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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
DECEMBER 12, 1997
STREAMLOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3093858
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
COMMISSION FILE NUMBER: 0-12046
8450 CENTRAL AVENUE
NEWARK, CALIFORNIA 94560
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(510) 608-4000
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ITEM 5. OTHER EVENTS.
On December 12, 1997, StreamLogic Corporation (the
"Company") filed a plan of reorganization and disclosure
statement in the United States Bankruptcy Court for the Northern
District of California, San Francisco Division ("Bankruptcy
Court"). The plan of reorganization and the disclosure
statement are subject to approval by the Bankruptcy Court and,
consequently may change substantially from the attached exhibits.
Schedules and exhibits to the plan of reorganization and
disclosure statement will be furnished upon request to the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBITS
99.1 Proposed Plan of Reorganization (without schedules or
exhibits), as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco
Division on December 12, 1997.
99.2 Proposed Disclosure Statement (without schedules or
exhibits), as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco
Division on December 12, 1997.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
STREAMLOGIC CORPORATION
(Registrant)
Date: December 24, 1997 By /s/ Chapman Stranahan
___________________________
Chapman Stranahan
President
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EXHIBIT INDEX
99.1 Proposed Plan of Reorganization (without schedules or
exhibits), as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco
Division on December 12, 1997.
99.2 Proposed Disclosure Statement (without schedules or
exhibits), as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco
Division on December 12, 1997.
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EXHIBIT 99.1
Proposed Plan of Reorganization (without schedules or exhibits),
as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco Division
on December 12, 1997.
<PAGE>
EXHIBIT 99.2
Proposed Disclosure Statement (without schedules or exhibits),
as filed with the United States Bankruptcy Court
for the Northern District of California, San Francisco Division
on December 12, 1997.
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #66849
KATHERINE D. RAY, ESQ. #121002
KENNETH G. DEJARNETTE, ESQ. #168074
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Counsel for Debtor-In-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Under Chapter 11
a Delaware corporation, )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax Id. No. 95-3093858 )
______________________________)
DEBTOR'S PLAN OF REORGANIZATION
(Dated December 10, 1997)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITION AND CONSTRUCTION OF TERMS.....................................1
1.1. Definitions.....................................................1
1.2. Other Terms.....................................................1
1.3. Construction of Certain Terms...................................1
1.4. Plan Controls...................................................2
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT.......................2
2.1. Classification..................................................2
2.1.1. Class A (Priority Claims).....................3
2.1.2. Class B (Secured Claims)......................3
2.1.3. Class C (Convenience Claims)..................3
2.1.4. Class D (General Unsecured Claims)............3
2.1.5. Class E (Interests)...........................3
2.2. Impairment......................................................3
ARTICLE III
TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS...............................3
3.1. Generally.......................................................3
3.2. Administrative Bar Date.........................................4
3.3. Penalties and Interest..........................................5
3.4. Payment.........................................................5
3.4.1. Generally.....................................5
3.4.2. Certain Ordinary Course Expenses..............6
ARTICLE IV
TREATMENT OF UNIMPAIRED CLASSES..........................................6
4.1. Class A (Priority Claims).......................................6
4.2. Class B (Secured Claims)........................................7
4.2.1. Reinstatement.................................8
4.2.2. Full Satisfaction.............................8
4.2.3. Abandonment, Foreclosure and Deficiency.......9
ARTICLE V
TREATMENT OF IMPAIRED CLASSES............................................9
5.1. Class C (Convenience Claims)....................................9
5.1.1. Opt-Out Election..............................10
5.1.2. Opt-In Election...............................10
5.2. Class D (General Unsecured Claims)..............................10
5.2.1. Cash Distributions............................10
5.2.1.1. Payments Commenced...................11
5.2.1.2. Payments Ceased......................11
5.2.2. Pro-Rata Calculations.........................11
5.2.3. Pari Passu Treatment..........................12
5.2.4. Stock Distribution............................13
5.2.4.1. Pro Rata.............................13
5.2.4.2. Value................................13
5.2.4.3. Fractional and Remainder
Shares...............................13
5.2.5. Subordination.................................14
5.2.6. Provisions Affecting Public Debt
Securities.............................................14
5.2.6.1. Record Date..........................15
5.2.6.2. Manner of Distributions;
Surrender of Public Debt
Securities...........................15
5.2.6.3. Compensation of Indenture
Trustees.............................17
5.2.6.3.1. From Estate..............17
5.2.6.3.2. From Distribution........18
5.2.6.4. Unclaimed Distributions..............19
5.3. Class E (Interests).............................................19
5.3.1. No Distributions..............................19
5.3.2. Cancellation..................................19
ARTICLE VI
EXECUTORY CONTRACTS......................................................20
6.1. Generally.......................................................20
6.2. Assumption and Rejection........................................20
6.2.1. Schedule......................................20
6.2.2. Rejection.....................................20
6.2.3. Assumption....................................21
6.3. Cure Amounts....................................................21
6.4. Payment of Cure.................................................22
6.4.1. Payment by Reorganized Debtor.................22
6.4.2. Payment by Distribution Agent.................22
6.4.3. Timing of Payment.............................22
6.5. Approval of Assumption or Rejection.............................23
6.6. Bar Date for Rejection Claims...................................23
ARTICLE VII
MEANS FOR EXECUTION OF THE PLAN..........................................24
7.1. Plan Effectiveness..............................................24
7.2. Vesting of Estate Property......................................24
7.2.1. Vesting in Reorganized Debtor.................24
7.2.2. Vesting in Distribution Estate................25
7.2.3. Preletz Group Withdrawal......................25
7.3. Hammer and Non-Hammer Assets....................................26
7.3.1. Hammer Assets.................................26
7.3.2. Non-Hammer Assets.............................28
7.4. Effective Date Actions..........................................29
7.4.1. Revesting of Hammer Assets....................30
7.4.2. Retention of Non-Hammer Assets................30
7.4.3. Preletz Group Contribution....................30
7.4.4. Participating Creditors' Contribution.........31
7.4.5. Cancellation and Issuance of Stock............31
7.4.6. Modification of Articles and By-Laws..........31
7.4.7. Payments by Reorganized Debtor................31
7.4.8. Payments by Distribution Agent................31
