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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM DECEMBER 31, 1995 TO MARCH 29, 1996
COMMISSION FILE NUMBER: 0-12046
STREAMLOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3093858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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21329 NORDHOFF STREET, CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 701-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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TITLE OF CLASS TITLE OF CLASS
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COMMON STOCK, $1.00 PAR VALUE 6% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2012
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INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K ((S)229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART
III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF JUNE 14, 1996 WAS APPROXIMATELY $84,242,000.
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK AS OF JUNE 14,
1996: 15,672,967.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF THE PROXY STATEMENT FOR REGISTRANT'S 1996 ANNUAL MEETING OF
STOCKHOLDERS (THE "1996 PROXY STATEMENT") ARE INCORPORATED BY REFERENCE TO
PART III OF THIS FORM 10-K REPORT.
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STREAMLOGIC CORPORATION
ANNUAL REPORT ON FORM 10-K
MARCH 29, 1996
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business......................................................... 1
Item 2. Properties....................................................... 9
Item 3. Legal Proceedings................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.............. 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 10
Item 6. Selected Financial Data ......................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 12
Item 8. Financial Statements and Supplementary Data...................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 35
PART III
Item 10. Directors and Executive Officers of the Registrant .............. 35
Item 11. Executive Compensation .......................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management... 36
Item 13. Certain Relationships and Related Transactions................... 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 36
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PART I
ITEM 1. BUSINESS
StreamLogic Corporation (formerly Micropolis Corporation) was incorporated
in California in December 1976. In April 1987, the Company was reincorporated
in Delaware. In April 1996, the Company changed its name from Micropolis
Corporation to StreamLogic Corporation. Unless the context otherwise
indicates, the terms "StreamLogic" and "Company" refer to StreamLogic
Corporation and its consolidated subsidiaries. On May 13, 1996 the Company
elected to change its fiscal year end from the last Friday in December to the
last Friday in March, beginning with March 1996. Accordingly, this transition
report on Form 10-K covers the three month period ended March 29, 1996 (the
1996 transition period).
StreamLogic is a designer and manufacturer of information storage products
and systems. The Company sells these products and systems directly to original
equipment manufacturers ("OEMs") and systems integrators and through
independent distributors and value-added resellers ("VARs") for resale to end
users.
The Company's storage subsystems and video systems business (the "Systems
Business") offers storage subsystem products known as the Raidion and
Microdisk, a line of video servers which provide video-on-demand for up to 64
individual users, and a line of low cost digital video disk recorders which
allow real-time record and playback of video material. All of the Systems
Business products incorporate certain of the disk drives described below.
The Company's disk drive business (the "Drive Business"), operated under the
"Micropolis" name, designed and manufactured disk drives exclusively in the 3
1/2-inch and 5 1/4-inch form factors, with capacities ranging in the 1996
transition period from 2 Gigabytes ("GB") to 9 GB.
On January 24, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
which was later renamed "Micropolis (S) Pte Ltd" ("MPL") and a wholly-owned
subsidiary of Singapore Technologies Pte Ltd, a Singapore Corporation ("ST"),
to sell substantially all of the Company's assets (other than cash and
accounts receivable) related to the Company's hard disk drive business to MPL
(the "Sale"). The Purchase Agreement has been filed with the Commission and is
Exhibit 10.53 hereto and is described in detail in the section "Terms of the
Asset Purchase Agreement" in the Company's Proxy Statement filed March 7,
1996, which Section is incorporated herein by reference. The Sale was
consummated on March 29, 1996. In addition, the Company and MPL have entered
into an OEM supply agreement effective upon consummation of the Sale. Among
other things, the OEM Supply Agreement allows the Company after the Sale to
buy at prices equal to or slightly lower than the most favored OEM customer of
MPL. The Company must offer all its disk drive business and requirements to
MPL on a right-of-first-refusal basis, subject to the ability of MPL to meet
certain delivery and other standards. The agreement has an initial two-year
term, after which it may be renewed annually by mutual agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCTS
The Company's product lines focus on two main markets: data and video
storage/server products (the "Systems Business") and Micropolis high capacity
disk drives (the "Drive Business"). Substantially all of the assets of the
Drive Business were sold to MPL on March 29, 1996 pursuant to the Sale.
Systems Business
RAID
The Company's Systems Business competes in the local area network ("LAN")-
based redundant array of inexpensive disks ("RAID") market. RAID is a large-
scale storage technology that replaces one high-capacity hard disk drive with
an array of smaller, less expensive drives. The RAID concept provides
protection of data
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against the possibility of failure of any one drive in the array by storing
redundant information on different drives within the array (mirroring), or by
separating and distributing data flow with parity check blocks across multiple
drives within the array. If data is lost or corrupted, the array can
automatically reconstruct the lost or corrupted data from the remaining data
blocks using the associated parity blocks and continue with uninterrupted
operation.
The growth in the LAN RAID market has been attributable in large measure to
the trend toward requiring mainframe level functionality on LAN-based systems,
the introduction by personal computer-based server manufacturers of
symmetrical multiprocessor servers and a significant increase in multimedia
personal computers capable of displaying video compressed using the Motion
Picture Experts Group ("MPEG") standard. Competition in this market is
resulting in increased levels of system integration and product enhancements,
and decreased costs for comparable performance.
Increased system integration is achieved by pre-configuring systems to
include everything needed to "plug and play" and testing them in a systems
environment before shipment. Certain competitors (the "captive" market) have
introduced network file servers already configured for their own RAID
products. Other competitors offer RAID products with built-in functionality
such as tape backup devices. However, opportunities for growth in the non-
captive market in which the Company participates could still be substantial.
The Companys RAID products are aimed at those end users and systems
integrators who value having the choice of supplying or buying a RAID product
tailored to their specific application or need at a reasonable cost.
The Company offers both software and hardware-based RAID products. In some
instances, software RAID products are favored over hardware products due to
the perceived cost differences between hardware and software, although
software solutions require more overhead from the system. Software solutions
are also favored, for example, on single user desktop systems where cost and
performance are important and the user has more processing power. In
situations where systems operations are very central processing unit ("CPU")
intensive, users would prefer a hardware RAID solution so that the
computational effort can be off loaded from the CPU.
The Company's Systems Business RAID products consist of the Raidion line of
fault-tolerant disk arrays, and the Microdisk. The Raidion line encompasses a
software-based array known as the Model LT (featuring 3 1/2-inch drives) and
the Model LS (featuring 5 1/4-inch drives), and a hardware-based array which
incorporates a proprietary disk array controller known as Gandiva. The Gandiva
controller card in the Company's current hardware RAID products performs the
basic interface between the host computer and the drive array as well as the
RAID fault tolerance, array maintenance and management functions. The
software-based Raidion products have been optimized for use on the Novell
Netware and IBM OS/2 operating systems. The hardware-based Raidion has been
optimized to work with a greater number of operating systems, including
Netware, OS/2, Microsoft Windows NT, Apple Macintosh and UNIX. The Microdisk
product consists of an external storage device in a modular housing. The
systems described above accounted for 26% of total revenues in the 1996
transition period.
In December 1995, the Company announced RAIDIONplus, an extension of the
current Gandiva array controller that improves performance, redundancy, array
management capability and has features that will allow RAIDIONplus to be used
in applications from on-line transaction processing (OLTP) to multimedia.
RAIDIONplus provides features such as dynamic expansion, adaptive caching, and
a Fast 20 Wide Small Computer System Interface ("SCSI") interface, advanced
dial in/dial out and network array management, and removable non-volatile
dynamic random-access memory.
Video Servers
The Company offers a line of video servers which use hard disk drives to
store and retrieve audio and full motion video signals. Such video servers,
which can replace video cassette recorder systems, are used to play back video
material that has been previously digitally encoded and compressed; they are
marketed in the
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hospitality, multimedia and cable TV markets. Video server applications in the
hospitality market include displaying digitally encoded and compressed movies
to guests in hotels, aircraft and cruise ships. Multimedia applications
include corporate training, campus training and video libraries. Video servers
in the cable TV market are designed to insert local cable TV advertisements in
a video stream.
The Company's initial video server, installed in hotels, was introduced in
early 1994, with product deliveries beginning in June 1994. The Company's AV
Server 50, 100 and 200, enable up to 16, 32 and 64 users, respectively, to
randomly select and view, with video cassette recorder-like functionality,
video material on demand from an on-disk library of up to 60 full length
movies. During the 1996 transition period, sales of these servers were made
primarily to the hospitality industry and cable headends for local cable TV
advertisement insertion. Sales during the 1996 transition period represented
approximately 1% of total revenues.
Video Disk Recorders
The Company is currently developing a line of low cost digital video disk
recorders which also use hard disk drives to store and retrieve audio and full
motion video signals. Video disk recorders utilize built-in encoding and
compression circuitry, allowing real time record and playback of video
material. Applications for video disk recorders include professional video
editing of video for audio, non-linear editing, linear editing, graphics and
animation and other general post-production activities.
Existing Products
Present Company products which comprise StreamLogic's initial product line
include:
. RAIDION(R) fault-tolerant disk arrays--software- and hardware-based RAID
storage solutions for network data processing environments as well as
video and multimedia applications.
. MICRODISK(R) subsystems--modular, stackable, external storage for
desktop computing and network environments.
. MICRODISK AV subsystems--modular, stackable, external storage optimized
for professional audio/video editing and desktop multimedia
applications.
. VIDEO DISK RECORDER(TM) (VDR)--digital disk recorder technology for
professional and commercial video editing and playback environments.
. VIDEON(TM)--Motion Picture Experts Group ("MPEG")-based video-on-demand
("VOD") servers for hospitality and cable television broadcast
environments.
The brand names "Raidion" and "Microdisk," which have been retained by
StreamLogic, are believed to be of significant importance to ongoing market
recognition and acceptance of the products sold under those names and their
variants. StreamLogic's products are sold to OEMs and system integrators and
through distribution channels worldwide.
In 1995, revenues attributable to the products to be retained by StreamLogic
amounted to $39.5 million and all but $2.5 million of these revenues came from
products sold into the LAN RAID sub-system market. In the future, and
especially in 1997, StreamLogic's revenue base will be largely dependent on
its success in the LAN RAID sub-system market.
StreamLogic products in the LAN RAID segment will continue to focus on
Novell and Windows NT clustered operating environments. RAID functionality is
required to ensure both data availability and data integrity. In addition,
requirements exist for increasingly comprehensive management features. The
company currently offers RAIDION desktop and rack mount configurations with
RAID functionality in both external array controllers and host based software
subsystems. Plans to bring deskside configurations to market in 1997 will
continue the current scaleable, modular, hot swappable characteristics of the
RAIDION. The product line will continue to be optimized for on-line
transaction processing.
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Drive Business (Business sold pursuant to the Purchase Agreement described
above)
Prior to March 29, 1996, the core of the Drive Business' product offerings
consisted of high-performance, high-capacity Winchester disk drives used in
mission critical, network file server and multimedia applications. The Company
offered a line of disk drive products code-named "Javelin." This series of
products encompassed the Taurus 2, a 3 1/2-inch, 1-inch high, 2 GB drive with
a rotational speed of 7200 rpm; the Capricorn 4, a 3 1/2-inch, full-height,
4.3 GB drive with a rotational speed of 7200 rpm, and the Scorpio 9, a 5 1/4-
inch, full-height, 9 GB drive with a rotational speed of 5400 rpm. Increased
rotational speeds enable the drive to demonstrate faster access times and
otherwise increased performance. The Javelin series of disk drives is
characterized by a high degree of commonality in technology. These drives
possess a greater degree of integration of hardware and software features
across all three platforms than in previous models. These drives were
primarily available with the industry standard SCSI interface. In addition,
the Company sold disk drives that have been optimized for specific market
niches. Included among these drives were the Company's "AV" drives, where the
internal firmware had been modified to make these drives uniquely appropriate
to large block data types, such as audio and video files. The Javelin series,
which began shipping in the third quarter of 1994, represented approximately
71% of the Company's 1996 transition period total revenues.
PRODUCT DEVELOPMENT
Future Product Development
StreamLogic's future product development will be focused on the storage,
management and movement of digital data in various networking and audio/video
related applications. StreamLogic's core technical competencies include its
RAID software, RAID controllers, optimization of disk drives for application
specific environments, enclosure packaging, control of both analog and digital
video streams ("video streaming"), Serial Switching Architecture ("SSA")
switching, MPEG encoding/decoding and network management. StreamLogic
currently expects to use these core competencies and the products it has
developed, and plans to develop in the future, to participate in five target
markets. The five markets are:
. Bundled RAID subsystems for the LAN market.
. Bundled storage systems for internet and web server markets.
. Digital output storage systems for the corporate IntraNet market.
. Video disk recorders for the professional editing market.
. Video servers for hospitality and cable head-end markets.
These markets vary dramatically in size and competitive characteristics.
Over the next two years, the segments expected to be of most importance to the
growth and profitability of StreamLogic are:
(1) Professional Video Editing. This market segment is characterized by
single or few users per system and high data rate video streams stored on hard
disks. Fault tolerance is desired but RAID technology is used primarily as a
method of achieving higher data rate. Video disk recorders are used to replace
professional level video tape recorders for a wide variety of applications.
The Company has a strategic partnership with BTS Broadcast Television Systems
GmbH ("BTS"), a division of Phillips Electronics, to develop video disk
recorder products to be marketed by BTS. The professional video market is
estimated by industry sources to be a $12 billion market with video tape
recorders representing half of all revenues. Video disk recorders are expected
to penetrate a small portion of that market while video disk editing is
expected to penetrate a larger portion. Key competitors in the video disk
recorder market are Tektronix and a number of small independent suppliers. In
video disk editing, the key competitors are Avid Technology, Tektronix, Sony,
Panasonic and a small number of independent suppliers.
