (described in Section 423 of the Code) of the
Company and its subsidiaries to accrue (i.e., become exercisable) at a rate
which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of
such shares (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without stockholder approval, if such change is
announced prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form provided by the Company and filing it with the
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Company prior to the applicable Enrollment Date, unless a later time for
filing the subscription agreement is set for all eligible Employees with
respect to such Offering Period. Unless otherwise determined by the Board,
an eligible Employee may participate in only one Offering Period at a time.
(b) Payroll deductions for a participant shall commence with the first
payroll following the Enrollment Date (or as soon as administratively
feasible) and shall end on the last payroll in the Offering Period to which
such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each payday during
all subsequent Offering Periods at a rate not exceeding ten percent (10%),
or such other rate as may be determined from time to time by the Board, of
the Compensation which he or she would otherwise receive on such payday
without regard to deferral elections, provided that the aggregate of such
payroll deductions during any Offering Period shall not exceed ten percent
(10%), or such other percentage as may be determined from time to time by
the Board, of the aggregate Compensation which he or she would otherwise
have received during said Offering Period.
(b) All payroll deductions authorized by a participant shall be credited
to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or may change the rate of his or her payroll
deductions during an Offering Period by completing and filing with the
Company a new authorization for payroll deduction. The Board may, in its
discretion, limit the number of participation rate change in any Offering
Period. The change in rate shall be effective as soon as administratively
feasible following the Company's receipt of the new authorization. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) of the Plan, a
participant's payroll deductions may be automatically decreased to zero
percent (0%) at any time during a Purchase Period. Payroll deductions shall
recommence at the rate provided in such participant's subscription agreement
at the beginning of the first Purchase Period which is scheduled to end in
the following calendar year, unless terminated by the participant as
provided in Section 10.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, which arise on
the exercise of the option or the disposition of the common Stock. At any
time the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION.
(a) On each Enrollment Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) a number of full shares of the Company's Common
Stock arrived at by dividing such Employee's payroll deductions to be
accumulated prior to such Exercise Date and retained in the Employee's
account as of the Exercise Date by the applicable
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<PAGE>
Purchase Price; provided that the maximum number of shares a participant may
purchase during each Offering Period shall be determined by (i) dividing
$40,000 by the Fair Market Valueof a share of the Company's Common Stock on
the Offering Date or (ii) if less, by the "Maximum Cap" set for such
Offering Period; and provided further that such purchase shall be subject to
the limitations set forth in Sections 3(b) and 12. The "Maximum Cap" for
each Offering Period shall be the number of shares purchasable under the
Plan during that Offering Period with the maximum payroll deductions
permitted by Section 6(d), based on the Fair Market Value of the Common
Stock at the beginning of the Offering Period. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the
maximum number of shares of the Company's Common Stock an Employee may
purchase during each Purchase Period of such Offering Period. Exercise of
the option shall occur as provided in Section 8 of the Plan, unless the
participant has withdrawn pursuant to Section 10. The option shall expire on
the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as provided
in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option will be purchased at the applicable Purchase Price
with the accumulated payroll deductions in his or her account. No fractional
shares will be purchased. Any payroll deductions accumulated in a
participant's account that are not sufficient to purchase a full share will
be retained in the participant's account for the subsequent Purchase Period
or Offering Period, subject to earlier withdrawal by the participant as
provided in Section 10. The shares purchased upon exercise of an option
hereunder shall be deemed to be transferred to the participant on the
Exercise Date. During his or her lifetime, a participant's option to
purchase shares hereunder is exercisable only by the participant.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i)
the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion provide that the Company shall make a
pro rata allocation of the shares of Common Stock available for purchase on
such Enrollment Date or Exercise Date, as applicable, in as uniform a manner
as shall be practicable and as it shall determine in its sole discretion to
be equitable among all participants exercising options to purchase Common
Stock on such Exercise Date, and (x) continue all Offering Periods then in
effect, or (y) terminate any or all Offering Periods then in effect pursuant
to Section 20. The Company may make pro rata allocation of the shares
available on the Enrollment Date of any applicable Offering Period pursuant
to the preceding sentence, notwithstanding any authorization of additional
shares for issuance under the Plan by the Company's stockholders subsequent
to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange for the shares purchased
upon exercise of his or her option to be electronically credited to the
participant's designated brokerage account at one of the securities brokerage
firms participating in the Company's direct deposit program from time to time.