7.4.9. Other Releases of Liens and Instruments.......32
7.4.10. Distribution Estate Accounts..................32
7.4.11. Other Documents...............................32
7.5. Other Actions...................................................33
7.6. Preservation and Vesting of Causes of Action....................33
7.6.1. Vesting in Reorganized Debtor.................33
7.6.2. Vesting in Distribution Estate................33
7.7. Distribution Agent..............................................34
7.7.1. Selection.....................................34
7.7.2. Responsibility and Fidelity...................34
7.7.3. Tenure and Replacement........................35
7.8. Distribution Estate.............................................35
7.8.1. Accounts......................................35
7.8.2. Distribution Agent's Duty.....................35
7.8.3. Administration................................36
7.8.3.1. Smaller Sales........................36
7.8.3.2. Other Dispositions...................37
7.8.4. Deposits......................................37
7.8.5. Disbursements.................................37
7.8.6. Periodic Distributions........................38
7.8.7. [INTENTIONALLY OMITTED].......................38
7.8.8. Unclaimed Payments to Claimants...............38
7.9. Committee.......................................................39
7.9.1. Membership....................................39
7.9.2. Retention of Professionals....................39
7.10. Postconfirmation Fees and Expenses.....................40
7.10.1. Court Approval................................40
7.10.2. Payment of Fees...............................41
7.10.3. Reporting to the United States Trustee........41
7.11. Objections to Claims...................................42
7.12. Term of Injunctions and Stays..........................42
ARTICLE VIII
CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR......................42
8.1. Capitalization of Reorganized Debtor............................42
8.1.1. Estate's Shares...............................43
8.1.2. Participating Creditors' Shares...............43
8.1.3. Preletz Group Shares..........................43
8.1.4. Stock Option Shares...........................43
8.1.4.1. Employee Stock Options...............44
8.1.4.2. To Management........................44
8.1.4.3. To Others............................44
8.1.5. Additional Shares.............................44
8.1.5.1. New Capital..........................45
8.1.5.2. Preletz Group Options................45
8.1.5.3. Additional Employee Options..........46
8.2. Creditors' Rights Offering......................................46
8.2.1. Subscription..................................46
8.2.2. Interim Claim.................................47
8.2.3. Subscription Exercise.........................47
8.2.4. Standby Commitment............................48
8.2.5. Notification and Deposit......................48
8.2.6. Segregated Account............................49
8.2.7. Determination by Committee....................49
8.2.8. Untimely Contributions........................50
8.2.9. Distributions.................................50
8.2.10. Special Considerations........................50
8.3. Corporate Governance of Reorganized Debtor......................50
8.3.1. Operational Control...........................51
8.3.2. Board of Directors............................51
8.3.3. Formalized Provisions.........................51
8.3.4. Extraordinary Actions.........................51
8.3.5. Relocation and Rent...........................52
8.3.6. Free Services.................................52
8.3.7. Public Market.................................53
8.3.8. Prohibition...................................53
ARTICLE IX
ASSUMPTION, DISCHARGE AND EXCULPATION....................................53
9.1. Reorganized Debtor's Assumption of Liabilities..................53
9.2. Discharge.......................................................54
9.3. Exculpation of Certain Persons..................................55
9.4. Immunity........................................................56
ARTICLE X
RETENTION OF JURISDICTION................................................56
10.1. Generally..............................................56
ARTICLE XI
MISCELLANEOUS PROVISIONS.................................................58
11.1. Exemption from Transfer Taxes..........................48
11.2. Exemption from Registration............................48
11.3. Binding Effect.........................................59
11.4. Ratification...........................................59
11.5. Notices................................................59
11.6. Governing Law..........................................61
11.7. Headings...............................................62
11.8. Exhibits...............................................62
11.9. Closing Case...........................................62
11.10. Expenses...............................................62
11.11. Modification and Enforcement...........................63
11.11.1. Modification..................................63
11.11.2. Enforcement...................................63
EXHIBITS TO PLAN OF REORGANIZATION
EXHIBIT "A" SCHEDULE OF DEFINITIONS.......................A-1
<PAGE>
STREAMLOGIC CORPORATION, a Delaware corporation
formerly known as Micropolis Corporation and the debtor-in-
possession herein (the "Debtor"), hereby proposes this Debtor's
Plan Of Reorganization (Dated December 10, 1997) (as it may be
altered, amended or modified from time to time, the "Plan") in
the within chapter 11 case, for the reorganization of the
Debtor's financial affairs, pursuant to the provisions of Section
1121(a) of title 11 of the United States Code:
ARTICLE I
DEFINITION AND CONSTRUCTION OF TERMS
1.1. DEFINITIONS. As used herein, capitalized terms shall
have the meanings set forth in the schedule of definitions
attached hereto and incorporated herein as EXHIBIT "A."
1.2. OTHER TERMS. Any term used in the Plan that is not
defined herein or in Exhibit "A" shall have the meaning ascribed
to that term, if any, in the Bankruptcy Code. A term used in
this Plan and not defined herein or in the Bankruptcy Code, but
which is defined in the Bankruptcy Rules, shall have the meaning
assigned to the term in the Bankruptcy Rules.
1.3. CONSTRUCTION OF CERTAIN TERMS. In addition to the
foregoing, the following shall apply:
A. The words "herein," "hereof," "hereto,"
"hereunder," and others of similar import refer to the Plan
as a whole and not to any particular section, subsection, or
clause contained in the Plan.
B. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall
include the singular and the plural and pronouns stated in
the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
1.4. PLAN CONTROLS. To the extent of any inconsistencies
between the Plan and the Disclosure Statement, the provisions of
this Plan shall control and prevail.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT
2.1. Classification. The following is a designation of the
Classes of Claims and Interests in the Plan. Administrative
Expense Claims and Priority Tax Claims (that is, the
Nonclassified Priority Claims) have not been classified and are
excluded from the following Classes, in accordance with the
provisions of Section 1123(a)(1) of the Bankruptcy Code. The
treatment accorded Administrative Expense Claims and Priority Tax
Claims is set forth in Article III herein. Consistent with the
provisions of Section 1122 of the Bankruptcy Code, a Claim or
Interest shall be deemed classified by the Plan in a particular
Class only to the extent that the Claim or Interest qualifies
within the description of that Class, and shall be deemed
classified in a different Class to the extent that the Claim or
Interest qualifies within the description of that different
Class. A Claim or Interest is in a particular Class only to the
extent that the Claim or Interest is an Allowed Claim or Allowed
Interest in that Class, as the case may be.
2.1.1. CLASS A (PRIORITY CLAIMS) consists of all
Priority Claims, if any, other than Nonclassified Priority
Claims.
