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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
STREAMLOGIC CORPORATION
(Name of Registrant as Specified in its Charter)
STREAMLOGIC CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box)
[X] $125 per Exchange Act Rule 0-11(c)(l)(ii), 14a-6(i)(l), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies: NOT
APPLICABLE
(2) Aggregate number of securities to which transaction applies: NOT
APPLICABLE
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): NOT
APPLICABLE.
(4) Proposed maximum aggregate value of transaction: NOT APPLICABLE
(5) Total fee paid: NOT APPLICABLE
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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PRELIMINARY COPIES PRELIMINARY PROXY STATEMENT
STREAMLOGIC CORPORATION
21329 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
To Our Stockholders:
Attached hereto is a Proxy Statement (the "Proxy Statement") which solicits
the written consent of the stockholders of StreamLogic Corporation, a Delaware
corporation (the "Company"), to approve a single proposal regarding an offer
by the Company (the "Offer") to exchange any and all of its 6% Convertible
Subordinated Debentures due 2012 (the "6% Debentures") for cash, Common Stock
of the Company, $1.00 par value per share ("Common Stock"), and warrants to
purchase Common Stock ("Warrants"), the consummation of such Offer (the
"Exchange") and the issuance (the "Issuance") of Common Stock (both
immediately and upon the exercise of Warrants) in connection with the
Exchange. The Offer, Exchange and Issuance will be made on terms and
conditions substantially similar to those described in the Proxy Statement
under the heading "The Proposal--Terms of the Offer."
The Offer, Exchange and Issuance are being presented to the stockholders as
a single proposal (the "Proposal"); approval of the Proposal will constitute
approval of each of the Offer, Exchange and Issuance. The Proposal is
described in detail in the Proxy Statement attached to this letter and
incorporated herein by this reference.
The Board of Directors recommends that stockholders approve the Proposal.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to solicit such approval as of the earliest
possible date and, accordingly, it hereby solicits stockholders' approval of
the Proposal by written consent, in lieu of a meeting of stockholders.
By Order of the Board of
Directors
Ericson M. Dunstan
Secretary
Chatsworth, California
, 1996
- --------------------------------------------------------------------------------
In order to ensure your representation in the action to be taken by
written consent, you are requested to sign and date the enclosed Consent
Card as promptly as possible and return it in the enclosed envelope (to
which no postage need be affixed if mailed in the United States).
- --------------------------------------------------------------------------------
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STREAMLOGIC CORPORATION
21329 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
PROXY STATEMENT
FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
This proxy statement ("Proxy Statement") is furnished to the stockholders by
the Board of Directors of StreamLogic Corporation, a Delaware corporation (the
"Company" or "StreamLogic"), for solicitation of the written consent of
stockholders to approve a single proposal regarding an offer by the Company
(the "Offer") to exchange any and all of its 6% Convertible Subordinated
Debentures due 2012 (the "6% Debentures") for cash, Common Stock of the
Company, $1.00 par value per share ("Common Stock"), and warrants to purchase
Common Stock ("Warrants"), the consummation of such Offer (the "Exchange") and
the issuance (the "Issuance") of Common Stock (both immediately and upon the
exercise of Warrants) in connection with the Exchange. The Offer, Exchange and
Issuance will be made on terms and conditions substantially similar to those
described in this Proxy Statement under the heading "The Proposal--Terms of
the Offer."
The Offer, Exchange and Issuance are being presented to the stockholders as
a single proposal (the "Proposal"); approval of the Proposal will constitute
approval of the Offer, Exchange and Issuance. The Offer is being made to (i)
enhance the Company's capital structure, (ii) allow the Company to invest its
cash flow in its business rather than to service the indebtedness represented
by the 6% Debentures; and (iii) increase the Company's net tangible assets by
more than $50 million, thereby enabling the Company to return to compliance
with the minimum net tangible assets standard for continued inclusion of the
Common Stock on the Nasdaq National Market System ("Nasdaq NMS"). See "The
Proposal--Background of the Offer" and "Purposes and Certain Effects of the
Proposal."
It is anticipated that the mailing to stockholders of this Proxy Statement
and the enclosed Consent Card will commence on or about , 1996. The
procedure for indicating approval of the Proposal is described in detail in
this Proxy Statement.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS CONSENT TO THE PROPOSAL.
GENERAL INFORMATION
VOTING REQUIREMENTS AND VOTING RIGHTS
The rules of the National Association of Securities Dealers ("NASD") require
each Nasdaq NMS issuer, such as the Company, to obtain stockholder approval
prior to the issuance of securities that will result in a change of control of
the issuer. The Company has been advised by NASD representatives that the
Issuance may be deemed to constitute a change in control. Therefore, under
NASD rules, approval of the Company's stockholders may be required to approve
the Issuance of the Common Stock, Warrants and Common Stock issuable upon
exercise of the Warrants pursuant to the Exchange. The Company is therefore
soliciting written consents to the Proposal.
Stockholders of record at the close of business on August 5, 1996 (the
"Record Date") are entitled to approve the Proposal. On the Record Date, there
were shares of Common Stock of the Company issued and outstanding. Each
share of the Common Stock is entitled to one vote. The Proposal must be
approved by the holders of a majority of the outstanding shares of the Common
Stock of the Company as of the Record Date.
The beneficial ownership of the Company's Common Stock by certain beneficial
owners and by each of the Company's directors, certain of its most highly-
compensated executive officers and all executive officers and directors as a
group is set forth below under "Security Ownership of Certain Beneficial
Owners and Management."
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Under the Company's Bylaws and pursuant to applicable Delaware law, any
action which may be taken at any annual or special meeting of the stockholders
of the Company may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
The matter being considered by the stockholders is being submitted for action
by written consent, rather than by votes cast at a meeting. The Proposal will
be deemed to have been approved upon the Company's receipt of Consent Cards
which have not previously been revoked representing the approval of a majority
of the shares of Common Stock issued and outstanding on the Record Date,
provided that such approval is received on or prior to , 1996 (the
"Termination Date"). If, however, sufficient written consents have not been
received by the Termination Date, the Company reserves the right to extend the
solicitation of written consents made hereby except that, under Delaware law,
such solicitation may not be extended beyond the date 60 days after the
earliest dated consent received by the Company. Any election to extend this
consent solicitation will be made by the Company by news release or other
similar public announcement. The date on which the Proposal is deemed approved
hereunder is referred to as the "Effective Date."
Stockholders are being requested to indicate approval of the Proposal by
checking the appropriate box on the enclosed Consent Card and executing the
Consent Card. FAILURE TO CHECK ANY OF THE BOXES WILL, IF THE CONSENT CARD HAS
BEEN SIGNED, CONSTITUTE APPROVAL OF THE PROPOSAL. Notwithstanding anything
contained in this Proxy Statement to the contrary, the Company's Board of
Directors reserves the right not to proceed with any or all of the Offer,
Exchange or Issuance even if the Company's stockholders have approved the
Proposal. A complete description of the proposed Offer, Exchange and Issuance
has not been set out on the Consent Card itself due to space limitations.
Nevertheless, signing and indicating approval on the Consent Card will be
deemed to be written consent to the approval of the Proposal. Consent Cards
that reflect abstentions will be treated as voted for purposes of determining
the approval of the Proposal and will have the same effect as a vote against
the Proposal. Consent Cards that reflect "broker non-votes" will be treated as
unvoted for purposes of determining approval and will have the same effect as
a vote against the Proposal.
Execution of the Consent Card will constitute your approval, as a
stockholder of the Company, of the Proposal, and if sufficient written
consents are received, the Proposal will be deemed to have been approved by
the stockholders of the Company. Stockholder approval of the Proposal may not
prevent a stockholder from subsequently seeking to challenge the Proposal or
the actions of the Company's Board of Directors in approving the Proposal.
Although the Company cannot determine in advance its position with respect to
any such challenge, it is possible that the Company could assert such
stockholder's or stockholders' approval of the Proposal as a defense, in which
case, if such defense were held meritorious, such stockholder or stockholders
could effectively be estopped from asserting such claims. No dissenters or
similar rights apply to stockholders who do not approve the Proposal. If less
than a majority of the outstanding shares of Common Stock approve the
Proposal, the Company will not consummate the Exchange.
The Company will pay the entire cost of the preparation and mailing of this
Proxy Statement and all other costs of this solicitation. Following the
initial mailing of this Proxy Statement, the Company and its agents may also
solicit proxies by mail, telephone, facsimile or in person; employees of the
Company who assist in such activities will not receive additional compensation
in connection therewith. D.F. King & Co., Inc. will receive approximately
for their solicitation services.
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DELIVERY OF WRITTEN CONSENTS
The Board of Directors requests that each stockholder execute, date and mail
or deliver the Consent Card to D.F. King & Co., Inc., the Solicitor of the
Company, or to StreamLogic, at the following address, as appropriate:
BENEFICIAL OWNERS
DIRECT STOCKHOLDERS OF RECORD
D.F. King & Co., Inc. StreamLogic Corporation
77 Water Street c/o CMSS
New York, NY 10005-4495
Midtown Station
P.O. Box 816
New York, NY 10138-0834
An addressed envelope is provided for your convenience in returning the
Consent Card. THE CONSENT CARD SHOULD BE RETURNED AS SOON AS POSSIBLE AND, IN
ANY EVENT, FOR RECEIPT PRIOR TO , 1996. DO NOT SEND CONSENT CARDS TO THE
COMPANY.
REVOCATION OF WRITTEN CONSENTS
Any Consent Card executed and delivered by a stockholder may be revoked by
delivering written notice of such revocation prior to the Effective Date to
the Company at the address set forth below:
StreamLogic Corporation
21329 Nordhoff Street
Chatsworth, California 91311
Attention: Chief Financial Officer
NOTICE OF EFFECTIVENESS OF PROPOSAL
If the Proposal is approved by stockholders and the Effective Date occurs,
the Company will promptly give notice thereof to all stockholders who have not
consented in writing to the extent required by Section 228(d) of the Delaware
General Corporation Law.