(2) Hospitality and Cable Head-end Video Servers. This market is made up of
multi-channel video playback systems. A video server allows multiple
simultaneous users from one video data stream stored on hard
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disk. Such playback is today achieved by the installation of large numbers of
video tape recorders. In the cable head-end market, the video server provides
considerable ease-of-use benefits over conventional video cassette usage, as
well as considerable cost savings. Fault tolerance is required in the cable
head-end market, while price is more important in the hospitality market.
StreamLogic is currently the only revenue producing competitor in the video
server hospitality market. Competitors in the cable head-end market are
Digital, Sea Change, and Sony.
Technology Strategy
StreamLogic's approach to product development is best characterized as being
market driven, using a technology strategy that incorporates the latest
reliably available components and software. Being market driven means that
StreamLogic's engineers work closely with its sales force and with its
customers to determine the appropriate prioritization of new product
development efforts, as well as to establish product specifications. In
general, this approach is designed to reduce time to market with products
which have a broader set of potential customers.
The technology strategy utilizes a basic set of mechanics and develops that
set of mechanics from its initial capacity to higher capacities by further
developing the electronic technology. The storage subsystems and video systems
products share such common components as hard disk drives and the Gandiva
array controllers.
Future market trends in the LAN-based RAID industry are likely to favor
products emphasizing low cost, optimization for application-specific
environments, effective fault tolerance, high performance hardware and
software interfaces, scalability of product and effective service and support.
The information storage business is characterized by rapidly changing
technology and user needs which require the continual development and
introduction of new products. Although the Company believes its strategy of
focus and specialization in the high-performance segment of the market, and an
increased emphasis on time to market, improves the rate of new product
introduction, no assurance can be given that the Company will be able to
complete successfully the design or introduction of its new products in a
cost-effective and timely manner, or that such products will perform to
specifications. The introduction of new products also requires the Company to
manage its inventory carefully to minimize inventory obsolescence. The failure
to achieve any of these objectives could have, and has had, a material adverse
effect on the Company's financial position and results of operations.
Research and development expenses for the 1996 transition period and fiscal
1995, 1994 and 1993 were $8,874,000, $42,469,000, $43,648,000 and $36,112,000,
respectively. In the 1996 transition period, approximately $2,581,000 of the
Company's research and development expenses were incurred by the ongoing
Systems Business. The Company anticipates its fiscal 1997 research and
development expenses related to the Systems Business will increase slightly on
a quarterly basis from those of the 1996 transition period. The Company plans
to focus on development of video servers for hospitality and cable head-ends,
professional video editing disk recorders, bundled storage for Internet and
Web servers, corporate IntraNet digital output servers, and bundled RAID
subsystems for LANs. The Company has discontinued funding of Tulip Memory
Systems, Inc. (TMS), a start-up company formed to develop substrates which are
to be used in the manufacture of computer disk drives, and has made other
expense cuts in the engineering area.
MANUFACTURING
Systems Business
The Company's manufacturing strategy has been to rely principally on outside
vendors to supply high-level subassemblies and component parts. StreamLogic
manufactures its storage subsystems products on production lines at its
Chatsworth, California headquarters and has discontinued manufacturing Systems
Business products at the Singapore facility as of March 29, 1996. The
Company's video systems products are manufactured at the Chatsworth,
California headquarters. The Company believes that its current facilities are
adequate for its near-term production requirements.
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The Company and MPL have entered into an OEM supply agreement, effective
March 29, 1996. Among other things, the OEM Supply Agreement allows
StreamLogic to buy at prices equal to or slightly lower than the most favored
OEM customer of MPL. StreamLogic must offer all its disk drive business and
requirements to MPL on a right-of-first-refusal basis, subject to the ability
of MPL to meet certain delivery and other standards. The agreement has an
initial two-year term, after which it may be renewed annually by mutual
agreement.
Drive Business (Business sold pursuant to the Purchase Agreement described
above)
The Company's disk drive manufacturing strategy was to rely principally on
outside vendors to supply high-level subassemblies and component parts. The
Company's drive manufacturing operations consisted primarily of the assembly
of head positioner assemblies ("HPAs") and the final assembly and testing of
disk drives.
Through March 29, 1996 when the Drive Business was purchased by MPL,
StreamLogic maintained two principal manufacturing sites, both located in
Southeast Asia. During the 1996 transition period, the Company manufactured
approximately 42,000 disk drives. The labor-intensive manufacture of HPAs took
place in the Company's Bangkok facility, which was established in 1988. The
Company's Singapore facility established in 1986 accounted for substantially
all final production and test of the Company's disk drives. In addition,
StreamLogic maintained a pilot production line at its Chatsworth, California
headquarters. This line was employed to assemble new products used in
evaluation testing by its customers prior to their transfer to the offshore
operations. In March 1996 Company completed construction of a new
manufacturing facility in Singapore to replace the previous leased facility.
These manufacturing sites were acquired by MPL on March 29, 1996.
General Manufacturing Considerations
Continued improvement in storage subsystem and video systems manufacturing
process capabilities and reduced materials and manufacturing costs are
critical factors affecting the Company's financial position and results of
operations. The Company continues to change the manufacturing processes for
many of its products and must carefully manage the development of production
processes for new products. There can be no assurance that such changes and
new processes will be implemented in a cost-effective and timely manner.
Delays or problems encountered in any of the foregoing could have a material
adverse effect on the Company's financial position and results of operations.
In addition, if for any reason the Company were to have a prolonged
interruption in its manufacturing facilities, the Company's financial position
and results of operations could be materially adversely affected.
The Company's manufacturing process requires high volumes of high quality
components, including disk drives. Several of the critical components used in
the Company's products are available only from single or limited sources. The
Company has had and continues to have difficulties in obtaining certain
components, and there can be no assurance that such difficulties will not
occur in the future. A prolonged interruption or reduction in supply of
quality components, rework costs associated with defective components or the
inability to obtain continued reduction in component prices would adversely
affect the Company's financial position and results of operations and could
damage customer relationships. The Company has experienced such supply
interruptions, rework costs and increased component prices during the 1996
transition period and, in particular during 1995. Such component and
manufacturing problems have adversely affected the Company's financial
position and results of operations.
MARKETING
During the 1996 transition period, the Company's direct sales force sold
storage subsystems and Micropolis disk drives to OEMs, distributors and VARs.
The Company maintained eight domestic sales offices. During the 1996
transition period, approximately 21% of total sales were made to OEMs, with
the remainder to independent distributors and VARs. The Company's OEM
customers included Xerox Corporation, Ericsson Telecom AB, Auspex Systems,
Inc., Parity Systems and Stratus Computer. The Company's distribution
customers included
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Peripheral Technology Group, Alliance Peripheral Systems, Tech Data
Corporation, Megahaus Corporation and Hammer Distribution Ltd.
International operations are an important element of the Company's sales
mix. During the 1996 transition period, sales to customers outside of North
America comprised approximately 48% of total sales. The Company currently
maintains two European offices which support sales in Europe to both U.S. and
European-based OEMs and European-based independent distributors. Through March
1996, the Company deployed its sales and marketing efforts in the Asia/Pacific
region with four offices and maintained a service and support operation in
England. Effective March 29, 1996, the Company entered into a non-exclusive
European Distribution Handling Agreement with MPL, under which MPL provides
distribution services to the Company in Europe and other locations specified
in such agreement.
The Company's sales force, which currently has offices in San Jose and
Irvine, California; Roswell and Lawrenceville, Georgia; Salem, New Hampshire;
North Potomac, Maryland; Des Plaines, Illinois; Plano, Texas; Reading,
England; and Munich, Germany. In addition, members of senior management,
together with engineering, operations and marketing executives, participate
actively in sales to major OEM customers. Independent distributors are also
used in the United States and for certain markets abroad. No customers
accounted for more than 10% of total sales during the 1996 transition period
or 1995 or 1994.
The Company generally warrants its products against defects for periods from
one to five years. The Company provides for estimated future product warranty
costs when products are shipped. Such warranty liability for disk drives was
assumed by MPL as of March 29, 1996.
In addition, the Company generally grants trade credit to its customers,
typically on net 30 day terms. Historically, the Company has not experienced
significant bad debt write-offs. The Company has policies and/or contractual
agreements which allow distributors to receive price protection credit under
certain circumstances when the Company lowers its sales prices. In addition,
the Company permits customers to return products under certain circumstances.
The Company makes a provision for the estimated amount of price protection
credits and for product returns that may occur under these programs and
contracts in the period of sale.
Direct shipments from Chatsworth and Singapore are denominated in U.S.
dollars. Sales by the European subsidiaries, except Germany, are denominated
in local currency. Although export sales are subject to certain restrictions,
including approval by the Office of Export Administration of the United States
Department of Commerce, such restrictions have not limited such sales.
BACKLOG AND VARIABILITY OF DEMAND
The Company's total order backlog at May 31, 1996 was approximately $2.4
million compared with approximately $9.6 million at December 29, 1995. The
decrease in backlog was primarily attributable to the sale of the disk drive
business on March 29, 1996.
Backlog includes orders for which a delivery schedule has been specified by
the customer and which the Company has agreed to ship within six months. Lead
time for the release of purchase orders varies from month to month. For this
reason and because changes in delivery schedules and cancellation of orders
occur, the Company's backlog on a particular date may not be representative of
future sales. The Company's customers place orders based on their own internal
forecasts. If demand falls below forecast, the customer may cancel or
reschedule shipments previously ordered from the Company, a process that may
be exacerbated by customers' inventory management practices. Accordingly, the
Company may, at any time and with limited notice, experience a significant
downturn in demand for its products. The Company's expectations of future net
sales are based largely on its own estimate of future demand and not on firm
customer orders. The Company's net sales may also be affected by its
distributors' decisions as to the quantity of the Company's products to be
maintained in their inventories. The Company's expenditures are based in part
on management's estimate of
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future sales. If orders and net sales do not meet expectations, the Company
generally will not be able to reduce expenses commensurately in the near term
and therefore profitability would be adversely affected.
COMPETITION
The data and video storage industry is competitive and characterized by
price erosion over the life of a product. The Company believes that being
first to market with new products is a critical element in the achievement of
desired gross margins. Being first to market provides initial price advantages
to the Company and the opportunity to accelerate learning and cost reduction
curves due to increased production volumes. During 1994 and 1995 the Company
experienced significant price erosion related to several of its products as a
result of increased competition. Such pricing pressures negatively impacted
the Company's operating results for 1994 and 1995.
In the high-performance market in which the Company competes, the principal
dimensions of competition are generally data storage capacity, data transfer
rate, average access time, form factor, timely delivery in quantity,
reliability and price. Some of the Company's competitors are much larger in
size and have access to greater financial and other resources than the
Company. The Company believes that its future success hinges on its ability to
bring cost and feature-competitive products to market on a timely basis.
Systems Business
Competitors in the non-captive LAN RAID market include: Storage Dimensions,
Ciprico, Andetaco, ECCS and FWB. The Company's market share declined in 1995
as compared to 1994. The Company will endeavor to recapture and expand its
market share by providing RAID controller feature enhancements and by improved
focus as a result of the sale of the disk drive business.
Systems Business products face competition from companies offering standard
computer systems with video server specific software, and those offering
specially designed video server systems. Competitors offering standard
computer systems with video server specific software include Digital Equipment
Corporation, Silicon Graphics Inc., Sun Microsystems and Hewlett Packard
Company. Competitors offering specially designed video server systems include
Sony corporation, Optibase Inc., Sea Change, and The Network Connection Inc.
The Company believes its video server systems offer significant price
advantages, longer market presence and a more suitable overall solution for
the applications targeted.
Drive Business (Business sold pursuant to the Purchase Agreement described
above)
The Drive Business competition included other independent domestic disk
drive manufacturers, the disk drive divisions of both domestic and foreign
(primarily Japanese) computer systems manufacturers and the captive disk drive
manufacturing operations of some of its customers. The Company's principal
competitors in the market for high-performance Winchester drives were
Seagate/Conner, Quantum Corporation and Fujitsu Corporation. In addition, the
Company experienced increased competition from computer manufacturers such as
International Business Machines and Hewlett Packard Company.
EMPLOYEES
As of March 29, 1996, after the Sale, the Company employed approximately 150
persons, including 64 in Engineering, 5 in Quality Assurance and Control, 41
in Manufacturing and Operations, 21 in Marketing and 19 in General Management
and Administration. Competition for highly skilled employees is intense. The
Company believes that its future success will depend on its continued ability
to attract and retain qualified employees. None of the Company's employees is
represented by a labor union, and the Company has experienced no work
stoppages. The Company believes that its employee relations are good.
8
<PAGE>
FOREIGN AND DOMESTIC OPERATIONS
The information relating to foreign and domestic operations is included in
Note 8 to the Company's Consolidated Financial Statements on page 32 of this
report.
ITEM 2. PROPERTIES
The Company's executive and engineering offices and domestic manufacturing
operations are located in the Company's owned 58,000 square foot facility in
Chatsworth, California. StreamLogic leases on a month-to-month basis, a small
amount of storage and parking space in Chatsworth. Through March 29, 1996, the
Company also leased one building with approximately 128,000 square feet at an
annual rental of approximately $982,000.
In Singapore, the Company leased, through March 29, 1996, approximately
56,000 square feet on three floors of one building, and an additional 12,000
square feet on another floor of the same building. The space was used in the
Company's manufacturing operations. These leases, which provided for an annual
rental of $791,000 and $150,000, respectively, expired in April 1996. The
Company leased an additional 134,600 square feet for manufacturing on five
floors of an adjacent building at an annual rental of approximately
$1,743,000. This lease expired in April 1996.
In March 1996, the Company completed construction of a 302,000 usable square
foot manufacturing facility in Singapore. The new facility was sold to MPL on
March 29, 1996 upon consummation of the Purchase Agreement. A thirty-year
ground lease for the new facility, providing for lease payments of
approximately $616,000 annually, was assumed by MPL.