2.1.2. CLASS B (SECURED CLAIMS) consists of all
Secured Claims, if any, each of which shall be within a
separate subclass, Subclasses B1, B2, B3 and so forth (with
each subclass to be deemed a separate class for all purposes
under applicable provisions of the Bankruptcy Code).
2.1.3. CLASS C (CONVENIENCE CLAIMS) consists of all
Convenience Claims.
2.1.4. CLASS D (GENERAL UNSECURED CLAIMS) consists
of all Unsecured Claims (including Claims arising from
guarantee obligations and Claims arising from the rejection
of executory contracts) other than Nonclassified Priority
Claims and any Claims within Classes A, C, E or F herein.
2.1.5. CLASS E (INTERESTS) consists of all
Interests, including Rescission Claims.
2.2. IMPAIRMENT. Under the terms of the Plan, Allowed
Claims within Classes A and B will not be impaired. Allowed
Claims and Interests within Classes C, D and E will be impaired.
ARTICLE III
TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS
3.1. GENERALLY. Subject to the provisions of all other
sections of this Article III, each holder of an Allowed
Nonclassified Priority Claim shall receive on account of such
Claim, Cash equal to the allowed amount of such Claim, unless the
Distribution Agent or the Reorganized Debtor (whichever party is
the obligor as set forth in Section 3.4 hereinbelow) and such
holder shall have agreed upon other treatment of such Claim.
3.2. ADMINISTRATIVE BAR DATE. No Administrative Expense
Claim, including without limitation Professional Fees, arising on
or before the Effective Date, other than Ordinary Course
Expenses, shall become an Allowed Claim unless (a) an
application, request or proof therefor has been filed with the
Bankruptcy Court and served upon the Distribution Agent, the
Reorganized Debtor and the United States Trustee within thirty
(30) days following the Effective Date (the "Administrative Bar
Date") or by such earlier deadline as may apply to such claim
pursuant to an earlier order of the Bankruptcy Court, or (b) such
claim has been approved and allowed by the Bankruptcy Court
pursuant to an order entered prior to the Administrative Bar
Date. The Distribution Agent, the Reorganized Debtor, the United
States Trustee and any other party in interest may object and
request a hearing or hearings with respect to all such
applications, requests and proofs as to which any disputes exist
or as to which Bankruptcy Court approval is required by the
Bankruptcy Rules and Local Rules, and shall provide notice of
such hearings and any objections to the requesting claimants, the
Reorganized Debtor, the Distribution Agent and the United States
Trustee.
3.3. PENALTIES AND INTEREST. Except as may be expressly
set forth in the Plan or by an order of the Bankruptcy Court, no
holder of a Priority Tax Claim shall be entitled to payment on
account of any postpetition interest or penalties arising with
respect to such Claim.
3.4. PAYMENT. Payment of Allowed Nonclassified Priority
Claims shall occur as follows:
3.4.1. GENERALLY. Except as set forth in the
provisions of Section 3.4.2 hereinbelow, all payments on
account of Allowed Nonclassified Priority Claims shall be
made by the Distribution Agent, in Cash on the latest of the
following dates, and the Reorganized Debtor shall have no
responsibility, obligation or liability therefor: (a) on,
or as soon as practicable after, the Administrative Bar
Date, or on such later date as to which the holder of such
Claim may have consented; (b) on the date when such Claim
becomes due according to contractual, statutory or other
terms applicable thereto; or (c) as soon as practicable
after the order allowing such Claim becomes a Final Order,
if the Claim is disputed or if applicable provisions of the
Bankruptcy Code otherwise require Bankruptcy Court approval,
provided that if such Claim is disputed in part, then the
undisputed portion thereof shall be paid in accordance with
subparts (a) and (b) hereof (or upon Bankruptcy Court
approval if required by applicable provisions of the
Bankruptcy Code) and the balance of the Claim shall be paid
to the extent and when allowed by a Final Order of the
Bankruptcy Court determining the amount of such Claim.
3.4.2. CERTAIN ORDINARY COURSE EXPENSES. The
Reorganized Debtor shall pay such portions of Allowed
Nonclassified Priority Claims that are Ordinary Course
Expenses, as defined in Exhibit "A" attached hereto, when
and to the extent that such Claims become due according to
contractual, statutory or other terms applicable thereto
after the Effective Date, except for the following: (a) any
rent and real property lease obligations, except to the
extent provided by Section 8.3.5 hereinbelow; (b) any
Professional Fees; and (c) any warranty, return, product
defect or refund obligations other than the Hammer
Contingent Claims. Without limiting the generality of the
foregoing, the Reorganized Debtor shall pay such portions of
Allowed Nonclassified Priority Claims as constitute Hammer
Contingent Claims. The Distribution Estate shall have no
responsibility, obligation or liability for any Ordinary
Course Expenses.
ARTICLE IV
TREATMENT OF UNIMPAIRED CLASSES
Classes of unimpaired Claims shall be treated as follows:
4.1. CLASS A (PRIORITY CLAIMS). Each holder of an Allowed
Claim within Class A shall receive on account of such Claim Cash
equal to the allowed amount of such Claim, unless such holder
shall have agreed to a less favorable treatment of such Claim.
Payment or payments on account of such Claims shall be made by
the Distribution Agent on or before the latest of the following
dates: (a) on, or as soon as practicable after, the Effective
Date, or on such later date as to which such holder has
consented; (b) on the date that such Claim becomes due pursuant
to contractual, statutory or other terms applicable thereto; or
(c) as to Disputed Claims, as soon as practicable after the order
allowing the Claim has become a Final Order.
4.2. CLASS B (SECURED CLAIMS). Each holder of an Allowed
Claim within Class B, unless such holder shall have agreed with
the Reorganized Debtor or the Distribution Agent, as the case may
be, to other treatment of such Claim, shall be treated in one of
the following alternative manners set forth in Subsections 4.2.1
through 4.2.3 hereinbelow. Selection of the treatment of each
such Claim secured by Non-Hammer Assets shall be determined by
the Debtor, as evidenced in a Schedule 4.2(A) (the "Schedule
4.2(A)") to be filed with the Bankruptcy Court, and served upon
such holder, the Preletz Group, the Committee and the United
States Trustee, at or prior to the commencement of the
Confirmation Hearing. Selection of the treatment of each such
Claim secured by Hammer Assets shall be determined by the Preletz
Group, as evidenced in a Schedule 4.2(B) (the "Schedule 4.2(B)")
to be filed with the Bankruptcy Court, and served upon such
holder, the Debtor, the Committee and the United States Trustee,
at or prior to the commencement of the Confirmation Hearing. The
treatment of any Allowed Claim within Class B that is not
identified in said Schedules 4.2(A) or 4.2(B) shall be in the
manner set forth in Section 4.2.3 hereinbelow. The alternative
manners of treatment of such Claims are as follows:
4.2.1. REINSTATEMENT. Any and all defaults shall be
Cured, and any and all damages compensated, by the
Reorganized Debtor (as to Claims secured by Hammer Assets)
or by the Distribution Agent (as to Claims secured by Non-
Hammer Assets), to the extent and in the manner required by
the provisions of Section 1124(2) of the Bankruptcy Code, as
soon as practicable after such defaults and damages, if any,
have been determined by agreement among such holder and such
curing party, or by Final Order if no such agreement is
reached; the maturity and terms of such Claim, or such other
terms as have been agreed upon between such holder and such
curing party, shall be reinstated pursuant to the provisions
of Section 1124(2) of the Bankruptcy Code and shall be the
obligation of only the Reorganized Debtor as to Claims
secured by Hammer Assets, or the Distribution Agent as to
Claims secured by Non-Hammer Assets.