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THE PROPOSAL
BACKGROUND OF THE OFFER
During the last three completed fiscal years and the transition period ended
March 29, 1996, the Company incurred substantial operating losses, and total
shareholders' equity fell from $89.630 million at December 30, 1994 to a
deficit of $27.084 million at March 29, 1996. These losses were primarily
related to the Company's disk drive business, which in fiscal 1995 accounted
for approximately 80% of the Company's revenues. On March 29, 1996, following
approval of the Company's stockholders, the Company completed the sale of its
disk drive business to ST Chatsworth Pte Ltd, a Singapore corporation (the
"Sale"). The Company has received approximately $54 million in cash proceeds
from the Sale (including $1 million being held in escrow).
As a result of the Sale, StreamLogic has become a significantly smaller,
growth-oriented business. The book value of the Company's property, plant and
equipment as of March 29, 1996 totaled approximately $6 million, and the
Company employed approximately 150 persons, as compared to approximately $54
million in such assets and 2,000 employees immediately prior to the Sale. The
Company's principal business is now fault tolerant disk storage subsystems,
commonly known as RAID systems, and video server and video disk recorder
systems. The Company believes the indebtedness represented by the Debentures
is disproportionately large in relation to its present assets, and
inappropriate for a growth-oriented business of the Company's size.
Prior to the Sale, the Company evaluated several alternatives with respect
to restructuring its 6% Debentures prior to or concurrently with the Sale.
These alternatives included: cash redemption at a negotiated discount from
par, partial cash redemption/exchange offer, restructuring via a "pre-
packaged" Chapter 11 proceeding, and retention of debt at current terms (no
debt restructuring). The Company decided against pursuing a debt restructuring
simultaneously with the Sale transaction in large measure because completing
the restructuring process in the requisite accelerated time frame was
considered to be unrealistic. At such time, Loomis Sayles & Co., L.P. ("Loomis
Sayles"), an entity which advises investors that collectively hold
approximately 79% of the aggregate principal amount of the outstanding 6%
Debentures, indicated to the Company its potential interest in reaching an
agreement with respect to a restructuring of the 6% Debentures after the Sale.
On May 13, 1996, the Company received an inquiry from the NASD as to whether
the Company met the minimum net tangible assets requirement of the Nasdaq NMS
as of its quarter ended March 29, 1996. The Company indicated in response that
it did not believe it met such requirement, and the NASD requested that the
Company submit a written plan by May 28, 1996 for returning to compliance with
the net tangible assets requirement. The Company submitted such a plan on May
28, 1996, an important element of which was a restructuring of the 6%
Debentures through an exchange offer for cash and equity securities of the
Company. Such plan is currently under review by the NASD; however, there can
be no assurances as to whether the NASD will continue to allow the inclusion
of the Common Stock on the Nasdaq NMS pending consummation, if any, of the
Proposal.
THE TENDER AGREEMENT
In April 1996, representatives of the Company contacted Loomis Sayles
concerning a proposal for the exchange of the 6% Debentures for some
combination of cash and equity securities of the Company. Following a series
of discussions and negotiations between the Company, Loomis Sayles and Chanin
& Company, an investment banking and advisory firm retained at the Company's
expense by Loomis Sayles as its financial advisor (the "Financial Advisor"),
and after approval by the Company's Board of Directors, the Company and Loomis
Sayles entered into an agreement dated June 14, 1996 (the "Tender Agreement"),
a copy of which is attached as Appendix A to this Proxy Statement.
Pursuant to the Tender Agreement, and subject to certain conditions, the
Company agreed to use its reasonable best efforts to initiate and complete the
Offer on terms and conditions substantially similar to those described in this
Proxy Statement, and Loomis Sayles agreed that the investors it advises would
tender and not withdraw the 6% Debentures held by them pursuant to the Offer,
subject to the satisfaction of certain conditions
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contained in the Tender Agreement. Such conditions to Loomis Sayles'
obligations under the Tender Agreement include the requirements that (i) the
Offer close no later than the day following stockholder approval of the Offer
or as soon thereafter as permitted by the Securities and Exchange Commission
(the "SEC") and applicable law; (ii) the Exchange Price (as defined below
under the heading "The Proposal--Terms of the Offer") be between $4.00 and
$7.50; (iii) not less than 95% of the outstanding 6% Debentures be tendered
and not withdrawn; (iv) until the consummation of the Offer, the Company (a)
shall have conducted its business only in the ordinary course and consistent
with past practices and maintained its books and records in accordance with
past practices; (b) shall not have, without the prior written consent of the
Financial Advisor (after it has consulted with Loomis Sayles), (1) issued any
equity securities or debt securities other than in connection with the
transactions set forth in Exhibit A to the Tender Agreement; (2) amended its
charter documents; (3) granted or issued any options, rights, warrants or
convertible securities other than in connection with the transactions set
forth in Exhibit A to the Tender Agreement; (4) declared or paid any dividends
or made any other distribution to shareholders, reclassified outstanding
shares, or reacquired any equity securities; (5) reorganized, sold or disposed
of any significant amount of assets; (6) materially increased the level of
compensation to any officer, director or employee; or (7) engaged in any
transaction, other than the transactions set forth in Exhibit A to the Tender
Agreement and the Offer, the Exchange and the Issuance, with the intention of
affecting or influencing the trading price of StreamLogic's traded common
stock or with the knowledge that the transaction could reasonably be expected
to affect or influence the trading price of StreamLogic's traded common stock;
and (c) shall not have agreed to do anything or take any action which could
reasonably be expected to impede, prevent, restrict or otherwise make more
difficult the Offer, the Exchange or the Issuance or any of the other
transactions contemplated by the Tender Agreement; (v) the Company's Board of
Directors shall have been expanded from four to seven members, one of whom
shall be a person designated by Loomis Sayles until such time as investors
advised by Loomis Sayles have transferred to persons who are not advised by
Loomis Sayles 80% of the Common Stock and Warrants issued as part of the
Tender Offer Consideration, and in elections of directors the Company's
management shall include in its slate of recommended directors one director
designated by Loomis Sayles (without in any way warranting that such director
will be elected); (vi) the Company shall have paid certain Offer-related
amounts including Loomis Sayles' legal fees and the Financial Advisor's fees;
(vii) there shall not have occurred any material and adverse change in (a) the
business, operations, properties, assets, or condition (financial or
otherwise) after the date of the Tender Agreement of StreamLogic or (b) the
ability of StreamLogic to perform its obligations under this Agreement or to
accomplish the Offer, the Exchange, or the Issuance; (viii) all required
approvals from the Company's stockholders shall have been obtained, and (ix)
the definitive documentation evidencing the Offer, Exchange and Issuance shall
be reasonably satisfactory in form, substance and all other respects to Loomis
Sayles and its legal counsel.
The foregoing is a brief summary of certain provisions of the Tender
Agreement. This summary is qualified in its entirety by reference to the
Tender Agreement, which is attached hereto as Appendix A.
TERMS OF THE OFFER
Tender Offer Consideration. Pursuant to the Proposal, StreamLogic intends to
offer to exchange for each $1,000 principal amount of 6% Debentures tendered
to the Company (i) $233.33 in cash, (ii) the number of shares of Common Stock
equal in value to $520 calculated by using the average closing price of the
Common Stock for the five trading days prior to the closing of the Offer (or
an earlier five-day trading average, if required to satisfy regulatory
requirements) (the "Exchange Price") as the value per share of Common Stock
and (iii) five-year warrants ("Warrants") to purchase 40 shares of Common
Stock at an exercise price initially equal to 150% of the Exchange Price,
subject to certain rights of each Warrant holder to reduce such exercise price
under certain circumstances on a one time basis (collectively, the "Tender
Offer Consideration"). Although the Company has no current intention to do so,
if it should modify the Tender Offer Consideration, the modified consideration
would be paid with regard to all 6% Debentures accepted in the Offer,
including those tendered before the announcement of the modification.
Tendering holders of 6% Debentures will not receive fractional shares of
Common Stock, or Warrants for fractional shares of Common Stock, in the
Exchange but instead will receive an additional cash payment in lieu thereof.
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The Company will not pay accrued interest with respect to 6% Debentures that
are tendered and accepted in the Offer. Holders of 6% Debentures that are
accepted in the Offer will have no further right to receive any payment of
accrued and unpaid interest in respect of the tendered securities. The Company
will, however, be obligated to continue paying interest on any 6% Debentures
that remain outstanding after the consummation of the Offer.
Expiration. The Offer is expected to expire at 12:00 midnight, New York City
time, on September , 1996 (the "Expiration Date"). StreamLogic will reserve
the right, in its discretion, at any time or from time to time, to extend the
period of time during which the Offer is open by giving oral (confirmed in
writing) or written notice of such extension to , as exchange agent (the
"Exchange Agent"), and making a public announcement thereof prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. There can be no assurance that StreamLogic will
exercise its right to extend the Offer or that the Offer will be otherwise
extended. During any extension of the offer, all Debentures previously
tendered pursuant thereto and not exchanged or withdrawn will remain subject
to the Offer and may be accepted for exchange by StreamLogic at the expiration
of the Offer subject to the right of a tendering holder to withdraw his
Debentures. StreamLogic may also delay, amend or terminate the Offer.
