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SGI Looks to Exit Chapter 11

Silicon Graphics (SGI) today revealed its plan to emerge from Chapter 11 within the next three months, largely quelling speculation that the troubled high-performance computing specialist is an acquisition target. (See SGI Plans Reorganization.)

Under the terms of the plan, which involves deals with key creditors and is subject to court approval, SGI expects to emerge with a new credit line and debt of $70 million, reduced from $345 million. According to a statement released this morning, the company's notes and debentures will be extinguished in exchange for new common stock and cash, respectively, as well as rights to invest $50 million in additional shares of the reorganized company.

The firm now expects a speedy exit from its current Chapter 11 status. "We are pleased with the progress the company is making and the likelihood of an exit by the end of September," said Dennis McKenna, the SGI CEO, in the statement. Initially, the firm had set a November deadline for emerging from Chapter 11.

SGI filed for bankruptcy protection in May in an attempt to clear debts of $250 million. (See SGI Opens Chapter 11.) At the same time, the vendor announced its preliminary third-quarter results with revenues of $108 million, down from $159 million in the same period last year. (See SGI Reports Preliminary Q3.)

These events prompted speculation that SGI could be snapped up by a hardware player looking to gain either the vendor's extensive customer list or its visualization and shared memory technology. (See SGI Opens Chapter 11.) SGI's rival ADIC, for example, was recently acquired by Quantum for a whopping $770 million. (See Quantum Takes Tape Rival ADIC and Quantum Buys ADIC.)

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