4.2.2. FULL SATISFACTION. Such Allowed Secured Claim
shall be paid in full by the Reorganized Debtor (as to
Claims secured by Hammer Assets) or by the Distribution
Agent (as to Claims secured by Non-Hammer Assets), or in
such lesser amount as may be agreed upon by the holder of
such Claim, as soon as practicable after such Claim becomes
an Allowed Secured Claim, in exchange for which the holder
of such Claim shall execute and deliver to the Reorganized
Debtor or the Distribution Agent, as the case may be, all
appropriate documentation reasonably necessary to evidence
and effectuate a full release and discharge of all liens,
security interests and obligations arising from such Claim.
Notwithstanding anything to the contrary hereinabove, the
Distribution Agent shall have no responsibility, obligation
or liability pursuant to this Section 4.2.2 for the payment
of any Claim secured by Hammer Assets, and the Reorganized
Debtor shall have no responsibility, obligation or liability
pursuant to this Section 4.2.2 for the payment of any Claim
secured by Non-Hammer Assets.
4.2.3. ABANDONMENT, FORECLOSURE AND DEFICIENCY. Such
holder shall be permitted to remove, at its own cost and
peril, and at a time mutually convenient to such holder and
the Reorganized Debtor (as to Hammer Assets) or the
Distribution Agent (as to Non-Hammer Assets), and foreclose
upon, such property as to which it holds a perfected
security interest in conformity with applicable provisions
of the Uniform Commercial Code or other applicable law.
ARTICLE V
TREATMENT OF IMPAIRED CLASSES
Classes of impaired Claims and Interests shall be treated as
follows:
5.1. CLASS C (CONVENIENCE CLAIMS). In lieu of treatment
under Section 5.2 of the Plan, and in full satisfaction and
discharge of all Allowed Claims within Class C, each holder of an
Allowed Convenience Claim who does not make the election
described in Section 5.1.1 hereinbelow, shall receive from the
Distribution Agent, on or before sixty (60) days after the
Effective Date, or such later date as such Claim becomes an
Allowed Claim, Cash equal to ten percent (10%) of the amount of
such Allowed Convenience Claim, provided:
5.1.1. OPT-OUT ELECTION. Any holder of a Convenience
Claim may, by written election served upon, and actually
received by, the Debtor's general bankruptcy counsel on or
prior to the deadline for submission of Ballots, elect to be
treated within Class D.
5.1.2. OPT-IN ELECTION. A holder of a Claim in excess
of $3,000.00 may, by written election actually received by
the Debtor's general bankruptcy counsel on or prior to the
deadline for submission of Ballots, reduce such Claim to
$3,000.00, in which case such Claim shall be treated as a
Convenience Claim. In the event of such election, the Claim
amount in excess of $3,000.00 shall be deemed fully
released, waived and discharged.
5.2. CLASS D (GENERAL UNSECURED CLAIMS). All Allowed
Claims within Class D shall be deemed fully satisfied and
discharged by the distributions of Cash and Reorganized Shares
pursuant to the provisions of Sections 5.2.1 and 5.2.4,
respectively, as follows:
5.2.1. CASH DISTRIBUTIONS. Subject to each of the
provisions of Section 5.2 herein, each holder of an Allowed
Claim within Class D shall receive pro-rata Cash payments
from the Distribution Estate on account of such Claim, as
follows:
5.2.1.1. PAYMENTS COMMENCED. No later than June
30, 1998 as directed by the Committee, and thereafter
in accordance with the provisions of Section 7.8.6
hereinbelow, the Distribution Agent shall make Cash
payments from the Distribution Estate upon all Allowed
Claims within Class D, to the extent of available funds
and based upon the calculations described in Section
5.2.2 hereinbelow.
5.2.1.2. PAYMENTS CEASED. Such Cash payments
shall cease once all funds reasonably anticipated to be
received into the Distribution Estate, have been
exhausted.
5.2.2. PRO-RATA CALCULATIONS. Cash payments and stock
distributions made pursuant to Sections 5.2.1 and 5.2.4,
respectively, shall be made on a pro-rata basis to holders
of all such Allowed Claims (with reserves for Disputed
Claims). The aggregate of all such Cash payments made by
the Distribution Agent at any one time shall be equal to all
of the available Cash in the Distribution Estate, (i) less
the amount of Cash reserves which the Distribution Agent
determines may be required in order to satisfy the
Distribution Agent's other obligations under the terms of
the Plan, including full distributions upon Allowed
Nonclassified Priority Claims pursuant to Section 3.4.1
hereinabove, distributions upon Allowed Claims within
Classes A, B and C pursuant to Sections 4.1, 4.2.1, 4.2.2
and 5.1 hereinabove, Cures with respect to executory
contracts pursuant to Section 6.4.2 hereinbelow, and future
anticipated expenses, such as postconfirmation
administrative fees and costs and quarterly fees owing to
the United States Trustee, pursuant to Section 7.10
hereinbelow; and (ii) less a reserve for Disputed Claims,
equal to the aggregate amount of pro-rata distributions that
would be made on Disputed Claims, if Allowed in full, or
such lesser amounts as may be established by the Bankruptcy
Court following notice and an opportunity for hearing;
provided, however, that if the Distribution Agent determines
that the amount of funds available for distribution, net of
such reserves, is too small to be efficiently distributed,
relative to the costs of distribution, such distribution may
be deferred until the next distribution due.