Conditions to the Exchange Offer. The obligation of StreamLogic to
consummate the Offer will be subject to customary conditions, as well as the
requirements that: (i) at least 95% in aggregate principal amount of the 6%
Debentures shall have been validly tendered for exchange and not withdrawn
(the "Minimum Tender Condition"); (ii) the Exchange Price shall not be greater
than $7.50 nor less than $4.00 (the "Exchange Price Condition"); and (iii)
there shall not have occurred any change or development involving a
prospective change in or affecting the business or financial affairs of the
Company which, in the sole judgment of the Board of Directors of the Company,
would or might prohibit, restrict or delay consummation of the Offer or
materially impair the contemplated benefits to the Company of the Offer. The
Company does not presently intend to consummate the Offer unless the Minimum
Tender Condition and the Exchange Price Condition are satisfied. If the
Minimum Tender Condition and/or the Exchange Price condition fail to be met,
the Company shall have the right, in its sole discretion, to withdraw the
Offer. However, if the Company elects, in its sole discretion, to waive or
modify the Minimum Tender Condition or the Exchange Price Condition, the
Company will publicly announce its decision to do so and, if that announcement
is made within five business days of the previously scheduled Expiration Date,
will extend the Expiration Date for at least five business days from the date
of such announcement. Holders who have previously tendered their securities
prior to any such announcement will be entitled to withdraw their 6%
Debentures at any time prior to the Expiration Date.
Registration Rights. Pursuant to the Offer, the Company will, prior to the
consummation of the Offer, use its best efforts to file and cause to be
declared effective a registration statement for the issuance of shares of
Common Stock upon exercise of Warrants and the resales of such shares. In
addition, the Company will use its best efforts to file and cause to be
declared effective, for so long as any person receiving Tender Offer
Consideration is an "affiliate" of the Company (as such term is defined in
Rule 144 promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")), a registration statement for the resales of the shares of
Common Stock issued to such an affiliate pursuant to the Offer. Shares of
Common Stock issued to non-affiliates of the Company pursuant to the Offer are
expected to be freely tradable due to their issuance pursuant to Section
3(a)(9) under the Securities Act in exchange for freely tradable securities.
TRADING OF THE COMPANY'S SECURITIES
The 6% Debentures are traded in the over-counter-market through Nasdaq under
the symbol "MPO." On June 6, 1996, the last day prior to the date the Tender
Agreement was publicly announced on which trades in the 6% Debentures were
reported, the last sales price for the 6% Debentures on the over-counter-
market was $55 per $100 face value. The Company's Common Stock is traded on
the Nasdaq NMS under the symbol "STLC." The Company does not intend to list
the Warrants on any securities exchange or on Nasdaq. After consummation of
the Offer, the Company intends to terminate the registration of the 6%
Debentures under Section 12(g) of the Securities Exchange Act of 1934, as
amended.
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PURPOSES AND CERTAIN EFFECTS OF THE PROPOSAL
The purposes of the Offer are to: (i) enhance the Company's capital
structure; (ii) allow the Company to invest its cash flow in its business
rather than to service the indebtedness represented by the 6% Debentures; and
(iii) increase the Company's net tangible assets by more than $50 million,
thereby enabling the Company to return to compliance with the minimum net
tangible assets standard for continued inclusion of the Common Stock on the
Nasdaq NMS.
Stockholders should note certain special considerations relating to the
issuance of the shares of Common Stock and Warrants, and payment of cash,
pursuant to the Proposal and to the information included in this Proxy
Statement, including the following:
Dilution. If all of the 6% Debentures are tendered and accepted pursuant to
the Offer, (i) the holders of 6% Debentures will hold, in the aggregate, (a)
between 5,200,000 (assuming an Exchange Price of $7.50 per share) and
9,750,000 (assuming an Exchange Price of $4.00 per share) shares of Common
Stock representing between approximately % and % of the outstanding
shares of Common Stock, without taking into account Common Stock issuable in
connection with the Warrants and (b) Warrants to purchase 3,000,000 shares of
Common Stock representing, when exercised and taken together with the Common
Stock issued as part of the Tender Offer Consideration, between approximately
% (assuming an Exchange Price of $7.50 per share) and % (assuming an
Exchange Price of $4.00 per share) of the Company's Common Stock, and (ii) the
existing stockholders, taken as a whole, will retain their existing
shares of Common Stock, representing between approximately % (assuming an
Exchange Price of $7.50 per Share) and % (assuming an Exercise Price of
$4.00 per share) of the outstanding shares of Common Stock after consummation
of the Offer, but prior to the exercise of any Warrants, and representing
approximately % (assuming an Exchange Price of $7.50 per Share) and %
(assuming an Exchange Price of $4.00 per share) of the outstanding shares of
Common Stock assuming exercise of all the Warrants (in each case, based on the
number of shares outstanding on the Record Date). Moreover, the Company also
has outstanding options and warrants which, as of the Record Date were
exercisable for shares of Common Stock. See Note 6 to the Company's
consolidated financial statements set forth in Appendix C hereto.
Significant Stockholders. Following consummation of the Offer, Loomis Sayles
will advise investors holding between approximately % (assuming an
Exchange Price of $7.50 per share) and % (assuming an Exchange Price of
$4.00 per share), of the outstanding Common Stock, and between approximately
% (assuming an Exchange Price of $7.50 per share) and % (assuming an
Exchange Price of $4.00 per share) assuming exercise of all Warrants (in each
case, based on the number of shares outstanding on the Record Date). In
addition, the Company has agreed to include one person nominated by Loomis
Sayles on its Board of Directors, and to include a person nominated by Loomis
Sayles in management's slate of nominees in future elections, until such time
as investors advised by Loomis Sayles have transferred to persons who are not
advised by Loomis Sayles 80% of the Common Stock and Warrants issued in the
aggregate to them as part of the Tender Offer Consideration. NASD
representatives have advised the Company that, under NASD rules, the Issuance
may be deemed to constitute a change in control of the Company.
Change in Priority. The 6% Debentures are debt obligations of the Company
and, accordingly, have priority over the Company's Common Stock with respect
to payments in connection with any liquidation, dissolution or winding up of
the Company. 6% Debentures tendered and accepted pursuant to the Offer will be
exchanged, in part, for Common Stock and Warrants to purchase Common Stock. In
any liquidation or reorganization of the Company under the United States
Bankruptcy Code, such Common Stock and Warrants, as equity securities, will
rank below all debt claims, including untendered 6% Debentures. Additionally,
such Common Stock and Warrants will not be entitled to receive any payment or
other distribution of assets upon the Company's liquidation or dissolution
until satisfaction of the liquidation preference of any Preferred Stock (as
defined below under the heading "Description of Tender Offer Consideration--
Description of Common Stock") that may then be outstanding. Thus, in a
liquidation or dissolution, (i) all Common Stock issued (directly or upon
exercise of any Warrants) as part of the Exchange will share ratably with the
Company's other Common Stock and (ii) up to $75 million aggregate principal
amount of 6% Debentures that, absent the Exchange, would be senior to the
Common Stock will no longer be outstanding.
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DESCRIPTION OF 6% DEBENTURES
The 6% Debentures are issued under an Indenture, dated as of March 15, 1987
(the "Indenture"), between the Company and First Interstate Bank of
California, as Trustee (the "Trustee"). The following is a summary of certain
provisions of the Indenture. Any 6% Debentures that are not tendered in the
Offer will continue outstanding on the terms of the Indenture.
General. The 6% Debentures are unsecured, subordinated obligations of the
Company, aggregating $75,000,000 in principal amount and maturing on March 15,
2012. The 6% Debentures bear interest at the rate of 6% per annum. Interest is
payable semiannually on March 15 and September 15 of each year to the persons
in whose names the 6% Debentures are registered at the close of business on
the preceding March 1 and September 1, as the case may be.
The 6% Debentures were issued in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
Conversion Rights. The 6% Debentures (or portions thereof which are $1,000
or integral multiples thereof) are convertible into Common Stock at any time
prior to redemption or maturity, currently at the conversion price of $48 1/2
per share, subject to adjustment as described below. The right to convert 6%
Debentures called for redemption terminates at the close of business on any
redemption date unless the Company defaults in making the payment due upon
redemption, and will be lost if not exercised prior to that time. The
conversion price is subject to adjustment in certain events, including (i)
dividends (and other distributions) on the Company's Common Stock payable in
capital stock of the Company, (ii) the issuance to all holders of Common Stock
of certain rights or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price (as defined), (iii)
subdivisions, combinations and certain reclassifications of the Common Stock,
and (iv) distributions to all holders of Common Stock of debt securities or
assets of the Company or certain rights or warrants to purchase securities of
the Company (excluding those rights and warrants referred to above and
dividends and distributions paid in cash out of the current or retained
earnings of the Company). The Company is not required to make adjustments in
the conversion price of less than 1% of such price, but any adjustment that
would otherwise be required to be made will be taken into account in the
computation of any subsequent adjustment. The Company may at any time reduce
the conversion price by any amount.
In case of certain consolidations or mergers to which the Company is a party
or the transfer or lease of all or substantially all of the assets of the
Company, each 6% Debenture then outstanding would, without the consent of any
holders of 6% Debentures (the "Holders"), become convertible only into the
kind and amount of securities, cash or other property which the Holder would
have owned immediately after the transaction if he had converted such 6%
Debenture immediately prior to such consolidation, merger or transfer
(assuming such Holder of Common Stock failed to exercise any rights of
election and received per share the kind and amount received per share by a
plurality of the non-electing shares and assuming such Holder was not a party
to the transaction or an affiliate of such a party).