Through March 29, 1996 StreamLogic owned a building with approximately
37,000 square feet in Bangkok, Thailand which was used for manufacturing HPAs
and other disk drive sub-assemblies. This facility was sold to MPL upon
consummation of the Purchase Agreement. In addition, the Company leased
approximately 20,400 square feet in two separate locations adjacent to the
main manufacturing site. These leases were assumed by MPL upon consummation of
the Purchase Agreement.
StreamLogic also leases sales office space in San Jose and Irvine,
California; Roswell, Georgia; New York, New York; Salem, New Hampshire; Des
Plaines, Illinois; Plano, Texas; Reading, England and Munich, Germany.
The Company believes that its current facilities are well maintained and are
adequate for its near-term production requirements. The Company is presently
(after the Sale) at approximately 60% of capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal matters and contingencies in the
ordinary course of business which management believes will not have a material
effect upon the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On March 7, 1996 the Board of Directors of StreamLogic Corporation
circulated to the Stockholders a Notice and Proxy Statement For Action to be
Taken by Written Consent In Lieu of a Meeting of Stockholders. This Proxy
Statement was furnished for solicitation of the written consent of
Stockholders to authorize and approve (i) the sale of substantially all of the
Company's assets (other than cash and accounts receivable) related to its disk
drive business, to ST Chatsworth Pte Ltd, a Singapore corporation and a
wholly-owned subsidiary of Singapore Technologies Pte Ltd, a Singapore
corporation, pursuant to the terms of an Asset Purchase Agreement dated as of
January 24, 1996 (the "Sale"), and (ii) an amendment to the Company's
Certificate of Incorporation to change the name of the Company to StreamLogic
Corporation (the "Name Change").
b) Matters voted on by written consent and votes cast on each matter were as
follows (the number of shares for which proxy cards were not returned are
shown as "Not Voted"):
9
<PAGE>
. The stockholders voted for the Sale and Name Change as follows:
<TABLE>
<S> <C>
For.......................................... 9,365,018
Against...................................... 103,060
Abstain...................................... 27,695
Not Voted.................................... 6,084,640
</TABLE>
c) The Annual Meeting of Stockholders of StreamLogic Corporation was held on
May 22, 1996.
d) Matters voted on at the meeting and votes cast on each matter were as
follows:
. The stockholders voted to elect four directors as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHOLD
------- ---------- --------
<S> <C> <C>
J. Larry Smart........................................ 9,895,326 291,967
Chriss W. Street...................................... 9,905,522 281,771
Ericson M. Dunstan.................................... 10,097,526 89,767
Greg L. Reyes, Jr..................................... 10,096,801 90,497
</TABLE>
There were no broker non-votes in the election of directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol "STLC" (formerly "MLIS"). The
following table sets forth for the periods indicated the high and low closing
sale prices for the Common Stock.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996 Transition Period
High.................................... 5 1/8
Low..................................... 1 3/8
Fiscal 1995
High.................................... 11 7 1/4 7 3/8 5 3/8
Low..................................... 4 7/8 4 3/4 5 3/8 3
Fiscal 1994
High.................................... 8 3/8 7 7/8 7 1/4 9 1/2
Low..................................... 4 7/8 5 1/4 5 3/8 6 1/8
</TABLE>
The price range per share, reflected in the above table, sets forth the
highest and lowest closing prices in each fiscal quarter during the 1996
transition period and the 1995 and 1994 fiscal years, as reported by Nasdaq
National Market System.
No dividends have been declared by the Company during the five-year period
ended March 29, 1996. At June 14, 1996, there were 415 record holders of the
Company's Common Stock.
As of March 29, 1996, StreamLogic's net worth ceased to meet the
requirements for continuing quotation on the Nasdaq National Market System.
However, as of June 14, 1996 the Company's Common Stock was still included on
the Nasdaq National Market System. See Item 7--"Management's Discussion and
Analysis of Financial Condition and Results of Operations--Market For
StreamLogic Common Stock."
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE-MONTH PERIOD YEAR ENDED
---------------------- --------------------------------------------------
MARCH DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1996 MARCH 1995 1995 1994 1993 1992 1991
--------- ----------- --------- --------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data
Net sales............... $ 24,408 $ 40,899 $ 211,264 $ 346,314 $ 382,926 $396,579 $350,875
Cost of sales.......... 40,799 49,768 205,628 286,856 315,436 306,482 285,555
--------- --------- --------- --------- --------- -------- --------
Gross profit (loss)..... (16,391) (8,869) 5,636 59,458 67,490 90,097 65,320
Operating expenses:
Research and
development.......... 8,874 13,427 42,469 43,648 36,112 27,868 24,065
Selling, general and
administrative....... 8,836 13,171 44,274 43,500 41,906 38,656 33,258
Restructuring charge.. -- -- -- -- 5,496 -- --
--------- --------- --------- --------- --------- -------- --------
Total operating
expenses........... 17,710 26,598 86,743 87,148 83,514 66,524 57,323
--------- --------- --------- --------- --------- -------- --------
Income (loss) from
operations............. (34,101) (35,467) (81,107) (27,690) (16,024) 23,573 7,997
Other expense, net..... 1,854 786 4,242 2,985 3,888 2,683 3,504
--------- --------- --------- --------- --------- -------- --------
Income (loss) before
income taxes........... (35,955) (36,253) (85,349) (30,675) (19,912) 20,890 4,493
Income tax provision
(benefit)............. 252 (1,166) (1,061) -- 4 1,333 150
--------- --------- --------- --------- --------- -------- --------
Net income (loss)(1).... $(36,207) $(35,087) $(84,288) $(30,675) $(19,916) $ 19,557 $ 4,343
========= ========= ========= ========= ========= ======== ========
Earnings (loss) per
share(1)............... $ (2.32) $ (2.29) $ (5.46) $ (2.03) $ (1.34) $ 1.33 $ .32
========= ========= ========= ========= ========= ======== ========
Weighted average common
and common equivalent
shares outstanding..... 15,580 15,311 15,445 15,100 14,835 14,720 13,674
========= ========= ========= ========= ========= ======== ========
Balance sheet data
Working capital......... $ 38,140 $ 87,069 $ 65,957 $ 121,022 $ 144,423 $163,394 $141,850
Total assets............ 92,383 191,054 180,394 233,915 250,429 259,624 244,909
Long term debt
(excluding current
portion)............... 71,250 77,269 113,102 75,000 75,000 75,000 75,000
Shareholders' equity
(deficit).............. (27,084) 54,945 7,173 89,630 118,356 136,257 114,629
</TABLE>
- --------
(1) Income from the Company's Singapore and Thailand operations is exempt from
income taxes in those countries through 2004 and December 1993,
respectively. The income tax exemptions in Singapore and Thailand had no
impact in the 1996 transition period nor in 1995, and had an effect of
approximately $7,401 and $.49 in 1994, $4,800 and $.33 in 1993 and $12,879
and $.87 in 1992 on net income and earnings per share, respectively, as
compared to income taxes at the maximum statutory rates. However, the
aforementioned aggregate and per share effects are not necessarily
indicative of the Company's consolidated incremental tax liability in the
absence of such tax holidays historically (see Notes 1 and 2 to the
Company's Consolidated Financial Statements).
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Acquisition of FWB Inc.
On June 10, 1996 the Company entered into a definitive agreement, subject to
certain conditions, to purchase all of the net assets related to the hardware
business of FWB Inc., a developer of performance computer storage products for
pre-press, multi-media and graphics applications. At closing, the Company
would pay $5 million, consisting of approximately $2 million in cash and
approximately $3 million of assumed debt. In addition, the Company entered
into a definitive agreement, subject to certain conditions, to make an 11%
equity investment in the software business being retained by FWB. In
consideration for such minority equity investment, at closing the Company
would issue shares of StreamLogic Common Stock with an aggregate fair market
value of $8 million, as defined in the agreement. There can be no assurance
that this transaction will be consummated.
Bond Agreement
On June 17, 1996 the Company announced an agreement (the "Bond Agreement")
in principle with Loomis Sayles & Co., L.P. ("Loomis Sayles"), an entity which
advises investors that collectively hold approximately 79% of the Company's
$75 million issue of 6% Convertible Subordinated Debentures ("Debentures") to
exchange such Debentures for a package of cash, common stock and warrants to
purchase common stock. Pursuant to the Bond Agreement, the Company plans to
commence a tender offer for the Debentures during mid August 1996. In the
tender offer, the Company will offer to exchange its Debentures such that, for
each $1,000 face amount of debentures tendered, the holders will receive (a)
$233.33 in cash, (b) $520 in StreamLogic Common Stock, and (c) warrants to
purchase 40 shares of StreamLogic Common Stock at an initial exercise price of
150% of market value of the Common Stock as defined in the Bond Agreement. The
exercise price of the warrants is subject to downward adjustment in certain
circumstances, and contains antidilution adjustments. The Company expects
shareholder approval will be required pursuant to Nasdaq rules and
regulations.
The obligations of the holders advised by Loomis Sayles to participate in
the tender offer under the Bond Agreement is subject to various conditions
including satisfaction of all necessary regulatory requirements, 95%
participation by bond holders, and the average price of StreamLogic's Common
Stock immediately prior to the expiration of the tender offer falling within
the range $4.00 to $7.50. As a result, there can be no assurance that the
tender offer will be consummated. Offers to exchange the Debentures will be
made only pursuant to the tender offer, and no offer is being made at this
time. The last reported sales price of the debentures prior to the Companys
announcement of the Bond Agreement was $550 per $1,000 face value on June 6,
1996.
If the holders of 100% of the outstanding debentures accept the exchange,
the Company will exchange the debentures for (a) $17.5 million in cash, (b)
issue between 5.2 and 9.8 million shares of common stock, and (c) issue
warrants to purchase approximately 3.0 million shares of common stock,
therefore, the transaction would increase the Company's net tangible assets by
more than $50 million.
SALE OF THE DISK DRIVE BUSINESS
On March 29, 1996, the Company closed pursuant to a definitive agreement
(the "Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
which was subsequently renamed "Micropolis (S) Pte Ltd" ("MPL"), and a wholly-
owned subsidiary of Singapore Technologies Pte Ltd, a Singapore corporation
("ST"), the sale of substantially all of the Company's assets (other than cash
and accounts receivable) related to the Company's hard disk drive business to
MPL (the "Sale"). The Sale was approved by the Company's stockholders. The
Company's remaining business is focused on information storage subsystems and
video
12
<PAGE>
systems, and the Company has renamed itself StreamLogic Corporation
("StreamLogic"). StreamLogic's principal business is fault tolerant disk
storage subsystems, commonly known as RAID systems. Longer term, StreamLogic
plans to develop a substantial video server and video disk recorder business,
assuming that current tape-based markets for such products transition to disk-
based technologies, and that StreamLogic's products are successful in these
new markets.
For further information covering the Company's present Systems Business, see
Item 1--"Business."
RESULTS OF OPERATIONS
Three Months Ended March 29, 1996 (The "1996 Transition Period") Compared to
Three Months Ended March 31, 1995
Net sales decreased 40% to $24.4 million in the 1996 transition period as
compared to $40.9 million in the first quarter of 1995. Drive Business
revenues declined by 45% in the 1996 transition period as compared to the 1995
quarter and sales made by the Systems Business decreased by approximately 21%.
The decrease in revenues was primarily attributable to the low volume of
shipments and high level of product returns experienced during the 1996
transition period due to uncertainties within the Company's disk drive
customer base regarding the sale of the disk drive business. The Company
discontinued manufacturing Systems Business products in its Singapore facility
during the 1996 transition period. All Systems Business products are currently
manufactured in the Company's Chatsworth, California facility. Such
discontinuance of manufacturing in Singapore is not expected to have a
significant impact on Systems Business revenue. Overall bookings for the 1996
transition period decreased by 51% from those in the 1995 quarter principally
due to uncertainties within the Company's disk drive customer base regarding
the sale of the disk drive business.
Cost of sales as a percent of sales increased to 167% in the 1996 transition
period from 122% in the 1995 quarter resulting in a gross loss of 67% as
compared to 22% in the 1995 quarter. The margin loss was the result of price
declines in the Company's Javelin family of drives, operating inefficiencies
due to low volume production of the 2, 4 and 9 GB drives.
Research and development expenses increased to 36.3% of sales in the 1996
transition period as compared to 32.8% in the 1995 quarter. The percentage
increase is the result of lower sales offset by a decrease in spending of $4.6
million. The decrease in expense was a result of savings from the Company's
cost containment efforts initiated in March 1995 and termination of the
Company's funding in 1996 of the research and development costs incurred by
Tulip Memory Systems, Inc. ("TMS"), a start-up company formed to develop
substrates which are to be used in the manufacture of computer disk drives.
During the 1995 quarter, the Company recorded a provision to recognize the
guarantee obligation under its agreement with TMS. In the 1996 transition
period and the 1995 quarter, approximately one-third of the Company's research
and development expenses were incurred by the ongoing Systems Business.
Selling, general and administrative expenses were 36.2% of sales in the 1996
transition period as compared to 32.2% in the 1995 quarter. The percentage
increase is the result of lower sales offset by a decrease in expense of $4.3
million. The decrease in expense was the result of decreased expenditures for
advertising and sales promotion activities for new products, costs associated
with a work force reduction in the U.S. and Europe completed in March 1995,
and lower costs resulting from employee reductions made in early January 1996.
Interest expense increased to $2 million in the 1996 transition period (8.3%
of sales) as compared to $1.3 million (3.3% of sales) in the 1995 quarter,
primarily as a result of the interest expense on the Company's 10%
Subordinated Notes dated October 11, 1995 and fees associated with terminating
the Company's Loan Facility. Interest income was $169,000 in the 1996
transition period as compared to $547,000 in the 1995 quarter as a result of
lower cash equivalent and short-term investment balances. As a result of the
above, loss before income taxes was $36.0 million in the 1996 transition
period as compared to $36.3 million in the 1995 quarter.