5.2.3. PARI PASSU TREATMENT. Notwithstanding anything
to the contrary elsewhere in the Plan, all Claims arising
from the Public Debt Securities (i.e., the Notes and the
Debentures) shall be treated as Claims, to the extent
Allowed, within Class D, and shall be treated on a pari
passu basis, without subordination between them. Any claims
between holders of Notes and holders of Debentures,
including without limitation any issues of subordination
with respect to the obligations of the Debtor in connection
with the Public Debt Securities, shall be deemed compromised
and settled in accordance with the provisions of this Plan,
which, among other things, shall be deemed to constitute
sufficient consideration for the pari passu treatment of
such Claims.
5.2.4. STOCK DISTRIBUTION. Subject to each of the
provisions of this Section 5.2, the Distribution Agent shall
distribute all Reorganized Shares received by the
Distribution Estate pursuant to Section 8.1.1 hereinbelow as
follows:
5.2.4.1. PRO RATA. Such Reorganized Shares shall
be distributed on account of all Allowed Claims within
Class D, based upon the pro-rata calculations described
in Section 5.2.2 hereinabove.
5.2.4.2. VALUE. Each such Reorganized Share,
when distributed, shall be deemed to have a value of
$0.325 for purposes of calculating distributions upon,
and satisfaction of, Allowed Claims within Class D.
5.2.4.3. FRACTIONAL AND REMAINDER SHARES.
Notwithstanding the pro-rata calculation provided for
in Section 5.2.2, only whole numbers of Reorganized
Shares shall be distributed in accordance with Section
5.2 of this Plan. Whenever the Pro-Rata calculation
provided for in said Section 5.2.2 would otherwise
entitle a holder of an Allowed Class D Claim to a
distribution of a number of Reorganized Shares that is
not a whole number, the actual number of Reorganized
Shares to be distributed to such holder shall be
rounded to the next higher or lower whole number as
follows:
(i) fractions of 4/5 or greater shall be
rounded to the next higher whole number; and
(ii) fractions of less than 4/5 shall be
rounded to the next lower whole number.
No consideration shall be provided in lieu of
fractional shares that are rounded down. In the event
that any Reorganized Shares remain in the Distribution
Estate after the distribution in accordance with the
terms of Section 5.2.4 hereof, the Distribution Agent
shall dispose of such remaining Reorganized Shares as
an asset of the Distribution Estate in accordance with
the terms of Section 7.8.3 of this Plan.
5.2.5. SUBORDINATION. Except as expressly provided in
Section 5.2.3 hereinabove, no provision of the Plan shall be
construed to impair, prohibit or prejudice the right of any
party, including without limitation the Distribution Agent,
to seek the subordination of distributions upon any Allowed
Claim within Class D, in whole or in part, to distributions
upon some or all other Allowed Claims within Class D,
whether pursuant to the provisions of Section 510(a) or (c)
of the Bankruptcy Code or otherwise.
5.2.6. PROVISIONS AFFECTING PUBLIC DEBT SECURITIES.
The following provisions shall affect each of the Indentures
and all distributions made under the Plan on account of
Claims arising from Public Debt Securities:
5.2.6.1. RECORD DATE. The Bankruptcy Court, in
the order approving the Disclosure Statement, shall
designate a record date for the holders of Public Debt
Securities (the "Record Date"). As of the Record Date,
the transfer registers (the "Registers") in respect of
each issue of Public Debt Securities shall be closed
for purposes of determining the holders of such Public
Debt Securities which are entitled to vote and receive
distributions under the Plan, and neither the Indenture
Trustees nor the Distribution Agent shall be under any
obligation to recognize the transfer of any Public Debt
Securities occurring after the Record Date for purposes
of voting or distributions. The Distribution Agent and
each Indenture Trustee shall recognize and deal for all
purposes under the Plan and each respective Indenture
only with holders of record of the Public Debt
Securities as of the close of business on the Record
Date.
5.2.6.2. MANNER OF DISTRIBUTIONS; SURRENDER OF
PUBLIC DEBT SECURITIES. All distributions provided for
under the Plan to holders of Public Debt Securities
shall be distributed to the appropriate Indenture
Trustee for application pursuant to the provisions of
its respective Indenture, including, without
limitation, those provisions which govern the priority
of distribution and the rights, duties, indemnification
and compensation of such Indenture Trustee (subject to
all other provisions of this Section 5.2.6). As of the
Effective Date, all outstanding Public Debt Securities
shall be deemed cancelled and exchanged for the right
to receive distributions pursuant to the terms of the
Plan, and the rights of holders of such Public Debt
Securities shall thereafter be governed solely by the
terms of the Plan and, subject to the provisions of
Section 5.2.6.3 of the Plan, by applicable provisions
of the Indentures. As a condition to receiving
distributions provided for by the Plan in respect of
Public Debt Securities, the holder of a Public Debt
Security as of the Record Date must (a) surrender or
cause to be surrendered to the appropriate Indenture
Trustee the original Note or Debenture held by it, or
(b) unless waived by the Indenture Trustee in writing,
in the event that such holder is unable to surrender
his original Note or Debenture because the same has
been lost, destroyed, stolen or mutilated, furnish such
Indenture Trustee with (i) an executed affidavit of
loss and indemnity with respect thereto in a form
customarily utilized for such purpose that is
reasonably acceptable to the Indenture Trustee, or (ii)
a bond in such amount and in form as such Indenture
Trustee shall reasonably direct, sufficient to
indemnify such Indenture Trustee against any claim made
against the Indenture Trustee on account of such
alleged loss, destruction, theft or mutilation or the
distribution of property hereunder. All Public Debt
Securities surrendered to the appropriate Indenture
Trustee shall be marked "Compromised and Settled only
as provided in the Debtor's Plan of Reorganization" and
surrendered to the Reorganized Debtor.
5.2.6.3. COMPENSATION OF INDENTURE TRUSTEES. The
Indenture Trustees, the Debtor, the Distribution Agent,
holders of Public Debt Securities, other Claimants and
all of their respective successors-in-interest shall be
deemed to reserve all rights, claims and defenses with
respect to any claims for compensation, reimbursement
or indemnification which either Indenture Trustee may
assert (whether or not pursuant to Section 503(b)(5) of
the Bankruptcy Code), subject to the following:
5.2.6.3.1. FROM ESTATE. To the extent that
either Indenture Trustee may seek, from time to
time, payment of Claims for compensation,
reimbursement or indemnification from the
Distribution Estate, whether as Nonclassified
Priority Claims or as Class D Claims, such Claims
must be filed in accordance with applicable
deadlines established by Section 3.2 hereinabove,
other provisions of the Plan or orders of the
Bankruptcy Court, and the Distribution Agent and
all other parties in interest shall be entitled to
object thereto in accordance with applicable
provisions of the Plan.
