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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:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to 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)
[ ] $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
[X] 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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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, increasing
rate unsecured promissory notes of the Company ("Promissory Notes"), 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 Promissory Notes, Common
Stock (immediately and upon the exercise of Warrants) and 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 obtain 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
October 7, 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, increasing rate unsecured
promissory notes of the Company due 1998 ("Promissory Notes"), 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 Promissory Notes, Common
Stock (immediately and upon the exercise of Warrants) and 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 by discharging up to $66.5 million
principal amount of outstanding debt ($75.0 million after repayment of the
Promissory Notes); (ii) eliminate the deficit in the Company's stockholders'
equity; (iii) allow the Company to invest its cash flow in expanding its
business, through acquisitions or otherwise, rather than to service the
indebtedness represented by the 6% Debentures; and (iv) permit the Company to
continue (or become re-listed) as a publicly-traded Nasdaq National Market
System ("Nasdaq NMS") Company by increasing the Company's net tangible assets
by more than $50 million. 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 October 7, 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 Nasdaq Stock Market, Inc. ("Nasdaq") 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 Nasdaq representatives that the Issuance may
be deemed to constitute a change in control. Therefore, under Nasdaq 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 16,930,790 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.
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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."
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 November 1, 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
$5,000 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 StreamLogic, at the following address:
StreamLogic Corporation
c/o CMSS
Midtown Station
P.O. Box 923
New York, NY 10138-0723
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 NOVEMBER 1, 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.
CAUTIONARY STATEMENT
The discussion in this Proxy Statement contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
that involve risks and uncertainties. Such statements can be identified by the
use of forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," or "continue" or the negative thereof or other
variations thereon or comparable terminology. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in Appendix D hereto under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Proxy Statement and in the Company's Current
Report on Form 8-K dated August 15, 1996.
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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 $53 million in cash proceeds
from the Sale, with $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 June 28, 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 and restructuring via a "pre-
packaged" Chapter 11 proceeding. 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 & Company,
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 Nasdaq as to whether
the Company met the minimum net tangible assets requirement of the Nasdaq
National Market as of its quarter ended March 29, 1996. The Company indicated
in response that it did not believe it met such requirement, and Nasdaq
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 was reviewed by Nasdaq and Nasdaq granted the
Company's request for continued inclusion of the Common Stock on the Nasdaq
conditioned upon consummation of the tender offer contemplated by the Initial
Tender Agreement (as defined below) by October 4, 1996. On September 16, the
Company requested Nasdaq to extend the date by which it would require the
Exchange Offer to be consummated in order to allow the continued inclusion of
the Common Stock on the Nasdaq NMS to October 31, 1996. Following further
telephonic conversations with representatives of Nasdaq, on September 30, 1996
Nasdaq informed the Company that it would not grant the Company's request for
an extension of the date by which it would require the Exchange Offer to be
consummated and that, effective October 7, 1996, the Company's Common Stock
would be removed from the Nasdaq NMS. Nasdaq did, however, inform the Company
that it could apply to have its Common Stock listed on the Nasdaq SmallCap
Market pending consummation of the Exchange Offer. The Company has initiated
an oral appeal of the proposed delisting of its Common Stock from the Nasdaq
NMS, and intends to apply for listing of its Common Stock on the Nasdaq
SmallCap Market, pending the successful consummation of the Exchange Offer,
should the appeal be denied. Nasdaq has informed the Company that its Common
Stock will continue to trade on the Nasdaq NMS pending the outcome of the oral
appeal; however, there can be no assurances as to whether such appeal will be
successful or as to when such determination will be made by Nasdaq. If the
Company is unable to consummate the Exchange Offer, it is likely that the
Common Stock would no longer be authorized for quotation either on the Nasdaq
NMS or the Nasdaq SmallCap Market. See Appendix D, "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Market for
StreamLogic Common Stock."
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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 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 ("Chanin"), and after
approval by the Company's Board of Directors, the Company and Loomis Sayles
entered into an agreement dated June 14, 1996 (the "Initial Tender
Agreement"), a copy of which is attached as Appendix A-1 to this Proxy
Statement. One of the several conditions to the Company's obligation to
consummate the exchange offer contemplated by the Initial Tender Agreement,
and to Loomis Sayles' obligation to advise the investors it advises to tender
into such exchange offer, was that the average closing price of the Common
Stock for the five trading days prior to the expiration of such exchange offer
be between $4.00 and $7.50 per share. Subsequent to the date of the Initial
Tender Agreement, the trading price of the Common Stock fell substantially
below $4.00 per share, and the Company believed it was unlikely that an
exchange offer on the terms of the Initial Tender Agreement could be
consummated. Following additional discussions and negotiations between the
Company, Loomis Sayles and Chanin, on September 13, 1996 the Company and
Loomis Sayles entered into an amendment to the Initial Tender Agreement (the
"First Amendment"), a copy of which is attached as Appendix A-2 to the Offer
to Exchange. Based on discussions with representatives of Nasdaq, however, the
Company and Loomis Sayles concluded that Nasdaq would likely find that the
Initial Tender Agreement, as amended by the First Amendment, contravened
certain of Nasdaq's rules and regulations regarding corporate governance.
Following additional discussions among the Company, Loomis Sayles, Chanin and
Nasdaq, on October 3, 1996, the Company and Loomis Sayles entered into a
Second Amendment to the Initial Tender Agreement (the "Second Amendment"), a
copy of which is attached as Appendix A-3 to this Offer to Exchange (the
Initial Tender Agreement, as amended by the First Amendment and the Second
Amendment, is referred to herein as the "Tender Agreement").
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 it would advise the investors
it advises to tender and not withdraw the 6% Debentures held by them pursuant
to the Offer, subject to the satisfaction of certain conditions 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 November 4, 1996 (or if an extension of the closing of the Exchange Offer
is required by applicable regulatory requirements or law, by the earlier of
the date of the satisfaction of such requirements and November 14, 1996); (ii)
not less than 95% of the outstanding 6% Debentures be tendered and not
withdrawn; (iii) 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 Chanin
(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; (iv) the Company's Board of Directors shall have been
expanded from four to seven members, two of whom shall be persons designated
by investors advised by Loomis Sayles and in elections of directors the
Company's management shall include in its slate of recommended directors two
persons designated by investors advised by Loomis Sayles (without in any
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way warranting that such directors will be elected), until such time as
investors advised by Loomis Sayles no longer own at least 28% of the
outstanding Common Stock; (v) the Company shall have paid certain Offer-related
amounts including Loomis Sayles' legal fees and Chanin's fees; (vi) 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 or (b) the ability of StreamLogic to perform its
obligations under the Letter Agreement or to accomplish the Offer, the
Exchange, or the Issuance; (vii) all required approvals from the Company's
stockholders shall have been obtained, (viii) the continued quotation of the
Company's Common Stock on the Nasdaq NMS 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.
In addition, the holders of 6% Debentures advised by Loomis are not obligated
to participate in the Exchange Offer, nor can there be any assurance as to
whether the holders currently advised by Loomis Sayles will continue to be
clients of Loomis Sayles as of the Expiration Date. The conditions to the
Company's obligations under the Tender Agreement include the requirements that
(i) all required approvals from the Company's stockholders shall have been
obtained, and (ii) the continued quotation of the Company's Common Stock on the
Nasdaq NMS.
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) $120.00 in cash, (ii) $113.33 principal amount of Promissory
Notes, which notes mature on the second anniversary of the date they are issued
and bear interest at 14% per annum from the date of issuance to the first
anniversary thereof and at 16% per annum thereafter until maturity, (iii)
216.66667 shares of Common Stock and (iv) Warrants to purchase 40 shares of
Common Stock at an initial exercise price of $3.60 per share, 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 in the Exchange
but instead will receive an additional cash payment in lieu thereof.
The Company will not pay accrued interest with respect to 6% Debentures
(including without limitation interest otherwise scheduled for payment on
September 15, 1996) 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 November 4, 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 ChaseMellon Shareholder
Services, L.L.C., 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
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6% Debentures shall have been validly tendered for exchange and not withdrawn
(the "Minimum Tender Condition"); and (ii) 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 is satisfied. If the Minimum Tender
Condition fails 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, 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.
Although the Company may assert any of the conditions set forth in the Offer,
the conditions to the Company's obligations under the Tender Agreement are not
coextensive with such conditions. Therefore, the Company may, in certain
circumstances, be obligated to consummate the Offer pursuant to the Tender
Agreement even though certain conditions to the Offer have not been satisfied.
In addition, the obligation of Loomis Sayles to advise the investors it advises
to tender their 6% Debentures in the Offer pursuant to the Tender Agreement is
subject to various conditions. See "Background of the Exchange Offer--The
Tender Agreement."
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, Promissory Notes and Warrants 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 on the Nasdaq SmallCap Market under the symbol
"STLCG." On (i) June 6, 1996, the last day prior to the date the Initial Tender
Agreement was publicly announced on which trades in the 6% Debentures were
reported, (ii) September 13, 1996, the last day prior to the date the First
Amendment was publicly announced on which trades in the 6% Debentures were
reported and (iii) September 26, 1996, the last day prior to the date the
Second Amendment was publicly announced on which trades in the 6% Debentures
were reported, the last sales prices for the 6% Debentures were $55 per $100
face value, $56 per $100 face value and $57 per $100 face value, respectively.
The Company's Common Stock presently is traded on the Nasdaq National Market
under the symbol "STLC." The Company does not intend to list the Promissory
Notes or 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
by discharging up to $66.5 million principal amount of outstanding debt ($75.0
million after repayment of the Promissory Notes), (ii) eliminate the deficit in
the Company's stockholders' equity; (iii) allow the Company to invest its cash
flow in expanding its business, through acquisitions or otherwise, rather than
to service the indebtedness represented by the 6% Debentures; and (iv) permit
the Company to continue (or become re-listed) as a publicly-traded Nasdaq NMS
Company by increasing the Company's net tangible assets by more than
$50 million.
As a result of the Exchange Offer, the Company will, assuming all of the
outstanding 6% Debentures are exchanged pursuant to the Exchange offer, realize
a taxable gain of approximately $17.6 million from the discharge of the
indebtedness under the Exchange Offer. At March 29, 1996, the Company had a tax
net operating loss carryforward of approximately $124.2 million 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, were
also available to reduce future federal income taxes as of that date. 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
substantially limited due to certain changes in ownership. If consummated, the
issuance of Common Stock in connection with the Offer to Exchange will cause
such a change in ownership.
If all of the outstanding 6% Debentures are exchanged pursuant to the
Exchange Offer, on a pro forma basis the Company would have had net tangible
assets of approximately $24.1 million as of June 28, 1996, as compared to a
deficit of approximately $32.1 million on a historic basis. See "Unaudited Pro
Forma Financial Data."
Stockholders should note certain special considerations relating to the
issuance of the shares of Common Stock, Promissory Notes 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)
16,250,000 shares of Common Stock representing approximately 49.0% of the then
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, approximately
53.2% of the Company's Common Stock (ii) the existing stockholders, taken as a
whole, will retain their existing 16,930,790 shares of Common Stock,
representing approximately 51.0% of the outstanding shares of Common Stock
after consummation of the Offer, but prior to the exercise of any Warrants, and
representing approximately 46.8% 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 and giving effect to the issuance of
shares in the Offer). Moreover, the Company also has outstanding options and
warrants which, as of the Record Date were exercisable for 3,176,281 shares of
Common Stock. See Appendix D, Note 6 to the Company's Consolidated Financial
Statements.
Significant Stockholder. Following consummation of the Offer, Loomis Sayles
will advise investors holding approximately 38.7% of the outstanding Common
Stock, and approximately 42.0% assuming exercise of all Warrants (in each case,
based on the number of shares outstanding on the Record Date and giving effect
to the issuance of shares in the Issuance). In addition, the Company has agreed
to include two persons designated by investors advised by Loomis Sayles on its
Board of Directors prior to or on the Expiration Date, and to include two
persons designated by investors advised by Loomis Sayles in management's slate
of nominees in future elections, until such time such investors advised by
Loomis Sayles no longer own at least 28% of the outstanding Common Stock.
Nasdaq representatives have advised the Company that, under Nasdaq rules, the
Issuance may be deemed to constitute a change in control of the Company.
Change in Priority; Covenants and Other Provisions. The 6% Debentures are
debt obligations of the Company and, accordingly, have priority over the
Company's Common Stock with respect to payments in
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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 Common Stock, Warrants and
Promissory Notes--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 $66.5 million aggregate
principal amount of debt obligations of the Company ($75.0 million after
repayment of the Promissory Notes) that, absent the Exchange, would be senior
to the Common Stock will no longer be outstanding.
6% Debentures tendered and accepted pursuant to the Exchange Offer will also
be exchanged, in part, for Promissory Notes. The Promissory Notes will not
contain various provisions that are included in the terms of the 6%
Debentures, and that afford certain protections to the holders thereof. For
example, the Promissory Notes will not contain the restrictive covenants
included in the Indenture governing the 6% Debentures, or any other covenants
restricting the Company's activities, other than the covenant requiring that
the proceeds of future debt financings be applied to repayment of the
Promissory Notes. See "Description of 6% Debentures" and "Description of
Common Stock, Warrants and Promissory Notes--Description of Promissory Notes."
Change in Cash. If all of the 6% Debentures are tendered and accepted
pursuant to the Offer, the Company will be required to pay a total of $9
million in cash upon consummation of the Offer. Such amount will be paid from
the Company's general working capital. As of September 30, 1996, the Company
had approximately $22 million in cash and cash equivalents. Accordingly, the
consummation of the Offer will result in a significant reduction in the cash
position of the Company. See Appendix D, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "--StreamLogic Strategic and Financial Alternatives".
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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 Harris Trust and Savings Bank, 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 (or such payment must be provided for) of
all amounts due or to become due thereon before the Holders are
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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% 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,
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(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.
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DESCRIPTION OF COMMON STOCK, WARRANTS AND PROMISSORY NOTES
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
16,930,790 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, in May 1996 and in September 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 September 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
Wells Fargo Bank, NA, 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 C.
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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 $3.60 per share of Common Stock. 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. Los Angeles time on the
day preceding the fifth anniversary of such issuance, subject to the "Warrant
Exercise Option" described below and extentions due to any "No-Exercise
Periods" which may be designated by the Company as 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 $1.56 per share (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 $1.56 per share.
If, at any time during the Exercise Period, the closing price of the
Company's Common Stock exceeds $4.50 per share (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 $4.50 per share.
The Company may designate any period of up to 90 consecutive days as a
period during which Warrants may not be exercised (a "No-Exercise Period").
The Company may designate no more than one No-Exercise Period in any twelve-
month period. A No-Exercise Period will commence on the date designated by the
Company in a written notice delivered to the Warrant Agent no later than the
close of business on the business day immediately preceding the first day of
such No-Exercise Period, and shall terminate on such date as is designated by
the Company in a written notice of the termination delivered to the Warrant
Agent no later than the end of business on the business day immediately
preceding such date of termination; provided, however, that any such No-
Exercise Period will terminate automatically at the close of business on the
90th day thereof, should the Company not designate an earlier termination
date. If the Company has designated one or more No-Exercise Periods, the
Exercise Period shall be extended by a number of days equal to the aggregate
number of days during which such No-Exercise Period or Periods was or were in
effect, subject to the Warrant Exercise Option described above.
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 on the exercise date 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.
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The Common Stock presently 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, or if the Company's Common Stock should then be trading on
the Nasdaq SmallCap Market, for inclusion thereon, in either case 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.
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, except that any such amendment or
supplement that (i) increases the Exercise Price, (ii) decreases the number of
shares of Common Stock issuable upon exercise of a Warrant, or (iii) shortens
the period during which Warrants may be exercised, shall require the consent of
each Warrant holder affected thereby.
DESCRIPTION OF PROMISSORY NOTES
If the Offer is consummated, the Company will issue the Promissory Notes as
part of the Tender Offer Consideration with respect to the 6% Debentures
tendered pursuant to the Exchange Offer. The Promissory Notes will be issued
pursuant to an Indenture, dated as of the date on which the Promissory Notes
are issued (the "Note Indenture"), between the Company and a trustee to be
selected by the Company prior to the consummation of the Offer (the "Note
Trustee"). The Promissory Notes are not expected to be subject to the
provisions of the Trust Indenture Act of 1939, as amended. The following is a
summary of certain provisions of the Note Indenture
15
<PAGE>
and the Promissory Notes, which summary does not purport to be complete, and is
qualified in its entirety by reference to the Note Indenture (which includes
the form of the Promissory Notes), the form of which is attached hereto as
Appendix B.
General. The Promissory Notes will be general unsecured obligations of the
Company limited in aggregate principal amount to $8,500,000. The Promissory
Notes will be issued only in fully registered form and without coupons.
Maturity and Interest. The Promissory Notes will mature on the second
anniversary of the date they issued. During the period commencing on the date
on which the Promissory Notes are issued and ending on the day before the first
anniversary of such issuance, the Promissory Notes shall bear interest at the
rate of 14% per annum. During the period commencing on the first anniversary of
the date of issuance, the Promissory Notes shall bear interest at the rate of
16% per annum. Interest is payable quarterly on March 31, June 30, September 30
and December 31 of each year to the persons in whose names the Promissory Notes
are registered at the close of business on the preceding March 15, June 15,
September 15 and December 15, as the case may be. Interest on the Promissory
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of issuance of the Promissory
Notes. Principal and interest on the Promissory Notes will be payable at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
principal and interest may be made by check mailed to the registered holders of
the Promissory Notes at their respective addresses set forth in the register of
holders of Promissory Notes; provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest on all Promissory Notes the holders of which shall have provided wire
transfer instructions to the Company or the Note Trustee. Until otherwise
designated by the Company, the Company's office or agency in New York will be
at the office of the Note Trustee maintained for such purposes.
Ranking. The Promissory Notes will rank senior in right of payment to all
indebtedness of the Company that by its terms is subordinate to the Promissory
Notes, including, without limitation, 6% Debentures that are not tendered in
the Offer. The Promissory Notes will rank pari passu in right of payment with
all other unsecured borrowings of the Company.
Prepayment. The Company, at its option, may prepay the Promissory Notes, in
whole or in part, at any time upon not less than 15 nor more than 60 days'
notice to the registered holders of the Promissory Notes to be prepaid. Any
such prepayment shall be at a prepayment price equal to 100% of the principal
amount to be prepaid plus the interest accrued but unpaid with respect to such
principal amount as of the prepayment date.