13
<PAGE>
The Company recorded an income tax provision of $252,000 in the 1996
transition period, primarily representing Federal taxes on undistributed
foreign earnings since such earnings would be remitted due to the Sale. In the
1995 quarter, the Company recorded an income tax benefit of $1.2 million,
primarily representing a refund of certain foreign income taxes paid in a
prior year. The Company's income tax provision benefits from the tax holiday
afforded the Company's Singapore operation. The income tax exemption in
Singapore had no impact in the 1996 transition period or the 1995 quarter. A
net operating loss of approximately $124.2 million is available to be carried
forward to the years 2004-2011. General business tax credit carryforwards of
approximately $8.6 million expiring between 2000 and 2009, are also available
to reduce future federal income taxes. However, under Internal Revenue Code
Sections 382 and 383, the amount of the operating loss and general business
tax credit carryforwards that can be used annually may be limited due to
certain changes in ownership. The potential issuance of Common Stock in
connection with the Bond Agreement discussed above, or other trading
activities, may create such a change in ownership. Net loss for the 1996
transition period was $36.2 million compared to a net loss of $35.1 million in
the 1995 quarter.
Fiscal 1995 Compared to Fiscal 1994
Net sales decreased 39% to $211.3 million in 1995 as compared to $346.3
million in 1994. Drive Business revenues declined by 44% in 1995 as compared
to 1994 and sales made by the Systems Business decreased by approximately 4%.
The decrease in revenues was primarily attributable to sharply lower drive
orders than anticipated in the distribution channel during the first quarter
of 1995 for the Company's 4 GB 3 1/2-inch and 9 GB 5 1/4-inch drives. In
addition, a component problem, and other technical issues, effectively shut
down production of the Company's 2 GB 3 1/2-inch drive for most of the first
quarter of 1995. During the second quarter of 1995, the Company resumed full
production of its 2 GB 3 1/2-inch drives and met the increased demand for
these drives and its SuperCapacity 4 and 9 GB drives. During the third and
fourth quarters of 1995, the Company's OEM revenue declined due to reduced
shipments to certain large customers. The Company anticipated that such
revenue reduction would be offset by new OEM customers in qualification.
However, the Company experienced delays in such OEM qualifications and
unexpected difficulties in the manufacture of 3 1/2-inch disk drives resulting
in higher manufacturing costs, excessive warranty cost, inventory build-up and
lost sales. During the fourth quarter of 1995 the Company announced a price
reduction on its Javelin family of drives. Overall bookings for 1995 decreased
by 45% from those in 1994 principally due to manufacturing difficulties,
component problems and delays in OEM qualifications in the Company's 2, 4 and
9 GB drives.
Cost of sales as a percent of sales increased to 97.3% in 1995 from 82.8% in
1994 resulting in a gross margin of 2.7% as compared to 17.2% in 1994. The
decrease in margin was the result of price declines in the Company's Javelin
family of drives, operating inefficiencies due to low volume production of the
2 and 4 GB drives, and a provision recorded during the first quarter of 1995
for certain unusable components of the 2 GB drives.
Research and development expenses increased to 20.1% of sales in 1995 as
compared to 12.6% in 1994. The percentage increase is the result of lower
sales offset by a decrease in spending of $1.2 million. The decrease in
spending was a result of savings from the Company's cost containment efforts
initiated in March 1995, offset by the recognition of the research and
development costs incurred by TMS, and research and development on the
Company's high capacity 3 1/2-inch and 5 1/4-inch drives and subsystem
products. In 1995, approximately one-third of the Company's research and
development expenses were incurred by the ongoing Systems Business.
Selling, general and administrative expenses were 20.2% of sales in 1995 as
compared to 12.6% in 1994. The percentage increase is the result of lower
sales and an increase in expense of $774,000. The increase in expense was the
result of increased expenditures for advertising and sales promotion
activities for new products, costs associated with a work force reduction in
the U.S. and Europe completed in March 1995, and the retention of outside
assistance to help the Company in formulating and implementing its recovery
plan, offset by the Company's cost containment efforts initiated in March
1995.
14
<PAGE>
Interest expense increased to $6 million in 1995 (2.8% of sales) as compared
to $5.1 million (1.5% of sales) in 1994, primarily as a result of fees
associated with the Company's Term Loan Facility and the interest expense of
the Company's 10% Convertible Subordinated Debentures dated October 11, 1995.
Interest income was $1.7 million in 1995 as compared to $2.1 million in 1994
as a result of lower cash equivalent and short-term investment balances. As a
result of the above, loss before income taxes was $85.3 million in 1995 as
compared to $30.7 million in 1994.
The Company recorded an income tax benefit of $1.1 million in 1995,
primarily representing a refund of certain foreign income taxes paid in a
prior year. The Company's income tax provision benefits from the tax holiday
afforded the Company's Singapore operation. The income tax exemption in
Singapore had no impact in 1995 and had an effect of approximately $7.4
million and $.49 on net income and earnings per share, respectively, as
compared to income taxes at the maximum statutory rates in 1994. Net loss for
1995 was $84.3 million compared to a net loss of $30.7 million in 1994.
Fiscal 1994 Compared to Fiscal 1993
Net sales decreased by 10.5% to $346.3 million in 1994 as compared to $382.9
million in 1993. OEM revenues declined substantially in 1994 as a result of a
decrease in shipments in the Company's 5 1/4-inch 3600 rpm drives and the 3
1/2-inch 5400 rpm 1 gigabyte (GB) drives. The decline in OEM sales was only
partially offset by increases in the Company's Storage Systems Division (SSD)
and Video Systems Division. The increase in SSD sales was primarily the result
of an increase in shipments of the 3 1/2-inch, 1 inch high 1 GB drive, 1.7 GB
full height drives and storage subsystems. The increase in the Video Systems
Division, which had no sales in 1993, came primarily in the second half of
1994 and related to shipments of the AV Server 100. Backlog as of December 30,
1994 was $27.8 million, as compared to $29.2 million as of December 31, 1993.
Cost of sales as a percentage of sales was 82.8% in 1994, comparable to the
82.4% in 1993, resulting in gross margins of 17.2% (17.6% in 1993). Gross
margins in the first three quarters of 1994 were adversely impacted by
competitive pricing on the 1 GB, 1 inch high 3 1/2-inch drives. Margins
increased substantially in the fourth quarter, to 26.5%, as a result of the
increased shipments of the Company's Javelin class SuperCapacity drives and
storage and video subsystems.
Research and development as a percentage of sales increased to 12.6% in 1994
as compared to 9.4% in 1993. The increase in spending of $7.5 million relates
to increased research and development for high capacity 3 1/2-inch and 5 1/4-
inch drives, subsystem products and development of new disk substrates at TMS.
Selling, general and administrative expense increased to 12.6% in 1994 as
compared to 10.9% in 1993. The increase in spending of $1.6 million relates
primarily to increased sales and marketing costs in the Company's Storage
Systems Division.
Interest expense was $5.1 million (1.5% of sales) in 1994 which is
comparable to 1993. Interest income was $2.1 million in 1994 as compared to
$2.3 million in 1993. As a result of the above, the loss before income taxes
was $30.7 million in 1994 versus a loss of $19.9 million in 1993.
The Company provided for no income tax in 1994 versus $4,000 provided in
1993. The Company's income tax provision benefits from a tax holiday afforded
the Company's Singapore operation. The effect on net income and earnings per
share of the income tax exemptions in Singapore as compared to income taxes at
the maximum statutory rates for 1994 and 1993, was approximately $7.4 million
and $.49 and $4.8 million and $.33, respectively. Net loss was $30.7 million
in 1994, as compared to net loss of $19.9 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased to $40.5 million
as of March 29, 1996 from $27.9 million as of December 29, 1995. Net cash used
in operations of $12.8 million is primarily due to the
15
<PAGE>
Company's net loss of $36.2 million, offset by a reduction in accounts
receivable of $14.1 million, and an increase (prior to giving effect to the
Sale) in accounts payable and other accrued liabilities of $12.6 million. The
reduction in accounts receivable is due principally to decreased sales in the
1996 transition period compared to the fourth quarter of 1995. Accounts
payable and other accrued liabilities increased (prior to giving effect to the
Sale) due to extended supplier payments.
The Company's capital expenditures in the 1996 transition period were $14.8
million as compared to $6.1 million in the three months ended March 31, 1995.
Capital expenditures related primarily to the construction of a new
manufacturing facility in Singapore to replace the current leased facility.
The new facility was completed in March 1996. The Company had obtained a term
loan facility to fund the expenditures associated with the construction of the
building. On March 29, 1996 pursuant to the Agreement, MPL acquired the
Company's new factory in Singapore and assumed the Company's $21.5 million
term loan facility (the "Loan Facility") used to finance the construction of
the factory. In addition, MPL assumed the Company's obligations under
contracts to build an ESD safe cleanroom for the production of MR-based disk
drives, and certain other contracts for the facilitization of the factory, all
in an amount of approximately $9.0 million. The Company currently anticipates
that as a result of the Sale its 1997 capital spending will be significantly
lower than that of the 1996 transition period and will be principally for
equipment and tooling required for the Company's new products.
During March 1996, after evaluating the costs of maintaining the Company's
$25 million credit facility and because the Agreement required assets to be
transferred free of all liens, pledges and encumbrances, the Company elected
to terminate its credit facility.
During October 1995, the Company completed the private placement to an
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes
were convertible at the option of the holder into shares of Common Stock of
the Company at a conversion price of $6.00 per share, a premium to the market
price of the Company's Common Stock at the time of issuance. The Notes are
senior to the Debentures and are collateralized by substantially all of the
assets of the Company. During March 1996, the Company obtained the required
consent of the holder of the Notes to allow consummation of the Sale and in
consideration for such consent, agreed to repay the Notes on July 2, 1996 and
issued warrants to purchase 1,500,000 shares of the Company's Common Stock at
a price of $4 per share. Accordingly, the Company has recorded a charge of
$1,800,000 for the warrants against the proceeds of the Sale in the Statement
of Operations for the 1996 transition period. On April 5, 1996 the Company
repaid $10,000,000 of the Notes, and on July 1, 1996 the Company paid the
remaining $10,000,000 of the Notes. Interest on the Notes was payable
semiannually on April 15 and October 15.
On February 16, 1996, the Company entered into a $10 Million Facility
Agreement (the "Facility") with MPL for the purpose of providing additional
liquidity to the Company to pay accounts payable between the date of the
Facility and March 29, 1996. As of March 29, 1996, the Company had borrowed
$10 million under the Facility and all amounts outstanding under the Facility
were repaid as of that date. The Facility was then canceled. Advances bore
interest at U.S. dollar prime rate plus 1%.
In consideration of the Sale on March 29, 1996, the Company received total
cash consideration of approximately $54 million. $39.7 million of such cash
consideration was received as of the March 29, 1996 closing, $13 million in
cash consideration was received on June 6, 1996, and a final payment of $1
million, which will be held in escrow and is subject to certain conditions, is
expected to be received in early August. In addition, the Company expects to
liquidate the trade accounts receivable related to the Drive Business but
retained by the Company at closing of the Sale.
Market for StreamLogic Common Stock
As of March 29, 1996 the Company's net tangible assets did not meet the
criteria for continued inclusion on the Nasdaq National Market System. If the
Company's Common Stock is no longer approved for inclusion on the Nasdaq
National Market System, and the Company cannot obtain listing elsewhere,
trading, if any, in the
16
<PAGE>
Company's Common Stock may thereafter be conducted in the over-the-counter
market and its stock quoted in the so-called "pink sheets" or, if then
available, the "OTC Bulletin Board Service." As a result, it could be more
difficult to trade, or to obtain accurate quotations as to the value of, the
Company's Common Stock and the spread between the "bid" and "ask" prices for
the Common Stock could materially increase. However, as of June 14, 1996 the
Company's Common Stock was still included on the Nasdaq National Market
System. The Company has undertaken discussions with Nasdaq seeking the
continued inclusion of the Company's Common Stock on the Nasdaq National
Market System based on the Company's plans for increasing its net tangible
assets, however there can be no assurance that the Common Stock will continue
to be approved for inclusion.
StreamLogic Strategic and Financial Alternatives
Although the Company anticipates operating losses in the near term, the
Company is considering and will consider strategic and financial alternatives
to improve its results of operations, cash flows and net worth, including
restructuring of debt, acquisitions and other alternatives. Management
believes its cash, cash equivalents, short term investments and other working
capital will be sufficient to fund operations over the next year.