5.2.6.3.2. FROM DISTRIBUTION. To the
extent that either Indenture Trustee may seek, from
time to time, payment of compensation, reimbursement
or indemnification as a deduction from, or lien
against, funds held or received by such Indenture
Trustee for distribution upon Claims arising from
the Public Debt Securities, in accordance with the
terms of the respective Indenture, such payment
shall be made only upon notice and opportunity for
hearing given to all holders of such Claims. In
the event that any such holder objects and
requests a hearing thereon in writing within
twenty (20) days following receipt of such notice,
such payment shall not be made without an order of
the Bankruptcy Court (or, if the Bankruptcy Court
is determined to lack proper jurisdiction
therefor, then a court with competent
jurisdiction) approving or awarding such payment
(upon such standards as such court determines
proper). Nothing set forth herein shall in any
manner prejudice any rights of holders of Public
Debt Securities or the Distribution Agent to
challenge the right of either Indenture Trustee to
receive any compensation, reimbursement or
indemnification whatsoever, or to assert a lien or
right of deduction therefor.
5.2.6.4. UNCLAIMED DISTRIBUTIONS. If any holder
of a Public Debt Security as of the Record Date cannot
be located or fails to satisfy the conditions precedent
to receipt of a distribution under the Plan within one
year after the Effective Date, then the distributions
in respect of such holder, or the proceeds thereof and
interest thereon, shall be returned to the Distribution
Agent for distribution in accordance with this Section
5.2.
5.3. CLASS E (INTERESTS). All Interests within Class E,
including without limitation Rescission Claims, shall be treated
as follows:
5.3.1. NO DISTRIBUTIONS. All such Interests shall be
deemed fully and finally released and discharged as of the
Effective Date, and no distributions whatsoever shall be
made upon such Interests from the Distribution Estate or by
the Reorganized Debtor.
5.3.2. CANCELLATION. As of the Effective Date, all
shares of stock, regardless of class or preference rights,
and all options, warrants and other rights affecting stock,
giving rise to any Interests shall be deemed fully and
finally cancelled, annulled and extinguished and of no
further force or effect whatsoever.
ARTICLE VI
EXECUTORY CONTRACTS
6.1. GENERALLY. Unexpired executory contracts, including
without limitation unexpired leases, to which the Debtor is a
party as of the Effective Date, entered into by the Debtor prior
to the Petition Date, shall be treated in the manner set forth in
this Article VI.
6.2. ASSUMPTION AND REJECTION. The assumption and
rejection of executory contracts shall be determined as follows:
6.2.1. SCHEDULE. No less than ten (10) days prior to
the commencement of the Confirmation Hearing, the Debtor
shall file with the Bankruptcy Court, and serve upon the
United States Trustee, the Committee and each party to a
contract identified therein, a schedule (the "Schedule
6.2.1") identifying the following: (a) each executory
contract to be assumed by the Reorganized Debtor as of the
Effective Date; (b) each executory contract to be assumed by
the Distribution Estate as of the Effective Date; and (c)
the amount of any monetary default that must be Cured in
order to assume each such contract under the provisions of
Section 365(b)(1) of the Bankruptcy Code.
6.2.2. REJECTION. Except as otherwise provided
elsewhere in the Plan or by the terms of the Confirmation
Order, as of the Effective Date, all executory contracts,
including without limitation all employment contracts and
employee compensation or benefit plans or programs, shall be
deemed rejected as of the Effective Date, except for any
executory contract (i) which is listed on Schedule 6.2.1 to
be assumed, or (ii) which has been assumed by the Debtor
pursuant to an order of the Bankruptcy Court entered prior
to the Effective Date.
6.2.3. ASSUMPTION. As of the Effective Date: (a) all
executory contracts that are assumed pursuant to the
provisions of Section 6.2.1(a) hereinabove shall be deemed
assumed by the Reorganized Debtor; (b) all executory
contracts that are assumed pursuant to the provisions of
Section 6.2.1(b) hereinabove shall be deemed assumed by the
Distribution Estate; and (c) all executory contracts that
are assumed pursuant to the provisions of Section 6.2.2(ii)
hereinabove shall be deemed assumed by the Distribution
Estate.
6.3. CURE AMOUNTS. Within five (5) Business Days following
the Confirmation Date, the Committee, the United States Trustee
and any party to an executory contract listed therein may file,
and serve upon the Debtor, the Committee, the United States
Trustee and such contract party, an objection to Schedule 6.2.1
to the extent that it disputes the Cure amount stated for a
particular contract. The amounts set forth in Schedule 6.2.1
shall be conclusively presumed to be the amounts of Cure, if any,
for each contract identified therein, unless, and except to the
extent, that an objection is timely filed and served in
accordance with the provisions of this Section 6.3. Any amount
of Cure in excess of those set forth in the Schedule 6.2.1 or
such timely filed objections shall be fully discharged and
barred, and shall not be a liability of the Reorganized Debtor or
the Distribution Estate to any extent.
6.4. PAYMENT OF CURE. Any and all cash payments necessary
to Cure defaults existing under the executory contracts assumed
pursuant to the provisions of Section 6.2 herein shall be paid as
follows:
6.4.1. PAYMENT BY REORGANIZED DEBTOR. Such Cure
amounts shall be paid by the Reorganized Debtor from its own
funds with respect to any executory contract identified for
assumption in Schedule 6.2.1 pursuant to the provisions of
Section 6.2.1(a) hereinabove, and the Distribution Agent
shall have no responsibility or liability therefor
whatsoever.
6.4.2. PAYMENT BY DISTRIBUTION AGENT. Such Cure
amounts shall be paid by the Distribution Agent from funds
of the Distribution Estate with respect to any executory
contract to be assumed other than those identified for
assumption in Schedule 6.2.1 pursuant to the provisions of
Section 6.2.1(a) hereinabove, and the Reorganized Debtor
shall have no responsibility or liability therefor
whatsoever.
6.4.3. TIMING OF PAYMENT. All such payments of Cure
amounts shall be paid by the later of the following dates:
(a) on the Effective Date, or on such later date as to which
the holder of the right to such Cure may have consented; or
(b) on the date when such Cure of defaults becomes due
according to contractual, statutory or other terms
applicable thereto, provided that if an objection timely
filed and served pursuant to the provisions of Section 6.3
hereinabove identifies a larger amount for the Cure of a
contract, the undisputed portion shall be paid in accordance
with the foregoing sentence and the difference in amounts
shall be paid to the extent and when allowed by a Final
Order of the Bankruptcy Court determining the amount of such
Cure.