Covenant. While the Promissory Notes are outstanding, the Company will not
incur any indebtedness for borrowed money other than Permitted Indebtedness (as
defined below), unless the proceeds of such indebtedness are applied, first, to
repay all amounts outstanding under the Promissory Notes and, thereafter, for
the other purposes of the financing. "Permitted Indebtedness" means
indebtedness under the Company's existing $4 million revolving credit facility
with Wells Fargo Bank, N.A., or any replacement thereof.
Modification and Waiver. The Company and the Note Trustee may amend the Note
Indenture without the consent of any holder of any Promissory Notes to cure
ambiguities in a manner that does not adversely affect the rights of any
Promissory Note holder or to make other changes that do not adversely affect
the legal rights of the holders of Promissory Notes under the Note Indenture.
Subject to certain exceptions, modifications and amendments of the Note
Indenture may be made by the Company and the Note Trustee with the consent of
the Holders of 66 2/3% in aggregate principal amount of the outstanding
Promissory Notes; provided, however, that no such modification or amendment
may, without the consent of the Holder of each Promissory Note affected
thereby, (i) change the stated maturity date of the principal of or the due
date of any installment of interest on any Promissory Notes, (ii) reduce the
principal amount of, or interest on any Promissory Notes, (iii) change the
currency for, or manner of, payment of principal of, or interest on any
Promissory Notes, (iv) reduce the above-stated percentage of outstanding
Promissory Notes necessary to modify or amend the Indenture, (v) reduce the
16
<PAGE>
percentage of aggregate principal amount of outstanding Promissory Notes
necessary for waiver of compliance with certain provisions of the Note
Indenture or for waiver of certain defaults, or (vi) modify (with certain
exceptions) any provisions of the Note Indenture relating to the modification
and amendment of the Note Indenture or waiver of compliance with conditions
and defaults thereunder.
The Holders of at least 66 2/3% of the aggregate principal amount of the
outstanding Promissory Notes may waive compliance by the Company with certain
restrictive provisions of the Promissory Notes and any existing default under
the Note 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 Promissory
Notes.
Events of Default. The following are "Events of Default" under the Note
Indenture: (i) failure to pay interest on principal of (or premium, if any,
on) any Promissory Notes when due, (ii) failure of any representation or
warranty of the Company made in the Note Indenture to be true when made, and
(iii) certain events of bankruptcy, insolvency, dissolution or reorganization
in respect of the Company.
If an Event of Default occurs and is continuing, either the Note Trustee or
the Holders of at least 25% in aggregate principal amount of the outstanding
Promissory Notes may declare all of the Promissory Notes to be due and payable
immediately and in certain bankruptcy-related circumstances such Promissory
Notes may become immediately due and payable ipso facto without any act by the
Note Trustee or any Holders of Promissory Notes; provided, however, that the
Holders of a majority in aggregate principal amount of outstanding Promissory
Notes may rescind and annul such acceleration under certain circumstances.
No Holder has any right to institute any proceeding with respect to the Note
Indenture or for any remedy thereunder, unless such Holder has previously
given to the Note 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 Promissory Notes shall have made written request, and offered
reasonable indemnity, to the Note Trustee to institute such proceeding as
trustee, and the Note Trustee has not received from the Holders of a majority
in aggregate principal amount of the outstanding Promissory Notes a direction
inconsistent with such request and has failed to institute such proceeding
within 60 days.
Applicable Law. The Promissory Notes and the Note Indenture are governed by
and construed in accordance with the laws of the State of New York. The Note
Indenture is not expected to be subject to the Trust Indenture Act of 1939, as
amended.
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1995 regarding
beneficial ownership of the Common Stock of the Company by 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, and as of August 31, 1996, for each
director of the Company, the Chief Executive Officer and certain other
executive officers and 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)............ 5,373,748 34.3%
7711 Carondlet Avenue, Box 16900
St. Louis, Missouri 63105
State of Wisconsin Investment Board......... 1,491,000 9.6
P.O. Box 7842
Madison, Wisconsin 53707
Loomis, Sayles & Company(4)................. 1,195,876 7.7
One Financial Center
Boston, Massachusetts 02111
Richard C. Perry(5)......................... 1,150,000 7.3
2635 Century Parkway, N.E., Suite 1000
Atlanta, Georgia 30345
DIRECTORS
J. Larry Smart (CEO)(6)..................... 60,000 *
Ericson M. Dunstan(7)....................... 71,250 *
Chriss W. Street(8)......................... 36,700 *
Greg L. Reyes, Jr. ......................... 0 *
EXECUTIVE OFFICERS
Barbara V. Scherer.......................... 12,213 *
Lee N. Hilbert.............................. 1,419 *
Michael C. Downs............................ 0 *
Eric D. Herzog.............................. 0 *
Stephen Dalton.............................. 0 *
All Directors and Executive Officers as a
Group (9 persons).......................... 181,582 1.1%
</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 December 31,
1995. 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 Dividend Fund, Inc. (collectively, "Lindner") as of
December 31, 1995. Of the shares owned as of that date, 1,919,800 were
directly owned and 3,453,948 shares were indirectly owned through the
ownership of the Company's then
18
<PAGE>
outstanding 10% Convertible Subordinated Notes due 1998 and the Company's
6% Debentures. On April 5, 1996, the Company repurchased $10,000,000
aggregate principal amount of the 10% Notes and on June 28, 1996
repurchased the remaining $10,000,000 of the 10% Notes, at par, plus
accrued interest to the date of purchase, from Lindner. The Company on
March 29, 1996 issued to Lindner two-year warrants to purchase 1,500,000
shares priced at $4 per share. As of August 28, 1996, Lindner beneficially
owned 2,615,842 shares, of which 964,300 were directly owned, 151,542 were
indirectly owned through the ownership of 6% Debentures and 1,500,000 were
indirectly owned through the ownership of warrants, based upon the
Schedule 13G filed by Lindner on such date. 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) Loomis Sayles has informed the Company that it is the advisor to the
beneficial owners of, and is believed by the Company to have either sole
or shared investment power with respect to, the shares reported in the
table. All of the shares beneficially owned as of that date were
indirectly owned through the ownership of 6% Debentures. The 6% Debentures
are convertible into common stock at a price of $48.50 at any time prior
to redemption or maturity.
(5) As of June 3, 1996, Mr. Perry's holdings were reduced to 349,500 shares,
based upon the Schedule 13D filed by Mr. Perry on June 14, 1996.
(6) Includes 10,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, July 31, 1996.
(7) Includes 12,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, July 31, 1996.
(8) Includes 10,000 shares of Common Stock subject to options that were
exercisable on, or within 60 days after, July 31, 1996.
19
<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 D 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
October 7, 1996
20
<PAGE>
APPENDIX A-1
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
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<PAGE>
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
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<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
A1-3
<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.
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<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
A1-5
<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>
A1-6
<PAGE>
APPENDIX A-2
September 13, 1996
StreamLogic Corporation
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Mr. Larry Smart
Amendment to June 14, 1996 Agreement re:
Tender Offer for All Outstanding 6% Convertible Subordinated Debentures Due
2012
Dear Mr. Smart:
This letter sets forth out mutual understanding and agreement with respect
to amendments to the June 14, 1996 Agreement re: Tender Offer for All
Outstanding 6% Convertible Subordinated Debentures Due 2012 between Loomis,
Sayles & Co., L.P. and StreamLogic Corporation (the "Agreement"). Loomis
Sayles & Co., L.P. and StreamLogic Corporation hereby agree that the Agreement
shall be amended as follows:
1. Section 2 is amended by deleting it in its entirety and substituting the
following therefor:
"2. Timing. The Tender Offer shall close no later than October 21, 1996;
provided that, if based on SEC comments or otherwise, an extension of the
closing of the Tender Offer is required by applicable regulatory
requirements or law, the date by which the Tender Offer shall close shall
be the earlier of the date of the satisfaction of such requirements and
October 31, 1996. The date on which the Tender Offer closes 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."
2. clause (i) of Section 3 is amended by deleting it in its entirety and
substituting the following therefor:
"cash in the amount of $233.33 per Debenture to be paid as follows: (a)
cash paid on the Exchange Date in the amount of $120.00 per Debenture and
(b) an unsecured promissory note (the "Promissory Note") in the principal
amount of $133.33 per Debenture with a maturity on the second anniversary
of the Exchange Date and bearing interest at the per annum rate of 14% from
the Exchange Date until the day before the first anniversary of the
Exchange Date and 16% from the day of the first anniversary of the Exchange
Date until the day of the second anniversary of the Exchange Date.
StreamLogic may prepay the Promissory Note without penalty at any time. The
proceeds of any debt financing of StreamLogic (other than proceeds not in
excess of $4,000,000 at any time outstanding under StreamLogic's revolving
credit facility currently in place with Wells Fargo Bank, or any amendment
thereto or replacement thereof so long as the amount outstanding thereunder
does not at any time exceed $4,000,000) shall be applied, first, to
repayment of all amounts outstanding under the Promissory Note and,
thereafter, after all amounts outstanding under the Promissory Note have
been paid in full to other purposes of the financing determined by
StreamLogic and the financing entity;"
3. clause (ii) of Section 3 is amended by deleting it in its entirety and
substituting the following therefor:
"(ii) StreamLogic's common stock in the amount of 148.57143 shares of
common stock per Debenture (the "Exchange Shares");"
4. Clause (iii) of Section 3 is amended by deleting the first paragraph of
this clause in its entirety and substituting the following therefor:
"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 shall
A2-1
<PAGE>
have an initial exercise price of $5.25 per share of common stock (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 $2.28 (after taking into account any
stock splits, consolidations or similar transactions) (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
consecutive trading days the average (excluding the highest price and
lowest price) closing price of StreamLogic's common exceeds $6.56 (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 5 business days following the
last day of the Option Period.
5. Section 4 shall be amended by adding the following sentence after the
fifth sentence of Section 4:
"StreamLogic shall take all reasonable measures and efforts to limit the
length of the time after a Withdrawal Election during which the shelf
registration is not available to as short a period of time as is possible,
consistent with the reason for the Withdrawal Election, and shall terminate
each Withdrawal Election and the period during which the shelf registration
is not available as quickly as reasonably possible, consistent with the
reason for the Withdrawal Election."
the introductory paragraph of Section 5 shall be amended by deleting it in its
entirety and substituting the following therefor:
"5. Agreement to Tender. Loomis Sayles agrees that it will
(i) advise the institutional clients it advises as of the Closing
Date, and
(ii) use its reasonable best efforts consistent with its various
relationships with its institutional clients to cause its institutional
clients as of the Closing Date which hold Debentures as of the Closing
Date,
to tender all of the Debentures held by such institutional clients as of
the Closing Date to StreamLogic pursuant to the Tender Offer and not
withdraw prior to the closing Date the tender of any Debentures held by
them, if
(a) the Tender Offer includes each of the terms described in paragraphs 1
through 4 above, and
(b) each of the following terms and conditions are met to the
satisfaction of Loomis Sayles:"
6. clause (a) of Section 5 shall be amended by deleting it in entirety and
substituting the following therefor:
"(a) The Tender Offer shall have closed no later than October 21, 1996;
provided that, if based on SEC comments or otherwise, an extension of the
closing of the Tender Offer is required by applicable regulatory
requirements or law, the date by which the Tender Offer shall close shall
be the earlier of the date of the satisfaction of such requirements and
October 31, 1996;"
7. clause (d) of Section 5 shall be amended by deleting it in its entirety
and substituting the following therefor:
"(d) StreamLogic's board of directors shall have been expanded to seven
members, of which three (3) shall be persons designated in writing by
Loomis Sayles. StreamLogic and its management shall also have
A2-2
<PAGE>
agreed that StreamLogic's management will include in its slate of persons
nominated to be directors for election at the next meeting of shareholders
three persons designated in writing by Loomis Sayles. In the event that the
institutional clients of Loomis Sayles transfer more than eighty percent
(80%), in the aggregate, of the total aggregate number of Exchange Shares
and shares of common stock issued or issuable pursuant to the Warrants to
persons who are not advised by Loomis Sayles, the Loomis Sayles' right to
nominate directors shall terminate."
8. clause (a) of Section 6 shall be deleted in its entirety.
9. Exhibit A is amended by deleting it in its entirety and substituting
Exhibit A attached hereto therefor.
----------------
Each of Loomis, Sayles & Co., L.P. and StreamLogic Corporation hereby
reaffirm (i) the terms and conditions contained in the Agreement, as amended
hereby and (ii) that the Agreement, as amended hereby, is a legal, valid and
binding obligation of each of them on the terms set forth in the Agreement, as
amended hereby.
If this letter is satisfactory to you as a basis for proceeding with Tender
Offer, on the terms and conditions described in the Agreement, as amended
hereby, 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 & Co., L.P.
By: Loomis, Sayles & Co., Inc.
By Frederick D. Vyn
Title: Vice President
Agreed:
STREAMLOGIC CORPORATION
By Lee Hilbert
Title: Chief Financial Officer
A2-3
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
NO. OF SHARES,
TRANSACTION OPTIONS, WARRANTS
- ----------- -----------------
<S> <C>
Shares issued to FWB at Closing as of July 1, 1996
(subject to adjustment 120 days after closing)....... 1,256,123
Warrants outstanding to Salomon as of September 18,
1996................................................. 80,081 at an exercise
price of $5.00 per share
Warrants outstanding to Lindner as of September 18,
1996................................................. 1,500,000 at an exercise
price of $4.00 per share
STOCK OPTIONS:
Options outstanding September 18, 1996................ 1,657,300
Options expected to be granted by October 31, 1996.... 150,000
Total stock options................................. 1,807,300
</TABLE>
A2-4
<PAGE>
APPENDIX A-3
October 3, 1996
StreamLogic Corporation
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Mr. Larry Smart
Second Amendment to June 14, 1996 Agreement re:
Tender Offer for All Outstanding 6% Convertible Subordinated Debentures Due
2012
Dear Mr. Smart:
This letter sets forth out mutual understanding and agreement with respect
to amendments to the June 14, 1996 Agreement re: Tender Offer for All
Outstanding 6% Convertible Subordinated Debentures Due 2012 between Loomis
Sayles & Company, L.P. and StreamLogic Corporation, as amended by the
September 13, 1996 amendment to June 14, 1996 Agreement re: Tender Offer for
All Outstanding 6% Convertible Subordinated Debentures Due 2012 (the
"Agreement"). Loomis Sayles & Company, L.P. and StreamLogic Corporation hereby
agree that the Agreement shall be amended as follows:
1. Section 2 is amended by deleting it in its entirety and substituting the
following therefor:
"2. Timing. The Tender Offer shall close no later than November 4, 1996;
provided that, if based on SEC comments or otherwise, an extension of the
closing of the Tender Offer is required by applicable regulatory
requirements or law, the date by which the Tender Offer shall close shall
be the earlier of the date of the satisfaction of such requirements and
November 14, 1996. The date on which the Tender Offer closes 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."
2. clause (ii) of Section 3 is amended by deleting it in its entirety and
substituting the following therefor:
"(ii) StreamLogic's common stock in the amount of 216.6667 shares of common
stock per Debenture (the "Exchange Shares");"
3. Clause (iii) of Section 3 is amended by deleting the first paragraph of
this clause in its entirety and substituting the following therefor:
"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 shall have an
initial exercise price of $3.60 per share of common stock (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 $1.56 (after taking into account any stock
splits, consolidations or similar transactions) (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
A3-1
<PAGE>
references to the Reset Election upon exercise of the Reset Election with
respect to such Warrant. If at any time for a period of consecutive trading
days the average (excluding the highest price and lowest price) closing
price of StreamLogic's common exceeds $4.50 (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 5 business days following the last day of the Option Period.
4. clause (a) of Section 5 shall be amended by deleting it in entirety and
substituting the following therefor:
"(a) The Tender Offer shall have closed no later than November 4, 1996;
provided that, if based on SEC comments or otherwise, an extension of the
closing of the Tender Offer is required by applicable regulatory
requirements or law, the date by which the Tender Offer shall close shall
be the earlier of the date of the satisfaction of such requirements and
November 14, 1996;"
5. clause (d) of Section 5 shall be amended by deleting it in its entirety
and substituting the following therefor:
"(d) StreamLogic's board of directors shall have been expanded to seven
members, of which two (2) shall be persons designated in writing by Loomis
Sayles. StreamLogic hereby agrees that it will take all actions reasonably
necessary, and will cause its management to take all actions reasonably
necessary, to include in management's slate of persons nominated to be
directors for election at the next meeting of shareholders two (2) persons
designated in writing by investors advised by Loomis Sayles. In the event
that the investors advised by Loomis Sayles hold less than twenty-eight
(28%), in the aggregate, of the total aggregate number of shares of common
stock of StreamLogic outstanding, the right of such investors to nominate
directors shall terminate. Loomis Sayles may in its discretion require each
person designated by investors advised by Loomis Sayles to be a member of
StreamLogic's board of directors to agree to take measures designated by
Loomis Sayles which are intended to prevent nonpublic information from
being communicated to Loomis Sayles or investors advised by Loomis Sayles
unless Loomis Sayles determines that receiving nonpublic information is in
the best interests of the investors advised by Loomis Sayles."
----------------
Each of Loomis Sayles & Company, L.P. and StreamLogic Corporation hereby
reaffirm (i) the terms and conditions contained in the Agreement, as amended
hereby and (ii) that the Agreement, as amended hereby, is a legal, valid and
binding obligation of each of them on the terms set forth in the Agreement, as
amended hereby.
If this letter is satisfactory to you as a basis for proceeding with Tender
Offer, on the terms and conditions described in the Agreement, as amended
hereby, 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 & Company, L.P.
By: Loomis Sayles & Company, Inc.