17
<PAGE>
STREAMLOGIC CORPORATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... 19
Consolidated Statements of Operations for the three-months ended March 29,
1996 and March 31, 1995 (unaudited) and the years ended December 29,
1995, December 30, 1994 and December 31, 1993............................ 20
Consolidated Balance Sheets as of March 29, 1996, December 29, 1995 and
December 30, 1994........................................................ 21
Consolidated Statements of Cash Flows for the three-months ended March 29,
1996 and March 31, 1995 (unaudited) and the years ended December 29,
1995, December 30, 1994 and December 31, 1993............................ 22
Consolidated Statements of Shareholders' Equity (Deficit) for the three
months ended March 29, 1996 and the three years ended December 29, 1995.. 23
Notes to Consolidated Financial Statements................................ 24
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
StreamLogic Corporation
We have audited the accompanying consolidated balance sheets of StreamLogic
Corporation as of March 29, 1996, December 29, 1995 and December 30, 1994, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the three months ended March 29, 1996 and each
of the three years in the period ended December 29, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of StreamLogic
Corporation at March 29, 1996, December 29, 1995 and December 30, 1994, and
the consolidated results of its operations and its cash flows for the three
months ended March 29, 1996 and each of the three years in the period ended
December 29, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
June 28, 1996
19
<PAGE>
STREAMLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
---------------------- --------------------------------------
MARCH 29, MARCH 31, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1996 1995 1995 1994 1993
--------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 24,408 $ 40,899 $ 211,264 $ 346,314 $ 382,926
Cost of sales........... 40,799 49,768 205,628 286,856 315,436
-------- -------- --------- --------- ---------
Gross profit (loss)..... (16,391) (8,869) 5,636 59,458 67,490
Operating expenses:
Research and develop-
ment................. 8,874 13,427 42,469 43,648 36,112
Selling, general and
administrative....... 8,836 13,171 44,274 43,500 41,906
Restructuring charge.. -- -- -- -- 5,496
-------- -------- --------- --------- ---------
Total operating ex-
penses............. 17,710 26,598 86,743 87,148 83,514
-------- -------- --------- --------- ---------
Loss from operations.... (34,101) (35,467) (81,107) (27,690) (16,024)
-------- -------- --------- --------- ---------
Interest income....... 173 547 1,719 2,090 2,335
Interest expense...... (2,027) (1,333) (5,961) (5,075) (5,093)
Other expense......... -- -- -- -- (1,130)
-------- -------- --------- --------- ---------
Loss before income
taxes.................. (35,955) (36,253) (85,349) (30,675) (19,912)
Income tax provision
(benefit).............. 252 (1,166) (1,061) -- 4
-------- -------- --------- --------- ---------
Net loss................ $(36,207) $(35,087) $ (84,288) $ (30,675) $ (19,916)
======== ======== ========= ========= =========
Net loss per share...... $ (2.32) $ (2.29) $ (5.46) $ (2.03) $ (1.34)
======== ======== ========= ========= =========
Weighted average common
outstanding............ 15,580 15,311 15,445 15,100 14,835
======== ======== ========= ========= =========
</TABLE>
See accompanying notes.
20
<PAGE>
STREAMLOGIC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 29, DECEMBER 30,
1996 1995 1994
--------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments........................... $ 40,477 $ 27,896 $ 63,216
Accounts receivable, less allowance for
doubtful accounts and customer returns
of $5,667 ($5,427 in 1995 and $4,455
in 1994).............................. 19,139 33,249 61,724
Receivable from Singapore Technologies. 13,966 -- --
Inventories............................ 10,022 59,777 56,746
Other current assets................... 1,033 3,433 6,405
--------- --------- --------
Total current assets................. 84,637 124,355 188,091
Property, plant and equipment, at cost:
Land................................... 986 1,675 1,675
Buildings and improvements............. 6,632 22,520 22,246
Machinery and equipment................ 18,029 87,094 85,479
Construction in progress............... 238 24,400 3,524
--------- --------- --------
25,885 135,689 112,924
Less accumulated depreciation and amor-
tization.............................. 20,035 81,544 68,672
--------- --------- --------
5,850 54,145 44,252
Other assets............................. 1,896 1,893 1,572
--------- --------- --------
$ 92,383 $ 180,393 $233,915
========= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
10% Subordinated Notes................. $ 20,000 $ -- $ --
Current maturities of long term debt... 3,750 2,687 --
Accounts payable....................... 8,610 34,209 46,388
Other accrued liabilities.............. 14,137 21,502 20,681
--------- --------- --------
Total current liabilities................ 46,497 58,398 67,069
Term Loan Facility....................... -- 18,102 --
10% Subordinated Notes................... -- 20,000 --
6% Convertible Subordinated Debentures
due 2012................................ 71,250 75,000 75,000
Deferred income taxes.................... 1,720 1,720 2,216
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $1.00 par value;
2,000,000 shares authorized, none
issued................................ -- -- --
Common stock, $1.00 par value,
50,000,000 shares authorized;
15,580,413 shares issued and outstand-
ing (15,580,413 in 1995 and 15,266,440
in 1994).............................. 15,580 15,580 15,266
Additional paid-in capital............. 112,330 110,380 108,863
Accumulated deficit.................... (154,994) (118,787) (34,499)
--------- --------- --------
Total shareholders' equity (deficit). (27,084) 7,173 89,630
--------- --------- --------
$ 92,383 $ 180,393 $233,915
========= ========= ========
</TABLE>
See accompanying notes.
21
<PAGE>
STREAMLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
---------------------- --------------------------------------
MARCH 29, MARCH 31, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1996 1995 1995 1994 1993
--------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(36,207) $(35,087) $(84,288) $(30,675) $(19,916)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 5,031 5,393 20,679 23,932 25,364
(Gain) loss on
disposition of
property, plant and
equipment............ (1,023) (12) (51) (182) 54
Deferred income taxes. -- (496) (496) (201) (3,000)
Increase (decrease) from
changes in:
Accounts receivable.... 14,110 34,440 28,475 (13,493) 1,760
Inventories............ (3,204) (8,739) (3,031) 2,931 5,934
Other current assets... (339) 2,281 2,972 (2,016) (896)
Accounts payable and
other accrued
liabilities........... 9,283 (9,948) (11,358) 12,644 12,240
Other assets........... (477) (325) (393) 1,226 (432)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. (12,826) (12,493) (47,491) (5,834) 21,108
-------- -------- -------- -------- --------
Cash flows from
investing activities:
Proceeds from sale of
Drive Business........ 39,719 -- -- -- --
Proceeds from sale of
equipment............. -- 35 51 254 57
Additions to property,
plant and equipment... (14,803) (6,132) (30,500) (19,704) (22,766)
Net change in short-
term investments...... (11,792) 14,159 12,254 12,186 1,826
-------- -------- -------- -------- --------
Net cash used in
investing activities... 13,124 8,062 (18,195) (7,264) (20,883)
-------- -------- -------- -------- --------
Cash flows from
financing activities:
Proceeds from Term Loan
Facility.............. 491 2,269 20,789 -- --
Proceeds from 10%
Subordinated Notes.... -- -- 20,000 -- --
Proceeds from sale of
common stock, net..... -- 401 1,831 1,949 2,015
Payment on capital
lease obligation...... -- -- -- (231) (534)
-------- -------- -------- -------- --------
Net cash provided by
financing activities... 491 2,670 42,620 1,718 1,481
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and
equivalents............ 789 (1,761) (23,066) (11,380) 1,706
Cash and equivalents at
beginning of period.... 14,654 37,720 37,720 49,100 47,394
-------- -------- -------- -------- --------
Cash and equivalents at
end of period.......... 15,443 35,959 14,654 37,720 49,100
Short term investments.. 25,034 11,337 13,242 25,496 37,682
-------- -------- -------- -------- --------
Total cash, cash
equivalents and short-
term investments....... $ 40,477 $ 47,296 $ 27,896 $ 63,216 $ 86,782
======== ======== ======== ======== ========
Supplemental cash flow
information:
Interest payments...... $ 2,652 $ 2,439 $ 5,791 $ 5,076 $ 4,821
Tax payments
(recoveries).......... $ 72 $ (963) $ (460) $ 2,964 $ 278
Non-cash investing and
financing activities:
Note receivable from
sale of Drive
Business.............. $ 13,966 $ -- $ -- $ -- $ --
</TABLE>
See accompanying notes.
22
<PAGE>
STREAMLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 29, 1995 AND
THE THREE MONTH PERIOD ENDED MARCH 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 25,
1992........................ 14,532 $14,532 $105,633 $ 16,092 $136,257
Common stock sold for cash. 356 356 1,659 -- 2,015
Net Loss................... -- -- -- (19,916) (19,916)
------ ------- -------- --------- --------
Balances at December 31,
1993........................ 14,888 14,888 107,292 (3,824) 118,356
Common stock sold for cash. 378 378 1,571 -- 1,949
Net Loss................... -- -- -- (30,675) (30,675)
------ ------- -------- --------- --------
Balances at December 30,
1994........................ 15,266 15,266 108,863 (34,499) 89,630
Common stock sold for cash. 314 314 1,517 -- 1,831
Net Loss................... -- -- -- (84,288) (84,288)
------ ------- -------- --------- --------
Balances at December 29,
1995........................ 15,580 $15,580 $110,380 $(118,787) $7,173
Warrants granted........... -- -- 1,950 -- 1,950
Net Loss................... -- -- -- (36,207) (36,207)
------ ------- -------- --------- --------
Balances at March 29, 1996... 15,580 $15,580 $112,330 $(154,994) $(27,084)
====== ======= ======== ========= ========
</TABLE>
See accompanying notes.
23
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 29, 1996
AND THE THREE YEARS ENDED DECEMBER 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS INFORMATION
RECENT DEVELOPMENTS
As further described in Note 10, on January 24, 1996, the Company entered
into a definitive agreement (the "Purchase Agreement") with ST Chatsworth Pte
Ltd, a Singapore corporation ("MPL"), and a wholly-owned subsidiary of
Singapore Technologies Pte Ltd, a Singapore corporation ("ST"), to sell
substantially all of the Company's assets (other than cash and accounts
receivable) related to the Company's hard disk drive business to MPL (the
"Sale"). On March 29, 1996, the Company consummated the Sale. Accordingly, the
accompanying balance sheet as of March 29, 1996 reflects the Sale and includes
a receivable from ST for the remaining amount of the Sale proceeds. However,
the accompanying statements of operations and cash flows for the three months
ended March 29, 1996 reflect operating results and cash flows of both the hard
disk drive business and the remaining systems business (see Note 10).
BASIS OF PRESENTATION
Although the Company anticipates operating losses in the near term, the
Company is considering and will consider strategic and financial alternatives
to improve its results of operations, cash flows and net worth, including
restructuring of debt, acquisitions and other alternatives. Management
believes its cash, cash equivalents, short term investments and other working
capital will be sufficient to fund operations over the next year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated. On May 13, 1996 the Company elected to change its fiscal year
from the last Friday in December to the last Friday in March, beginning with
March 1996. The three-month periods ended March 29, 1996 (the "1996 transition
period") and March 31, 1995 each had 13 weeks. Fiscal years 1995 and 1994 were
fifty-two week years versus a fifty-three week 1993.
SALES
StreamLogic is a designer and manufacturer of information storage and video
systems and, through March 29, 1996, high capacity disk drives,. The Company
sells these products and systems directly to original equipment manufacturers
("OEMs") and systems integrators and through independent distributors and
value added resellers ("VARs") for resale to end users. The Company generally
warrants its products against defects for periods from one to five years. The
Company provides for estimated future product warranty costs when products are
shipped. In addition, the Company performs ongoing credit evaluations of its
customers' financial condition, and generally requires no collateral from its
customers. Trade credit is generally granted to its customers, typically on
net 30 day terms. Historically, the Company has not experienced significant
bad debt write-offs. The Company has policies and/or contractual agreements
which allow distributors to receive price protection credit under certain
circumstances when the Company lowers its sales prices. In addition, the
Company permits customers to return products under certain circumstances. The
Company makes a provision for the estimated amount of price protection credits
and for product returns that may occur under these programs and contracts in
the period of sale. Sales, most of which are denominated in U.S. dollars, are
recorded upon shipment. No customer accounted for more than 10% of total sales
during the 1996 transition period, or 1995, 1994 or 1993.
DEPENDENCE ON SUPPLIER
Effective March 29, 1996 the Company and MPL have entered into an OEM supply
agreement. Among other things, the OEM Supply Agreement allows StreamLogic to
buy at prices equal to or slightly lower than the most favored OEM customer of
MPL. StreamLogic must offer all its disk drive business and requirements to
24
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MPL on a right-of-first-refusal basis, subject to the ability of MPL to meet
certain delivery and other standards. The agreement has an initial two-year
term, after which it may be renewed annually by mutual agreement. Also
effective March 29, 1996, the Company entered into a non-exclusive European
Distribution Handling Agreement with MPL, under which MPL provides
distribution services to the Company in Europe and other locations specified
in such agreement.
FOREIGN EXCHANGE CONTRACTS
The functional currency of the Company's Singapore and Thailand subsidiaries
is the U.S. dollar. The Company enters into foreign exchange contracts to
minimize the effects of foreign currency fluctuations related to certain known
local expenditures for operations and for the new facility while under
construction in Singapore. These foreign exchange contracts hedged
approximately $2.3 million, $17.2 million and $19.9 million of transaction
exposures as of March 29, 1996, December 29, 1995 and December 30, 1994,
respectively. There were no significant deferred unrealized gains or losses at
March 29, 1996, December 29, 1995 or December 30, 1994.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Short-term investments consist
primarily of commercial paper, certificates of deposit, and U.S. government
agency securities and are considered available for sale under Statement of
Financial Accounting Standards No. 115. These investments generally mature
within six months and are carried at cost which approximates fair values.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market.
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 29, DECEMBER 30,
1996 1995 1994
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and purchased parts.... $ 4,564 $20,207 $18,634
Work-in-process...................... 1,487 23,289 20,771
Finished goods....................... 3,971 16,281 17,341
------- ------- -------
$10,022 $59,777 $56,746
======= ======= =======
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line method over
the estimated useful life of the assets or term of related lease, whichever is
shorter; for buildings and improvements, 10 to 30 years; machinery and
equipment, 3 to 5 years.
25
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER ACCRUED LIABILITIES
Other accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 29, DECEMBER 30,
1996 1995 1994
--------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued salaries and wages............ $ 3,636 $ 5,956 $ 5,622
Accrued warranty...................... 2,000 8,006 8,614
Income taxes payable.................. 394 137 243
Other................................. 8,107 7,403 6,202
------- ------- -------
$14,137 $21,502 $20,681
======= ======= =======
</TABLE>
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$1,515,000, $4,606,000, $4,317,000 and $4,799,000 in advertising costs during
the 1996 transition period and the 1995, 1994 and 1993 fiscal years,
respectively.
RESTRUCTURING CHARGE
In the third quarter of 1993, the Company recorded a restructuring charge of
$5.5 million. This charge related primarily to separation costs recognized in
connection with a reduction in workforce and a write-down of certain assets
which were no longer in use due to changes in the Company's production
requirements and new product specifications. All related expenditures were
completed in fiscal year 1994.