6.5. APPROVAL OF ASSUMPTION OR REJECTION. Entry of the
Confirmation Order shall constitute (i) the approval, pursuant to
the provisions of Section 365(a) of the Bankruptcy Code, of the
assumption of the executory contracts assumed pursuant to the
provisions of Section 6.2 hereinabove; (ii) the extension of time
pursuant to the provisions of Section 365(d)(4) of the Bankruptcy
Code within which the Debtor may assume or reject the executory
contracts specified in Section 6.2 hereinabove through the
Effective Date; and (iii) the approval, pursuant to the
provisions of Section 365(a) of the Bankruptcy Code, of the
rejection of the executory contracts rejected pursuant to the
provisions of Section 6.2 hereinabove.
6.6. BAR DATE FOR REJECTION CLAIMS. Except to the extent
that the Bankruptcy Court, the Bankruptcy Code or the Bankruptcy
Rules may establish an earlier deadline with regard to the
rejection of particular executory contracts, any Claims arising
out of the rejection of executory contracts pursuant to the
provisions of Section 6.2 herein must be filed with the
Bankruptcy Court and served upon all parties identified in the
Postconfirmation List no later than thirty (30) days after the
Effective Date. Any Claims not filed within such time will be
forever barred from assertion against the Distribution Estate,
and will not receive any distributions therefrom. Any Claims
arising from the rejection of executory contracts (a) may be
asserted only as Claims against the Distribution Estate; (b) may
be asserted only to the extent permitted by Section 365(g) of the
Bankruptcy Code; (c) shall be classified and treated within the
treatment of Classes C or D, as the case may be; and (d) shall
not be claims against the Reorganized Debtor to any extent.
ARTICLE VII
MEANS FOR EXECUTION OF THE PLAN
7.1. PLAN EFFECTIVENESS. The Plan shall become fully
effective and binding upon all parties on the Effective Date.
7.2. VESTING OF ESTATE PROPERTY. As of the Effective Date,
pursuant to the provisions of Section 1123(b) of the Bankruptcy
Code and otherwise, the assets of the Debtor's estate shall vest
as follows:
7.2.1. VESTING IN REORGANIZED DEBTOR. Subject to the
provisions of Section 7.2.3 hereinbelow, all title,
ownership and interests of the Debtor's estate in all Hammer
Assets, shall be deemed preserved and re-vested in, and
fully owned and possessed by, the Reorganized Debtor, free
and clear of all claims, liens, security interests and
obligations other than those that are expressly created or
preserved by the provisions of this Plan or the Confirmation
Order.
7.2.2. VESTING IN DISTRIBUTION ESTATE. All title,
ownership and interests of the Debtor's estate in all Non-
Hammer Assets shall be deemed preserved and retained in, and
fully owned and possessed by, the Distribution Estate, free
and clear of all claims, liens, security interests and
obligations other than those that are expressly created or
preserved by the provisions of this Plan or the Confirmation
Order.
7.2.3. PRELETZ GROUP WITHDRAWAL. In the event that
the Preletz Group timely and properly withdraws its support
and commitment to the Plan, following ten (10) days' written
notice to the Debtor and to the Committee and prior to the
Effective Date, due to a material adverse change in the
operations of the Debtor's Hammer Product Line business
prior to the Effective Date, then (a) the provisions of
Section 7.2.1 hereinabove shall be inoperative, and as of
the Effective Date all title, ownership and interests of the
Debtor's estate in all Hammer Assets shall be deemed
preserved and retained in, and fully owned and possessed by,
the Distribution Estate, and (b) all such Hammer Assets
shall thereafter be treated as Non-Hammer Assets for all
purposes of the Plan.
7.3. HAMMER AND NON-HAMMER ASSETS. The terms "Hammer
Assets" and "Non-Hammer Assets" shall have the following
respective meanings:
7.3.1. HAMMER ASSETS. Subject to the provisions of
Section 7.2.3 hereinabove, the "Hammer Assets" shall consist
of each of the following assets, to the extent that such
assets are property of the Debtor's estate immediately
preceding the Effective Date:
7.3.1.1. All patents, trademarks and other
intellectual property owned by the Debtor and relating
to the Hammer Product Line, including without
limitation the license of Raidion patents received from
Farrington pursuant to the provisions of Section 2.3.2
of the Patent Sale Agreement, but without any
representations or warranties on behalf of the Debtor
or its estate as to the enforceability, validity or
status of such intellectual property rights or that
such rights are sufficient to operate the Reorganized
Debtor's business;
7.3.1.2. All inventory of components,
subassemblies and other material used to develop,
assemble or manufacture any products or units within
the Hammer Product Line;
7.3.1.3. The right to hire specified current
employees of the Debtor, subject to agreement between
the Reorganized Debtor and individual employees as to
the particular terms and conditions of ongoing
employment, but without such agreements constituting
conditions to the effectiveness of the Plan;
7.3.1.4. All goodwill, name, customer lists and
other general intangibles supporting or related to the
Hammer Product Line;
7.3.1.5. All executory contracts, including
equipment leases, vendor contracts and license
agreements, which are identified in Schedule 6.2.1
pursuant to the provisions of Section 6.2.1(a) of the
Plan;
7.3.1.6. All cash and cash equivalents (excluding
restricted accounts), other than the net proceeds of
bulk sales of Non-Hammer Assets, owned or held by the
Debtor immediately preceding the Effective Date;
7.3.1.7. All accounts and accounts receivable
arising from sales by the Debtor within the Hammer
Product Line, to the extent owned or held by the Debtor
immediately preceding the Effective Date;
7.3.1.8. Specific units of equipment owned or
leased by the Debtor, subject to the following: (a) if
such equipment is unencumbered, it must be identified
in writing by the Preletz Group to the Debtor and to
the Committee at least ten (10) days prior to the
Effective Date; (b) if such equipment is leased by the
Debtor, it must be pursuant to an executory contract
identified in Schedule 6.2.1 pursuant to the provisions
of Section 6.2.1(a) of the Plan; and (c) to the extent
that such equipment is encumbered by a lien, it must be
identified in Schedule 4.2(B) pursuant to the
provisions of Section 4.2 of the Plan; and
7.3.1.9. All causes of action owned by the Debtor
immediately preceding the Effective Date other than
those constituting Non-Hammer Assets pursuant to the
provisions of Section 7.3.2.7 hereinbelow.