By Frederick D. Vyn
Title: Vice President
Agreed:
STREAMLOGIC CORPORATION
By Lee Hilbert
Title: Chief Financial Officer
A3-2
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STREAMLOGIC CORPORATION
$8,500,000
Increasing Rate Unsecured Promissory Notes
due , 1998
----------------
INDENTURE
Dated as of , 1996
[TRUSTEE]
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE...................... B-1
Section 1.01. Definitions............................................. B-1
Section 1.02. Other Definitions....................................... B-2
Section 1.03. Incorporation by Reference of Trust Indenture Act ...... B-2
Section 1.04. Rules of Construction................................... B-2
ARTICLE 2 THE SECURITIES.................................................. B-3
Section 2.01. Form and Dating......................................... B-3
Section 2.02. Execution and Authentication............................ B-3
Section 2.03. Registrar and Paying Agent.............................. B-3
Section 2.04. Paying Agent to Hold Money in Trust..................... B-3
Section 2.05. Securityholder Lists.................................... B-4
Section 2.06. Transfer and Exchange................................... B-4
Section 2.07. Replacement Securities.................................. B-4
Section 2.08. Outstanding Securities.................................. B-4
Section 2.09. Cancellation............................................ B-4
Section 2.10. Defaulted Interest...................................... B-5
ARTICLE 3 COVENANTS....................................................... B-5
Section 3.01. Payment of Securities................................... B-5
Section 3.02. SEC Reports............................................. B-5
Section 3.03. Mandatory Redemption Upon Debt Financing................ B-5
ARTICLE 4 SUCCESSORS...................................................... B-6
ARTICLE 5 DEFAULTS AND REMEDIES........................................... B-6
Section 5.01. Events of Default....................................... B-6
Section 5.02. Acceleration............................................ B-6
Section 5.03. Other Remedies.......................................... B-7
Section 5.04. Waiver of Past Defaults................................. B-7
Section 5.05. Control by Majority..................................... B-7
Section 5.06. Limitation on Suits..................................... B-7
Section 5.07. Rights of Holders to Receive Payment.................... B-7
Section 5.08. Collection Suit by Trustee.............................. B-8
Section 5.09. Trustee May File Proofs of Claim........................ B-8
Section 5.10. Priorities.............................................. B-8
ARTICLE 6 TRUSTEE......................................................... B-8
Section 6.01. Duties of Trustee....................................... B-8
Section 6.02. Rights of Trustee....................................... B-9
Section 6.03. Individual Rights of Trustee ........................... B-9
Section 6.04. Trustee's Disclaimer.................................... B-9
Section 6.05. Notice of Defaults...................................... B-9
Section 6.06. Reports by Trustee to Holders........................... B-9
Section 6.07. Compensation and Indemnity.............................. B-10
Section 6.08. Replacement of Trustee.................................. B-10
Section 6.09. Successor Trustee by Merger, etc........................ B-11
Section 6.10. Eligibility; Disqualification........................... B-11
Section 6.11. Preferential Collection of Claims Against Company....... B-11
ARTICLE 7 REDEMPTION AND PREPAYMENT....................................... B-11
Section 7.01. Notices to Trustee...................................... B-11
Section 7.02. Selection of Securities to Be Redeemed.................. B-11
Section 7.03. Notice of Redemption.................................... B-12
Section 7.04. Effect of Notice of Redemption.......................... B-12
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 7.05. Deposit of Redemption Price............................ B-12
Section 7.06. Securities Redeemed in Part............................ B-13
Section 7.07. Optional Redemption.................................... B-13
Section 7.08. Mandatory Redemption................................... B-13
Section 7.09. Redemption by Application of Debt Financing Proceeds... B-13
ARTICLE 8 AMENDMENTS...................................................... B-13
Section 8.01. Without Consent of Holders............................. B-13
Section 8.02. With Consent of Holders................................ B-14
Section 8.03. Compliance with Trust Indenture Act.................... B-14
Section 8.04. Revocation and Effect of Consents...................... B-14
Section 8.05. Notation on or Exchange of Securities ................. B-15
Section 8.06. Trustee Protected...................................... B-15
ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... B-15
Section 9.01. Due Incorporation; Good Standing....................... B-15
Section 9.02. Due Authorization...................................... B-15
Section 9.03. Enforceability......................................... B-15
ARTICLE 10 MISCELLANEOUS.................................................. B-16
Section 10.01. Trust Indenture Act Controls........................... B-16
Section 10.02. Notices................................................ B-16
Section 10.03. Communication by Holders with Other Holders............ B-16
Section 10.04. Certificate as to Conditions Precedent ................ B-16
Section 10.05. Statements Required in Certificate..................... B-16
Section 10.06. Rules by Trustee and Agents............................ B-17
Section 10.07. Legal Holidays......................................... B-17
Section 10.08. No Recourse Against Others ............................ B-17
Section 10.09. Counterparts .......................................... B-17
Section 10.10. Variable Provisions ................................... B-17
Section 10.11. Governing Law ......................................... B-17
Section 10.12. No Adverse Interpretation of Other Agreements.......... B-18
Section 10.13. Successors ............................................ B-18
Section 10.14. Severability .......................................... B-18
Section 10.15. Photocopies............................................ B-18
Section 10.16. Table of Contents, Headings, Etc. ..................... B-18
</TABLE>
ii
<PAGE>
INDENTURE dated as of , 1996 between StreamLogic Corporation,
a Delaware corporation ("Company"), and [TRUSTEE] ("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's Increasing Rate
Unsecured Promissory Notes due , 1998 ("Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Agent" means any Registrar, Paying Agent, or co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board.
"Company" means the party named as such above until a successor replaces it
in accordance with Article 4 and thereafter means the successor.
"Company Order" means a written order signed in the name of the Company by
two Officers, one of whom must be the Company's principal executive officer,
principal financial officer or principal accounting officer.
"Credit Agreement" means the revolving credit facility, dated as of July 1,
1996, between the Company and Wells Fargo Bank, N.A., or any amendment thereto
or replacement thereof so long as the amount outstanding thereunder does not
at any time exceed $4,000,000.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any bankruptcy Law.
"Default" means any event which is, or after notice or passage of time would
be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Securityholder" means a person in whose name a Security is
registered.
"Indenture" means this Indenture as amended from time to time.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the Company's principal executive officer, principal financial
officer or principal accounting officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date of execution of this Indenture.
B-1
<PAGE>
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means any officer in the principal corporate trust office of
the Trustee or any other officer or assistant officer of the Trustee assigned
by the Trustee to administer its corporate trust matters.
"Warrant Agreement" means the Warrant Agreement, dated as of ,
1996 between the Company and Wells Fargo Bank, N.A., as Warrant Agent.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- ----------
<S> <C>
"Bankruptcy Law"................................................. 5.01
"Event of Default"............................................... 5.01
"Financing Redemption"........................................... 7.09
"Legal Holiday".................................................. 10.07
"Officer"........................................................ 10.10
"Paying Agent"................................................... 2.03
"Registrar"...................................................... 2.03
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and in the plural include
the singular; and
(4) provisions apply to successive events and transactions.
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ARTICLE 2
THE SECURITIES
Section 2.01. Form and Dating.
The Securities shall be substantially in the form of Exhibit A, which is
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Security
shall be dated the date of its authentication.
The terms and provisions contained in the Securities shall constitute, and
are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain within or without the Borough of Manhattan, City
of New York, State of New York, and in such additional locations as it shall
determine (i) an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar") and (ii) an office or
agency where Securities may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent, Registrar or co-
registrar without prior notice to any Securityholder. The Company shall notify
the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent, Registrar or co-registrar.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay
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all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary)
shall have no further liability for the money. If the Company or a Subsidiary
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Securityholders all money held by it as Paying Agent.
Section 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee on or before each interest payment date and at such
other times as the Trustee may request in writing a list in such form and as
of such date as the Trustee may reasonably require of the names and addresses
of Securityholders.
Section 2.06. Transfer and Exchange.
Where Securities are presented to the Registrar or a co-registrar with a
request to register a transfer or to exchange them for an equal principal
amount of Securities of other denominations, the Registrar shall register the
transfer or make the exchange if its requirements for such transactions are
met. To permit registrations of transfers and exchanges, the Company shall
issue and the Trustee shall authenticate Securities at the Registrar's
request. No service charge shall be made for any registration of transfer or
exchange (except as otherwise expressly permitted herein), but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Section 8.05).
Section 2.07. Replacement Securities.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be sufficient
in the judgment of both to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Security
is replaced. The Company may charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
Section 2.08. Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 3.01, they cease to be
outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company or an
affiliate of the Company holds the Security.
Section 2.09. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
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payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall dispose
of cancelled Securities as the Company directs. Except as otherwise provided
in Sections 2.06, 2.07 and 8.05, the Company may not issue new Securities to
replace Securities that it has paid or that have been delivered to the Trustee
for cancellation.
Section 2.10. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on
a subsequent special record date, in each case at the rate provided in the
Securities and in Section 3.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each
Security and the date of the proposed payment. The Company shall fix or cause
to be fixed each such special record date and payment date, provided that no
such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, the Company shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount
of such interest to be paid.
ARTICLE 3
COVENANTS
Section 3.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities on the
dates and in the manner provided in the Securities. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or a subsidiary) holds on that date money designated for and
sufficient to pay all principal and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
2% per annum in excess of the then applicable interest rate on the Securities,
compounded quarterly, or at the maximum rate permitted by law, whichever is
less; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate, compounded
quarterly, or at the maximum rate permitted by law, whichever is less.
Section 3.02. SEC Reports.
The Company shall deliver to the Trustee within 15 days after it files them
with the SEC copies of the annual reports and of the information, documents,
and other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA (S) 314(a). This
Section 3.02 shall only be applicable at such times, if any, as this Indenture
is subject to the TIA.
Section 3.03. Mandatory Redemption Upon Debt Financing.
The Company shall apply the net proceeds of any debt financing of the
Company (other than proceeds not in excess of $4 million at any time
outstanding under the Credit Agreement) to the repayment of all amounts
outstanding under the Securities until all amounts due under the Securities
are paid and satisfied in full.
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ARTICLE 4
SUCCESSORS
Upon any consolidation or merger of the Company, the successor corporation
formed by such consolidation or into or with which the Company is merged shall
assume all the obligations of the Company under the Securities and hereunder,
and shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor person has been named as the Company herein.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.01. Events of Default.
An "Event of Default" occurs if:
(1) any payment of principal, interest, premium (if any) or any other sum
required to be paid under any Security is not made when due,
(2) any of the representations and warranties of the Company contained
herein are not true, complete and correct in every respect when made,
(3) the Company shall suffer or consent to or apply for the appointment
of a receiver, trustee, custodian or liquidator of itself or any of its
material properties, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of
creditors,
(4) the Company shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under any Bankruptcy Law; or any involuntary
petition or proceeding pursuant to any Bankruptcy Law is filed or commenced
against the Company, which petition or proceeding (a) results in the entry
of an order for relief or any such adjudication of relief, or (b) remains
unreleased, undischarged, or unbonded for a period of sixty (60) days, or
(c) the Company files an answer admitting jurisdiction of the court and the
material allegations of the petition,
(5) the Company shall be adjudicated a bankrupt, or an order for relief
shall be entered by any court of competent jurisdiction under any
Bankruptcy Law, or
(6) the dissolution or liquidation of the Company, or the Company or a
majority of the directors or majority of the shareholders of the Company
shall take action seeking to effect the dissolution or liquidation of the
Company.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or State law for the relief of debtors.
Section 5.02. Acceleration.
If an Event of Default (other than an Event of Default specified in clauses
(3), (4) and (5) of Section 5.01) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of
the then outstanding Securities by notice to the Company and the Trustee, may
declare the unpaid principal of and any accrued interest on all the Securities
to be due and payable. Upon such declaration the principal and interest shall
be due and payable immediately. If an Event of Default specified in clause
(3), (4) or (5) of Section 5.01 occurs, such an amount shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Securities by notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured
or waived.
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Section 5.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
Section 5.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a Default or Event of Default in the
payment of the principal of or interest on any Security.
Section 5.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
other Securityholders, or would involve the Trustee in personal liability.
Section 5.06. Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 5.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
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Section 5.08. Collection Suit by Trustee.
If an Event of Default specified in Section 5.01(1) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 5.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and
the Securityholders allowed in any judicial proceedings relative to the
Company, its creditors or its property. Nothing contained herein shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Securityholder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
Section 5.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out
the money in the following order:
First: to the Trustee for amounts due under Section 6.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
ARTICLE 6
TRUSTEE
Section 6.01. Duties of Trustee.
(1) If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
(A) The Trustee need perform only those duties that are specifically set
forth in this Indenture and no others.
(B) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee
and conforming to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own wilful misconduct, except
that:
(A) This paragraph does not limit the effect of paragraph (2) of this
Section.
(B) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
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(C) The Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it pursuant to Section 5.05.
(4) Every provision of this Indenture that in any way relates to the Trustee
is subject to paragraphs (1), (2) and (3) of this Section.
(5) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(6) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 6.02. Rights of Trustee.
(1) The Trustee may rely on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel.
(3) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within its rights or
powers.
Section 6.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights. However, the Trustee is subject to Sections 6.10
and 6.11.
Section 6.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or any statement in the Securities
other than its authentication.
Section 6.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known
to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security, the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.
Section 6.06. Reports by Trustee to Holders.
Within 60 days after May 15 of each year in which any Securities are
outstanding beginning with the May 15 following the date of this Indenture,
the Trustee shall mail to Securityholders a brief report dated as of such May
15 that complies with TIA (S) 313(a) but only if such report is required by
TIA (S) 313(a). The Trustee
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also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by
mail all reports to the persons described in TIA (S) 313(c).
A copy of each report at the time of its mailing to Securityholders shall be
filed with the SEC and each stock exchange on which the Securities are listed.
The Company shall notify the Trustee when the Securities are listed on any
stock exchange.
The provisions of this Section 6.06 shall only be applicable at such times,
if any, as this Indenture is subject to the TIA.
Section 6.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable out-of-
pocket expenses incurred by it. Such expenses may include the reasonable
compensation and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.01(3), (4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 6.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding
Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee
shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, subject to the lien provided
for in Section 6.07. Notwithstanding replacement of the Trustee pursuant to
this Section 6.08, the Company's obligations under Section 6.07 hereof shall
continue for the benefit of the retiring trustee with respect to expenses and
liabilities incurred by it prior to such replacement.
Section 6.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 6.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements of
TIA (S) 310(a)(1). The Trustee shall always have a combined capital and
surplus of at least $100,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA (S) 310(b).
Section 6.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 7
REDEMPTION AND PREPAYMENT
Section 7.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of Section 7.07 hereof, it shall furnish to the Trustee,
at least 15 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the redemption date, and (ii) the
principal amount of Securities to be redeemed.
Section 7.02. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed among the Holders of the
Securities on a pro rata basis, by lot or in accordance with any other method
the Trustee considers fair and appropriate. In the event of partial redemption
by lot, the particular Securities to
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be redeemed shall be selected, unless otherwise provided herein, not less than
15 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Securities not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Security selected for partial
redemption, the principal amount thereof to be redeemed. Securities and
portions of Securities selected shall be in amounts of $1,000 or whole
multiples of $1,000; except that if all of the Securities of a Holder are to
be redeemed, the entire outstanding amount of Securities held by such Holder,
even if not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
Section 7.03. Notice of Redemption.
At least 15 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Securities are to be redeemed at its
registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Security;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price; and
(6) that, unless the Company defaults in making such redemption payment,
interest on Securities called for redemption ceases to accrue on and after
the redemption date.
At the Company's request, the Trustee shall give the notice of redemption in
the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 30 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice
and setting forth the information to be stated in such notice as provided in
the preceding paragraph.
Section 7.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 7.03 hereof,
Securities called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 7.05. Deposit of Redemption Price.
One business day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Securities to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Securities to be redeemed.
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If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the
Securities or the portions of Securities called for redemption. If a Security
is redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to
the Person in whose name such Security was registered at the close of business
on such record date. If any Security called for redemption shall not be so
paid upon surrender for redemption because of the failure of the Company to
comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case
at the rate provided in the Securities.
Section 7.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
Section 7.07. Optional Redemption.
(1) At any time and from time to time prior to the maturity of the
Securities, the Company shall have the option to redeem the Securities, in
whole or in part, at 100% of the principal amount thereof plus accrued and
unpaid interest to the applicable redemption date; provided, however, that
(i) prepayments shall first be applied to payment of accrued and unpaid
interest and fees due to the Holders hereunder, if any, and (ii) each
prepayment of principal hereunder shall be in an amount not less than
$500,000.00, after payment of accrued an unpaid interest and fees due to
the Holders hereunder, if any.
(2) Any redemption pursuant to this Section 7.07 shall be made pursuant
to the provisions of Section 7.01 through 7.06 hereof.
Section 7.08. Mandatory Redemption.
Except as set forth under Section 3.03 hereof, the Company shall not be
required to make mandatory redemption payments with respect to the Securities.
Section 7.09. Redemption by Application of Debt Financing Proceeds.
(1) In the event that, pursuant to Section 3.03 hereof, the Company shall
be required to apply the proceeds of a debt financing to the purchase of
Securities (a "Financing Redemption"), it shall, within 5 days of the
consummation of such financing, furnish to the Trustee an Officers'
Certificate setting forth (i) the date of the consummation of such
financing, (ii) the gross and net proceeds of such financing, (iii) the
redemption date for the Financing Redemption, which date shall be at least
15 but not more than 30 days after consummation of such financing, and (iv)
the principal amount of Securities to be redeemed.
(2) Any redemption pursuant to this Section 7.09 shall be made pursuant
to the provisions of the immediately preceding paragraph and Section 7.02
through 7.06 hereof.
ARTICLE 8
AMENDMENTS
Section 8.01. Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or the
Securities without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that such
amendment or supplement does not adversely affect the rights of any
Securityholder; or
(2) to make any change that does not adversely affect the legal rights
hereunder of any Securityholder.
B-13
<PAGE>
Section 8.02. With Consent of Holders.
Subject to Section 5.07, the Company and the Trustee may amend this
Indenture or the Securities with the written consent of the Holders of at
least 66 2/3% in principal amount of the then outstanding Securities. Subject
to Sections 5.04 and 5.07, the Holders of 66 2/3% in principal amount of the
Securities then outstanding may also permit non-compliance in a particular
instance by the Company with any provision of this Indenture or the
Securities. However, without the consent of each Securityholder affected, an
amendment or permitted non-compliance under this Section may not:
(1) change the amount of Securities whose Holders must consent to an
amendment, supplement or waiver of any provision of this Indenture or the
Notes;
(2) reduce the rate of or extend the time for payment of interest on any
Security;
(3) reduce the principal of or change the fixed maturity of any Security;
(4) make the principal of, or interest on, any Security payable with
anything or in any manner other than as provided for in this Indenture and
the Securities as in effect on the date hereof;
(5) make any change in Section 5.04, 5.07 or 8.02 (this sentence); or
(6) waive a default in the payment of the principal of, or interest on,
any Security.
To secure a consent of the Holders under this Section, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the
amendment or waiver.
Section 8.03. Compliance with Trust Indenture Act.
At such times, if any, as this Indenture is subject to the TIA, every
amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 8.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives
the notice of revocation before the date on which the Trustee receives an
Officer's Certificate certifying that the Holders of the requisite principal
amount of Securities have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after
such record date. No consent shall be valid or effective for more than 90 days
after such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1)
through (6) of Section 8.02. In such case, the amendment or waiver shall bind
B-14
<PAGE>
each Holder of a Security who has consented to it and every subsequent Holder
of a Security that evidences the same debt as the consenting Holder's
Security.