Subordination of 6% Debentures. The 6% Debentures are subordinated in right
of payment and subject, to the extent set forth in the Indenture, to the prior
payment in full of all existing and future Indebtedness (as defined below). No
payments on account of principal of (or premium, if any) or interest on the 6%
Debentures may be made if there has occurred and is continuing a default in
the payment of an aggregate of $5,000,000 principal or interest with respect
to any Indebtedness, or a default or an event of default with respect to an
aggregate of $5,000,000 principal or interest of Indebtedness resulting in the
acceleration of the maturity thereof. Upon any acceleration of the payment of
the 6% Debentures or any payment or distribution of assets of the Company to
creditors resulting from any liquidation, dissolution, winding up or
reorganization of the Company (whether in bankruptcy, reorganization,
insolvency or receivership proceedings or, upon an assignment for the benefit
of creditors, or otherwise), the holders of all Indebtedness will be first
entitled to receive payment in full
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<PAGE>
(or such payment must be provided for) of all amounts due or to become due
thereon before the Holders are entitled to receive any payment upon the
principal (or premium, if any) or interest on the 6% Debentures. By reason of
such subordination, in the event of insolvency general creditors of the
Company may recover more, ratably, than Holders.
"Indebtedness" is defined to mean (i) the principal of (and premium, if any)
and interest on all indebtedness of the Company (other than the 6%
Debentures), whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, which is for money borrowed or which is
evidenced by a note or similar instrument given in connection with the
acquisition of any businesses, properties or assets, (ii) obligations of the
Company as lessee under leases required to be capitalized under generally
accepted accounting principles, (iii) any indebtedness of others, of the kind
described in the preceding clauses, for the payment of which the Company is
responsible or liable as guarantor, and (iv) any obligations or indebtedness
with respect to amendments, renewals, extensions, modifications and refundings
of any such obligations or indebtedness; unless, with certain exceptions, in
any instrument or instruments evidencing such obligation or indebtedness or
pursuant to which the same is outstanding, or in any such amendment, renewal,
extension or refunding, it is provided that such obligation or indebtedness is
not superior in right of payment to the 6% Debentures.
Redemption. The 6% Debentures are redeemable, otherwise than through the
sinking fund, upon not less than 30 or more than 60 days' notice by mail, at
any time prior to maturity as a whole or in part, at the election of the
Company. Such redemption, if any, shall be at a redemption price equal to
100.6% of the principal amount to the extent 6% Debentures are redeemed in the
12-month period beginning March 15, 1996 and thereafter at 100% of the
principal amount, together in each case with accrued interest to the
redemption date (subject to the right of Holders of record on regular record
dates to receive interest due on an interest payment date that is on or prior
to the redemption date).
Sinking Fund. The 6% Debentures are redeemable through the operation of a
sinking fund on March 15, 1997, and on March 15 in each year thereafter to and
including March 15, 2011, upon no less than 30 nor more than 60 days' notice
by mail, at a sinking fund redemption price equal to 100% of the principal
amount thereof plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant regular record date to receive
interest due on an interest payment date that is on or prior to the redemption
date). Prior to March 15 of each of the years 1997 to 2011, inclusive, the
Company will pay to the Trustee, for a sinking fund, cash sufficient to redeem
on such date 5% of the aggregate principal amount of the 6% Debentures issued,
provided that 6% Debentures converted pursuant to the Indenture or reacquired
or redeemed by the Company (other than 6% Debentures redeemed through the
sinking fund) may be used, at the principal amount thereof, to reduce the
amount of any sinking fund payment. Sinking fund payments are to be applied to
redeem 6% Debentures.
Consolidation, Merger and Sale of Assets. The Indenture provides that the
Company may, without the consent of the Holders, consolidate with or merge
into any other corporation, or convey, transfer or lease its properties and
assets substantially as an entirety to any person, provided that in any such
case (i) the successor person shall be a corporation and such person shall
assume by a supplemental indenture the Company's obligations under the
Indenture, and (ii) immediately after giving effect to such transaction, no
default shall exist. Upon compliance with these provisions by a successor, the
Company (except in the case of a lease) would be relieved of its obligations
under the Indenture and the 6% Debentures.
Modification and Waiver. Subject to certain exceptions, modifications and
amendments of the Indenture may be made by the Company and the Trustee with
the consent of the Holders of a majority in aggregate principal amount of the
outstanding 6% Debentures; provided, however, that no such modification or
amendment may, without the consent of the Holder of each 6% Debenture affected
thereby, (i) change the stated maturity date of the principal of or the due
date of any installment of interest on any 6% Debenture, or adversely affect
the right to convert any 6% Debenture, (ii) reduce the principal amount of (or
the premium) or interest on any 6% Debenture, (iii) change the currency for
payment of principal of (or premium) or interest on any 6%
9
<PAGE>
Debenture, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any 6% Debenture, (v) modify the subordination
provisions in a manner adverse to the Holder of any 6% Debenture, (vi) reduce
the above-stated percentage of outstanding 6% Debentures necessary to modify
or amend the Indenture, (vii) reduce the percentage of aggregate principal
amount of outstanding 6% Debentures necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults, or
(viii) modify (with certain exceptions) any provisions of the Indenture
relating to the modification and amendment of the Indenture or waiver of
compliance with conditions and defaults thereunder.
The Holders of a majority in aggregate principal amount of the outstanding
6% Debentures may waive compliance by the Company with certain restrictive
provisions of the 6% Debentures and any existing default under the Indenture,
except a default in the payment of principal, premium or interest or in
respect of a covenant or provisions which cannot be modified or amended
without the consent of each of the Holders of affected 6% Debentures.
Events of Default. The following are "Events of Default" under the
Indenture: (i) failure to pay principal of (or premium, if any, on) any 6%
Debenture when due, (ii) failure to pay any interest on any 6% Debenture when
due, continued for 30 days, (iii) failure to deposit any sinking fund payment
when due, continued for 10 days or failure to deposit any redemption payment
when due, (iv) failure to perform any other covenant or warranty of the
Company continued for 60 days after written notice as provided in the
Indenture, (v) acceleration of any indebtedness of the Company for borrowed
money in excess of $5,000,000 pursuant to the terms of any agreement or
instrument under which such indebtedness is issued, if acceleration is not
annulled within 30 days after written notice, and (vi) certain events of
bankruptcy, insolvency or reorganization in respect of the Company.
If an Event of Default occurs and is continuing, either the Trustee or the
Holders of a majority in aggregate principal amount of the outstanding 6%
Debentures may declare all of the 6% Debentures to be due and payable
immediately; provided, however, that the Holders of a majority in aggregate
principal amount of outstanding 6% Debentures may rescind and annul such
acceleration under certain circumstances.
No Holder has any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, unless such Holder has previously
given to the Trustee written notice of a continuing Event of Default and
unless also the Holders of at least 25% in aggregate principal amount of the
outstanding 6% Debentures shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee has not received from the Holders of a majority in aggregate
principal amount of the outstanding 6% Debentures a direction inconsistent
with such request and has failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder for
the enforcement of payment of the principal of (and premium, if any) or
interest on such 6% Debenture on or after the respective due dates expressed
in such 6% Debenture or of the right to convert such 6% Debenture in
accordance with the Indenture.
The Company is required to furnish to the Trustee annually a statement as to
any default under the Indenture and must notify the Trustee upon the
occurrence of any default.
Applicable Law. The 6% Debentures and the Indenture are governed by and
construed in accordance with the laws of the State of California.
10
<PAGE>
DESCRIPTION OF COMMON STOCK AND WARRANTS
DESCRIPTION OF COMMON STOCK
Common Stock. The holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders.
Subject to preferences which may be applicable to any shares of the Company's
Preferred Stock, $1.00 par value ("Preferred Stock"), outstanding at that
time, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Company's Board of Directors out of funds legally
available therefor and, in the event of the liquidation or dissolution of the
Company, are entitled to share ratably in all assets remaining after payment
of liabilities. Holders of Common Stock have no preemptive rights and have no
right to convert their Common Stock into any other securities. The shares of
Common Stock outstanding are, and the shares to be issued as part of the
Issuance will be, when issued, duly authorized, validly issued, fully paid and
nonassessable.
The Company is authorized to issue 50,000,000 shares of its Common Stock,
$1.00 par value. At the close of business on the Record Date, there were
shares of Common Stock outstanding and no shares of Preferred
Stock outstanding.
Share Purchase Rights Plan. In May 1989, the Company adopted a Rights
Agreement (the "Rights Agreement") pursuant to which Common Stock Purchase
Rights ("Rights") were distributed to stockholders, which Rights Agreement was
amended in October 1995, in March 1996 and in June 1996. 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.
Currently, the Rights attach to all outstanding shares of Common Stock, and no
separate Rights Certificates have been distributed. The Rights will become
exercisable and will detach from the Common Stock following an event in which
any person or group, with certain exceptions, acquires 20% or more of the
Company's Common Stock, or announces a tender or exchange offer which, if
consummated, would result in that person or group owning at least 30% of the
Company's Common Stock. If such a person 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 a market value equal to twice the exercise price. Similarly, with
certain exceptions, if the Company merges or consolidates with or sells 50% 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, subject to
adjustment, at any time on or prior to the tenth day, unless extended, 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.
This plan is designed to deter potentially coercive takeover attempts.
Each share of Common Stock issued, whether immediately or upon exercise of
any Warrants, as part of the Tender Offer Consideration will have attached to
it one Right. The June 1996 amendment of the Rights Agreement provides that
the Tender Agreement, the Offer, the Exchange and the Issuance do not cause
the Rights to become exercisable or detach from the Common Stock.
DESCRIPTION OF WARRANTS
If the Offer is consummated, the Warrants will be issued pursuant to a
warrant agreement (the "Warrant Agreement") by and between the Company and
, as warrant agent (the "Warrant Agent"). The following is a summary
of the material provisions of the Warrant Agreement and the warrant
certificate attached thereto (the "Warrant Certificate"), which summary does
not purport to be complete, and is qualified in its entirety by reference to
the Warrant Agreement and the Warrant Certificate, the forms of which are
attached hereto as Appendix B.