INCOME TAXES
The Company applies an asset and liability approach in accounting for income
taxes. Through December 29, 1995, Federal taxes were not provided currently on
undistributed foreign earnings since it was the Company's intention that these
earnings be reinvested indefinitely in such subsidiaries, or remitted in a
manner which would not result in a Federal tax liability. During the 1996
transition period, the Company provided for Federal taxes on such
undistributed foreign earnings since such earnings would be remitted due to
the Sale.
PER SHARE INFORMATION
Loss per share is computed by dividing net loss by the weighted average
number of shares of common stock. Applicable common stock equivalents
outstanding during the period have not been considered as their effect is
antidilutive. Primary and fully diluted earnings per share are the same.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the
26
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company has
adopted Statement 121 in the 1996 transition period and the effect of its
adoption was not material.
2. INCOME TAXES
The provision (credit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
TRANSITION FISCAL YEAR ENDED
---------- --------------------------------------
MARCH 9, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1996 1995 1994 1993
---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current
Federal............... $242 $ -- $-- $(105)
State................. 2 82 (52) 73
Foreign............... 8 (1,143) 52 36
---- ------- ---- -----
Total................ $252 $(1,061) $-- $ 4
==== ======= ==== =====
</TABLE>
Deferred income taxes result from differences in the timing of the
recognition of expense and income items for tax and financial statement
purposes. During 1993 $3,000,000 was reclassified from deferred income taxes
to current income taxes payable for payments during 1994 for years covering
1986 through 1990. Deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
MARCH
29, DECEMBER 29, DECEMBER 30,
1996 1995 1994
------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax asset:
Reserves not currently tax deductible... $ 5,747 $ 5,371 $ 4,639
Excess of book over tax depreciation.... 600 2,130 1,798
Net operating loss...................... 50,179 46,641 31,996
Income tax credits...................... 9,545 9,668 7,514
Other................................... 673 768 862
------- -------- --------
Total before valuation allowance....... 66,744 64,578 46,809
Valuation allowance..................... (58,916) (63,756) (45,248)
------- -------- --------
7,828 822 1,561
------- -------- --------
Deferred tax liability:
Reserves not currently tax deductible... -- -- (2,216)
Foreign operations...................... (7,468) -- --
State income taxes...................... (1,962) (2,275) (1,327)
Other................................... (118) (267) (234)
------- -------- --------
(9,548) (2,542) (3,777)
------- -------- --------
Deferred tax liability, net............. $(1,720) $ (1,720) $ (2,216)
======= ======== ========
</TABLE>
The Company has determined a valuation allowance is required for the
deferred tax assets due to the uncertainty of ultimately realizing certain tax
benefits. The change in the valuation allowance was a result of current year
losses and settlement of prior year tax audits.
27
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table reconciles the provision for income taxes to the
statutory federal income tax rate of 35%:
<TABLE>
<CAPTION>
TRANSITION
1996 1995 1994 1993
---------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax benefit at statutory rate.......... $(12,584) $(29,872) $(10,736) $(6,969)
Increases (decreases) related to:
Federal alternative minimum tax on
foreign earnings..................... 242 -- -- --
Losses without current benefit
(benefit of loss carryforwards)...... (6,312) 15,906 13,267 1,510
State income tax expense (benefit) net
of federal income tax................ 1 53 (34) 48
Foreign operations.................... -- (5,671) (10,234) (5,090)
Repatriation of foreign earnings...... 18,760 18,498 7,700 10,500
Other, net............................ 145 25 37 5
-------- -------- -------- -------
$ 252 $ (1,061) $ 0 $ 4
======== ======== ======== =======
</TABLE>
Income from the Company's Singapore and Thailand subsidiaries was exempt
from income taxes in those countries through August 2004 and December 1993,
respectively. Income (loss) from these operations for the periods under
exemption was $(6,183,000) in the 1996 transition period, $(15,310,000) in
1995, $27,411,000 in 1994 and $17,182,000 in 1993.
A net operating loss of approximately $124,162,000 is available to be
carried forward to the years 2004-2011. General business tax credit
carryforwards of approximately $8,562,000, expiring between 2000 and 2009, are
also available to reduce future federal income taxes. However, under Internal
Revenue Code Sections 382 and 383, the amount of the operating loss and
general business credit carryforwards that can be used annually may be limited
due to certain changes in ownership. The potential issuance of Common Stock in
connection with the Bond Agreement discussed in Note 11, or other trading
activities, may create such a change in ownership.
3. CREDIT FACILITY AGREEMENT
During March 1996, after evaluating the costs of maintaining the Company's
$25 million credit facility and because the Agreement required assets to be
transferred free of all liens, pledges and encumbrances, the Company elected
to terminate its credit facility.
4. LEASE COMMITMENTS
Minimum annual lease commitments at March 29, 1996 under noncancellable
operating leases, principally for operating facilities, are payable as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997....................................................... $1,122
1998....................................................... 111
1999....................................................... 98
2000....................................................... 98
2001....................................................... 98
Thereafter................................................. 1,014
------
Total future minimum lease payments.................... $2,541
======
</TABLE>
28
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense amounted to $1,101,000 in the 1996 transition period,
$4,923,000 in 1995, $4,182,000 in 1994 and $4,643,000 in 1993.
5. LONG TERM DEBT
Term Loan Facility
In December 1994, Singapore Technologies Construction Pte Ltd. ("ST
Construction"), a subsidiary of ST, was hired by the Company as the general
contractor for construction of its new factory in Singapore. During the third
quarter of 1995, the Company refinanced, with ST Construction together with ST
Capital Ltd (another subsidiary of ST) as lenders, its existing term loan
facility used to finance the new factory with a new $21.5 million loan
facility (the "Loan Facility"). On March 29, 1996 the Loan Facility was
retired in connection with the Sale.
10% Subordinated Notes
During October 1995, the Company completed the private placement to an
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes
are convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $6.00 per share, a premium to the market
price of the Company's Common Stock at the time of issuance. The Notes are
senior to the Company's existing 6% Convertible Subordinated Debentures due
2012 and are collateralized by substantially all of the assets of the Company.
During March 1996, the Company obtained the required consent of the holder of
the Notes to allow consummation of the Sale and in consideration for such
consent, agreed to repay the Notes on June 28, 1996 and issued warrants to
purchase 1,500,000 shares of the Company's Common Stock at a price of $4 per
share. Accordingly, the Company has recorded a charge of $1,800,000,
representing the estimated fair market value, for the warrants against the
proceeds of the Sale in the Statement of Operations for the 1996 transition
period. On April 5, 1996 the Company repaid $10,000,000 of the Notes. Interest
on the Notes is payable semiannually on April 15 and October 15. Interest
expense amounted to $500,000 in the 1996 transition period and $444,000 in
1995. Because of the recent agreement to repay the Notes and issue the
Warrants, the fair market value of the Notes approximates carrying value as of
March 29, 1996.
6% Convertible Subordinated Debentures
In March 1987, the Company issued $75,000,000 principal amount of 6%
Convertible Subordinated Debentures due 2012 (the "Debentures"). The
Debentures are convertible into common stock at a price of $48.50 at any time
prior to redemption or maturity (1,546,000 shares of common stock have been
reserved for issuance upon conversion.) Mandatory annual sinking fund payments
of 5% of the aggregate principal amount of the Debentures issued will be made
on each March 15, commencing March 15, 1997. Debentures converted to common
stock or reacquired or otherwise redeemed by the Company may be used to reduce
the amount of any sinking fund payment. The Debentures may be redeemed early,
at the Company's option, upon the payment of a premium. Interest on the
debentures is payable semi-annually on March 15 and September 15. Interest
expense amounted to $1,125,000 in the 1996 transition period and $4,500,000 in
the 1995, 1994 and 1993 fiscal years. The fair market value of the Debentures
using over-the-counter market prices, was approximately $34.1 million at March
29, 1996.
Maturities and sinking fund requirements of long-term debt are $3,750,000 in
each of the five years succeeding March 29, 1996.
During the 1996 transition period and the 1995, 1994 and 1993 fiscal years
interest paid totaled $2,652,000, $5,791,000, $5,076,000 and $4,821,000
respectively, of which $456,000 and $347,000 was capitalized in the 1996
transition period and the 1995 fiscal year, respectively, as part of the cost
of the Company's new factory in Singapore.
29
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. CAPITAL STOCK
Under the Company's various stock option plans, options may be granted at
prices equal to fair market value at the date of grant. Options for key
employees and officers generally become exercisable in equal annual amounts
over five years commencing one year from the date of grant, and expire five
years from the date of grant. Options for directors are exercisable over three
years. At March 29, 1996, there were options for 970,697 shares available for
future option grants. There are currently 432 employees participating in the
various plans. Expiration dates for all options range from 1996 to 2000.
A summary of certain information with respect to options under the Plans
follows:
<TABLE>
<CAPTION>
PERIODS ENDED
--------------------------------------------------
MARCH 29, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1996 1995 1994 1993
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period........ 1,624,160 1,265,470 1,316,970 1,160,444
Options granted............. -- 1,100,100 476,500 552,000
Options exercised........... -- (91,444) (166,750) (176,326)
Weighted average exercise
price...................... -- $ 6.39 $ 4.50 $ 5.72
Options canceled............ (893,893) (649,966) (361,250) (219,148)
---------- ---------- ---------- ----------
Options outstanding, end of
period..................... 730,267 1,624,160 1,265,470 1,316,970
========== ========== ========== ==========
Weighted average price...... $ 5.86 $ 6.14 $ 7.15 $ 7.15
========== ========== ========== ==========
Exercisable................. 178,567 248,787 381,241 458,638
========== ========== ========== ==========
</TABLE>
The Company also has an employee stock purchase plan under Section 423 of
the Internal Revenue Code, with 1,400,000 shares of common stock authorized to
be issued. All full time employees are eligible to participate through payroll
deductions of up to 10% of their compensation. Participants may, at their
option, purchase common stock from the Company at the lower of 85% of the fair
market value of the common stock at either the beginning or end of each one
year option period. During 1995, 222,095 shares were issued pursuant to this
plan at prices ranging from $5.53 to $6.16. During 1994, 207,845 shares were
issued pursuant to this plan at a price of $5.66, and in 1993, 178,898 shares
were issued pursuant to this plan at a price of $5.42. As of March 29, 1996,
303,848 shares were available for issuance under this plan.
On March 29, 1996, in partial consideration for the required consent of the
holder of the Notes to allow consummation of the Sale, the Company issued
warrants to purchase 1,500,000 shares of the Company's common stock at a price
of $4 per share. Such warrants had an estimated fair market value of
$1,800,000 at March 29, 1996 and will expire on March 29, 1998. In addition,
warrants to purchase 80,081 shares of the Company's common stock at a price of
$5 were issued to the Company's investment banker in partial consideration for
work in connection with the Sale. Such warrants had an estimated fair market
value of $150,000 at issuance and will expire on March 28, 1997. Accordingly,
the Company has recorded a charge of $1,950,000 for the warrants in the
Statement of Operations for the 1996 transition period.
The Board of Directors of the Company declared a dividend distribution of
one Right for each share of common stock of the Company outstanding at the
close of business on June 2, 1989. When exercisable, each Right entitles the
registered holder to purchase from the Company one share of common stock at a
price of $40.00 per share, subject to adjustment. Initially, the Rights attach
to all outstanding shares of common stock, and no separate Rights Certificates
will be distributed. The Rights will become exercisable and will detach from
the common stock in the event any individual or group acquires 20% or more of
the Company's common stock, or announces a tender or exchange offer, other
than through conversion of the Notes or any warrants, which, if consummated,
would result in that person or group owning at least 30% of the Company's
common stock. If an
30
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
individual or group acquires 20% or more of the Company's common stock (except
pursuant to certain cash tender offers for all of the Company's common stock),
each Right will entitle the holder of a Right, other than Rights that are or
were acquired or beneficially owned by the 20% stockholder (which rights will
thereafter be void) to purchase, at the Right's then current exercise price,
the Company's common stock in an amount having market value equal to twice the
exercise price. Similarly, with certain exceptions, if the Company merges or
consolidates with or sells 20% or more of its assets or earning power to
another person, each Right then will entitle the holder to purchase, at the
Right's then current exercise price, the stock of the acquiring company in an
amount having a market value equal to twice the exercise price. The Rights do
not have voting or dividend rights, and, until they become exercisable, have
no dilutive effect on the earnings of the Company. The Company may redeem the
rights at $0.01 per Right at any time on or prior to the tenth day after
acquisition by a person or group of 20% or more of the Company's outstanding
common stock. The Rights will expire on May 18, 1999, unless earlier redeemed.
No dividends were declared by the Company during the five-year period ended
March 29, 1996.
7. COMMITMENTS AND CONTINGENCIES
In the third quarter of 1992, the Company purchased an equity interest of
approximately 27% in Tulip Memory Systems, Inc. (TMS), a start-up company
formed to develop substrates which are to be used in the manufacture of
computer disk drives. During 1994, the Company increased its ownership to
approximately 60%, pending anticipated outside investment. Operating expenses
attributable to TMS are included in the financial results of the Company. In
connection with its original investment, StreamLogic agreed to guarantee the
obligations of TMS to pay the acquisition cost of equipment. The cost of such
guaranty obligation was recorded in the Company' 1995 Statement of Operations.
In March 1996, in order to consummate the Sale, the Company paid its $1.3
million guaranty obligation under the agreement.
At March 29, 1996, the Company had letters of credit outstanding totaling
approximately $4.8 million, which guarantee various trade activities. These
letters of credit are secured by pledges of cash.
In addition, the Company is involved in routine legal matters and
contingencies in the ordinary course of business which management believes
will not have a material effect upon the Company's financial position.