Section 8.05 Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or waiver
on any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 8.06. Trustee Protected.
The Trustee shall sign all supplemental indentures, except that the Trustee
need not sign any supplemental indenture that adversely affects its rights.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants the following:
Section 9.01 Due Incorporation; Good Standing.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated. The
Company is duly qualified or licensed to do business and is in good standing
as a foreign corporation in all jurisdictions in which the failure to obtain
such qualification or licensing could reasonably be expected to have a
material adverse effect on the business or financial condition of the Company.
The Company has all requisite corporate power and authority to conduct its
business, to own, lease, sell or otherwise dispose of property, and to enter
into and perform this Agreement.
Section 9.02 Due Authorization.
The Securities have been duly authorized by all necessary corporate action
on the part of the Company. Neither the execution and delivery nor the
performance of the Securities (i) conflicts with the certificate of
incorporation or by-laws of the Company, (ii) violates any law, regulation or
ordinance, or any order or ruling of any court or governmental entity,
applicable to the Company or (iii) results in a breach or violation of, or
constitutes a default under, any agreement or instrument to which the Company
is a party or by which it or any of its properties or assets are bound other
than any breach or violation which could not reasonably be expected to have a
material and adverse effect on (a) the business, operations, properties,
assets or financial condition of the Company, or (b) the ability of the
Company to perform its obligations under any material agreement in accordance
with its terms.
Section 9.03 Enforceability.
The Securities, when issued and authenticated in accordance with the terms
of this Indenture and delivered against receipt of tendered 6% Convertible
Subordinated Debentures due 2012 of the Company in accordance with the terms
of the Company's Offer to Exchange dated October 7, 1996, will be the legally
valid and binding obligations of the Company, enforceable against the Company
in accordance with their terms, subject (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforcement is considered in a proceeding
at law or in equity.
B-15
<PAGE>
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
At such times, if any, as this Indenture is subject to the TIA, if any
provision of this Indenture limits, qualifies, or conflicts with the duties
imposed by the TIA, the TIA shall control.
Section 10.02. Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class mail
to the other's address stated in Section 10.10. The Company or the Trustee by
notice to the other may designate additional or different addresses for
subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by first-
class mail to his address shown on the register kept by the Registrar. Failure
to mail a notice or communication to a Securityholder or any defect in it
shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives
it.
If the Company mails a notice or communication to Securityholders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 10.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
Section 10.04. Certificate as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with.
Section 10.05. Statements Required in Certificate.
Each certificate with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate pursuant to TIA (S)
314(a)(4)) shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
B-16
<PAGE>
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 10.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for
the intervening period.
Section 10.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Securities
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
Section 10.09. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
Section 10.10. Variable Provisions.
"Officer" means the Chairman of the Board, the President, any Vice-
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The Company's address is:
StreamLogic Corporation
21329 Nordhoff Street
Chatsworth, California 91311
Attn: Treasurer
The Trustee's address is:
[TRUSTEE]
-------------------------
-------------------------
Attention:
Section 10.11. Governing Law.
The internal laws of the State of New York shall govern this Indenture and
the Securities, without regard to the conflict of laws provisions thereof.
B-17
<PAGE>
Section 10.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 10.13. Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 10.14. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 10.15. Photocopies.
In any action on a Security, the Holder or its assignee need not produce or
file the original of such Security, but need only file a photocopy of such
Security certified by the Holder or such buyer, transferee or assignee to be a
true and correct copy of the Security in all material respects.
Section 10.16. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
B-18
<PAGE>
SIGNATURES
Dated: as of , 1996 STREAMLOGIC CORPORATION
By __________________________________
Attest:
_____________________________________
(SEAL)
Dated: as of , 1996 [TRUSTEE]
By __________________________________
(SEAL)
<PAGE>
EXHIBIT A
(FACE OF SECURITY)
R- $
STREAMLOGIC CORPORATION
INCREASING RATE NOTE
DUE , 1998
StreamLogic Corporation, a Delaware corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received promises to pay to or registered assigns,
the principal sum of of Dollars on , 1998.
<TABLE>
<S> <C>
Interest Payment Dates: March 31, June 30, September 30 and December 31
Record Dates: March 15, June 15, September 15 and December 15
</TABLE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which will for all purposes have the same effect
as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers and a facsimile of
its corporate seal to be reproduced on this Security.
CERTIFICATE OF AUTHENTICATION: This is one of the Securities described
within the within-mentioned Indenture.
Dated:
[TRUSTEE] STREAMLOGIC CORPORATION
as Trustee
By __________________________________ By __________________________________
Authorized Signature
By __________________________________
(SEAL)
B-A-1
<PAGE>
(BACK OF SECURITY)
STREAMLOGIC CORPORATION
INCREASING RATE NOTE DUE , 1998
1. Interest. The Company promises to pay interest on the principal amount of
this Security (i) from and after , 1996 through ,
1997, at a rate of fourteen percent (14%) per annum, and (ii) thereafter, at a
rate of sixteen percent (16%) per annum. Interest on the amount outstanding
hereunder from time to time shall be computed on the basis of a 360-day year,
actual days elapsed, from and including the date of the Securities until, but
not including, the date of payment of all amounts due hereunder. The first
payment of interest on the Securities shall be due and payable in arrears on
December 31, 1996 for the period from date of the Securities through December
31, 1996 and thereafter interest shall be due and payable quarterly in arrears
on each March 31, June 30, September 30 and December 31.
2. Method of Payment. The Company will pay interest on the Securities to the
persons who are registered holders of Securities at the close of business on
the record date for the next interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. Principal and
interest on the Securities will be payable at the office or agency of the
Company maintained for such purpose within or without the City and State of
New York, or, at the option of the Company, payment of interest may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders; provided that payment by wire transfer of immediately available funds
will be required with respect to principal of and interest on all Securities
the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
At any time and from time to time the Holder of this Security may elect not
to accept cash as payment of principal and/or interest due hereunder, but,
instead, may offset on a dollar for dollar basis any amounts payable by the
Holder of this Security to the Company under the Warrant Agreement from time
to time against principal and/or interest due at that time hereunder. If the
Holder hereof desires to exercise this election, it shall give written notice
of such election to the Company and the Paying Agent not less than five days
prior to the day that the principal and/or interest becomes due and payable.
Such written notice shall include a statement of the amount owing by the
Holder of this Security under the Warrant Agreement and the amount to be
offset against principal and/or interest owing under this Security.
3. Paying Agent and Registrar. The Trustee will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-registrar
without prior notice. The Company or any of its Subsidiaries may act in any
such capacity.
4. Indenture. The Company issued the Securities under an Indenture dated as
of , 1996 (the "Indenture") between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and are subject
to, and qualified by, all such terms, certain of which are summarized hereon,
and Securityholders are referred to the Indenture for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $8,500,000 in aggregate principal amount.
5. Transfer, Exchange. The Securities are in registered form without
coupons. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
6. Persons Deemed Owners. The registered holder of a Security may be treated
as its owner for all purposes.
B-A-2
<PAGE>
7. Amendments and Waivers. Subject to certain exceptions, the Indenture or
the Securities may be amended with the consent of the holders of at least 66
2/3% in principal amount of the then outstanding Securities, and any existing
default may be waived with the consent of the holders of at least a majority
in principal amount of the then outstanding Securities, except a waiver of any
default in the payment of principal of or interest on any Security. Without
the consent of any Securityholder, the Indenture or the Securities may be
amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's obligations to Securityholders or to make any
change that does not adversely affect the rights of any Securityholder.
8. Defaults and Remedies. An Event of Default is: default in payment of
interest on the Securities; default in payment of principal on them; any of
the Company's representations and warranties shall be not true, complete or
correct when made; certain events of bankruptcy or insolvency; and dissolution
or liquidation of the Company. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be due and
payable immediately, except that in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, all outstanding Securities
become due and payable immediately without further action or notice.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Securities. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power.
9. Trustee Dealings with Company. [TRUSTEE], the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its affiliates, and may
otherwise deal with the Company or its affiliates, as if it were not Trustee.
10. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
11. Authentication. This Security shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
12. Successors. When a successor assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor will be
released from those obligations.
13. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Request may be made to: Treasurer, StreamLogic
Corporation 21329 Nordhoff Street, Chatsworth, California 91311.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture unless otherwise defined
herein.
B-A-3
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Please insert social security or other identification number of assignee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
________________________________________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ______________ Your Signature: _______________________________
_______________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guaranteed:
- -------------------------------
Signature must be guaranteed
by a member of an approved Signature
Guarantee Medallion Program
B-A-4
<PAGE>
APPENDIX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
BETWEEN
STREAMLOGIC CORPORATION
AND
WELLS FARGO BANK, N.A.
AS WARRANT AGENT
----------------
DATED AS OF , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. Definitions............................................... 1
Section 2. Issuance; Form of Warrant; Execution; Registration........ 3
2.1 Issuance.................................................. 3
2.2 Form of Warrant; Execution of Warrants.................... 3
2.3 Registration.............................................. 3
2.4 Countersignature of Warrants.............................. 4
Section 3. Transfer and Exchange of Warrants......................... 4
Section 4. Term of Warrants; Exercise of Warrants; Adjustments of
Exercise Price; Compliance with Government Regulations;
Redemption................................................ 4
4.1 Term of Warrants.......................................... 4
4.2 Exercise of Warrants...................................... 5
Reset of Exercise Price and Early Termination of Exercise
4.3 Period.................................................... 5
Compliance with Government Regulations: Registration Under
4.4 the Securities Act........................................ 6
Section 5. Payment of Taxes and Fees................................. 7
Section 6. Mutilated or Lost Warrant Certificates.................... 7
Section 7. Reservation of Warrant Shares............................. 7
Section 8. Adjustment of Exercise Price; Number of Warrant Shares and
Shares of Capital Stock Warrants Are Exercisable Into..... 7
8.1 Pricing and Share Adjustments............................. 7
8.2 Notice of Adjustment...................................... 12
Preservation of Purchase Rights upon Merger or
8.3 Consolidation............................................. 12
Section 9. Fractional Interests...................................... 12
Section 10. No Rights as Stockholders; Notices to Holders............. 13
Section 11. By the Company............................................ 13
11.1 Legal Status; Qualification............................... 13
11.2 No Conflicts.............................................. 14
11.3 Binding and Enforceable................................... 14
Section 12. Payments in U.S. Currency................................. 14
Merger or Consolidation or Change of Name of Warrant
Section 13. Agent..................................................... 14
Section 14. Appointment of Warrant Agent.............................. 14
14.1 Obligations of the Warrant Agent.......................... 15
Section 15. Change of Warrant Agent................................... 16
Section 16. Notices................................................... 17
Section 17. Cancellation of Warrants.................................. 17
Section 18. Supplements and Amendments................................ 17
Section 19. Successors................................................ 17
Section 20. Applicable Law............................................ 17
Section 21. Benefits of this Agreement................................ 18
Section 22. Records................................................... 18
Section 23. Counterparts.............................................. 18
Section 24. Captions.................................................. 18
</TABLE>
i
<PAGE>
WARRANT AGREEMENT, dated as of , 1996, between STREAMLOGIC
CORPORATION, a Delaware corporation (the "Company"), and WELLS FARGO BANK,
N.A., a national banking association, as Warrant Agent (together with any
successors and assigns, the "Warrant Agent").
WITNESSETH:
WHEREAS, StreamLogic Corporation is the issuer of 6% Convertible
Subordinated Debentures Due 2012 in the original face amount of $75,000,000
(collectively, the "Debentures");
WHEREAS, the Company has made a tender offer (the "Tender Offer") to all
holders of the Debentures pursuant to which the Company offered to exchange
all of the Debentures for cash, increasing rate unsecured promissory notes,
common stock of the Company and warrants to purchase common stock of the
Company (the "Warrants"), as more fully described below;
WHEREAS, the Company desires to issue the Warrants, each of which entitles
the holder thereof to purchase one share of the Company's common stock (each
of said shares of common stock deliverable upon exercise of the Warrants, a
"Warrant Share"); and
WHEREAS, the Company wishes the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act in connection with the
issuance, division, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the foregoing, to implement the terms of
the Tender Offer, and for the purpose of defining the terms and provisions of
the Warrants and the respective rights and obligations thereunder of the
Company and the registered owners of the Warrants and any security into which
they may be exchanged (the "Holders"), the Company and the Warrant Agent
hereby agree as follows:
SECTION 1. DEFINITIONS.
The following terms, as used herein, have the following meanings (all terms
used herein in the singular to have the correlative meanings when used in the
plural and vice versa):
1.1 "Agreement" means this Warrant Agreement, as the same may be amended,
modified or supplemented from time to time.
1.2 "Business Day" means a day other than (a) a Saturday or Sunday, (b) any
day on which banking institutions located in the City of Los Angeles,
California, are required or authorized by law or by local proclamation to
close or (c) any day on which shares are not traded on the NASDAQ National
Market System.
1.3 "Common Stock" shall have the meaning ascribed to such term in Section
8.1(i).
1.4 "Common Stock Price" on any date of determination shall mean the last
reported sale price regular way of the shares of Common Stock on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading, or if such shares are not listed or admitted to trading
on any national securities exchange, on the Nasdaq National Market System (or,
if no reported sale takes place on such day, the average of the closing bid
and asked prices on such day on such exchange or the Nasdaq National Market
System). If the shares of Common Stock are not listed or admitted to trading
on any national securities exchange or authorized for quotation on the Nasdaq
National Market System, "Common Stock Price" shall mean the average of the
closing bid and asked quotations as reported by The Nasdaq Small Cap Market
for such day, or if the shares of Common Stock are not authorized for
quotation on The Nasdaq Stock Market, the average of the closing bid and asked
quotations as furnished by two member firms of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose, or if no such quotations are available, as determined in good faith
by the disinterested non-employee members of the Board of Directors of the
Company. In determining the Common Stock Price, the Warrant Agent shall be
entitled to rely on such prices
C-1
<PAGE>
as may be published in The Wall Street Journal, The New York Times or any
other financial publication of like stature or as may be provided to the
Warrant Agent for such purpose by an authorized employee or agent of the
Company.
1.5 "Convertible Securities" has the meaning ascribed to such term in
Section 8.1(d) hereof.
1.6 "Early Expiration Date" has the meaning ascribed to such term in Section
4.3(b).
1.7 "Early Expiration Election" has the meaning ascribed to such term in
Section 4.3(b).
1.8 "Early Expiration Trigger Date" has the meaning ascribed to such term in
Section 4.3(b).
1.9 "Exchange Date" means [insert the date on which the Company exchanges
Debentures tendered to the Company pursuant to the Tender Offer for cash,
Common Stock, promissory notes and Warrants].
1.10 "Exercise Period" has the meaning ascribed to such term in Section 4.1
hereof.
1.11 "Exercise Price" means $3.60 as adjusted from time to time pursuant to
Section 4.3 and Section 8 hereof.
1.12 "Five-Day Average Price" as of any date of determination shall mean the
average of the Common Stock Prices on each of the immediately preceding five
consecutive Trading Days, after exclusion of the highest and lowest such
prices; provided, however, that if such highest or lowest prices occur on more
than one such Trading Day, such price shall be excluded only once in
calculating such average, so that such average always is based on the Common
Stock Prices on three Trading Days.
1.13 "Holder" has the meaning ascribed to such term in the preamble hereto.
1.14 "NASD" has the meaning ascribed to such term in Section 4.2 hereof.
1.15 "No-Exercise Period" shall mean any period of up to 90 consecutive days
designated by the Company as a period during which Warrants may not be
exercised. The Company shall designate the commencement of no more than one
No-Exercise Period in any twelve-month period. A No-Exercise Period shall
commence on such date as is designated by the Company in a written notice
(which may be by facsimile transmission) of the commencement of such No-
Exercise Period delivered to the Warrant Agent no later than the close of
business of the Warrant Agent on the Business Day immediately preceding the
first day of such No-Exercise Period. Such No-Exercise Period shall terminate
on such date as is designated by the Company in a written notice (which may be
by facsimile transmission) of the termination of such No-Exercise Period
delivered to the Warrant Agent no later than the end of Business on the
Business Day immediately preceding such date of termination; provided,
however, that such No-Exercise Period shall terminate automatically and
without any action on the part of the Company at the close of business on the
90th day thereof, should the Company not designate an earlier termination
date. The Company shall take all reasonable measures and efforts to limit the
length of each No-Exercise Period, consistent with the reason for the No-
Exercise Period and shall terminate each No-Exercise Period as quickly as
reasonably possible, consistent with the reason for the No-Exercise Period.
1.16 "Person" means a natural person, a corporation, a partnership, a trust,
a joint venture, authority or any other entity or organization.
1.17 "Price Per Share" has the meaning ascribed to such term in Section
8.1(e)(ii) hereof.
1.18 "Reset Date" has the meaning ascribed to such term in Section 4.3(a).
1.19 "Reset Election" has the meaning ascribed to such term in Section
4.3(a).
1.20 "Reset Price" has the meaning ascribed to such term in Section 4.3(a).
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1.21 "Rights" has the meaning ascribed to such term in Section 8.1(b)
hereof.
1.22 "Securities Act" has the meaning ascribed to such term in Section 4.4.
1.23 "SEC" means the United States Securities and Exchange Commission, or
any successor agency or authority thereto.
1.24 "Subsidiary" has the meaning ascribed to such term in Section 8.1(c)
hereof.
1.25 "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for trading, or if such shares are not so listed or
admitted to trading on any national securities exchange, a day on which The
Nasdaq Stock Market is open for trading.
1.26 "Transfer Agent" has the meaning ascribed to such term in Section 7
hereof.
1.27 "Twenty-Day Average Price" as of any date of determination shall mean
the average of the Common Stock Prices on each of the immediately preceding
twenty consecutive Trading Days, after the exclusion of the highest and lowest
such prices; provided, however, that if such highest or lowest prices occur on
more than one such Trading Day, such price shall be excluded only once in
calculating such average, so that such average always is based on the Common
Stock Prices on 18 Trading Days.
1.28 "Warrant" has the meaning ascribed to such term in the preamble hereto.
1.29 "Warrant Certificate" has the meaning ascribed to such term in Section
2.2 hereof.
1.30 "Warrant Register" has the meaning ascribed to such term in Section 2.3
hereof.
1.31 "Warrant Share" has the meaning ascribed to such term in the preamble
hereto.
SECTION 2. ISSUANCE; FORM OF WARRANT; EXECUTION; REGISTRATION.