Any cash remaining to the credit of a participant's account under the Plan after
a purchase by him or her of shares at the Exercise Date of each Offering Period
which merely represents a fractional share shall be credited to the
participant's account for the next subsequent Purchase Period or Offering
Period; any additional cash shall be returned to said participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company on a form provided for such purpose. All of the participant's
payroll
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<PAGE>
deductions credited to his or her account will be paid to the participant as
soon as practicable after receipt of the notice of withdrawal,his or her
option for the current Offering Period will be automatically canceled, and
no further payroll deductions for the purchase of shares will be made during
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions will not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) Upon a participant's ceasing to be an Employee for any reason,
including retirement or death, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions accumulated in his or her
account during the Offering Period but not yet used to exercise the option
will be returned to him or her as soon as practicable after such termination
or, in the case of death, to the person or persons entitled thereto under
Section 14, and his or her option will be automatically canceled. The
preceding sentence notwithstanding, a participant who receives payment in
lieu of notice of termination of employment shall be treated as continuing
to be an Employee for the participant's customary number of hours per week
of employment during the period in which the participant is subject to such
payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding Offering
Period or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations or stock exchange rules, if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period will be
automatically withdrawn from such Offering period immediately after the exercise
of their option on such Exercise Date and automatically reenrolled in the
immediately following Offering Period as of the first day thereof.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company
as provided in Section 19, the maximum number of shares of the Company's
Common Stock which shall be reserved for sale under the Plan shall be an
initial reservation of 4,000,000 shares, plus (i) an amount equal to any
shares available for issuance under the Company's existing employee stock
purchase plan at the date of its termination and (ii) an annual increase to
be added as of the last day of each fiscal year through fiscal 2002 in an
amount equal to two percent (2%) of the Issued Shares (as defined below) on
such date or a lesser amount determined by the Board, up to a total
aggregate number of shares reserved for sale under the Plan of 24,000,000
shares. "Issued Shares" shall mean the number of shares of Common Stock of
the Company outstanding on such date plus any shares reacquired by the
Company during the fiscal year that ends on such date. The shares to be sold
to participants in the Plan may be, at the election of the Company, either
treasury shares or shares authorized but unissued. If the total number of
shares which would otherwise be subject to options granted pursuant to
Section 7(a) hereof on the Offering Date of an Offering Period exceeds the
number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available
for option grant in as uniform and equitable a manner as is practicable. In
such event, the Company shall give written notice of such reduction of the
number of shares subject to the option to each participant affected thereby
and shall similarly reduce the rate of payroll deductions if necessary and
return any excess funds accumulated in each participant's account as soon as
practicable after the affected Exercise Date of such Offering Period.
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<PAGE>
(b) The participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
credited electronically to a brokerage account in the name of the
participant at one of the brokerage firms participating from time to time in
the Company's direct deposit program.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive shares and/or cash, if any, from the participant's account under
the Plan in the event of such participant's death at a time when cash or
shares are held for his or her account.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant in
the absence of a valid designation of a beneficiary who is living at the
time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant; or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may
reasonably designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, and will set forth the amounts of payroll deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (under Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan that has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any
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<PAGE>
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress will be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless otherwise provided by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Company shall notify each participant in
writing prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10.
(c) MERGER OR ASSET SALE. 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 Plan shall be
assumed or an equivalent option shall be substituted by the successor
corporation or a parent or Subsidiary of the successor corporation. If the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new
Exercise Date (the "New Exercise Date") and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed sale or merger. The Board shall
notify each participant in writing prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section
10.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19, no
such termination will affect options previously granted, provided that an
Offering Period may be terminated by the Board on any Exercise Date if the
Board determines that the termination of the Offering Period or the Plan is
in the best interests of the Company and its stockholders. Except as
provided in Section 19 and this Section 20, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Section 423
of the Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule), the Company shall obtain stockholder
approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes int he amount withheld during
an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly correspond
with amounts withheld from the participant's Compensation and establish
A-7
<PAGE>
such other limitations or procedures as the Board or its committee
determines in its sole discretion advisable which are consistent with the
Plan.
