Silicon Graphics gets final approval of stock trading procedures

By Rebecca Melvin

New York, April 24 - Silicon Graphics Inc. was granted a number of motions Friday ahead of its bid deadline, auction and final sale hearing, set for the April 27 week, at the U.S. Bankruptcy Court for the Southern District of New York.

Server and data storage products maker Rackable Systems Inc. is Silicon Graphics' stalking horse bidder, and it is expected to purchase the maker of advanced graphics workstations and software for $25 million.

"We are expecting a true auction with lenders and stalking horse Rackable next week," Silicon Graphics counsel Mark Somerstein of Ropes & Gray told the court.

Final approval was granted to establish notification and hearing procedures for trading in Silicon's equity securities despite one objection that was overruled on the grounds that he had no standing.

The objector said the company's move to "effectively lock up the equity shares" to protect tax loss carryforward and other intangible assets wasn't merited.

Under the approved procedures, any person or entity that owns 553,000 or more shares of the company's common stock will be classified as a substantial shareholder and must file advance written notice with the court and the company before increasing or decreasing the amount of stock owned.

Upon receipt of this notice, Silicon will have 30 calendar days to file an objection to the transfer of shares. If an objection is filed, the transfer will not be effective unless approved by a final and non-appealable court order.

The company can only file an objection on the grounds that the transfer will adversely affect its ability to preserve net operating losses or other tax attributes.

In other matters, the U.S. Trustee elected not to appoint a creditors committee in the case following a committee formation meeting.

The U.S. Trustee's representative told the court that it was rare not having a committee in a multimillion dollar case such as this one; but because the claims of three of the five expressions of interest were disqualified, formation wasn't deemed necessary.

Other approved motions including authority to use its cash management system and authority to continue customer programs. A motion on cash collateral was adjourned.

The retention of Houlihan, Lokey, Howard & Zukin Capital Inc., Silicon's financial adviser and investment banker, was modified so that its fees were capped at $1.3 million plus 25% of any break-up fee if there is a purchaser in the sale other than Rackable.

Under the proposed change, any fee other than the sale transaction fee will require the review and approval of the U.S. Trustee and the court.

Silicon Graphics is a Sunnyvale, Calif.-based provider of products and services for use in high-performance computing and data management. It has previously been in bankruptcy. It filed for bankruptcy again on April 1. Its Chapter 11 case number is 09-11701.

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