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General. Each Warrant will entitle the holder thereof to purchase 40 shares
of Common Stock (each such share, a "Warrant Share"), subject to the
antidilution provisions described below. Initially, the exercise price of each
Warrant shall be 150% of the Exchange Price (the "Exercise Price"). The
exercise price of each Warrant, however, is subject to certain adjustments
pursuant to the "Reset Option" and/or the antidilution provisions described
below. Warrants will be exercisable during an "Exercise Period" that will
begin upon the Warrants' issuance pursuant to the Exchange and end at 5:00
p.m. New York City time on the fifth anniversary of such issuance, subject to
the "Warrant Exercise Option" described below. Unless exercised, Warrants will
automatically expire at the end of the Exercise Period.
During the first year after the Exchange, each time the average closing
price of the Company's Common Stock is less than 65% of the Exercise Price
(after taking into account any stock splits, consolidations or similar
transactions and excluding the highest and lowest closing price) for a period
of five consecutive trading days (such average price is the "Reset Price"),
each Warrant holder shall have the option (the "Reset Option") to adjust the
exercise price of its Warrants to equal 150% of the Reset Price (the "Reset
Adjusted Price"); provided, however, that each Warrant can be reset only one
time. Any Warrant holder who desires to exercise its Reset Option must do so
by giving the Warrant Agent written notice of such exercise within five
business days after the applicable period during which the average Common
Stock closing price was below 65% of the Exchange Price.
If, at any time, the closing price of the Company's Common Stock exceeds
125% of the Exercise Price (after taking into account any stock splits,
consolidations or similar transactions and excluding the highest and lowest
closing price) for a period of five consecutive trading days, the Company
shall have the option (the "Warrant Exercise Option") to require the Warrant
holders either to (i) exercise their Warrants at the Exercise Price (or, to
the extent applicable to any particular Warrants, the Reset Adjusted Price) or
(ii) cancel such holders' Warrants. The Company shall exercise the Warrant
Exercise Option by giving the Warrant Agent written notice of such exercise
within five business days of the applicable period during which the average
Common Stock closing price exceeded 125% of the Exercise Price.
The Company has authorized and has agreed to maintain for issuance such
number of Shares of Common Stock as shall be issuable upon the exercise of all
outstanding Warrants. Such Common Stock, when issued, will be duly and validly
issued and fully paid and nonassessable.
No fractional shares will be issued upon exercise of Warrants. If any
fraction of a Warrant Share would, but for the foregoing provision, be
issuable upon the exercise of any Warrants, the Company will pay to the
applicable Warrant holder an amount in cash equal to: (i) such fraction, times
(ii) the current market value of any fractional shares otherwise issuable.
Warrant holders will have no right to vote on matters submitted to the
Company's stockholders and will have no right to receive any cash dividends.
Warrant holders will not be entitled to share in the Company's assets in the
event of the liquidation, dissolution or winding up of the Company's affairs.
The Common Stock is authorized for inclusion on the Nasdaq NMS under the
symbol "STLC," and the Company intends to apply for such inclusion of the
Warrant Shares, subject to notice of issuance. The Company does not intend to
apply for listing of the Warrants on any national securities exchange or for
inclusion on Nasdaq.
REGISTRATION OF WARRANT SHARES
The Company is required under the terms of the Tender Agreement to file and
use its best efforts to have declared effective upon the closing of the
Exchange a registration statement covering the Warrant Shares, which
registration statement shall, subject to certain "black-out" periods, remain
effective (i) for a period of five years, plus the duration of any black-out
periods, or (ii) to the extent it is determined that all Warrant Shares and
other shares of Common Stock issued as part of the Tender Offer Consideration
are freely tradable without such registration statement, for such shorter
period of time as may be deemed necessary.
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<PAGE>
ANTIDILUTION
The number of Warrant Shares issuable upon the exercise of each Warrant and
the Exercise Price or the Reset Adjusted Price, as applicable, are subject to
adjustment in certain events, including (i) a dividend or distribution on the
Company's Common Stock in Common Stock, or a split, combination, subdivision
or reclassification of Common Stock, (ii) the issuance of Common Stock, or
rights, options or warrants to purchase Common Stock or securities convertible
into, or exchangeable for, Common Stock, for consideration that is less than
the then current market price of Common Stock (determined with reference to
the average closing price, excluding the highest and lowest closing price, of
the Company's Common Stock for the 20 trading days immediately preceding such
issuance), (iii) decreases in the exercise price or increases in the
conversion rate of existing options to purchase Common Stock or securities
exchangeable or convertible into Common Stock; (iv) the distribution of cash,
evidence of indebtedness or other property or assets (other than out of
retained earnings) to holders of Common Stock and (v) redemptions or purchases
of Common Stock by the Company at a price in excess of the then current market
price of Common Stock (determined with reference to the average closing price,
excluding the highest and lowest closing price, of the Company's Common Stock
for the 20 trading days immediately preceding such purchase or redemption). No
adjustment in the number of Warrant Shares issuable upon exercise of the
Warrants, or the Exercise Price or the Reset Adjusted Price, as applicable,
will be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Warrant Shares or to the Exercise Price or the
Reset Adjusted Price; provided, however, that any adjustment that is not made
will be carried forward and taken into account in any subsequent adjustment.
In addition, in the event of certain mergers, consolidations or sales of
assets, holders of Warrants will thereafter be entitled to receive such
securities or other consideration as they would have been entitled if they had
exercised their Warrants immediately prior thereto.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not adversely affect the rights of any holder. Any amendment
or supplement to the Warrant Agreement that has an adverse effect on the
interest of holders requires the written consent of registered holders of a
majority of the then outstanding Warrants.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of , 1996 regarding
beneficial ownership of the Common Stock of the Company by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) the Chief Executive Officer and certain other executive
officers and (iv) the Company's executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
- --------------------------- ----------------------- ----------
<S> <C> <C>
Ryback Management Corporation(3)............ %
7711 Carondlet Avenue, Box 16900
St. Louis, Missouri 63105
State of Wisconsin Investment Board.........
P.O. Box 7842
Madison, Wisconsin 53707
Richard C. Perry............................
2635 Century Parkway, N.E.
Suite 1000
Atlanta, Georgia 30345
DIRECTORS
J. Larry Smart (CEO)........................
Ericson M. Dunstan..........................
Chriss W. Street............................
S. Kenneth Kannappan........................
EXECUTIVE OFFICERS
Taroon C. Kamdar............................
Barbara V. Scherer..........................
Donald L. McDonell..........................
All Directors and Executive Officers as a
Group (8 persons)..........................
</TABLE>
- --------
*Less than 1%
(1) Unless otherwise indicated, the address for each named person is c/o
StreamLogic Corporation, 21329 Nordhoff Street, Chatsworth, California
91311.
(2) Information with respect to beneficial ownership is based on information
furnished to the Company by each person included in the table, or based on
the most recent filings on Schedules 13D or 13G with the Securities and
Exchange Commission reporting beneficial ownership as of , 1996,
available at the date of this Proxy Statement. Except as indicated in the
notes to the table, each stockholder included in the table has sole voting
and dispositive power with respect to the shares shown to be beneficially
owned by the stockholder, subject to community property laws where
applicable.
(3) Shares held in a fiduciary capacity by Ryback Management Corporation
and/or Lindner Fund, Inc. Of the shares owned, are directly owned,
are indirectly owned due to the ownership of warrants currently
exercisable at $4.00 per share and are indirectly owned due to the
ownership of 6% Debentures. As set forth in the Schedule 13D filed with
the Securities and Exchange Commission by Ryback Management Corporation,
Eric E. Ryback is the President of Ryback Management Corporation.
(4) Includes shares of Common Stock subject to options that were
exercisable on, or within 60 days after, , 1996.
14
<PAGE>
(5) Includes shares of Common Stock subject to options that were
exercisable on, or within 60 days after, , 1996.
(6) Includes shares of Common Stock subject to options that were
exercisable on, or within 60 days after, , 1996.
(7) Includes shares of Common Stock subject to options that were
exercisable on, or within 60 days after, , 1996.
(8) Includes shares of Common Stock subject to options that were
exercisable on, or within 60 days after, , 1996.
15
<PAGE>
CERTAIN FINANCIAL AND RELATED INFORMATION
Historical audited financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as pro
forma financial statements illustrating the effect of the Offer, Exchange and
Issuance, are included in Appendix C to this Proxy Statement.
REQUIRED CONSENT
The affirmative consent of the holders of a majority of the outstanding
shares of Common Stock outstanding as of the Record Date of the Company is
required to approve the Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote to approve the
Proposal. The Board of Directors believes that the Proposal is in the best
interests of the Company and its stockholders.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING
CONSENT CARDS IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
Ericson M. Dunstan
Secretary
Chatsworth, California
, 1996
16
<PAGE>
APPENDIX A
June 14, 1996
CONFIDENTIAL
StreamLogic Corporation
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Mr. Larry Smart
Agreement re: Tender Offer for All Outstanding 6%
Convertible Subordinated Debentures Due 2012
Dear Mr. Smart:
This letter sets forth our mutual understanding and agreement with respect
to (i) a tender offer (the "Tender Offer") by StreamLogic Corporation
("StreamLogic") for all of the outstanding 6% Convertible Subordinated
Debentures due 2012 previously issued by StreamLogic (the "Debentures") and
(ii) the terms upon which the institutional clients advised by Loomis Sayles &
Co., L.P. would be willing to tender the Debentures they hold into the Tender
Offer. The institutional clients advised by Loomis Sayles and Co., L.P.,
collectively, hold 79% of all of the Debentures. Hereinafter, (i) Loomis
Sayles & Co., L.P. shall be referred to as "Loomis Sayles" and (ii) "per
Debenture" means per $1000 face amount of Debentures.
1. The Tender Offer. Subject to paragraph 6 of this letter, StreamLogic
shall take every reasonable effort to initiate and complete the Tender Offer.