31
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. GEOGRAPHIC INFORMATION
The following summarizes the Company's sales, income (loss) before income
taxes, and assets by geographic area. Foreign sales originate primarily from
the Company's Singapore location. The sales described below represent the
geographic origination of such sales. Export sales (sales originating in the
United States to customers in foreign countries), were less than 10% of total
sales in each of the 1996 transition period and the 1995, 1994 and 1993 fiscal
years. Sales to affiliates are at arms-length prices.
<TABLE>
<CAPTION>
TRANSITION FISCAL YEARS ENDED
---------- -------------------------------
1996 1995 1994 1993
---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Customer sales:
Domestic......................... $ 5,986 $ 25,149 $ 63,892 $ 128,781
Foreign.......................... 18,422 186,115 282,422 254,145
Affiliate sales:
Domestic......................... 11,259 64,309 49,851 55,006
Foreign.......................... 16,600 110,812 178,881 234,477
Eliminations..................... (27,859) (175,121) (228,732) (289,483)
-------- --------- --------- ---------
$ 24,408 $ 211,264 $ 346,314 $ 382,926
======== ========= ========= =========
Income (loss) before income taxes:
Domestic......................... $(26,994) $ (66,406) $ (58,609) $ (34,425)
Foreign.......................... (8,961) (18,943) 27,934 14,513
-------- --------- --------- ---------
$(35,955) $ (85,349) $ (30,675) $ (19,912)
======== ========= ========= =========
Assets:
Domestic......................... $ 70,097 $ 20,732 $ 66,063 $ 74,520
Foreign.......................... 22,286 159,661 167,852 175,909
-------- --------- --------- ---------
$ 92,383 $ 180,393 $ 233,915 $ 250,429
======== ========= ========= =========
</TABLE>
9. COMPARATIVE QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS
----------------------------------------------------
FISCAL 1995 FIRST SECOND THIRD FOURTH YEAR
- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 40,899 $ 70,076 $ 58,785 $ 41,504 $211,264
Gross profit (loss)..... (8,869) 15,369 2,491 (3,355) 5,636
Loss before income tax-
es..................... (36,253) (6,323) (17,445) (25,328) (85,349)
Net loss................ (35,087) (6,344) (17,481) (25,376) (84,288)
Loss per share.......... (2.29) (.41) (1.12) (1.63) (5.46)
<CAPTION>
QUARTERS
----------------------------------------------------
FISCAL 1994 FIRST SECOND THIRD FOURTH YEAR
- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $83,658 $ 75,761 $ 79,285 $107,610 $346,314
Gross profit............ 12,296 7,245 11,446 28,471 59,458
Income (loss) before in-
come taxes............. (9,760) (14,793) (10,948) 4,826 (30,675)
Net income (loss)....... (9,760) (14,793) (10,948) 4,826 (30,675)
Earnings (loss) per
share.................. (.65) (.99) (.72) .31 (2.03)
</TABLE>
32
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SALE OF THE DISK DRIVE BUSINESS
On January 24, 1996, the Company entered into a definitive agreement (the
"Purchase Agreement") with ST Chatsworth Pte Ltd, a Singapore corporation
("MPL"), and a wholly-owned subsidiary of Singapore Technologies Pte Ltd, a
Singapore corporation ("ST"), to sell substantially all of the assets, other
than cash and accounts receivable, of the Company's hard disk drive business
(the "Drive Business") including the name "Micropolis," certain other
intangibles, the capital stock of the Company's subsidiary Micropolis
Corporation (Thailand) Ltd. and either the capital stock or assets of five of
the Company's European and Asian sales and marketing subsidiaries (such
assets, collectively, the "Subject Assets") to MPL, and MPL assumed certain of
the Company's liabilities relating to the Drive Business (the "Sale"). The
Sale was subject to stockholder approval and such approval was received.
In consideration of the Sale on March 29, 1996, the Company received total
cash consideration of approximately $54 million. $39.7 million of such cash
consideration was received as of the March 29, 1996 closing, $13 million in
cash consideration was received on June 6, 1996, and a final payment of $1
million, which will be held in escrow and is subject to certain conditions, is
expected to be received in early August. The net gain on the Sale was not
significant to the 1996 transition period Statement of Operations.
The following unaudited pro forma condensed consolidated financial
information for the three months ended March 29, 1996 and March 31, 1995 and
the year ended December 31, 1995 has been prepared to illustrate the effect of
the Sale as though the Sale had occurred on December 30, 1995, December 31,
1994 and December 31, 1994, respectively. The unaudited pro forma condensed
consolidated financial information is presented for illustrative purposes only
and is not necessarily indicative of the consolidated results of operations of
StreamLogic Corporation that would have been reported had the Sale occurred on
the dates indicated, nor does it represent a forecast of the consolidated
results of operations of StreamLogic Corporation for any future period.
Furthermore, no effect has been given in the condensed consolidated financial
information for operating benefits that may have been realized by virtue of
the Sale and no effect has been given for any additional expense control or
restructuring activities which the Company may have undertaken with respect to
the remaining business. The unaudited pro forma condensed consolidated
financial information should be read in conjunction with the historical
consolidated financial statements of StreamLogic Corporation, which are
included herein.
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED YEAR ENDED
--------------------- ------------
MARCH 29, MARCH 31, DECEMBER 29,
1996 1995 1995
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales.................................... $ 6,738 $ 9,527 $ 39,343
Gross profit(1).............................. 1,048 2,642 7,679
Net loss(2).................................. (6,533) (5,349) (22,805)
Loss per share............................... (.35) (.35) (1.48)
======= ======= ========
Weighted average shares outstanding.......... 15,580 15,311 15,445
======= ======= ========
</TABLE>
- --------
(1) The Company and MPL have entered into an OEM supply agreement. Among other
things, the OEM Supply Agreement allows StreamLogic to buy at prices equal
to or slightly lower than the most favored OEM customer of MPL.
StreamLogic must offer all its disk drive business and requirements to MPL
on a right-of-first-refusal basis, subject to the ability of MPL to meet
certain delivery and other standards. The agreement has an initial two-
year term, after which it may be renewed annually by mutual agreement. The
pro forma adjustment incorporates the provisions contained in the
agreement.
(2) The costs of TMS are included in the StreamLogic Corporation pro forma net
loss. Such costs were $88,000, $3.1 million and $5.1 million in the 1996
transition period, the 1995 quarter, and the 1995 year, respectively. The
Company discontinued funding of TMS in the 1996 transition period.
33
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS
Acquisition of FWB Inc.
On June 10, 1996 the Company entered into a definitive agreement, subject to
certain conditions, to purchase all of the net assets related to the hardware
business of FWB Inc., a developer of performance computer storage products for
pre-press, multi-media and graphics applications. At closing, the Company would
pay $5 million, consisting of approximately $2 million in cash and
approximately $3 million of assumed debt. In addition, the Company entered into
a definitive agreement, subject to certain conditions, to make an 11% equity
investment in the software business being retained by FWB. In consideration for
such minority equity investment, at closing the Company would issue shares of
StreamLogic Common Stock with an aggregate fair market value of $8 million, as
defined in the agreement. There can be no assurance that this transaction will
be consummated.
Bond Agreement
On June 14, 1996 the Company announced an agreement (the "Bond Agreement") in
principle with Loomis Sayles & Co., L.P. ("Loomis Sayles"), an entity which
advises investors that collectively hold approximately 79% of the outstanding
Debentures, to exchange the Debentures for a package of cash, common stock and
warrants to purchase common stock. Pursuant to the Bond Agreement, the Company
plans to commence a tender offer for the Debentures during mid August 1996. In
the tender offer, the Company will offer to exchange its Debentures such that,
for each $1,000 face amount of Debentures tendered, the holders will receive
(a) $233.33 in cash, (b) $520 in Common Stock, and (c) warrants to purchase 40
shares of Common Stock at an initial exercise price of 150% of market value as
defined in the Bond Agreement. The exercise price of the warrants is subject to
downward adjustment in certain circumstances, and contains antidilution
adjustments. The Company expects shareholder approval will be required pursuant
to Nasdaq rules and regulations.
The obligations of the holders advised by Loomis Sayles to participate in the
tender offer under the Bond Agreement is subject to various conditions
including satisfaction of all necessary regulatory requirements, 95%
participation by bond holders, and the average price of StreamLogic's Common
Stock immediately prior to the expiration of the tender offer falling within
the range $4.00 to $7.50. As a result, there can be no assurance that the
tender offer will be consummated.
If the holders of 100% of the outstanding debentures accept the exchange, the
Company will exchange the debentures for (a) $17.5 million in cash, (b) issue
between 5.2 and 9.8 million shares of common stock, and (c) issue warrants to
purchase approximately 3.0 million shares of common stock, therefore, the
transaction, as currently proposed, would increase the Company's net tangible
assets by more than $50 million.
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the
information under the caption "Election of Directors" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholder, which
will be filed within 120 days of the end of the fiscal year covered by this
Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<C> <C> <S> <C>
J. Larry Smart 48 President, Chief Executive Officer and 1995
Chairman of the Board of Directors
Barbara V. Scherer 40 Senior Vice President-Operations 1988
Lee N. Hilbert 36 Chief Financial Officer 1996
David W. Baxter 40 Vice President, Engineering 1995
Michael C. Downs 37 Vice President, Sales 1996
</TABLE>
MR. SMART was elected by the Board of Directors to the position of President
and Chief Executive Officer in July 1995 and serves as Chairman. He served as
President and Chief Executive Officer of Maxtor Corporation from March 1994 to
February 1995. He has served as Chairman of the Board of Southwall
Technologies Inc. since March 1994, and was President and Chief Executive
Officer of Southwall Technologies Inc. from June 1991 to March 1994. From
November 1987 to June 1991, he was Senior Vice President at SCI Systems.
MS. SCHERER joined the Company in November 1987 as Treasury Director, and
became Treasurer in October 1988. In November 1989, she became Vice President
and Treasurer and in March 1995, became Vice President--Finance and Chief
Financial Officer. In April 1996, she was promoted to Senior Vice President--
Operations. Ms. Scherer was previously employed by the Boston Consulting Group
from May 1985 to November 1987.
MR. HILBERT joined the Company in August 1990 as Corporate Accounting
Manager and became Corporate Controller in April 1995. In April 1996 he was
appointed Chief Financial Officer of StreamLogic. Prior to joining the
Company, Mr. Hilbert held various positions with KPMG Peat Marwick, most
recently Senior Manager.
MR. BAXTER joined the Company in August 1995 as Vice President--Engineering.
Prior to that he was the Vice President of Research and Development for
Recognition International. He also served as Vice President of Engineering for
Adept Technology, and has held various management positions with Convergent
Technology and Motorola.
MR. DOWNS joined the Company in 1994 as Director of Sales--Western U.S.
Region. In 1996, he was named Vice President of Sales. Prior to joining the
Company, Mr. Downs was Director of Sales for Storage Dimensions from 1987 to
1994.
Officers serve at the discretion of the Board of Directors.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholders, which
was filed on April 23, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial
Holders and Management" contained in the Proxy Statement relating to the
Company's 1996 Annual Meeting of Stockholders, which was filed on April 23,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholders, which
was filed on April 23, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS
Report of Independent Auditors.
See Index to Consolidated Financial Statements at Item 8 on page of this
Report.
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of StreamLogic Corporation is filed as part of the Report
and should be read in conjunction with the Consolidated Financial Statements
of StreamLogic Corporation:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C>
II Valuation and Qualifying Accounts............. S-2
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information to be set forth therein is included in
the Consolidated Financial Statements or notes thereto.
3. EXHIBITS:
INCORPORATED BY REFERENCE
<TABLE>
<C> <S>
3.1 Certificate of Incorporation(1)
3.2 By-Laws, as amended to date(2)
4.1 Indenture, dated March 15, 1987, between Micropolis Corporation and
First Interstate Bank of California as trustee, relating to
$75,000,000 principal amount of 6% Convertible Subordinated
Debentures due 2012(3)
4.2 Rights Agreement dated as of May 1989 between the Company and First
Interstate Bank of California(4)
4.3 Amendment No. 1 to Rights Agreement(14)
10.15* Micropolis Corporation Employees' Stock Purchase Plan(5)
10.19* Micropolis Corporation Employee Savings and Retirement Plan(6)
10.20* Form of Indemnification Agreement between the Company and each of its
directors and officers(7)
10.21* Executive and Key Employees' Stock Option Plan, dated October 1987(1)
10.22* Directors' Stock Option Plan, dated October 1987(1)
</TABLE>
36
<PAGE>
<TABLE>
<C> <S>
10.23* Form of Incentive Stock Option Agreement for Executive and Key
Employees' Stock Option Plan, dated October 1987(1)
10.24* Form of Non-Qualified Stock Option Agreement for Executive and Key
Employees' Stock Option Plan, dated October 1987(1)
10.26* Form of Stock Option Agreement for Directors' Stock Option Plan, dated
October 1987(1)
10.31* First Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.32* Second Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.33* Third Amendment to the Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.34* Fourth Amendment to Micropolis Corporation Employee Savings and
Retirement Plan(8)
10.35 Loan Agreement between the Company and CIT Group Business Credit(8)
10.37* Severance Agreement between Micropolis Corporation and Taroon Kamdar(9)
10.38* Severance Agreement between Micropolis Corporation and Robert Ganter
10.39* Severance Agreement between Micropolis Corporation and Nigel
Macleod(10)
10.40* Summary of Stock Appreciation Bonus Plan(10)
10.41* Summary of Storage System Division Bonus Plan(10)
10.42* Summary of Key Performance Bonus Plan(10)
10.43* Severance Agreement between Micropolis Corporation and Joel
Appelbaum(11)
10.44* Amendment to the Micropolis Corporation Employee Stock Purchase
Plan(12)
10.45* Amended and Restated Stock Option Plan for Independent Directors of
Micropolis Corporation(12)
10.46* Stock Option Plan for Executive and Key Employees of Micropolis
Corporation, as amended(12)
10.47* Agreement for Services between Micropolis Corporation and J. Larry
Smart(13)
10.48* Employment Agreement between Micropolis Corporation and J. Larry
Smart(14)
10.49 Loan Agreement between Micropolis Limited and ST Capital Limited, and
related Guarantee Agreement between Micropolis Corporation and
Singapore Technologies Construction PTE LTD(14)
10.50* Consulting Agreement between Micropolis Corporation and Chriss Street &
Company(14)
10.51 Note Agreement Re: $20,000,000 10% Convertible Secured Notes Due
October 15, 1998, dated as of October 11, 1995 between Micropolis
Corporation and Lindner Dividend Fund, a Series of Lindner
Investments(15)
10.52* Promissory Note between Micropolis Corporation and J. Larry Smart(15)
10.53 Asset Purchase Agreement dated January 24, 1996 between Micropolis
Corporation and ST Chatsworth Pte Ltd, a Singapore corporation(15)
10.54 Development Agreement dated September 15, 1995 between Micropolis
Corporation and BTS Broadcast Television Systems GmbH(15)
10.55 $10 Million Facility Agreement dated February 16, 1996 between
Micropolis Corporation and ST Chatsworth Pte Ltd.(15)
10.56 StreamLogic OEM Supply Agreement dated March 4, 1996, between
Micropolis Corporation and ST Chatsworth Pte Ltd.(15)
21 Subsidiaries of Registrant
23 Consent of Independent Auditors (See Exhibit 23)
27 Article 5 Financial Data Schedule for 1995 10-K
- --------
*Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form
10-K Report pursuant to Item 14(c).