2.1 Issuance. On the Exchange Date the Company shall issue to each holder of
Debentures that tenders any Debentures to the Company pursuant to the Tender
Offer Warrants to purchase 40 shares of Common Stock per $1,000 face amount of
the Debentures, subject to adjustment pursuant to Section 8 hereof. The
Company shall cause the Warrant Agent to issue to each such holder of
Debentures one or more Warrant Certificates (defined below) representing the
Warrants issued by the Company.
2.2 Form of Warrant; Execution of Warrants. The certificates evidencing the
Warrants (the "Warrant Certificates") shall be in registered form only and
shall be in the form set forth as Exhibit A hereto. The Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board,
President or one of its Vice Presidents. The signature of any such officer on
the Warrant Certificates may be manual or by facsimile. Any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate. Each Warrant
Certificate shall be dated the date it is countersigned by the Warrant Agent
pursuant to Section 2.4 hereof.
2.3 Registration. The Warrant Certificates shall be numbered and shall be
registered on the books of the Company maintained at the principal office of
the Warrant Agent initially in Los Angeles (or such other place in the
continental United States as the Warrant Agent shall from time to time notify
the Company and the Holders in writing) (the "Warrant Register"). The Company
and the Warrant Agent shall be entitled to treat the registered owner of any
Warrant as the owner in fact thereof for all purposes and shall not be bound
to recognize any equitable or other claim to or interest in such Warrant on
the part of any other person; provided that the Company and the Warrant Agent
shall follow the directions and instructions of a financial advisor of any
holder
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of Warrants which has been designated as such by such holder of Warrants in a
writing delivered to the Warrant Agent in a form reasonably satisfactory to
the Warrant Agent.
2.4 Countersignature of Warrants. The Warrant Certificates shall be
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. Warrant Certificates may be countersigned, however,
by the Warrant Agent and may be delivered by the Warrant Agent notwithstanding
that the persons whose manual or facsimile signatures appear thereon as proper
officers of the Company shall have ceased to be such officers at the time of
such countersignature, issuance or delivery. The Warrant Agent shall, upon
written instructions of the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company, countersign, issue
and deliver Warrant Certificates entitling the Holders thereof to purchase not
more than an aggregate of 3,000,000 Warrant Shares (subject to adjustment
pursuant to Section 8 hereof) and shall countersign, issue and deliver Warrant
Certificates as otherwise provided in this Agreement.
SECTION 3. TRANSFER AND EXCHANGE OF WARRANTS.
Subject to the terms hereof, the Warrant Agent shall countersign, register
in the Warrant Register and deliver Warrants hereunder in accordance with the
written instructions of the Company. The Warrant Agent shall thereafter from
time to time register the transfer of any outstanding Warrants upon the
records to be maintained by it for that purpose, upon surrender of the Warrant
Certificate or Certificates evidencing such Warrants duly endorsed or
accompanied (if so required by it) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Warrant Agent, duly executed
by the registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Subject to the terms
of this Agreement, each Warrant Certificate may be exchanged for another
Warrant Certificate or Certificates entitling the Holder thereof to purchase a
like aggregate number of Warrant Shares as the Warrant Certificate or
Certificates surrendered then entitles such Holder to purchase. Any Holder
desiring to exchange a Warrant Certificate or Certificates shall make such
request in writing delivered to the Warrant Agent, and shall surrender the
Warrant Certificate or Certificates to be so exchanged, duly endorsed or
accompanied (if so required by the Warrant Agent) by a written instrument or
instruments of transfer in form reasonably satisfactory to the Warrant Agent.
Upon registration of transfer, the Company shall issue and the Warrant Agent
shall countersign and deliver by certified mail a new Warrant Certificate or
Certificates to the persons entitled thereto.
No service charge to any Holder shall be made for any exchange or
registration of transfer of a Warrant certificate or of Warrant Certificates,
but the Company may require payment of a sum sufficient to cover any stamp tax
or other tax or other governmental charge that is imposed in connection with
any such exchange or registration of transfer pursuant to Section 5 hereof.
By accepting the initial delivery, transfer or exchange of Warrants, each
Holder shall be deemed to agree to the terms of this Agreement as it may be in
effect from time to time, including any amendments or supplements duly adopted
in accordance with Section 18 hereof.
SECTION 4. TERM OF WARRANTS; EXERCISE OF WARRANTS; ADJUSTMENTS OF EXERCISE
PRICE; COMPLIANCE WITH GOVERNMENT REGULATIONS; REDEMPTION.
4.1 Term of Warrants. Subject to the terms of this Agreement, each Holder
shall have the right, which may be exercised at any time from 9:00 a.m., Los
Angeles time, on the day following the Exchange Date to 5:00 p.m., Los Angeles
time, on the day preceding the fifth anniversary of the Exchange Date (the
"Exercise Period"), to receive from the Company the number of Warrant Shares
which the Holder may at the time be entitled to receive upon exercise of such
Warrants and payment of the Exercise Price then in effect for such Warrant
Shares. If the Company has designated one or more No-Exercise Periods, the
Exercise Period shall be extended by a number of days equal to the aggregate
number of days during which such No-Exercise Period or Periods was or were in
effect. The foregoing notwithstanding, the Exercise Period may terminated at
an earlier date, as provided in Section 4.3(b) hereof. The Warrant Shares
issued to a Holder upon exercise of its Warrants shall be duly authorized,
validly issued, fully paid, nonassessable and shall not have been issued in
violation of or subject to
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any preemptive rights. Each Warrant not exercised prior to the expiration of
the Exercise Period shall become void, and all rights thereunder and all
rights in respect thereof under this Agreement shall cease as of the
expiration of the Exercise Period for such Warrant. No adjustments as to
dividends will be made upon exercise of the Warrants for dividends paid prior
to exercise of the Warrants.
4.2 Exercise of Warrants. During the Exercise Period, each Holder may,
subject to this Agreement, exercise from time to time some or all of the
Warrants evidenced by its Warrant Certificate(s) by (i) surrendering to the
Company at the principal office of the Warrant Agent such Warrant
Certificate(s) with the form of election to purchase on the reverse thereof
duly filled in and signed, which signature shall be guaranteed by a bank or
trust company having an office or correspondent in the United States or a
broker or dealer which is a member of a registered securities exchange or the
National Association of Securities Dealers, Inc. (the "NASD"), and (ii) paying
to the Warrant Agent for the account of the Company the Exercise Price, for
the number of Warrant Shares in respect of which such Warrants are exercised.
Warrants shall be deemed exercised on the date such Warrant Certificate(s) are
surrendered to the Warrant Agent, tender of payment of the Exercise Price is
made, and any applicable No-Exercise Period has terminated. Payment of the
aggregate Exercise Price shall be made in cash by wire transfer of immediately
available funds to the Warrant Agent for the account of the Company or by
certified or official bank check or checks payable to the order of the Company
or by any combination thereof.
Upon the exercise of any Warrants in accordance with this Agreement, the
Company shall issue and cause to be delivered by the Warrant Agent with all
reasonable dispatch, to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate or certificates for
the number of full Warrant Shares issuable upon the exercise of such Warrants
and shall take such other actions at its sole expense as are necessary to
complete the exercise of the Warrants (including, without limitation, payment
of any cash with respect to fractional interests required under Section 9
hereof). The Warrant Agent shall have no responsibility or liability for such
issuance or the determination of the number of Warrant Shares issuable upon
such exercise. The certificate or certificates representing such Warrant
Shares shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date the Warrants are exercised hereunder.
In the event that less than all of the Warrants evidenced by a Warrant
Certificate are exercised, the Holder thereof shall be entitled to receive a
new Warrant Certificate or Certificates as specified by such Holder evidencing
the remaining Warrant or Warrants, and the Warrant Agent is hereby irrevocably
authorized by the Company to countersign, issue and deliver the required new
Warrant Certificate or Certificates evidencing such remaining Warrant or
Warrants pursuant to the provisions of this Section 4.2 and of Section 3
hereof. The Company, whenever required by the Warrant Agent, will supply the
Warrant Agent with Warrant Certificates duly executed on behalf of the Company
for such purpose.
Upon delivery of the Warrant Shares issuable upon exercise in accordance
herewith and of any required new Warrant Certificates, the Warrant Agent shall
cancel the Warrant Certificates surrendered upon exercise. Such canceled
Warrant Certificates shall then be disposed of by the Warrant Agent in a
manner permitted by applicable laws and satisfactory to the Company in
accordance with its written instructions to the Warrant Agent. The Warrant
Agent shall account promptly to the Company with respect to Warrants exercised
and concurrently pay to the Company all amounts received by the Warrant Agent
upon exercise of such Warrants.
Each Holder shall be entitled to enforce all rights relating to Warrants
owned by such Holder under the terms of this Agreement.
4.3 Reset of Exercise Price and Early Termination of Exercise Period.
(a) On any date (a "Reset Date") prior to the first anniversary of the
Exchange Date that the Five-Day Average Price is less than $1.56 (after
giving effect to any adjustments pursuant to Section 8 hereof), each Holder
of Warrants shall have the right to elect (a "Reset Election") to adjust
the Exercise Price of such Holder's Warrants to an amount equal to 150% of
such Five-Day Average Price (the "Reset Price");
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provided, however, that the Exercise Price of any Warrant may be adjusted
only once pursuant to this Section 4.3(a). To elect a Reset Election with
respect to a Warrant, a Holder shall surrender to the Company at the
principal office of the Warrant Agent the Warrant Certificate representing
such Warrant, together with the form of Reset Election on the reverse
thereof duly filled in and signed, which signature shall be guaranteed by a
bank or trust company having an office or correspondent in the United
States or a broker or dealer which is a member of the NASD. No Reset
Election shall be effective with respect to any Reset Date unless such
Warrant Certificate and form of Reset Election are received by the Warrant
Agent no later than the fifth Business Day following such Reset Date. Upon
timely receipt of a Reset Election in proper form, the Warrant Agent shall
determine the Reset Price and shall imprint the following legend in a
prominent location and typeface on the front of the Warrant Certificate:
"The Exercise Price of the Warrant represented by this Warrant
Certificate has been the subject of a Reset Election pursuant to
Section 4.3(a) of the Warrant Agreement referred to herein. As a result
of such Reset Election, the Reset Price as defined in such Section
4.3(a) is $[insert price]. No further Reset Election is permitted under
the Warrant Agreement."
The Warrant Agent shall then deliver such Warrant Certificate as so
legended to the Holder thereof. The Warrant Agent shall promptly notify the
Company of each Reset Election and the date, Reset Price and other
particulars thereof and shall maintain records of each Reset Election in
the register of Warrants referred to in Section 2.3 hereof. In the event of
any transfer, exchange or other issue or reissue of Warrants that have been
the subject of a Reset Election, the Warrant Agent shall cause any and all
Warrant Certificates so issued or reissued to bear the legend referred to
above.
(b) If on any date (an "Early Expiration Trigger Date") the Five-Day
Average Price is more than $4.50 (after giving effect to any adjustments
thereto pursuant to Section 8 hereof), the Company shall have the right to
elect (an "Early Expiration Election") to designate a date (the "Early
Expiration Date") after which no Warrant shall be exercisable, the
provisions of Section 4.1 hereof to the contrary notwithstanding. Each
Warrant not exercised prior to 5:00 p.m. Los Angeles time on any such Early
Expiration Date shall become void, and all rights thereunder and all rights
in respect thereof under this Agreement shall cease as of such time. The
Company shall make an Early Expiration Election by designating an Early
Expiration Date in a written notice (which may be by facsimile
transmission) to the Warrant Agent specifying the Early Expiration Trigger
Date and the Five-Day Average Price no later than the fifth Business Day
following such Early Expiration Trigger Date. Upon receipt of such notice,
the Warrant Agent shall within two Business Days of such receipt give
notice pursuant to Section 16 hereof to each Holder of the Early Expiration
Election of the Company and specifying the Early Expiration Date. The
Company shall not specify an Early Expiration Date that is less than 12
Business Days after the delivery to the Warrant Agent of the Company's
notice of its Early Expiration Election.
4.4 Compliance with Government Regulations: Registration Under the
Securities Act. To the extent required by the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (collectively,
the "Securities Act"), the Company will register under the Securities Act the
issuance and sale of Warrant Shares by the Company in connection with the due
exercise of Warrants by the Holder thereof (subject to the prohibition on any
such exercise during any No-Exercise Period). In addition, if the transfer of
the Warrant Shares obtained upon such exercises by Holders would not otherwise
be exempt from the registration and prospectus delivery requirements of the
Securities Act, the Company will register under the Securities Act the offer
and sale of such Warrant Shares in connection with such transfers by such
Holders (subject to prohibition of any such transfers during any No-Exercise
Period); provided, however, that participation by any Holder in any such
registration shall be conditioned upon such Holder's provision to the Company
of all information, undertakings, consents, agreements or other documents and
the taking of any and all actions as may be necessary to enable such
registration and such participation therein by such Holder as a selling
security holder to comply with all applicable requirements of the Securities
Act. The Company's registration obligations hereunder shall terminate on the
seventh anniversary of the Exchange Date.
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SECTION 5. PAYMENT OF TAXES AND FEES.
The Company will pay all documentary stamp and other like taxes, if any,
attributable to the initial issuance and delivery of the Warrants and the
initial issuance and delivery of the Warrant Shares upon the exercise of
Warrants, provided that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer of the Warrants or
involved in the issuance or delivery of any Warrant Shares in a name other
than that of the Holder of the Warrants being exercised, and the Warrant Agent
shall not register any such transfer or issue or deliver any Warrant
Certificate(s) or Warrant Shares unless or until the persons requesting the
registration or issuance shall have paid to the Warrant Agent for the account
of the Company the amount of such tax, if any, or shall have established to
the reasonable satisfaction of the Company that such tax, if any, has been
paid.
SECTION 6. MUTILATED OR LOST WARRANT CERTIFICATES.
In the event that any Warrant Certificate shall be mutilated, lost, stolen
or destroyed, the Company shall issue, and at the direction of the Company by
written order the Warrant Agent shall countersign and deliver in exchange and
substitution for, and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and an indemnity or bond, if requested
by the Company or the Warrant Agent, also reasonably satisfactory to them. An
applicant for such a substitute Warrant Certificate shall also comply with
such other reasonable procedures and pay such reasonable fees and expenses as
the Company or the Warrant Agent may reasonably require.
SECTION 7. RESERVATION OF WARRANT SHARES.
There have been reserved, and the Company shall at all times keep reserved,
out of its authorized Common Stock, free of all preemptive rights, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the outstanding Warrant Certificates. The Company will
keep a copy of this Agreement on file with the Warrant Agent. The Warrant
Agent is hereby irrevocably authorized to requisition from time to time from
the Company certificates for Warrant Shares required to honor outstanding
Warrants upon exercise thereof in accordance with the terms of this Agreement.
The Company will supply its Warrant Agent with duly executed stock
certificates for such purposes and will itself provide or otherwise make
available any cash which may be payable as provided in Section 9 hereof. The
Company will furnish to its agent for transfer of shares of its Common Stock
(the "Transfer Agent"), a copy of all notices of adjustments and certificates
related thereto, transmitted to each Holder pursuant to Section 8.2 hereof.
The Company will give the Warrant Agent prompt notice of any change in any
Transfer Agent or any change of address of any Transfer Agent.
Before taking any action which would cause an adjustment pursuant to Section
8 reducing the Exercise Price, the Company will take any and all corporate
action which may be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE; NUMBER OF WARRANT SHARES AND SHARES
OF CAPITAL STOCK WARRANTS ARE EXERCISABLE INTO.
The number of securities purchasable upon the exercise of each Warrant, and
the Exercise Price, shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter described.
8.1 Pricing and Share Adjustments. During the Exercise Period and until a
Holder's Warrants are exercised, the number of Warrant Shares purchasable by
such Holder upon the exercise of each Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Adjustment for Change in Capital Stock. Subject to paragraphs (f) and
(h) below, in case the Company shall (i) pay a dividend or other
distribution on its outstanding shares of Common Stock in shares
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of Common Stock, (ii) make a distribution on its outstanding shares of
Common Stock in shares of its capital stock other than Common Stock, (iii)
subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iv) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (v) issue, by
reclassification of its shares of Common Stock, other securities of the
Company, then the number of Warrant Shares purchasable upon exercise of
each Warrant immediately prior thereto shall be adjusted so that the Holder
of each Warrant shall be entitled to receive the number of Warrant Shares
of the Company which such Holder would have owned or have been entitled to
receive upon the happening of any of the events described above had such
Warrant been exercised in full immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant
to this paragraph (a) shall become effective immediately after the record
date for such event (provided, however, that no additional Warrant Shares
shall be issued or the Exercise Price modified as a result of such
adjustment unless and until the consummation of such event) or, if none,
immediately after the effective date of such event. Such adjustment shall
be made successively whenever such an event occurs.
(b) Adjustment for Rights Issue. Subject to paragraphs (f) and (h) below,
in case the Company shall issue rights, options, warrants or convertible
securities (collectively, "Rights") to all holders of its outstanding
Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a Price Per Share (as defined in paragraph (e) below) which is
lower at the record date mentioned below than the then Current Market Price
(as defined in paragraph (e) below) per share of Common Stock, the number
of Warrant Shares thereafter purchasable upon the exercise of each Warrant
shall be determined by multiplying the number of Warrant Shares theretofore
purchasable upon exercise of each Warrant by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on the date
of issuance of such Rights plus the additional Number of Shares (as defined
in paragraph (e) below) of Common Stock offered for subscription or
purchase in connection with such Rights and the denominator of which shall
be the number of shares of Common Stock outstanding on the date of issuance
of such Rights plus the number of shares which the aggregate Proceeds (as
defined in paragraph (e) below) received or receivable by the Company upon
exercise of such Rights would purchase at the Current Market Price per
share of Common Stock at such record date. Such adjustment shall be made
whenever Rights are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
Rights (provided, however, that no additional Warrant Shares shall be
issued or the Exercise Price modified as a result of such adjustment unless
and until such Rights are issued).
(c) Adjustment for Redemptions, Dividends, Other Distributions.