The Tender Offer shall be an offer for all of the outstanding Debentures and
shall exchange all tendered Debentures for cash, common stock and warrants, on
the terms and conditions described below. Loomis Sayles shall use its best
efforts to assist StreamLogic in obtaining all approvals necessary for
completion of the Tender Offer and the transactions contemplated thereby.
2. Timing. StreamLogic shall make the Tender Offer to all holders of the
Debentures, for all of the Debentures, no later than July 1, 1996 assuming no
shareholder approval is required. If shareholder approval is required, the
Tender Offer shall be made no later than ten days after the mailing of a proxy
statement to StreamLogic's shareholders. StreamLogic should use its best
efforts to expedite preparation of a proxy statement to its shareholders if
required. The Tender Offer shall close no later than August 24, 1996 assuming
no shareholder approval is required and on the day following shareholder
approval if such approval is required or as soon thereafter as permitted by
the Securities and Exchange Commission ("SEC") and applicable law. The date on
which the Tender Offer is required to close shall hereinafter be referred to
as the "Closing Date". The exchange of the tendered Debentures for cash,
common stock and warrants on the terms and conditions described below (the
"Exchange") shall occur no later than 10 days after the Closing Date. The date
of the Exchange shall hereinafter be referred to as the "Exchange Date."
3. Exchange of Debentures for Cash. Common Stock and Warrants. In the Tender
Offer the Company shall offer to each holder of Debentures the right to
exchange for each Debenture (including interest on the Debentures which is
accrued and unpaid on the Exchange Date):
(i) cash in the amount of $233.33 per Debenture;
(ii) that number of shares of StreamLogic's common stock ("Exchange
Shares") equal to $520.00 per Debenture calculated by using the average of
the closing price of StreamLogic's common stock for the 5 trading days
prior to the Closing Date or such earlier 5 day trading average as required
by the SEC (the "Exchange Price"); provided that the maximum number of
Exchange Shares per Debenture will be 130.0 shares and the minimum number
of Exchange Shares per Debenture will be 69.33333 shares; and
(iii) warrants to purchase 40 shares of StreamLogic's common stock (the
"Warrants") per Debenture. The Warrants shall be exercisable at any time
before the fifth anniversary of the date of the Exchange and
A-1
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shall have an initial exercise price equal to 150% of the Exchange Price
(the "Exercise Price"). Each time prior to the first anniversary of the
Exchange that the average (excluding the highest price and the lowest
price) closing price of StreamLogic's common stock for a period of 5
consecutive trading days (the "Reset Period") is less than 65% of the
Exchange Price (the "Reset Price"), each holder of Warrants shall have the
option (the "Reset Election") to adjust the exercise price of the Warrants
held by such holder to 150% of the Reset Price, provided that a holder of
Warrants may exercise this option no more than one time. An agent shall be
appointed to handle the mechanics of the transmission and exchange of the
warrants (the "Warrant Agent"). The holder of the Warrants must give notice
to the Warrant Agent of its intent to exercise the Reset Election within 5
business days following the last day of the Reset Period. Notice of
exercise of the Reset Election shall be given by facsimile and perfected by
delivery of the Warrant to the Warrant Agent. Each Warrant shall be
legended to reflect the terms of the Reset Election and shall be exchanged
by the Warrant Agent for a Warrant deleting references to the Reset
Election upon exercise of the Reset Election with respect to such Warrant.
If at any time for a period of 5 consecutive trading days the average
(excluding the highest price and the lowest price) closing price of
StreamLogic's common stock exceeds 125% of the Exercise Price (after taking
into account any stock splits, consolidations or similar transactions) (the
"Option Period"), Streamlogic shall have the option (the "Warrant Exercise
Option") to require the holders of the Warrants either to exercise the
Warrants held by such holder at the Exercise Price, or the Reset Price if a
Reset Price has been set, or to cancel the Warrants. StreamLogic shall
exercise such option within five (5) business days following the last day
of the Option Period.
All shares of StreamLogics's common stock issued pursuant to exercise of
the Warrants shall be referred to as the "Warrant Shares." The Warrants
will be issued pursuant to a Warrant Agreement which shall be satisfactory
in form and substance to Loomis Sayles and shall have provisions
customarily included in warrants of this type including, without
limitation, the following:
(A) StreamLogic shall adjust the number of Warrant Shares to be
issued upon exercise of a Warrant to avoid dilution of the interests of
the holders of the Warrants which might result from stock splits,
consolidations, reclassifications and similar transactions of
StreamLogic's common stock.
(B) StreamLogic shall adjust, on a weighted average basis, the number
of Warrant Shares to be issued upon exercise of a Warrant to avoid
dilution which might result from any of the following:
(1) issuance of securities, options or convertible securities for
less than fair value determined with reference to the average
(excluding the highest price and the lowest price) closing price of
StreamLogic's common stock for the 20 trading days immediately prior
to the issuance thereof;
(2) redemption of any stock for more than fair value determined
with reference to the average (excluding the highest price and the
lowest price) closing price of StreamLogic's common stock for 20
trading days immediately prior to the issuance thereof;
(3) changes in the exercise price or conversion rate of options to
purchase StreamLogic's common stock or securities exchangeable or
convertible into StreamLogic's common stock; and
(4) dividends and distributions to holders of StreamLogic's common
stock.
Notwithstanding the foregoing, no adjustments shall be made pursuant
to this section 3 (iii) (A) and (B) on account of the transactions
set forth on Exhibit A.
4. Registration. On the Exchange Date, StreamLogic shall deliver to holders
of Debentures tendered pursuant to the Tender Offer Exchange Shares and upon
exercise of the Warrants StreamLogic shall deliver Warrant Shares which are
and at all times in the future will be freely tradeable to any person and
without having to comply with any holding periods, volume limits or
restrictions as to the transfer of such Exchange Shares and Warrant Shares
imposed under the securities laws. StreamLogic shall take each such measure as
may be necessary or reasonably appropriate to cause the Exchange Shares and
the Warrant Shares to be freely tradeable at all times including, without
limitation, preparation of a shelf registration statement. A shelf
registration statement shall be effective for a period of five years from the
Exchange Date or such shorter period of time if it is determined that
A-2
<PAGE>
all Warrant Shares and Exchange Shares are freely tradeable without the
necessity of having a registration statement and prospectus available. Once
during each twelve month period that a shelf registration covering the Warrant
Shares and Exchange Shares is in effect, StreamLogic may provide notice to the
holders of the Warrants and Exchange Shares that the shelf registration will
not be available for a period of up to 90 consecutive days (a "Withdrawal
Election"). In the event that StreamLogic makes a Withdrawal Election, the
number of days that the Withdrawal Election is in effect shall be added to the
five year term of the self registration statement. Warrants will not be
exercisable during the period of any Withdrawal Election. StreamLogic shall
pay all costs and expenses in connection with the registration of the Exchange
Shares and the Warrant Shares, if registration is necessary, and each other
measure taken by StreamLogic.
5. Agreement to Tender. The institutional clients advised by Loomis Sayles
and that hold Debentures will tender all of the Debentures held by them to
StreamLogic pursuant to the Tender Offer and not withdraw prior to August 12,
1996 the tender of any Debentures held by them, if (i) the Tender Offer
includes each of the terms described in paragraphs 1 through 4 above and (ii)
each of the following terms and conditions are met to the satisfaction of
Loomis Sayles:
(a) The Exchange Price shall not be (i) greater than $7.50 nor (ii) less
than $4.00.
(b) The Tender Offer shall be for all of the then outstanding Debentures
and on the date of the Closing Date not less than 95% of the then
outstanding Debentures shall have been irrevocably tendered to the Company
pursuant to the Tender Offer unless Loomis Sayles subsequently agrees to a
lower percentage.
(c) StreamLogic shall have reserved a sufficient number of shares of
common stock to accommodate the issuance of the Exchange Shares and the
Warrants to all holders of the Debentures. The Tender Offer, the Exchange
and the issuance of the Exchange Shares and the Warrants shall have been
approved and authorized by all necessary and appropriate corporate and
regulatory action, including, without limitation, (i) authorization and
approval by the shareholders, if necessary, and board of directors of
StreamLogic of the Tender Offer, the Exchange and the issuance of the
Exchange Shares and the Warrants and (ii) making such amendments and
modifications of StreamLogic's charter documents as may be necessary or
appropriate to consummate the transactions contemplated herein.
(d) StreamLogic's board of directors shall have been expanded to seven
members, of which one member shall be the person designated in writing by
Loomis Sayles. StreamLogic and its management shall also have agreed that
StreamLogic management will include in its slate of persons nominated to be
directors for election at the next meeting of shareholders one person
designated in writing by Loomis Sayles. In the event that the institutional
clients of Loomis Sayles transfer more than 80% of the Exchange Shares and
Warrants to persons who are not advised by Loomis Sayles, then Loomis
Sayles' right to nominate a director shall terminate.
(e) StreamLogic shall have complied with all applicable requirements of
state and federal securities laws and the NASDAQ National Market System in
connection with the Tender Offer, the Exchange and the issuance of the
Exchange Shares and the Warrants.
(f) On the Exchange Date and assuming that the Exchange has not occurred,
the Company's authorized capital stock shall consist solely of 2,000,000
shares of preferred stock and 50,000,000 shares of common stock (together,
the "Capital Stock"), of which only 15,774,967 shares of common stock will
be outstanding, exclusive of the number of shares that become outstanding
as a result of the transaction and the exercise of options and warrants
specified on Exhibit A. After giving effect to transaction and the exercise
of all outstanding options and warrants including those set forth on
Exhibit A, there shall be outstanding no more than 21,798,108 shares of
common stock and no other equity securities of StreamLogic outstanding. No
preferred stock shall be outstanding on the Exchange Date.