Filed Herewith
4.4 Amendment No. 2 to Rights Agreement
</TABLE>
37
<PAGE>
- -------------------------------------------------------------------------------
- --------
(1)Incorporated by reference to Exhibits 3.1, 10.21, 10.22, 10.23, 10.24 and
10.26, respectively, filed in the Company's Annual Report on Form 10-K,
for the fiscal year ended December 25, 1987.
(2)Incorporated by reference to Exhibit 3.2 filed in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1988.
(3)Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-3 No. 33-12374.
(4)Incorporated by reference to Exhibit I filed in the Company's Form 8-K
Report dated June 2, 1989.
(5)Incorporated by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-8 No. 2-90423.
(6)Incorporated by reference to Exhibits 10.18 and 10.19 respectively, filed
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 27, 1985.
(7)Incorporated by reference to Exhibit D of the Company's Proxy Statement
for the 1987 Annual Meeting of Shareholders.
(8)Incorporated by reference to Exhibits 10.30, 10.31, 10.32, 10.33 and
10.34, respectively, filed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1990.
(9)Incorporated by reference to Exhibits 10.36 and 10.37, respectively, filed
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 27, 1991.
(10)Incorporated by reference to Exhibits 10.39, 10.40, 10.41 and 10.42,
respectively, filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
(11)Incorporated by reference to Exhibit 10.43 filed in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended April 1,
1994.
(12)Incorporated by reference to Exhibits 10.44, 10.45 and 10.46,
respectively, filed in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended July 1, 1994.
(13)Incorporated by reference to Exhibit 10.47 filed in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1995.
(14)Incorporated by reference to Exhibits 4.3, 10.48, 10.49 and 10.50,
respectively, filed in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 29, 1995.
(15)Incorporated by reference to Exhibits 10.51, 10.52, 10.53, 10.54, 10.55
and 10.56, respectively, filed in the Company's Annual Report on Form 10-
K for the fiscal year ended December 29, 1995.
(b) No reports on Form 8-K were filed by the Registrant during the three
month period ended March 29, 1996.
(c) Those exhibits, and the index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto or incorporated by reference herein.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STREAMLOGIC CORPORATION
Dated: July 3, 1996
By: /s/ Lee N. Hilbert
-----------------------------------
Lee N. Hilbert
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Larry Smart President and Chairman of July 3, 1996
____________________________________ the Board (Chief Executive
J. Larry Smart Officer)
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Barbara V. Scherer Senior Vice President-- July 3, 1996
____________________________________ Operations
Barbara V. Scherer
/s/ Lee N. Hilbert Chief Financial Officer July 3, 1996
____________________________________ (Principal Financial and
Lee N. Hilbert Accounting Officer)
/s/ Ericson M. Dunstan Director July 3, 1996
____________________________________
Ericson M. Dunstan
/s/ Chriss W. Street Director July 3, 1996
____________________________________
Chriss W. Street
/s/ Greg L. Reyes, Jr. Director July 3, 1996
____________________________________
Greg L. Reyes, Jr.
</TABLE>
39
<PAGE>
STREAMLOGIC CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
TRANSITION PERIOD ENDED MARCH 29, 1996 AND
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR EXPENSES DEDUCTIONS(1) YEAR
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1996:
Allowance for doubtful accounts,
customer returns and price
protection..................... $5,427,000 $ 767,000 $ 527,000 $5,667,000
1995:
Allowance for doubtful accounts,
customer returns and price
protection..................... $4,455,000 $2,950,000 $1,978,000 $5,427,000
1994:
Allowance for doubtful accounts,
customer returns and price
protection..................... $1,375,000 $5,736,000 $2,656,000 $4,455,000
1993:
Allowance for doubtful accounts,
customer returns and price
protection..................... $1,390,000 $ 323,000 $ 338,000 $1,375,000
</TABLE>
- --------
(1) Write-offs against reserves
40
<PAGE>
STREAMLOGIC CORPORATION
INDEX TO EXHIBITS
(ITEM 14 (C))
<TABLE>
<C> <S>
4.4 Amendment No. 2 to Rights Agreement
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Article 5 Financial Data Schedule for 1996 transition report on Form 10-K
</TABLE>
41
<PAGE>
EXHIBIT 4.4
AMENDMENT NO. 2
TO RIGHTS AGREEMENT
AMENDMENT NO. 2 (the "Amendment"), dated as of March 25, 1996, to the
Rights Agreement, dated as of May 18, 1989 (the "Rights Agreement"), between
Micropolis Corporation, a Delaware corporation (the "Company"), and First
Interstate Bank of California, as rights agent (the "Rights Agent").
WHEREAS, at a meeting of the Board of Directors of the Company (the
"Board") held on March 22, 1996, the Board considered the operation of the
Rights Agreement should the Company enter into a proposed transaction in which
the Company would issue warrants (the "Warrants") to purchase 1.5 million shares
of the Company's Common Shares (as such term is defined in the Rights Agreement)
to an investor pursuant to a proposed Warrant Agreement (the "Warrant
Agreement");
WHEREAS, the investor has indicated that as a precondition to accepting the
Warrants in connection with a restructuring of certain existing convertible
notes of the Company, the investor would require that the Company take all
action necessary to ensure that no holder of such Warrants or the shares of the
Company's Common Shares to be issued upon the exercise of any Warrants will be
deemed an "Acquiring Person" under the Rights Agreement by virtue of entering
into the Warrant Agreement or holding or acquiring any Warrants (or Common
Shares issued on exercise of such Warrants) issued thereunder;
WHEREAS, the Board has determined that amendment of the Rights Agreement to
ensure that no such holder will be deemed an Acquiring Person is in the best
interests of the Company and its stockholders and has authorized such an
amendment:
<PAGE>
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement, as authorized by Section 26 of the Rights Agreement, by altering,
adding and deleting the provisions set forth herein in the manner set forth
below; and
WHEREAS, the parties have complied with or satisfied all conditions
necessary to the amendment of the Rights Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions.
-----------
All terms used herein as defined terms which are not defined in this
Amendment shall have the meanings ascribed to them in the Rights Agreement.
SECTION 2. Amendment to Rights Plan.
------------------------
(a) Section 1(a) of the Rights Agreement shall be deleted in its entirety
and replaced by a new Section 1(a), which shall read as follows:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner
(as such term is hereinafter defined) of 20% or more of the Common Shares of
the Company then outstanding but shall not include the Company, any Subsidiary
of the Company or any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding shares of capital stock of the
Company for or pursuant to the terms of any such plan, in its capacity as an
agent or trustee for any such plan. Notwithstanding anything to the contrary
in the foregoing, for purposes of this Agreement and the definition of
Acquiring Person, no Person shall be deemed to be the Beneficial Owner of, or
to beneficially own, securities which such Person or any of such Person's
Affiliates or Associates may acquire, does or do acquire or may be deemed to
have the right to acquire, pursuant to (a) any Note Agreement, (b) any
Convertible Notes, (c) any Common Shares issued or issuable on conversion of
any Convertible Notes, (d) any Warrant Agreement, (e) any Warrants or (f) any
Common Shares issued or issuable on exercise of any Warrants. "Note Agreement"
shall mean any agreement approved by resolution of the Board entered into
after the date of Amendment No. 1 to this Agreement between the Company and
Lindner Dividend Fund, A Series of Lindner Investments, a Massachusetts
business trust, relating to the issuance of a newly
<PAGE>
created series of Convertible Notes. "Convertible Notes" shall mean any
debt securities convertible into Common Shares which are issued by the
Company after the date of Amendment No. 1 to this Agreement pursuant to any
Note Agreement. "Warrant Agreement" shall mean any agreement approved by
resolution of the Board entered into after the date of Amendment No. 2 to
this Agreement between the Company and Lindner Dividend Fund. A Series of
Lindner Investments, a Massachusetts business trust, relating to the
issuance of Warrants. "Warrants" shall mean any common stock purchase
warrants for Common Shares which are issued by the Company after the date
of Amendment No. 2 to this Agreement pursuant to any Warrant Agreement.
SECTION 3. Miscellaneous. This Amendment may be executed in one or more
-------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreements. This Amendment
shall be governed by any interpreted in accordance with the laws of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company and the Rights Agent have caused this
Amendment to be executed as of the date and year first above written.
COMPANY
-------
MICROPOLIS CORPORATION
Attest:
By: /s/ Vivien Avella By: /s/ J. Larry Smart
---------------------- ----------------------
Name: Vivien Avella Name: J. Larry Smart
Its: Manager, Banking & Finance Its: President, CEO
RIGHTS AGENT
------------
FIRST INTERSTATE BANK OF
CALIFORNIA
Attest:
By: By:
---------------------- ----------------------
Name: Name:
Its: Its:
<PAGE>
IN WITNESS WHEREOF, the Company and the Rights Agent have caused this
Amendment to be executed as of the date and year first above written.
COMPANY
-------
MICROPOLIS CORPORATION
Attest:
By: By:
---------------------- ----------------------
Name: Name:
Its: Its:
RIGHTS AGENT
------------
FIRST INTERSTATE BANK OF
CALIFORNIA
Attest:
By: /s/ Sharon Knepper By: /s/ Ronald E. Lug
---------------------- ----------------------
Name: Sharon Knepper Name: Ronald E. Lug
Its: Vice President Its: Vice President
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
MICROPOLIS, INC.
c/o Professional Corporate Service Group, Inc.
Post Office Box 3627
Christiansted
St. Croix, U.S. Virgin Islands 00820
MICROPOLIS LIMITED
c/o Roy West Trust Corporation (Cayman) Limited
Post Office Box 707
Grand Cayman
British West Indies
MICROPOLIS LTD. MICROPOLIS GMBH
4 Worton Drive Behringstrasse 10
Worton Grange 8033 Planegg bei Munchen
Reading, Berkshire West Germany
RG2 ODW
England
MICROPOLIS AUSTRALIA PTY. MICROPOLIS BV
LIMITED c/o Executive Management
Level 21, 201 Miller Street Trustmij BV
North Sydney, NSW DeBoeleaan 14
2060 Australia 1083 HJ Amsterdam
The Netherlands
MICROPOLIS CORPORATION--TAIWAN BRANCH
Room 1111, 11F, No. 333
Keelung Road, Sec. 1
Taipei, Taiwan, R.O.C.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 2-86334, 2-90423, 2-96906, 33-4569, 33-22619, 33-29469, 33-
42454, 33-44456, 33-50204, 33-64706, 33-53313 and 33-55737) pertaining to the
Stock Option Plan for Executive and Key Employees of StreamLogic Corporation
(formerly Micropolis Corporation), as amended, Employees' Stock Option Plan,
as amended, the Stock Option Plan for Directors of StreamLogic Corporation, as
amended, and Employee Stock Purchase Plan of StreamLogic Corporation and in
the related Prospectuses of our report dated June 28, 1996, with respect to
the consolidated financial statements and schedule of StreamLogic Corporation
included in the Annual Report (Form 10-K) for the three month period ended
March 29, 1996.
Our audits also included the financial statement schedule of StreamLogic
Corporation listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Los Angeles, California
June 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF STREAMLOGIC CORPORATION AS
OF AND FOR THE TRANSITION PERIOD ENDED MARCH 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-END> MAR-29-1996
<CASH> 40,477
<SECURITIES> 0
<RECEIVABLES> 24,806
<ALLOWANCES> 5,667
<INVENTORY> 10,022
<CURRENT-ASSETS> 84,637
<PP&E> 25,885
<DEPRECIATION> 20,035
<TOTAL-ASSETS> 92,383
<CURRENT-LIABILITIES> 46,497
<BONDS> 71,250
0
0
<COMMON> 15,580
<OTHER-SE> (42,664)
<TOTAL-LIABILITY-AND-EQUITY> 92,383
<SALES> 24,408
<TOTAL-REVENUES> 24,408
<CGS> 40,799
<TOTAL-COSTS> 40,799
<OTHER-EXPENSES> 17,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,027
<INCOME-PRETAX> (35,955)
<INCOME-TAX> 252
<INCOME-CONTINUING> (36,207)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,207)
<EPS-PRIMARY> (2.32)
<EPS-DILUTED> (2.32)
</TABLE>