(i) Subject to paragraphs (f) and (h) below, in case the Company
shall redeem shares of its Common Stock at a Price Per Share above the
then Current Market Price Per Share of Common Stock on the date of such
redemption then the number of Warrant Shares thereafter purchasable
upon the exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the exercise
of each Warrant by a fraction, the numerator of which shall be the
Current Market Price Per Share of Common Stock on the date of
redemption multiplied by the aggregate number of shares of Common Stock
outstanding immediately following the redemption and the denominator of
which shall be the Initial Market Capitalization less the Redemption
Amount. The "Initial Market Capitalization" shall equal the product of
the number of shares of Common Stock outstanding immediately prior to
such redemption and the Current Market Price Per Share of the Common
Stock on the date of such redemption. The "Redemption Amount" shall
equal the number of shares redeemed multiplied by the Price Per Share
at which such redemption occurs. Such adjustment shall be made whenever
any such redemption is made, and shall become effective on the date of
such redemption.
(ii) Subject to paragraphs (f) and (h) below, in case the Company
shall distribute to the holders of its Common Stock a dividend or
distribution (whether in cash, cash equivalents, evidence of
indebtedness or assets of the Company or any corporation or other legal
entity a majority of the voting equity or equity interest of which is
owned, directly or indirectly, by the Company (a "Subsidiary")
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or shares of capital stock of a Subsidiary) other than a dividend or
distribution subject to paragraphs (a) or (b) above, then in each case
the number of Warrant Shares thereafter purchasable upon the exercise
of each Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon the exercise of each
Warrant by a fraction, the numerator of which shall be the Current
Market Price Per Share of Common Stock on the date of such dividend or
distribution and the denominator of which shall be such Current Market
Price Per Share of Common Stock less the amount of dividend or
distribution per share as of the date of such dividend or distribution
(which amount in the case of a distribution of assets for which there
is not a readily ascertainable fair market value shall be the fair
value of such assets as determined by an independent professional
evaluator selected by the disinterested non-employee members of the
Board of Directors of the Company as the portion of the assets
applicable to one share of Common Stock). Such adjustments shall be
made whenever any such distribution is made and shall become effective
on the record date for the determination of stockholders entitled to
receive such distribution, if any, or the effective date of such
redemption if there is no such record date (provided, however, that no
additional Warrant Shares shall be issued or the Exercise Price
modified as a result of such adjustment unless and until the date of
such redemption).
(d) Adjustment for Common Stock and Convertible Securities Issue. Subject
to paragraphs (f) and (h) below, in case (A) the Company shall issue shares
of its Common Stock, or securities convertible into, or exchangeable or
exercisable for Common Stock or Rights to subscribe for or purchase such
securities (collectively, "Convertible Securities") (excluding the issuance
of (i) Common Stock or Convertible Securities issued in any of the
transactions described in paragraphs (a), (b) or (c) above) or (ii) Warrant
Shares issued upon the exercise of the Warrants) at a Price Per Share of
Common Stock, in the case of the issuance of Common Stock, or at a Price
Per Share of Common Stock initially deliverable upon conversion or exercise
of exchange of such Convertible Securities, in each case, together with any
other consideration received or to be received by the Company in connection
with such issuance or upon the conversion, exchange or exercise of such
Convertible Securities, below the then Current Market Price per share of
Common Stock on the date the Company fixed the offering, conversion or
exercise or exchange price of such additional shares, or (B) there shall be
a reduction in the exercise price of any outstanding Convertible Securities
other than pursuant to customary antidilution provisions set forth in the
instruments governing such Convertible Securities as in effect at the date
of the issuance thereof, then the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon
exercise of each Warrant by a fraction:
(x) in the case of an issuance of Convertible Securities, the
numerator of which shall be the total number of shares of Common Stock
outstanding on the date of such issuance plus the additional number of
shares of Common Stock offered for subscription or purchase and the
denominator of which shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock
which the aggregate Proceeds of the total amount of Convertible
Securities so offered would purchase at the Current Market Price Per
Share of Common Stock at such date of issuance; and
(y) in the case of a reduction in the exercise price of any
Convertible Securities, the numerator of which shall be the sum of the
Initial Market Capitalization plus the Initial Proceeds and the
denominator of which shall be the sum of the Initial Market
Capitalization and the Reduced Proceeds. The "Initial Market
Capitalization" shall mean the product of the number of shares of
Common Stock outstanding immediately prior to such price reduction and
the Current Market Price Per Share of the Common Stock on the date of
such price reduction. The "Initial Proceeds" shall mean the Proceeds
received and receivable by the Company prior to such price reduction in
connection with such Convertible Securities. The "Reduced Proceeds"
shall mean the Proceeds received and receivable by the Company after
giving effect to such price reduction in connection with such
Convertible Securities.
In case the Company shall issue and sell Convertible Securities for a
consideration consisting, in whole or in part, of property other than cash
or its equivalent, then in determining the "Price Per Share" of Common
Stock and the "consideration received by the Company" for purposes of this
paragraph (d), an independent professional evaluator selected by the
disinterested non-employee members of the Board of
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Directors of the Company shall reasonably and in good faith determine the
fair value of such property. The determination of whether any adjustment is
required under this paragraph (d), by reason of the sale and issuance of
any Convertible Securities and the amount of such adjustment, if any, shall
be made at such time and not at the subsequent time of issuance of shares
of Common Stock upon the exercise, conversion or exchange of Convertible
Securities.
(e) Current Market Price; Price Per Share.
(i) For the purpose of any computation under this Section 8.1, the
"Current Market Price" per share of Common Stock at any date shall be
the Twenty-Day Average Price.
(ii) For purposes of this Section 8.1, "Price Per Share" shall be
defined and determined according to the following formula:
P = R/N
where
P = Price Per Share;
R = the "Proceeds" received or receivable by the Company which (w)
in the case of shares of Common Stock is the total amount received
or receivable by the Company in consideration for the issuance and
sale of such shares; (x) in the case of Rights or of Convertible
Securities with respect to shares of Common Stock, is the total
amount received or receivable by the Company in consideration for
the issuance and sale of Rights or such Convertible Securities, plus
the minimum aggregate amount of additional consideration, other than
the surrender of such Convertible Securities, payable to the Company
upon exercise, conversion or exchange thereof; (y) in the case of
Rights to subscribe for or purchase such Convertible Securities, is
the total amount received or receivable by the Company in
consideration for the issuance and sale of such Rights plus the
minimum aggregate amount of additional consideration, other than the
surrender of such Convertible Securities, payable upon the exercise
of such Rights and on the conversion or exchange or exercise of such
Convertible Securities; and (z) in the case of a redemption of
shares of Common Stock is the total amount paid or payable by the
Company as consideration for the shares redeemed, provided that in
each case the proceeds received or receivable or paid or payable by
the Company shall be the net cash proceeds after deducting therefrom
any compensation paid or discount allowed in the sale, underwriting
or purchase thereof by underwriters or dealers or others performing
similar services; and
N = the "Number of Shares," which (x) in the case of Common Stock is
the number of shares issued; (y) in the case of Rights or of
Convertible Securities with respect to shares of Common Stock, is
the number of shares of Common Stock issuable upon exercise,
conversion or exchange thereof for the minimum aggregate amount of
additional consideration referred to above in the definition of
Proceeds; and (z) in the case of shares of Common Stock redeemed is
the number of shares redeemed by the Company.
(f) When De Minimis Adjustment May Be Deferred. No adjustment in the
number of Warrant Shares purchasable hereunder shall be required unless
such adjustment would require an increase or decrease of at least one
percent (1%) in the number of Warrant Shares purchasable upon the exercise
of each Warrant, provided that any adjustments which by reason of this
paragraph (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations shall be
made to the nearest one-thousandth of a Warrant Share and the nearest cent.
(g) Adjustment in Exercise Price. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant is adjusted as herein
provided, the Exercise Price payable upon exercise of each Warrant
immediately prior to such adjustment shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which shall be the number of
Warrant Shares purchasable upon the exercise of
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each Warrant immediately prior to such adjustment and the denominator of
which shall be the number of Warrant Shares purchasable immediately
thereafter.
(h) When No Adjustment Required. No adjustment in the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise Price
shall be made pursuant to this Section 8.1 in connection with the exercise
of any of the following (other than a reduction in the purchase or exercise
price that would be subject to an adjustment under subsection (d)(y) above;
provided, however, there shall be no adjustment pursuant to such subsection
(d)(y) in connection with any antidilution or other adjustment required by
the terms and conditions of instruments governing the following as in
effect on June 14, 1996:
(i) 80,081 Warrants issued as of June 13, 1996 at an exercise price
of $5.00 per share of Common Stock;
(ii) 1,500,000 Warrants outstanding as of June 13, 1996 at an
exercise price of $4.00 per share of Common Stock;
(iii) Up to 1,776,060 options to purchase Common Stock reserved for
issuance to employees of the Company;
(iv) Up to 1,657,300 employee stock options outstanding as of
September 18, 1996; and
(v) Up to 150,000 employee stock options outstanding after September
18, 1996 but on or before October 31, 1996.
Additionally, no adjustment need be made if the Company issues or
distributes to each Holder of Warrants the shares, rights, options,
warrants, evidences of indebtedness, assets or other securities referred to
in the paragraphs above which each Holder of Warrants would have been
entitled to receive had the Warrants been exercised for the number of
Warrant Shares for which Warrants are then exercisable prior to the
happening of such event or the record date with respect thereto.
(i) Common Stock. For all purposes of this Agreement, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of
the Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassification of such shares
consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as
a result of an adjustment made pursuant to this Section 8.1, the Holders
shall become entitled to purchase any securities of the Company other than
shares of Common Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the Exercise Price of such
shares shall be subject to adjustment from time to time in a manner and on
terms substantially identical to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (h) above, and the provisions of
this Agreement with respect to the Warrant Shares shall apply on like terms
to any such other securities.
(j) Expiration of Rights, etc. Upon the expiration of any Rights or
conversion or exchange or exercise rights, if any thereof shall not have
been exercised, the Exercise Price and the number of Warrant Shares
purchasable upon the exercise of each Warrant shall, upon such expiration,
be readjusted and shall thereafter be such as it would have been had it
been originally adjusted (or had the original adjustment not been required,
as the case may be) as if (A) the only shares of Common Stock so issued
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Rights or conversion or exchange or exercise rights and
(B) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all of such Rights or conversion or exchange or
exercise rights whether or not exercised, provided that no such
readjustment shall have the effect of increasing the Exercise Price or
decreasing the number of Warrant Shares purchasable upon the exercise of
each Warrant by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such Rights or
conversion or exchange or exercise rights.
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8.2 Notice of Adjustment. Whenever the number of Warrant Shares purchasable
upon the exercise of each Warrant or the Exercise Price of Warrant Shares is
adjusted, as provided in this Section 8, the Company shall cause the Warrant
Agent promptly to mail to each Holder, at the sole expense of the Company by
first class mail, postage prepaid, notice of such adjustment or adjustments
and shall deliver to the Warrant Agent a certificate of a firm of independent
public accounts (who may be the regular accountants employed by the Company)
setting forth the number of Warrant Shares purchasable upon the exercise of
each Warrant and the Exercise Price of Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth in reasonable detail the computations by which such adjustment
was made. The Warrant Agent shall be entitled to rely on such certificate and
shall be under no duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any Holder requesting an
inspection thereof during reasonable business hours. The Warrant Agent shall
not at any time be under any duty or responsibility to any Holder to determine
whether any facts exist which may require any adjustment of the Exercise Price
or the number of Warrant Shares or other stock or property purchasable on
exercise of Warrants, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such
adjustment. Concurrently with giving a Holder notice of an adjustment, the
Warrant Agent shall issue to such Holder a replacement Warrant Certificate
showing the terms of the Warrant, as adjusted, provided that the Warrant
Agent's failure to provide such new Warrant Certificates shall not adversely
affect the rights of the Holders to receive the benefits of any adjustments.
8.3 Preservation of Purchase Rights upon Merger or Consolidation. In case of
any consolidation of the Company with or merger of the Company into another
entity, the Company or such successor entity shall execute and deliver to the
Warrant Agent an agreement, which shall be binding on the Company and the
Holders, that each Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities
and property (including cash) which such Holder would have owned or have been
entitled to receive after the happening of such consolidation or merger had
such Warrant been exercised immediately prior to such action, subject to
obtaining any required governmental approvals or making any required
governmental filings. The Company shall at its sole expense request the
Warrant Agent to mail by first class mail, postage prepaid, to each Holder
notice of the execution of any such agreement. Such agreement shall provide
for adjustments, which shall be substantially identical to the adjustments
provided for in this Section 8. In addition, the Company shall not merge or
consolidate with or into, any other entity unless the successor entity (if not
the Company), shall expressly assume, by supplemental agreement reasonably
satisfactory in form and substance to the Warrant Agent in its sole judgment
and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company. The provisions of this
Section 8.3 shall similarly apply to successive consolidations or mergers. The
Company and the Warrant Agent shall each be under a good faith duty and
responsibility to determine the correctness of any provisions contained in any
such agreement relating to the kind or amount of shares of stock or other
securities or property receivable upon exercise of Warrants or with respect to
the method employed and provided therein for any adjustments and shall be
entitled to rely upon the provisions contained in any such agreement.
If this Section 8.3 applies, paragraphs (a), (b), (c) and (d) of Section 8.1
do not apply.
SECTION 9. FRACTIONAL INTERESTS.
Neither the Company nor the Warrant Agent shall be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be exercised at the same time by the same Holder, the number of
full Warrant Shares which shall be issuable upon such exercise shall be
computed on the basis of the aggregate number of Warrants so exercised. If any
fraction of a Warrant Share would, except for the provisions of this Section
9, be issuable on the exercise of any Warrant, the Company shall pay an amount
in cash equal to the Common Stock Price on the date the Warrant Certificate is
presented for exercise, multiplied by such fraction.
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SECTION 10. NO RIGHTS AS STOCKHOLDERS; NOTICES TO HOLDERS.
Nothing contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the Holders of Warrant Certificates or their
transferees the right to vote or to receive dividends or to consent or to
receive notice as stockholders in respect of any meeting of stockholders for
the election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
In case:
(a) the Company shall authorize the issuance to all holders of shares of
Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of shares
of Common Stock of securities or assets; or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of
the conveyance or transfer of a substantial portion of the properties and
assets of the Company for which approval of any stockholders of the Company
is required, or of any reclassification or change of Common Stock issuable
upon exercise of the Warrants (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange
offer for shares of Common Stock;
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(e) the Company shall sell all or substantially all of its assets, or any
asset necessary to conduct the Company's business.
then the Company shall cause to be filed with the Warrant Agent and shall
cause to be given to each Holder at its address appearing on the Warrant
Register, at least ten (10) days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first class mail, postage prepaid, a written notice stating
(i) the date as of which the holders of record of shares of Common Stock
entitled to receive any such rights, options, warrants or distribution are to
be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up or fundamental change is expected to
become effective or consummated, as well as the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up. The failure to give the notice
required by this Section 10 or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation, winding up or action, or the vote upon any of the foregoing.
SECTION 11. BY THE COMPANY.
The Company represents and warrants to the Warrant Agent and each of the
Holders as follows as of the Exchange Date:
11.1 Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. The Company is duly qualified or
licensed to do business and is in good standing as a foreign corporation in
all jurisdictions in which the failure to obtain such qualification or
licensing could reasonably be expected to have a material adverse effect on
the business or financial condition of the Company. The Company has all
requisite corporate power and authority to conduct its business, to own,
lease, sell or otherwise dispose of property, and to enter into and perform
this Agreement.
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11.2 No Conflicts. This Agreement has been duly authorized by all necessary
corporate action on the part of the Company. Neither the execution and
delivery nor the performance of this Agreement (i) conflicts with the
certificate of incorporation or by-laws of the Company, (ii) violates any law,
regulation or ordinance, or any order or ruling of any court or governmental
entity, applicable to the Company or (iii) results in a breach or violation
of, or constitutes a default under, any term of any agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound other than any breach or violation which could not reasonably be
expected to have a material and adverse effect on (i) the business,
operations, properties, assets or financial condition of the Company, or (ii)
the ability of the Company to perform its obligations under any material
agreement in accordance with its terms.
11.3 Binding and Enforceable. This Agreement has been duly executed and
delivered by the Company and is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject, (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and (ii) to general principles of equity, whether such
enforcement is considered in a proceeding at law or in equity.
11.4 Valid Issue. All Warrant Shares are duly authorized and, upon issuance
in accordance with the provisions of this Agreement shall be validly issued,
fully paid and nonassessable and free from all taxes, liens, charges and
security interests (other than liens and security interests created by this
Agreement or by the Holder thereof).
SECTION 12. PAYMENTS IN U.S. CURRENCY.
All payments required to be made hereunder shall be made in lawful money of
the United States of America.
SECTION 13. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporation trust business of the Warrant Agent, shall be
the successor to the Warrant Agent hereunder without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a
successor Warrant Agent under the provisions of Section 14 hereof. In case at
the time such successor to the Warrant Agent shall succeed to the agency
created by this Agreement, any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrant Certificates so countersigned; and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases such Warrant Certificates shall be fully valid and
effective as provided therein and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignatures under its
prior name and deliver such Warrant Certificates so countersigned; and in case
at that time any of the Warrant Certificates shall not have been
countersigned, the Warrant Agent may countersign such Warrant Certificates
either in its prior name or in its changed name; and in all such cases such
Warrant Certificates shall be fully valid and effective as provided therein
and in this Agreement.
SECTION 14. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as agent for the
Company hereunder and in accordance with the terms and conditions hereof, and
the Warrant Agent hereby accepts such appointment.
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14.1 Obligations of the Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders, by their acceptance
of Warrant Certificates, shall be bound:
(a) Correctness of Statements. The statements contained herein and in the
Warrant Certificates shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the
same except such as described the Warrant Agent or action taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates or Warrants except as herein otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants contained in
this Agreement or in the Warrant to be complied with by the Company.
(c) Performance of Duties. The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents and shall not be
responsible for the misconduct or negligence of any attorney or agent
(which shall not include an employee of the Warrant Agent) appointed with
due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any time with
legal counsel satisfactory to it (who may be counsel for the Company), and
the Warrant Agent shall incur no liability or responsibility to the Company
or to any Holder in respect to any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(e) Proof of Actions Taken. Whenever in the performance of its duties
under this Agreement the Warrant Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed conclusively to be proved and established by a certificate signed by
the Chairman of the Board, the President, a Vice President, the Treasurer
or the Secretary of the Company and delivered to the Warrant Agent; and
such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent such
reasonable compensation for all services rendered by the Warrant Agent in
the performance of its duties under this Agreement as shall be agreed upon
in advance by the Company and the Warrant Agent, to reimburse the Warrant
Agent for all reasonable expenses, taxes and governmental charges and other
charges of any kind and nature incurred by the Warrant Agent in the
performance of its duties under this Agreement (including but not limited
to legal fees and expenses), and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
counsel fees, for anything done or omitted by the Warrant Agent or any of
its agents in the performance of its duties under this Agreement, except as
a result of the Warrant Agent's gross negligence or willful misconduct as
determined in a final judgment of a court of competent jurisdiction and
authority. The Company's obligations under this Section 14.1(f) and any
claim arising hereunder shall survive the resignation or removal of the
Warrant Agent and the termination or discharge of the Company's obligations
under this Agreement.