(g) All governmental and third party approvals to the Tender Offer, the
Exchange and the issuance of the Exchange Shares and the Warrants
contemplated herein shall have been obtained and be in full force and
effect and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on the Tender
Offer, the Exchange or the issuance of the Exchange Shares and the Warrants
as contemplated
A-3
<PAGE>
herein. Loomis Sayles will take all actions reasonably necessary to assist
StreamLogic in obtaining such approvals.
(h) The definitive documentation evidencing the Tender Offer, the
Exchange, the issuance of the Exchange Shares and the Warrants and related
transactions shall be reasonably satisfactory in form, substance and all
other respects to Loomis Sayles and its counsel.
(i) Until the Exchange Date, the Company (i) will conduct its business
only in the ordinary course and consistent with past practices and will
maintain its books and records in accordance with past practices; and (ii)
will not, without the prior written consent of Chanin & Company (after it
has consulted with Loomis Sayles), (A) issue any equity securities or debt
securities other than in connection with the transactions set forth in
Exhibit A; (B) amend its charter documents except as provided herein; (C)
grant or issue any options, rights, warrants or convertible securities
other than in connection with the transactions set forth in Exhibit A; (D)
declare or pay any dividends or make any other distribution to
shareholders, reclassify outstanding shares, or reacquire any equity
securities; (E) reorganize, sell or dispose of any significant amount of
assets; (F) materially increase the level of compensation to any officer,
director or employee; or (G) engage in any transaction, other than the
transactions set forth in Exhibit A, the Tender Offer, the Exchange and the
issuance of the Exchange Shares and the Warrants and the other transactions
described herein, with the intention of affecting or influencing the
trading price of Stream Logic's traded common stock or with the knowledge
that the transaction could reasonable be expected to affect or influence
the trading price of StreamLogic's traded common stock; and (iii) will not
agree to do anything or take any action which could reasonably be expected
to impede, prevent, restrict or otherwise make more difficult the Tender
Offer, the Exchange, the issuance of the Exchange Shares or Warrants or any
of the other transactions contemplated herein.
(j) Until the Exchange Date, Chanin & Company and its agents and
independent contractors shall have unlimited access to the properties,
books and records of StreamLogic for the purposes of conducting such
investigations, appraisals or audits as Chanin & Company deems necessary or
advisable in the circumstances. The Company shall not terminate or breach
its letter agreement with Chanin & Company dated April 24, 1996 prior to
the Exchange Date.
(k) On the Exchange Date, StreamLogic shall have paid (i) all amounts
then due and owing to Chanin & Company pursuant to the letter agreement
dated April 24, 1996 and (ii) all amounts then due and owing to Heller
Ehrman White & McAuliffe pursuant to its agreement dated April 22, 1996 and
(iii) all reasonable out of pocket fees and expenses of Loomis Sayles
incurred in connection with the preparation and negotiation of this
Agreement or in connection with the Tender Offer, the Exchange, the
issuance of the Exchange Shares and the Warrants or transactions related
thereto. StreamLogic shall pay all of its own expenses (including, without
limitation, fees and expenses of counsel) incurred by StreamLogic in
connection with this Agreement, the Tender Offer, the Exchange, the
issuance of the Exchange Shares and Warrants or transactions related
thereto.
(l) There shall not have occurred any material and adverse change in (i)
the business, operations, properties, assets, or condition (financial or
otherwise) after the date of this letter agreement of StreamLogic or (ii)
the ability of StreamLogic to perform its obligations under this Agreement
or to accomplish the Tender Offer, the Exchange, the issuance of the
Exchange Shares and Warrants or other transactions contemplated herein or
related thereto.
(m) StreamLogic shall negotiate and implement amendments to the March,
1987 Indenture between Micropolis Corporation and First Interstate Bank of
California and, if necessary, StreamLogic's charter documents which are
satisfactory to Loomis Sayles and to StreamLogic.
(n) This Agreement shall not be effective unless executed by Loomis
Sayles and Streamlogic, and a fully executed copy of this Agreement is
delivered to Loomis Sayles, or its counsel, prior to midnight on June 14,
1996.
(o) Any press release by Loomis Sayles or StreamLogic concerning the
terms set forth in this letter shall be subject to the prior reasonable
approval of the other party.
A-4
<PAGE>
(p) All matters referred to herein are subject to and conditioned upon
(i) compliance with all applicable laws and (ii) the consistency of the
terms hereof with any material rights of any third parties or the
unconditional consent to the Tender Offer, the Exchange, the issuance of
the Exchange Shares and Warrants and each other transaction contemplated
herein or related thereto of third parties whose material rights are not
consistent with the transactions contemplated herein.
(q) Loomis Sayles shall be satisfied that the common stock of StreamLogic
will continue to be listed and quoted by the NASDAQ-National Market System.
(r) There shall not be pending, instituted or threatened any legal action
or administrative proceedings before any court or governmental agency, by
any governmental agency challenging the Tender Offer.
(s) StreamLogic shall have obtained all required approvals by its
shareholders.
(t) The Trustee shall not have objected in any respect to, or taken any
action that could, adversely affect the consummation of the Tender Offer or
shall have taken any action that challenges the validity or effectiveness
of the procedures used by the Company in the making of the Tender Offer or
the acceptance of, or payment for, any of the Debentures.
6. StreamLogic's obligations to complete the Tender Offer shall be subject
to each of the following terms and conditions:
(a) The Exchange Price shall not be (i) greater than $7.50 nor (ii) less
than $4.00.
(b) The conditions set forth in Sections 5(g), 5(l), 5(r), 5(s) and 5(t)
of this letter.
(c) The definitive documentation evidencing the issuance of the Warrants
shall be reasonably satisfactory in form, substance and in all other
respects to StreamLogic.
(d) Compliance with all applicable laws.
(e) The continued listing and quotation of StreamLogic's common stock on
the NASDAQ-National Market System.
Nothing expressed or referred to in this letter agreement will be construed
to give any person other than the parties signing this letter any legal or
equitable right, remedy or claim under or with respect to this letter
agreement or any provision of this letter agreement. This letter and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this letter agreement and their successors and assigns.
----------------
If this letter is satisfactory to you as a basis for proceeding with the
Tender Offer, on the terms and conditions described above, please so signify
on the enclosed copy of this letter and return it to us at the above address.
We reserve the right to withdraw this letter at any time before it is
accepted.
Loomis Sayles
Loomis, Sayles & Co., L.P.
By: Loomis, Sayles & Co., Inc.
By Frederick D. Vyn
Its Vice President
AGREED:
STREAMLOGIC:
STREAMLOGIC CORPORATION
By J. Larry Smart
Title: President, CEO
A-5
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NO. OF SHARES,
TRANSACTION OPTIONS, WARRANTS
----------- -----------------
<S> <C>
Shares to be Issued to FWB at Closing in early July
1996 (subject to adjustment
120 days after FWB Closing).......................... 1,256,123
Warrants outstanding to Salomon as of June 13, 1996... 80,081 at an exercise
price of $5.00 per share
Warrants outstanding to Linder as of June 13, 1996.... 1,500,000 at an exercise
price of $4.00 per share
STOCK OPTIONS:
StreamLogic Option.................................... 787,200
Micropolis Options (exercise lapse by 6/29/96)........ 838,860
Options granted on April 1, 1996...................... 657,000
Options granted on May 22, 1996....................... 70,000
Options expected to be granted by September 1, 1996... 150,000
TOTAL OPTIONS..................................... 2,503,060
</TABLE>
A-6
<PAGE>
EXHIBIT B
[To be filed]
B-1
<PAGE>
APPENDIX C
INDEX TO APPENDIX C
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements........... C-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... C-6
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.......................................... C-12
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...................... C-13
Consolidated Balance Sheets as of March 29, 1996, December 29, 1995 and
December 30, 1994...................................................... C-14
Consolidated Statements of Cash Flows for the three months ended March
29, 1996 and March 31, 1995 (unaudited) and the three years ended
December 29, 1995, December 30, 1994 and December 31, 1993............. C-15
Consolidated Statements of Shareholders' Equity (Deficit) for the three
months ended March 29, 1996 and the three years ended December 29,
1995................................................................... C-16
Notes to Consolidated Financial Statements.............................. C-17
</TABLE>
C-1
<PAGE>
STREAMLOGIC CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet of
StreamLogic Corporation as of March 29, 1996 and the unaudited pro forma
condensed consolidated statements of operations for the three-month period
ended March 29, 1996 and the year ended December 29, 1995 have been prepared
to illustrate the effect of the proposed Exchange. The financial statements
have been prepared as though the Exchange had occurred on March 29, 1996 for
purposes of the pro forma balance sheet and as of December 30, 1995 and
December 31, 1994, respectively, for purposes of the pro forma statements of
operations. The pro forma adjustments and the assumptions on which they are
based are described in the accompanying notes to the unaudited pro forma
financial statements.
The unaudited pro forma condensed consolidated financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the consolidated financial position or consolidated results of operations of
StreamLogic Corporation that would have been reported had the Exchange
occurred on the dates indicated, nor do they represent a forecast of the
consolidated financial position of StreamLogic Corporation at any future date
or the consolidated results of operations of StreamLogic Corporation for any
future period. Amounts representing the Tender Offer Consideration,
transaction fees, fair market value of Warrants and income tax provision, as
reflected in the accompanying pro forma financial statements, are preliminary
and subject to the consummation of the Exchange. The actual amount of Tender
Offer Consideration and the estimated fair market value of the Warrants will
depend on the Exchange Price, which cannot now be determined. The unaudited
pro forma condensed consolidated financial statements, including the Notes
thereto, should be read in conjunction with the historical consolidated
financial statements of StreamLogic Corporation, which are included herein.