(c) In the even the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of
the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given by means of the
Company's OnLine HR or similar system will be deemed to be written notices under
the Plan.
22. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. Such stockholder approval shall be obtained in the
manner and degree required under the Delaware General Corporate Law.
23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
24. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 22. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under Section
20.
A-8
<PAGE>
SILICON GRAPHICS, INC.
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1998 AT 2:00 P.M.
HYATT REGENCY
SAN FRANCISCO AIRPORT
1333 BAYSHORE HIGHWAY
BURLINGAME, CA 94306
650-347-1234
DRIVING DIRECTIONS
FROM SAN FRANCISCO/SAN FRANCISCO AIRPORT
Take Highway 101 South. Exit Millbrae Avenue to the east. Go over the
overpass toward the Bay. Turn right at stoplight onto Old Bayshore Highway.
Go through four (4) stoplights. The Hyatt Regency will be visible on the
right side of the street.
FROM SAN JOSE
Take Highway 101 North. Exit Broadway and stay to the right. Turn left at
stoplight onto Old Bayshore Highway. Go through one (1) stoplight. The Hyatt
Regency will be visible on the left side of the street.
FROM OAKLAND
Take Highway 880 South (Nimitz Freeway). Exit Highway 92 West (San Mateo
Bridge). Exit Highway 101 North, take the Broadway exit and stay to the
right. Turn left at stoplight onto Old Bayshore Highway. Go through one (1)
stoplight. The Hyatt Regency will be visible on the left side of the street.
0561-PS-98
<PAGE>
To Our Stockholders:
Recently, many of you elected to access our Annual Report and Proxy Statement
in an electronic format on the World Wide Web instead of receiving the
traditional paper copies.
The 1998 Silicon Graphics Annual Report and Proxy Statement are now available
on our web site at http://www.sgi.com/company_info/investors/financial.html.
The PDF files on our web site can be viewed and printed using
Adobe-Registered Trademark- Acrobat-Registered Trademark- Reader software.
If you do not have this software, it is available for free download at
http://www.adobe.com. There may be costs associated with electronic access,
such as usage charges from Internet access providers and telephone companies.
These costs must be borne by the stockholder. Please call Boston EquiServe
at 800-730-6001 if you elected to receive the electronic version but have
decided that you would like a paper copy mailed to you.
Please sign and return the proxy card below to ensure your representation at
our annual meeting of stockholders to be held on October 27, 1998.
Thank you for your continued support.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SILICON GRAPHICS, INC.
1998 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 11, 1998, and hereby
appoints Richard E. Belluzzo 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 1998
Annual Meeting of Stockholders of Silicon Graphics, Inc. to be held on
October 27, 1998, at 2:00 p.m. local time, in the Grand Peninsula Ballroom of
the Hyatt Regency, San Francisco Airport, 1333 Bayshore Highway, Burlingame,
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 a director, FOR the approval of
the adoption of the Company's 1998 Employee Stock Purchase Plan and the
reservation of shares for issuance under the 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>
VOTE VIA TELEPHONE OR THE INTERNET -- IT'S QUICK, EASY AND IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed, and returned your proxy
card. Please note all votes cast via the telephone or the Internet must be
cast prior to 5 p.m., October 26, 1998. If you wish to change your address or
notify the company that you plan to attend the meeting, please mark the boxes
below and return your proxy by mail.
TELEPHONE VOTING:
- - There is NO CHARGE for this call.
- - On a Touch Tone Telephone call TOLL FREE 1-888-807-7699 24 hours per day -
7 days a week.
- - You will be asked to enter the Control Number which is located above your
name and address below.
- -------------------------------------------------------------------------------
OPTION #1: To vote AS THE BOARD OF DIRECTORS RECOMMENDS, press 1.
- -------------------------------------------------------------------------------
Your vote will be confirmed and cast as you directed. END OF CALL.
- -------------------------------------------------------------------------------
OPTION #2: If you choose to vote ON EACH PROPOSAL SEPARATELY, press 2.