(g) Legal Proceedings. The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or any one or more Holders
shall furnish the Warrant Agent with reasonable security and indemnity for
any costs and expenses which may be incurred or any liabilities which may
arise, but this provision shall not affect the power of the Warrant Agent
to take such action as the Warrant Agent may consider proper, whether with
or without any such security or indemnity. All rights of action of any
Holder under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrant Certificates
or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any
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recovery of judgment shall be for the ratable benefit of the Holders, as
their respective rights or interests may appear.
(h) Other Transactions in Securities of Company. The Warrant Agent and
any stockholders, director, officer or employee of the Warrant Agent may
buy, sell or deal in any of the Warrants or any other securities of the
Company or become pecuniarily interested in any transaction in which the
Company may be interested or contract with or lend money to the Company or
other wise act as fully and freely as though it were not Warrant Agent
under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company of for any other legal entity.
(i) Liability of Warrant Agent. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which
it may do or refrain from doing in connection with this Agreement except
for its own negligence or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur any liability
or responsibility to the Company or to any Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
(k) Validity of Agreement. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except its countersignature thereof) or any Warrant; nor shall
the Warrant Agent by any act hereunder be deemed to make any representation
or warranty as to the authorization or reservation of any Warrant Shares
(or other securities) to be issued pursuant to this Agreement or any
Warrant, or as to whether any Warrant Shares (or other securities) will,
when issued, be validly issued, fully paid and nonassessable, or as to the
Exercise Price or the number or amount of Warrant Shares or other
securities or any Assets or other property issuable upon exercise of any
Warrant.
(l) Instructions from Company. The Warrant Agent is hereby authorized and
directed to accept instructions with respect to the performance of its
duties hereunder from the Chairman of the Board, the President, a Vice
President, the Treasurer or the Secretary of the Company, and to apply to
such officers for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it in
accordance with instructions of any such officer or officers.
(m) Reporting Requirements. The Warrant Agent shall send to each Warrant
holder a copy of each publicly available filing with the SEC made by the
Company (including but not limited to Forms 10-K, 10-Q and 8-K) promptly
but in any event within five (5) Business Days following such filing.
SECTION 15. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its duties under this
Agreement by giving to the Company thirty (30) days' notice in writing. The
Warrant Agent may be removed by like notice to the Warrant Agent and the
Holders from the Company, such notice to specify the date when removal shall
become effective. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after such removal or notification in writing of
such registration or incapacity by the resigning or incapacitated Warrant
Agent or by any Holder (who shall with such notice submit his Warrant
Certificate or Certificates for inspection by the Company), then any Holder
may apply to any court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Any successor Warrant Agent, whether appointed
by the Company or such a court, shall be a bank or trust Company, in good
standing, incorporated under the laws of the United States of America or any
state thereof and having at the time of its appointment as Warrant Agent a
combined capital and surplus of at least $100,000,000. After appointment and
acceptance of such appointment in writing, the successor Warrant Agent shall
be vested with the same powers, rights, duties
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and responsibilities as if it had been originally named as Warrant Agent with
out further act or deed; but the former Warrant Agent shall deliver and
transfer to the successor Warrant Agent any property at the time held by it
hereunder, and shall execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to file any notice provided for
in this Section 15, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be. In the event
of such resignation or removal, the successor Warrant Agent shall mail, by
first class mail, postage prepaid, to each Holder, written notice of such
removal or resignation and the name and address of such successor Warrant
Agent.
SECTION 16. NOTICES.
Any notice pursuant to this Agreement by the Company or by any Holder to the
Warrant Agent, or by the Warrant Agent or by any Holder to the Company, shall
be in writing and shall be delivered in person or by facsimile transmission,
or mailed first class, postage pre-paid, (a) to the Company, at its offices at
21329 Nordhoff Street, Chatsworth, California 91311, Attention: Chief
Financial Officer, Telecopier No.: (818) 701-8410, or (b) to the Warrant
Agent, at its offices at , Attention:
, Telecopier No.: . Each party hereto may from time to
time change the address to which notices to its are to be delivered or mailed
hereunder by notice to the other party.
Any notice mailed pursuant to this Agreement by the Company or the Warrant
Agent to the Holders shall be in writing and shall be mailed first class,
postage prepaid, or otherwise delivered, to such Holders at their respective
addresses in the Warrant Register. The initial address of each Holder shall be
as provided by the Company to the Warrant Agent. Any Holder may change its
address by notice to the Company and the Warrant Agent given in accordance
with this Section 16.
SECTION 17. CANCELLATION OF WARRANTS.
In the event the Company shall purchase or otherwise acquire Warrants, the
same shall thereupon be delivered to the Warrant Agent and be cancelled by it
and retired. The Warrant Agent shall cancel any Warrant certificate
surrendered for exchange, substitution, transfer or exercise in whole or in
part.
SECTION 18. SUPPLEMENTS AND AMENDMENTS.
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement this Agreement for
certain purposes, including curing defects or inconsistencies or making any
other change so long as such amendment or supplement does not adversely affect
the rights of any Holder. Any supplement or amendment to this Agreement that
does not adversely affect the rights of a Holder may be made with the approval
of the Holders of a majority of the then outstanding Warrants; provided,
however, that any such amendment or supplement that (i) increases the Exercise
Price; (ii) decreases the number of shares of Common Stock issuable upon
exercise of a Warrant; or (iii) shortens the period during which the Warrants
may be exercised shall require the consent of each Holder of a Warrant
affected thereby.
SECTION 19. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Warrant Agent shall bind and inure to the benefit of the
Company or the Warrant Agent and shall bind and inure to the benefit of their
respective successors hereunder.
SECTION 20. APPLICABLE LAW.
This Agreement and each Warrant issued hereunder shall be governed by and
construed in accordance with the laws of the State of California without
giving effect to the principles of conflict of laws thereof.
C-17
<PAGE>
SECTION 21. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Warrant Agent and the Holders and
their successors and assigns any legal or equitable right, remedy or claim
under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent, the Holders and the respective
successors and assigns of the Company, Warrant Agent and Holders.
SECTION 22. RECORDS.
The Warrant Agent shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the Holders during normal
business hours at its office. The Company shall at its sole expense supply the
Warrant Agent from time to time with such numbers of copies of this Agreement
as the Warrant Agent may request.
SECTION 23. COUNTERPARTS.
This Agreement may be executed in any number of counterparts; each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
SECTION 24. CAPTIONS.
The captions of the Sections and subsections of this Agreement have been
inserted for convenience only and shall have no substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
STREAMLOGIC CORPORATION
By: _________________________________
Name:
Title:
WELLS FARGO BANK, N.A.,
as Warrant Agent
By: _________________________________
Name:
Title:
C-18
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
No. Warrants
WARRANT CERTIFICATE
STREAMLOGIC CORPORATION
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of Warrants (the "Warrants")
expiring at 5:00 p.m., Los Angeles time, , 2001 (subject to
extension or earlier termination as provided in the Warrant Agreement) (the
"Expiration Date"), to purchase Common Stock, $1.00 par value per share (the
"Common Stock"), of STREAMLOGIC CORPORATION, a Delaware corporation (the
"Company"). The Warrants may be exercised at any time from 9:00 a.m., Los
Angeles time, on , 1996 to 5:00 p.m., Los Angeles time, on the
Expiration Date. Each Warrant entitles the holder upon exercise to receive
from the Company, if exercised before 5:00 p.m., Los Angeles time, on the
Expiration Date, one fully paid and nonassessable share of Common Stock (a
"Warrant Share") at the Exercise Price (as defined in the Warrant Agreement
referred to on the reverse side hereof), payable in lawful money of the United
States of America, upon surrender of this Warrant Certificate and payment of
the Exercise Price at the office or agency of the Warrant Agent, but only
subject to the conditions set forth herein and in the Warrant Agreement. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events as
set forth in the Warrant Agreement.
WARRANTS NOT EXERCISED ON OR BEFORE 5:00 P.M., LOS ANGELES TIME ON THE
EXPIRATION DATE AS DEFINED HEREIN SHALL BECOME VOID.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof, and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agents as such term is used in the Warrant Agreement.
C-19
<PAGE>
IN WITNESS WHEREOF, STREAMLOGIC CORPORATION has caused this Warrant
Certificate to be duly executed.
STREAMLOGIC CORPORATION
By: _________________________________
Title:
Dated: _________________________________
Countersigned:
WELLS FARGO BANK, N.A.
as Warrant Agent
By: ____________________________________
Authorized Signatory
C-20
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on the Expiration Date entitling the
holder on exercise to receive shares of Common Stock of the Company and are
issued or to be issued pursuant to a Warrant Agreement dated as of
, 1996 (the "Warrant Agreement"), duly executed and delivered by
the Company to Wells Fargo Bank, N.A., a national banking association, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants. A copy of the
Warrant Agreement may be obtained by the holder hereof upon written request to
the Company. By accepting initial delivery, transfer or exchange of this
Warrant, the duly registered holder shall be deemed to have agreed to the
terms of the Warrant Agreement as it may be in effect from time to time,
including any amendments or supplements duly adopted in accordance therewith.
The holder of Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form of election to
purchase set forth hereon properly completed and executed, together with
payment of the Exercise Price in the manner described below at the office of
the Warrant Agent. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder hereof or its
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised.
Payment of the Exercise Price may be made in cash by wire transfer to the
Warrant Agent for the account of the Company or by certified or official bank
check or checks to the order of the Company or by any combination thereof.
The Warrant Agreement provides that upon the occurrence of certain events
the number of shares of Common Stock issuable upon the exercise of each
Warrant, and the Exercise Price of each Warrant, may, subject to certain
conditions, be adjusted. No fractions of a share of Common Stock will be
issued upon the exercise of any Warrant, but the Company shall pay the cash
value thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
C-21
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise this Warrant,
according to the terms and conditions hereof, to the extent of purchasing
shares of Common Stock and hereby makes payment of $ in
payment of the exercise price thereof. If the number of shares shall not be
all of the shares purchasable under this Warrant, a new Warrant Certificate
for the balance remaining shall be issued in the name of the undersigned or
its assignee as indicated on the Assignment Form.
Dated:
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name: _________________________________________________________________________
(please typewrite or print in block letters)
Address: ______________________________________________________________________
Signature: ____________________________________________________________________
Note: The signature must conform in all respects to name of holder as
specified on the face of this Warrant Certificate
Signature Guaranteed:
C-22
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
Name: __________________________________________________________________________
(please typewrite or print in block letters)
Address: _______________________________________________________________________
its right to purchase shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint Attorney, to
transfer the same on the books of the Company, with full power of substitution
in the premises.
Dated:
Social Security or other identifying number of holder
Signature: _____________________________________________________________________
Note: The signature must conform in all respects to name of holder as
specified on the face of this Warrant Certificate
Signature Guaranteed:
C-23
<PAGE>
RESET ELECTION FORM
The undersigned registered holder of this Warrant hereby irrevocably elects a
Reset Election pursuant to the terms and conditions of this Warrant and Section
4.3(a) of the Warrant Agreement.
The Reset Date applicable to this Reset Election is:
________________________________________________________________________________
(Please typewrite or print in block letters)
Dated:
Social Security or other identifying number of holder
Signature: _____________________________________________________________________
Note: The signature must conform in all respects to name of holder as
specified on the face of this Warrant Certificate
Signature Guaranteed:
C-24
<PAGE>
APPENDIX D
INDEX TO APPENDIX D
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements........... D-2
Unaudited Condensed Consolidated Financial Statements..................... D-7
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... D-12
Consolidated Financial Statements
Report of Independent Auditors.......................................... D-18
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...................................................... D-19
Consolidated Balance Sheets as of March 29, 1996, December 29, 1995 and
December 30, 1994...................................................... D-20
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............. D-21
Consolidated Statements of Shareholders' Equity (Deficit) for the three
months ended March 29, 1996 and the three years ended December 29,
1995................................................................... D-22
Notes to Consolidated Financial Statements.............................. D-23
</TABLE>
D-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 June 28, 1996 and the unaudited pro forma
condensed consolidated statements of operations for the three-month periods
ended June 28, 1996 and 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
June 28, 1996 for purposes of the pro forma balance sheet and as of March 30,
1996, 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 price of Streamlogic Common Stock on the date of the Exchange,
which cannot now be determined. The Pro Forma Gain was computed based on a
stock price of $2.40 and the actual stock price will not be determined until
the Exchange Date. 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.
D-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, 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................................. $ 45,859 $(10,000) $ 35,859
Accounts receivable, net................... 8,144 -- 8,144
Receivable from Singapore Technologies..... 1,000 -- 1,000
Inventories................................ 8,025 -- 8,025
Other current assets....................... 1,200 -- 1,200
--------- -------- --------
Total current assets..................... 64,228 (10,000) 54,228
Property, plant and equipment, net........... 5,639 -- 5,639
Other assets................................. 1,884 (1,200) 684
--------- -------- --------
$ 71,751 $(11,200) $ 60,551
========= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFI-
CIT)
Current liabilities:
10% Subordinated Notes..................... $ 10,000 $ -- $ 10,000
Current maturities of long-term debt....... 3,750 (3,750) --
Accounts payable........................... 6,302 -- 6,302
Other accrued liabilities.................. 10,862 (912) 9,950
--------- -------- --------
Total current liabilities.................... 30,914 (4,662) 26,252
Unsecured promissory notes, due 1998......... -- 8,500 8,500
Long term debt............................... 71,250 (71,250) --
Deferred income taxes........................ 1,720 -- 1,720
Shareholders' equity (deficit):
Common stock............................. 15,673 16,250 31,923
Additional paid-in capital............... 112,735 25,750 138,485
Accumulated deficit...................... (160,541) 14,212 (146,329)
--------- -------- --------
Total shareholders' equity (deficit)... (32,133) 56,212 24,079
--------- -------- --------
$ 71,751 $(11,200) $ 60,551
========= ======== ========
</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.................................................. (9,000)
Unsecured promissory notes.......................................... (8,500)
Common Stock issued................................................. (39,000)
Reversal of accrued interest........................................ 1,312
Transaction fees.................................................... (1,000)
Charge off unamortized bond issuance cost........................... (1,200)
Value of Warrants issued............................................ (3,000)
-------
14,612
Book provision for income tax....................................... 400
-------
Pro forma gain...................................................... $14,212
=======
</TABLE>
D-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1996
---------------------------------
STREAMLOGIC
STREAMLOGIC EXCHANGE CORPORATION
CORPORATION OFFER(2) PRO FORMA(3)
----------- -------- ------------
<S> <C> <C> <C>
Net sales..................................... $11,189 $ -- $11,189
Cost of sales................................. 10,467 -- 10,467
------- ------ -------
Gross profit.................................. 722 -- 722
Operating expenses:
Research and development.................... 2,465 -- 2,465
Selling, general and administrative......... 2,771 -- 2,771
------- ------ -------
Total operating expenses.................... 5,236 -- 5,236
------- ------ -------
Loss from operations.......................... (4,514) -- (4,514)
Interest expense, net......................... (1,025) 827 (198)
------- ------ -------
Loss before income taxes...................... (5,539) 827 (4,712)
Income tax provision.......................... 8 -- 8
------- ------ -------
Net loss...................................... $(5,547) $ 827 $(4,720)
======= ====== =======
Loss per share................................ $ (.36) $ (.15)
======= =======
Weighted average shares outstanding........... 15,608 16,250 31,858
======= ====== =======
</TABLE>
- --------
(2) Adjustment to interest expense to give effect to Exchange at the beginning
of period presented; reduction of interest expense on Debentures of $1,125
offset by interest expense on unsecured promissory notes of $298. See Note
(1) to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
(3) The above pro forma consolidated statement of operations does not include
an extraordinary gain of $14,212 which would be recorded in the Company's
consolidated financial statements in the period in which the Exchange
Offer is consummated.
D-4
<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(6) OFFER(4) PRO FORMA(5)
-------------- -------- ------------
<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 income (expense), net............. (1,854) 827 (1,027)
-------- ------ --------
Loss before income taxes................... (35,955) 827 (35,128)
Income tax provision ...................... 252 -- 252
-------- ------ --------
Net loss................................... $(36,207) $ 827 $(35,380)
======== ====== ========
Net loss per share......................... $ (2.32) $ (1.11)
======== ========
Weighted average shares outstanding........ 15,580 16,250 31,830
======== ====== ========
</TABLE>
- --------
(4) Adjustment to interest expense to give effect to Exchange at the beginning
of period presented; reduction of interest expense on Debentures of $1,125
offset by interest expense or unsecured promissory notes of $298. See Note
(1) to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
(5) The above pro forma consolidated statement of operations does not include
an extraordinary gain of $14,212 which would be recorded in the Company's
consolidated financial statements in the period in which the Exchange
Offer is consummated.
(6) 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, $35,109 and $14,331, 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.)
D-5
<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(9) OFFER(7) PRO FORMA(8)
-------------- -------- ------------
<S> <C> <C> <C>
Net sales.................................. $211,264 $ -- $211,264
Cost of sales.............................. 205,628 -- 205,628
-------- ------- --------
Gross profit............................... 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 expense, net...................... (4,242) 3,310 (932)
-------- ------- --------
Loss before income taxes................... (85,349) 3,310 (82,039)
Income tax benefit......................... (1,061) -- (1,061)
-------- ------- --------
Net loss................................... $(84,288) $ 3,310 $(80,978)
======== ======= ========
Net loss per share......................... $ (5.46) $ (2.55)
======== ========
Weighted average shares outstanding........ 15,445 16,250 31,695
======== ======= ========
</TABLE>
- --------
(7) Adjustment to interest expense to give effect to Exchange at the beginning
of period presented; reduction of interest expense on Debentures of $4,500
offset by interest expense on unsecured promissory notes of $1,190. See
Note (1) to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
(8) The above pro forma consolidated statement of operations does not include
an extraordinary gain of $14,212 which would be recorded in the Company's
consolidated financial statements in the period in which the Exchange
Offer is consummated.
(9) 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.)