C-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 29, 1996
---------------------------------
STREAMLOGIC
STREAMLOGIC EXCHANGE CORPORATION
CORPORATION OFFER(1) PRO FORMA
----------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term in-
vestments................................. $ 40,477 $(18,500) $ 21,977
Accounts receivable, net................... 19,139 -- 19,139
Receivable from Singapore Technologies..... 13,966 -- 13,966
Inventories................................ 10,022 -- 10,022
Other current assets....................... 1,033 -- 1,033
-------- -------- --------
Total current assets..................... 84,637 (18,500) 66,137
Property, plant and equipment, net........... 5,850 -- 5,850
Other assets................................. 1,896 (1,200) 696
-------- -------- --------
$ 92,383 $(19,700) $ 72,683
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFI-
CIT)
Current liabilities:
10% Subordinated Notes..................... $ 20,000 $ -- $ 20,000
Current maturities of long-term debt....... 3,750 (3,750) --
Accounts payable........................... 8,610 -- 8,610
Other accrued liabilities.................. 14,137 400 14,537
-------- -------- --------
Total current liabilities.................... 46,497 (3,350) 43,147
Long term debt............................... 71,250 (71,250) --
Deferred income taxes........................ 1,720 -- 1,720
Shareholders' equity (deficit):
Common stock............................. 15,580 9,750 25,330
Additional paid-in capital............... 112,330 32,250 144,580
Accumulated deficit...................... (154,994) 12,900 (142,094)
-------- -------- --------
Total shareholders' equity (deficit)... (27,084) 54,900 27,816
-------- -------- --------
$ 92,383 $(19,700) $ 72,683
======== ======== ========
</TABLE>
- --------
(1) To give effect to the payment of cash and issuance of Common Stock and
Warrants pursuant to the Exchange assuming the holders of 100% of the
outstanding debentures accept the exchange. The pro forma gain application
to the above proposed Exchange after estimated adjustments (assuming 100%
participation by the holders) is:
<TABLE>
<S> <C>
Face value of debentures........................................... $ 75,000
Cash consideration................................................. (17,500)
Common Stock issued................................................ (39,000)
Transaction fees................................................... (1,000)
Charge off unamortized bond issuance cost.......................... (1,200)
Value of Warrants issued........................................... (3,000)
--------
13,300
Book provision for income tax...................................... 400
--------
Pro forma gain..................................................... $ 12,900
========
</TABLE>
C-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 29, 1996
-----------------------------------
STREAMLOGIC
STREAMLOGIC EXCHANGE CORPORATION
CORPORATION(4) OFFER(2) PRO FORMA
-------------- -------- -----------
<S> <C> <C> <C>
Net sales................................... $ 24,408 $ -- $ 24,408
Cost of sales............................... 40,799 -- 40,799
-------- ------ --------
Gross loss.................................. (16,391) -- (16,391)
Operating expenses:
Research and development................ 8,874 -- 8,874
Selling, general and administrative..... 8,836 -- 8,836
-------- ------ --------
Total operating expenses................ 17,710 -- 17,710
-------- ------ --------
Loss from operations........................ (34,101) -- (34,101)
Interest expense, net....................... (1,854) 1,125 (729)
-------- ------ --------
Loss before income taxes.................... (35,955) 1,125 (34,830)
Income tax provision........................ 252 22 274
-------- ------ --------
Net loss.................................... $(36,207) $1,103 $(35,104)
======== ====== ========
Loss per share(3)........................... $ (2.32) $ (1.39)
======== ========
Weighted average shares outstanding(3)...... 15,580 9,750 25,330
======== ====== ========
</TABLE>
- --------
(2) Adjustment to interest expense to give effect to Exchange at the beginning
of period presented. See Note (1) to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.
(3) Loss per share and weighted average shares outstanding are presented as if
the Exchange Price was $4.00 per share. If the Exchange Price were $7.50
per share, the pro forma loss per share and weighted average shares
outstanding would have been $(1.69) and 20,755, respectively.
(4) Included in the historical statement of operations of StreamLogic
Corporation are the revenues, cost of sales and operating expenses of the
disk drive business which was sold as of March 29, 1996 and which amounted
to approximately $17,670, $34,838 and $12,235, respectively. (See Note 10
to the historical consolidated financial statements of StreamLogic
Corporation for the three months ended March 29, 1996, which are
incorporation herein.)
C-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 29, 1995
-----------------------------------
STREAMLOGIC
STREAMLOGIC EXCHANGE CORPORATION
CORPORATION(7) OFFER(5) PRO FORMA
-------------- -------- -----------
<S> <C> <C> <C>
Net sales................................... $211,264 $ -- $211,264
Cost of sales............................... 205,628 -- 205,628
-------- ------ --------
Gross loss.................................. 5,636 -- 5,636
Operating expenses:
Research and development................ 42,469 -- 42,469
Selling, general and administrative..... 44,274 -- 44,274
-------- ------ --------
Total operating expenses................ 86,743 -- 86,743
-------- ------ --------
Loss from operations........................ (81,107) -- (81,107)
Interest income (expense), net.............. (4,242) 4,500 258
-------- ------ --------
Loss before income taxes.................... (85,349) 4,500 (80,849)
Income tax benefit.......................... (1,061) -- (1,061)
-------- ------ --------
Net loss.................................... $(84,288) $4,500 $(79,788)
======== ====== ========
Net loss per share(6)....................... $ (5.46) $ (3.17)
======== ========
Weighted average shares outstanding(6)...... 15,445 9,750 25,195
======== ====== ========
</TABLE>
- --------
(5) Adjustment to interest expense to give effect to Exchange at the beginning
of period presented. See Note (1) to Unaudited Pro Forma Condensed
Consolidated Balance Sheet.
(6) Loss per share and weighted average shares outstanding are presented as if
the Exchange Price was $4.00 per share. If the Exchange Price were $7.50
per share, the pro forma loss per share and weighted average shares
outstanding would have been $(3.86) and 20,645, respectively.
(7) Included in the historical statement of operations of StreamLogic
Corporation are the revenues, cost of sales and operating expenses of the
disk drive business which was sold as of March 29, 1996 and which amounted
to approximately $171,921, $176,336 and $59,440, respectively. (See Note
10 to the historical consolidated financial statements of StreamLogic
Corporation for the three months ended March 29, 1996, which are
incorporated herein.)
C-5
<PAGE>
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
outstanding $75 million issue of 6% Convertible Subordinated Debentures
("Debentures") to exchange its 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 the 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 are 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 Company's
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. As a
result, 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
(the "Drive Business") to MPL (the "Sale"). The Sale was approved by the
Company's stockholders. The Company's remaining business (the "Systems
Business") is focused on
C-6
<PAGE>
information storage subsystems and video 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.
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.
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<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.
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<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
C-9
<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 Purchase 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
C-10
<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.
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<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
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<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 tax-
es..................... (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.
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<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 is-
sued................................... -- -- --
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.
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<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 operat-
ing activities:
Net loss............... $(36,207) $(35,087) $(84,288) $(30,675) $(19,916)
Adjustments to recon-
cile net loss to net
cash provided by (used
in) operating activi-
ties:
Depreciation and amor-
tization............. 5,031 5,393 20,679 23,932 25,364
(Gain) loss on dispo-
sition 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 liabili-
ties.................. 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 ac-
tivities............... (12,826) (12,493) (47,491) (5,834) 21,108
-------- -------- -------- -------- --------
Cash flows from invest-
ing 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 invest-
ing activities......... 13,124 8,062 (18,195) (7,264) (20,883)
-------- -------- -------- -------- --------
Cash flows from financ-
ing activities:
Proceeds from Term Loan
Facility.............. 491 2,269 20,789 -- --
Proceeds from 10% Sub-
ordinated 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 fi-
nancing activities..... 491 2,670 42,620 1,718 1,481
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and equiva-
lents.................. 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 equiva-
lents 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 (recov-
eries)................ $ 72 $ (963) $ (460) $ 2,964 $ 278
Non-cash investing and
financing activities:
Note receivable from
sale of Drive Busi-
ness.................. $ 13,966 $ -- $ -- $ -- $ --
</TABLE>
See accompanying notes.
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<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.
C-16
<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
C-17
<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.
C-18
<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
C-19
<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.
C-20
<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>
C-21
<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.
C-22
<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, begin-
ning 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
C-23
<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.
C-24
<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>
C-25
<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
--------- --------- ------------
<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................................. (.42) (.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.
C-26
<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 are 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 would increase the Company's net tangible assets by
more than $50 million.
C-27
<PAGE>
This Written Consent is Solicited on Behalf of the Board of Directors of
StreamLogic Corporation
Consent Card for Action By Written Consent of Stockholders to be effective as
set forth in the Proxy Statement accompanying this Consent Card.
Proposed action by written consent of the stockholders to approve and authorize
an offer by the Company to exchange (the "Exchange") any or all of its
outstanding 6% Convertible Subordinated Debentures due 2012 for a combination of
cash, common stock of the Company, $1.00 par value ("Common Stock"), and
five-year warrants to purchase Common Stock ("Warrants") and the issuance of
Common Stock (immediately and upon the exercise of Warrants)in connection with
the Exchange.
FOR [_] AGAINST [_] ABSTAIN [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ABOVE PROPOSAL.
FAILURE TO CHECK ANY OF THE BOXES WITH RESPECT TO THE PROPOSAL WILL, IF THIS
CONSENT CARD HAS BEEN SIGNED AND DATED, CONSTITUTE APPROVAL OF AND CONSENT TO
THE ADOPTION OF THE PROPOSAL.
------------------- ------------------
Consent Card Number Number of Shares
Dated:____________________, 1996
--------------------------------
--------------------------------
(Signature(s) of Stockholder(s))
(NOTE--Please sign exactly as
your name or names appear on the
label. If more than one name
appears, all persons so
designated should sign. When
signing in a representative
capacity, please give your full
title.)
Please return promptly in the enclosed envelope, which requires no postage if
mailed in the U.S.A.
DO NOT FOLD, STAPLE OR MUTILATE