You will hear these instructions:
- -------------------------------------------------------------------------------
PROPOSAL 1: To vote FOR the nominee, press 1; to WITHHOLD YOUR VOTE from the
nominee, press 2.
PROPOSAL 2: To vote FOR, press 1; to vote AGAINST, press 2; to ABSTAIN,
press 3.
PROPOSAL 3: To vote FOR, press 1; to vote AGAINST, press 2; to ABSTAIN,
press 3.
Your vote will be confirmed and cast as you directed. END OF CALL.
INTERNET VOTING:
- - As with all internet access, usage or server fees must be paid by the user.
Visit our internet voting site at http://www.equiserve.com/proxy/and follow
the instructions on your screen. These instructions are similar to those
above for telephone voting.
- -------------------------------------------------------------------------------
If you vote via telephone or the internet, it is not necessary to
return your proxy by mail. THANK YOU FOR VOTING.
- -------------------------------------------------------------------------------
[0561 - SILICON GRAPHICS, INC.] [FILE NAME:SII_94A.ELX][VERSION - 2][09/10/98]
DETACH HERE
- -------------------------------------------------------------------------------
<PAGE>
[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 A DIRECTOR,
FOR THE APPROVAL OF THE ADOPTION OF THE COMPANY'S 1998 EMPLOYEE STOCK
PURCHASE PLAN AND THE RESERVATION OF SHARES FOR ISSUANCE UNDER THE
PLAN AND FOR THE APPROVAL OF PROPOSAL 3 SET FORTH BELOW, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING.
1. ELECTION OF DIRECTOR
Nominee for Class III Director: Richard E. Belluzzo
FOR WITHHELD
[__] [__]
2. PROPOSAL TO APPROVE THE COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN.
FOR AGAINST ABSTAIN
[__] [__] [__]
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR FISCAL YEAR 1999.
FOR AGAINST ABSTAIN
[__] [__] [__]
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>
To Our Stockholders:
Recently, many of you elected to access our Annual Report and Proxy Statement
in an electronic format on the World Wide Web instead of receiving the
traditional paper copies.
The 1998 Silicon Graphics Annual Report and Proxy Statement are now available
on our web site at http://www.sgi.com/company_info/investors/financial.html.
The PDF files on our web site can be viewed and printed using
Adobe-Registered Trademark- Acrobat-Registered Trademark-
Reader software. If you do not have this software, it is available for free
download at http://www.adobe.com. There may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies. These costs must be borne by the stockholder. Please
call Boston EquiServe at 800-730-6001 if you elected to receive the
electronic version but have decided that you would like a paper copy mailed
to you.
Please sign and return the proxy card below to ensure your representation at
our annual meeting of stockholders to be held on October 27, 1998.
Thank you for your continued support.
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 11, 1998 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 1998 Annual Meeting of Stockholders
to be held on October 27, 1998 at 2:00 p.m. local time in the Grand Peninsula
Ballroom of the Hyatt Regency, San Francisco Airport, 1333 Bayshore Highway,
Burlingame, 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.
This proxy will be voted as directed, or, if no contrary direction is
indicated, will be voted FOR the election of a director, FOR the approval of
the adoption of the Company's 1998 Employee Stock Purchase Plan and the
reservation of shares for issuance under the 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>
[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 A
DIRECTOR, FOR THE APPROVAL OF THE ADOPTION OF THE COMPANY'S 1998
EMPLOYEE STOCK PURCHASE PLAN AND THE RESERVATION OF SHARES FOR
ISSUANCE UNDER THE PLAN AND FOR THE APPROVAL OF PROPOSAL 3 SET
FORTH BELOW, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF A DIRECTOR
Nominee for Class III Director: Richard E. Belluzzo
FOR WITHHELD
[__] [__]
2. PROPOSAL TO APPROVE THE COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN.
FOR AGAINST ABSTAIN
[__] [__] [__]
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR FISCAL YEAR 1999.
FOR AGAINST ABSTAIN
[__] [__] [__]
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 HERE FOR ADDRESS CHANGE AND NOTE BELOW
[__] 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. _____________________________________________________
<PAGE>
(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: _______________________