D-6
<PAGE>
STREAMLOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 28, MARCH 29,
1996 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments..... $ 45,859 $ 40,477
Accounts receivable, net.............................. 8,144 19,139
Receivable from Singapore Technologies................ 1,000 13,966
Inventories........................................... 8,025 10,022
Other current assets.................................. 1,200 1,033
--------- ---------
Total current assets................................ 64,228 84,637
Property, plant and equipment, at cost, less accumulated
depreciation and amortization.......................... 5,639 5,850
Other assets............................................ 1,884 1,896
--------- ---------
$ 71,751 $ 92,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
10% Subordinated Notes................................ $ 10,000 $ 20,000
Current maturities of long term debt.................. 3,750 3,750
Accounts payable...................................... 6,302 8,610
Other accrued liabilities............................. 10,862 14,137
--------- ---------
Total current liabilities........................... 30,914 46,497
6% Convertible Subordinated Debentures due 2012......... 71,250 71,250
Deferred income taxes................................... 1,720 1,720
Shareholders' deficit:
Preferred stock, $1.00 par value, 2,000,000 shares au-
thorized, none issued................................ -- --
Common stock, $1.00 par value, 50,000,000 shares
authorized; 15,672,967 shares issued and outstanding
(15,580,413 in March 1996)........................... 15,673 15,580
Additional paid-in capital............................ 112,735 112,330
Accumulated deficit................................... (160,541) (154,994)
--------- ---------
Total shareholders' deficit......................... (32,133) (27,084)
--------- ---------
$ 71,751 $ 92,383
========= =========
</TABLE>
See accompanying notes.
D-7
<PAGE>
STREAMLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
JUNE 28, JUNE 30,
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 11,189 $ 70,076
Cost of sales............................................ 10,467 54,707
--------- ---------
Gross margin............................................. 722 15,369
--------- ---------
Operating expenses:
Research and development............................... 2,465 10,352
Selling, general and administrative.................... 2,771 10,270
--------- ---------
Total operating expenses............................. 5,236 20,622
--------- ---------
Loss from operations..................................... (4,514) (5,253)
Interest expense....................................... (1,402) (1,489)
Interest income........................................ 377 419
--------- ---------
Loss before income taxes................................. (5,539) (6,323)
Income tax provision................................... 8 21
--------- ---------
Net loss................................................. $ (5,547) $ (6,344)
========= =========
Net loss per share....................................... $ (.36) $ (.41)
========= =========
Weighted average common and common equivalent shares
outstanding............................................. 15,608 15,336
========= =========
</TABLE>
See accompanying notes.
D-8
<PAGE>
STREAMLOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
------------------
JUNE 28, JUNE 30,
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (5,547) $ (6,344)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 467 5,286
(Gain) loss on disposal of fixed assets................ -- (11)
Deferred income taxes.................................. -- (99)
Increase (decrease) from changes in:
Accounts receivable.................................. 10,995 (14,920)
Inventories.......................................... 1,997 16,616
Other current assets................................. (167) 1,161
Other assets......................................... 6 (57)
Accounts payable and other accrued liabilities....... (5,583) (2,245)
-------- --------
Net cash provided by (used in) operating activities........ 2,168 (613)
Cash flows from investing activities:
Net change in short-term investments..................... (11,865) (2,517)
Proceeds from sale of drive business..................... 12,966 --
Proceeds from sale of equipment.......................... -- (12)
Additions to property, plant and equipment............... (250) (7,043)
-------- --------
Net cash provided by (used in) investing activities........ 851 (9,572)
Cash flows from financing activities:
Decrease in 10% subordinated notes....................... (10,000) --
Increase in Term Loan Facility........................... -- 1,194
Proceeds from sale of common stock, net.................. 498 1,179
-------- --------
Net cash provided by (used in) financing activities........ (9,502) 2,373
Net decrease in cash and equivalents....................... (6,483) (7,812)
Cash and equivalents at beginning of period................ 15,443 35,959
-------- --------
Cash and equivalents at end of period...................... 8,960 28,147
Short-term investments..................................... 36,899 13,854
-------- --------
Total cash, cash equivalents and short-term investments.... $ 45,859 $ 42,001
======== ========
Supplemental cash flow information
Interest payments........................................ $ 1,004 $ 346
Tax payments............................................. $ 337 $ 464
</TABLE>
See accompanying notes.
D-9
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996
(UNAUDITED)
NOTE 1. GENERAL
The accompanying condensed consolidated financial statements have not been
audited by independent auditors but, in the opinion of the Company, such
unaudited statements include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position as of June 28, 1996, and the consolidated results of operations for
the three month period ended June 30, 1996 and June 30, 1995 and cash flows
for the three month period ended June 28, 1996 and June 30, 1995. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission. Nevertheless, the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading. Interim results are not necessarily indicative of
the results for the full fiscal year.
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
Company has elected to disclose the consolidated results of operations and
cash flows for the three month period ended June 28, 1996 in comparative form
with the three month period ended June 30, 1995 because it believes
comparability is improved.
The three month period ended June 28, 1996 represented the first period for
which the Company's results of operations excluded those of the hard disk
drive business operated under the name "Micropolis Corporation" and sold by
the Company as of March 29, 1996.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's Transition Report on Form 10-K for the three
month period ended March 29, 1996 filed with the Securities and Exchange
Commission.
NOTE 2. INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market:
<TABLE>
<CAPTION>
JUNE 28, MARCH 29,
1996 1996
-------- ---------
<S> <C> <C>
Raw materials and purchased parts...................... $3,676 $ 4,564
Work in process........................................ 2,204 1,487
Finished goods......................................... 2,145 3,971
------ -------
$8,025 $10,022
====== =======
</TABLE>
NOTE 3. PER SHARE INFORMATION
Loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and applicable common stock equivalents
outstanding during the period. Primary and fully diluted loss per share are
the same.
D-10
<PAGE>
NOTE 4. SUBSEQUENT EVENT
Acquisition of FWB Inc.
Effective July 1, 1996 the Company purchased all of the net assets related
to the hardware business of FWB Software Inc., a developer of performance
computer storage products for pre-press, multi-media and graphics
applications. In addition, the Company made an 11% equity investment in the
software business being retained by FWB Software Inc. In consideration for
such net assets and minority equity investment, at closing the Company paid
cash of approximately $5 million and issued 1,256,123 shares of StreamLogic
Common Stock. FWB Software Inc. will receive additional shares or return
shares of StreamLogic Common Stock such that the market value (based on the
average price as defined in the Operating Agreement of FWB Software, LLC) of
the shares contributed to FWB Software Inc. is equal to $7.5 million, such
adjustment to occur on October 29, 1996.
Tender Agreement
On June 14, 1996 the Company entered into an agreement (the "Initial Tender
Agreement") with Loomis Sayles & Company, 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 and
securities of the Company. On September 13, 1996 the Company announced an
amendment to the Initial Tender Agreement (the "First Amendment"), and on
October 4, 1996 the Company announced a second amendment to the Initial Tender
Agreement (the "Second Amendment"; the Initial Tender Agreement, as amended by
both the First Amendment and the Second Amendment, is referred to as the
"Tender Agreement"). Pursuant to the Tender Agreement, the Company plans to
commence a tender offer for the Debentures on October 7, 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) $120
in cash, (b) $113.33 in increasing rate unsecured promissory notes,
(c) 216.66667 shares of StreamLogic Common Stock, and (d) warrants to purchase
40 shares of StreamLogic Common Stock at an initial exercise price of $3.60
per share of Common Stock. 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 Loomis Sayles to advise the holders to participate in
the tender offer under the Tender remains subject to various conditions
including among others, satisfaction of all necessary regulatory requirements
and 95% participation by bond holders. In addition, such holders are not
obligated to participate. As a result, there can be no assurance that the
tender offer will be consummated. The last reported sales price of the
Debentures prior to the Company's announcement of the Amendment was $57 per
$100 face value on September 26, 1996.
If the holders of 100% of the outstanding Debentures accept the exchange,
the Company will exchange the Debentures for (a) $9 million in cash,
(b) $8.5 million in unsecured promissory notes due 1998, (c) approximately
16.25 million shares of common stock, and (d) warrants to purchase 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.
D-11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 28, 1996 Compared to Three Months Ended June 30, 1995
Net sales decreased 84% to $11.2 million in the June 1996 quarter as
compared to $70.1 million in the June 1995 quarter. The decline in revenues
was due to the sale of the hard disk drive business by the Company as of March
29, 1996. Revenue for the June 1996 quarter included those of the Company's
family of high performance and fault-tolerant RAID solutions and the family of
video server systems. Such June 1996 quarter revenues slightly exceeded those
of the June 1995 quarter for similar products. Backlog as of June 28, 1996 was
$1.9 million.
Cost of sales as a percent of sales increased to 93.5% in the June 1996
quarter from 78.1% in the June 1995 quarter resulting in a gross margin of
6.5% in the 1996 quarter as compared to 21.9% in the 1995 quarter. The
decrease in margin during the 1996 quarter was a result of increased costs and
inefficiencies experienced by the Company during the period of transition
following the sale of the hard disk drive business.
Research and development expenses were 22.0% of sales in the June 1996
quarter as compared to 14.8% in the June 1995 quarter. The percentage increase
in the result of lower sales, offset partially by a decrease in expense of
$7.9 million. The decrease in expense was the result of the sale of the hard
disk drive business by the Company as of March 29, 1996, and the termination
of the Company's funding of the costs incurred by Tulip Memory Systems, Inc.,
a start-up company formed to develop substrates which are to be used in the
manufacture of computer disk drives. The remaining research and development
expense was incurred for the Company's family of high performance and fault-
tolerant RAID solutions and the family of video server systems.
Selling, general and administrative expenses were 24.8% of sales in the June
1996 quarter as compared to 14.7% in the June 1995 quarter. The percentage
increase is the result of lower sales, offset by a decrease in expense of $7.5
million. The decrease in expense was the result of the sale of the hard disk
business by the Company as of March 29, 1996.
Interest expense was $1.4 million in the June 1996 quarter (12.5% of sales)
as compared to $1.5 million in the June 1995 quarter (2.1% of sales). The
decrease in expense was a result of interest incurred during the June 1996
quarter on the Company's 10% Subordinated Notes offset by fees associated with
the Company's Term Loan Facility in the June 1995 quarter. Interest income was
$377,000 in the June 1996 quarter as compared to $486,000 in the June 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 $5.5 million in the
June 1996 quarter as compared to $6.3 million in the June 1995 quarter. The
Company's income tax provision in the June 1995 quarter benefited from the tax
holiday afforded the Company's Singapore operation. The income tax exemption
in Singapore had no impact in the June 1995 quarter. Net loss for the June
1996 quarter was $5.5 million compared to $6.3 million in the June 1995
quarter.
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
D-12
<PAGE>
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.
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
D-13
<PAGE>
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.
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
D-14
<PAGE>
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 $45.9 million
as of June 28, 1996 from $40.5 million as of March 29, 1996. Net cash provided
by operations of $2.2 million is primarily due to the collection of a
substantial amount of the trade accounts receivable not sold as part of the
hard disk drive business, offset by the Company's net loss of $5.5 million and
decrease in accounts payable and other accrued liabilities of $5.6 million.
The Company's capital expenditures in the June 1996 quarter were $250,000 as
compared to $7.0 million in the June 1995 quarter. Capital expenditures in the
June 1995 quarter related primarily to the construction of a new manufacturing
facility in Singapore to replace the current leased facility and for equipment
and tooling to support new products. The new facility was completed in 1996
and sold as part of the sale of the hard disk drive business. The Company had
obtained a term loan facility to fund the expenditures associated with the
construction of the building. The buyer of the hard disk drive business
assumed the Company's term loan facility and, in addition, 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
facilitation of the factory. The Company currently anticipates that its fiscal
1997 capital spending will be substantially less than that of fiscal 1995 and
will be principally for equipment and tooling required for the Company's new
products.
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
D-15
<PAGE>
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. On April 5, 1996, the Company repaid
$10,000,000 of the Notes, and on July 1, 1996, the Company repaid the
remaining $10,000,000 of the Notes. Interest on the Notes was payable
semiannually on April 15 and October 15.
In consideration of the sale of the hard disk drive business as of 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 is subject to certain conditions
and is expected to be received in November.
Market for StreamLogic Common Stock
As of June 28, 1996, the Company's net tangible assets did not meet the
criteria for continued inclusion on the Nasdaq National Market System ("Nasdaq
NMS"). If the Company's Common Stock is no longer approved for inclusion on
the Nasdaq NMS, and the Company cannot obtain listing elsewhere, trading, if
any, in the 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, Nasdaq granted the
Company's request for continued inclusion of the Company's Common Stock on the
Nasdaq NMS conditioned upon consummation of the Exchange Offer by October 4,
1996. On September 16, the Company requested Nasdaq to extend the date by
which it would require the Exchange Offer to be consummated in order to allow
the continued inclusion of the Common Stock on the Nasdaq NMS to October 31,
1996. Following further telephonic conversations with representatives of
Nasdaq, on September 30, 1996, Nasdaq informed the Company that it would not
grant the Company's request for an extension of the date by which it would
require the Exchange Offer to be consummated and that effective October 7,
1996, the Company's Common Stock would be removed from the Nasdaq NMS. Nasdaq
did, however, inform the Company that it could apply to have its Common Stock
listed on the Nasdaq SmallCap Market pending consummation of the Exchange
Offer. The Company has initiated an oral appeal of the proposed delisting of
its Common Stock from the Nasdaq NMS, and has concurrently applied for listing
of its Common Stock on the Nasdaq SmallCap Market pending successful
consummation of the Exchange Offer. Nasdaq has informed the Company that its
Common Stock will remain on the Nasdaq NMS pending the outcome of the oral
appeal; however, there can be no assurances as to whether such appeal will be
successful or as to when such determination will be made by Nasdaq. If the
Company is unable to consummate the Exchange Offer, it is likely that the
Common Stock would no longer be authorized for quotation either on the Nasdaq
NMS or the Nasdaq SmallCap Market.
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, cost reduction measures, equity financing and other
alternatives. Management believes that, if it is successful in executing such
measures, its cash, cash equivalents, short term investments and other working
capital will be sufficient to fund operations over the next year. There can be
no assurance of such successful execution, however.
Recent Developments
The Company's preliminary results for the second quarter of fiscal 1997
indicate revenues of approximately $13 million and a net loss somewhat greater
than that of the $5.5 million loss experienced during the first quarter of
1997. Such revenues, which include those of the Hammer line of high-
performance storage products acquired by the Company as of July 1, 1996,
reflected a generally slower summer market demand during the quarter, issues
of integrating the Hammer products into the StreamLogic business and certain
late component deliveries in September 1996 which prevented the Company from
fulfilling its entire backlog. During September 1996, as a cost reduction
measure, the Company executed a work force reduction of approximately 10% of
the U.S. work force.
D-16
<PAGE>
As further described in Note 4 to the Condensed Consolidated Financial
Statements as of June 28, 1996, effective July 1, 1996 the Company purchased
all of the net assets related to the hardware business of FWB Software Inc.
and made an equity investment in the software business being retained by FWB
Software Inc. In consideration for such net assets and minority equity
investment, at closing the Company paid cash of approximately $5 million and
issued 1,256,123 shares of StreamLogic Common Stock. FWB Software Inc. will
receive additional shares or return shares of StreamLogic Common Stock such
that the market value (based on the average price as defined in the Operating
Agreement of FWB Software, LLC) of the shares contributed to FWB Software Inc.
is equal to $7.5 million, such adjustment to occur on October 29, 1996. Based
on the recent share price of the Company's Common Stock as compared to the
share price of approximately $6 when the acquisition was negotiated, the
Company may need to issue additional shares of StreamLogic Common Stock to FWB
Software Inc. on October 29, 1996. If the average price (as defined in the
Operating Agreement of FWB Software, LLC) is below approximately $2.40 the
Company would be required to issue additional shares pursuant to the agreement
such that more than 20% of the outstanding shares immediately prior to the
effective date of the agreement would be issued without stockholder approval
and possibly contrary to Nasdaq's rules. In order to permit the Company to
continue (or become re-listed) as a publicly-traded Nasdaq company if such
average price is below such threshold, the Company would be required to
negotiate with FWB Software, LLC to provide alternative consideration, such as
cash, in place of such shares in excess of 20%. There can be no assurance that
such negotiations would be successful and, if not, that the Company's stock
would not be delisted from Nasdaq.
D-17
<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
D-18
<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.
D-19
<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.
D-20
<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.
D-21
<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.
D-22
<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.
D-23
<PAGE>
STREAMLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
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.
D-24
<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
D-25
<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.
D-26
<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>
D-27
<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.
D-28
<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, be-
ginning 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
D-29
<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's 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.
D-30
<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>
D-31
<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.
D-32
<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 entered into an agreement (the "Bond
Agreement") 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 StreamLogic Common Stock at an initial exercise price of 150% of
market value as defined in the Bond Agreement. The exercise price of the
warrants is subject to downward adjustment in certain circumstances, and
contains antidilution adjustments. The Company expects shareholder approval
will be required pursuant to Nasdaq rules and regulations.
The obligations of the holders advised by Loomis Sayles to participate in
the tender offer under the Bond Agreement is subject to various conditions
including satisfaction of all necessary regulatory requirements, 95%
participation by bond holders, and the average price of StreamLogic's Common
Stock immediately prior to the expiration of the tender offer falling with the
range $4.00 to $7.50. As a result, there can be no assurance that the tender
offer will be consummated.
If the holders of 100% of the outstanding debentures accept the exchange,
the Company will exchange the debentures for (a) $17.5 million in cash,
(b) issue between 5.2 and 9.8 million shares of common stock, and (c) issue
warrants to purchase approximately 3.0 million shares of common stock,
therefore, the transaction, as currently proposed, would increase the
Company's net tangible assets by more than $50 million.
D-33
<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 consent resolution to approve and authorize a single proposal to
approve an offer by the Company (the "Offer") to exchange any and all of its 6%
Convertible Subordinated Debentures due 2012 for cash, unsecured promissory
notes of the Company, Common Stock of the Company, and warrants to purchase
Common Stock, the consummation of such Offer (the "Exchange") and the issuance
of such unsecured promissory notes, Common Stock and warrants (the "Issuance")
in connection with the Exchange, in each case on the terms and conditions
described in the accompanying Proxy Statement.
- ------------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
- ------------------------------------------------------------------------
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
-- DO NOT FOLD, STAPLE OR MUTILATE --
<PAGE>
- --------------------------------------------------------------------------------
[X] Please mark your votes as indicated
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.
FOR [_] AGAINST [_] ABSTAIN [_]
_____________________________
Consent Card Number
_____________________________
Number of Shares
Dated: ____________________________ , 1996
__________________________________________
__________________________________________
(Signature(s) of Stockholders(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 --