7.3.2. NON-HAMMER ASSETS. Subject to the provisions
of Section 7.2.3 hereinabove, the "Non-Hammer Assets" shall
consist of all assets of the Debtor immediately preceding
the Effective Date other than the Hammer Assets, and shall
include without limitation the following:
7.3.2.1. All inventory within the Raidion Product
Line and owned by the Debtor immediately preceding the
Effective Date;
7.3.2.2. All accounts receivable arising from
sales by the Debtor within the Raidion Product Line and
existing immediately preceding the Effective Date;
7.3.2.3. All cash and cash equivalents
constituting net proceeds of any bulk sales of assets
within the Raidion Product Line and approved by the
Bankruptcy Court pursuant to Section 363(b) of the
Bankruptcy Code, including without limitation the net
proceeds of the patent sale to Farrington and the net
proceeds of the bulk sale to PTG;
7.3.2.4. All real property and improvements owned
by the Debtor and located in Chatsworth, California;
7.3.2.5. The unsecured promissory note issued by
Titanium Memory Systems, Inc. or an affiliate in the
original principal amount of $500,000, and all related
rights thereunder;
7.3.2.6. All shares of stock of Concentric
Network Corporation, and any and all net proceeds from
the sale thereof, owned by the Debtor immediately
preceding the Effective Date; and
7.3.2.7. All causes of action arising from the
avoidance powers set forth in Sections 544, 545, 546,
547, 548, 549, 550, 551, 552 and 553 of the Bankruptcy
Code, and all other causes of action owned by the
Debtor immediately preceding the Effective Date other
than causes of action arising from, or necessary to the
enforcement or benefit of, Hammer Assets.
7.4. EFFECTIVE DATE ACTIONS. As of the Effective Date, the
Debtor, the Committee, the Preletz Group, the Distribution Agent
and others shall take the following actions, and execute and
deliver the following documents; provided that if any such party
fails to so act, the Reorganized Debtor or the Distribution Agent
shall be authorized to so act on such party's behalf, pursuant to
an order of the Bankruptcy Court issued on no less than five (5)
Business Days' notice under the provisions of Section 1142(b) of
the Bankruptcy Code; provided further that if Section 7.2.3
hereinabove becomes operative due to a timely and proper
withdrawal by the Preletz Group, then none of the provisions of
Sections 7.4.1, 7.4.3, 7.4.4, 7.4.5(b), 7.4.6 or 7.4.7
hereinbelow shall become effective; and provided finally that as
to all payments and other actions required of the Distribution
Agent on the Effective Date by the terms of this Section 7.4, the
Distribution Agent may rely fully upon specific directions
provided jointly by the Debtor and the Committee:
7.4.1. REVESTING OF HAMMER ASSETS. As of the
Effective Date, in exchange, among other things, for the
issuance of Reorganized Shares to the Distribution Estate
pursuant to Section 8.1.1 hereinbelow and the opportunity of
creditors to acquire additional shares pursuant to Section
8.2 hereinbelow, all of the Hammer Assets shall revest in
the Reorganized Debtor, free and clear of all liens, Claims,
charges, interests and other encumbrances other than those
expressly created or preserved by the terms of the Plan.
7.4.2. RETENTION OF NON-HAMMER ASSETS. As of the
Effective Date, all of the Non-Hammer Assets shall be
retained by the Distribution Estate, free and clear of all
liens, Claims, charges, interests and other encumbrances
other than those expressly created or preserved by the terms
of the Plan.
7.4.3. PRELETZ GROUP CONTRIBUTION. On the Effective
Date, the Preletz Group shall contribute Cash to the
Reorganized Debtor, in exchange for Reorganized Shares, as
set forth in Section 8.1.3 hereinbelow.
7.4.4. PARTICIPATING CREDITORS' CONTRIBUTION. On the
Effective Date, the Participating Creditors shall contribute
Cash to the Reorganized Debtor, in exchange for Reorganized
Shares, as set forth in Section 8.1.2 hereinbelow.
7.4.5. CANCELLATION AND ISSUANCE OF STOCK. On the
Effective Date, (a) all Interests, including without
limitation shares of stock of the Debtor and all warrants
and options therefor, shall be deemed fully cancelled,
terminated and of no further force or effect whatsoever,
pursuant to the provisions of Section 5.3.2 hereinabove; and
(b) the Reorganized Debtor shall then and thereafter issue
the Reorganized Shares as set forth in Section 8.1 of the
Plan.
7.4.6. MODIFICATION OF ARTICLES AND BY-LAWS. As of
the Effective Date, the Reorganized Debtor shall be deemed
to have modified its charter, articles of incorporation and
by-laws in accordance with the provisions of Section 8.3
hereinbelow.
7.4.7. PAYMENTS BY REORGANIZED DEBTOR. On and after
the Effective Date, the Reorganized Debtor shall make
payments as and when required of it by the provisions of
Sections 3.4.2, 4.2.1, 4.2.2, 6.4.1 and 7.13 of the Plan.
7.4.8. PAYMENTS BY DISTRIBUTION AGENT. The
Distribution Agent shall (a) pay such amounts to the holders
of Allowed Priority Claims and Allowed Secured Claims as
required by the provisions of Sections 4.1, 4.2.1 and 4.2.2
hereinabove, respectively; and (b) pay such Cure amounts as
required by the provisions of Section 6.4.2 hereinabove.
7.4.9. OTHER RELEASES OF LIENS AND INSTRUMENTS.
Holders of Secured Claims shall execute such documents as
reasonably presented by the Reorganized Debtor or the
Distribution Agent, as the case may be, in order to
effectuate the release of liens and instruments contemplated
by the provisions of Section 4.2.2 hereinabove, to the
extent identified in Schedules 4.2(A) or 4.2(B) for
treatment in accordance with the terms of Section 4.2.2
hereinabove. In addition, without limiting the generality
of the foregoing, on and after the Effective Date, each
holder of an instrument evidencing a Claim shall surrender
such instrument to the Reorganized Debtor or the
Distribution Agent, as the case may be, upon request. No
distribution under the terms of the Plan shall be made to or
on behalf of any holder of a lien or instrument unless and
until the same has been surrendered, and the lien has been
released pursuant to a document in recordable, acceptable
form, as requested by the Reorganized Debtor or the
Distribution Agent, as the case may be.
7.4.10. DISTRIBUTION ESTATE ACCOUNTS. The
Distribution Agent shall establish one or more bank accounts
for the maintenance of funds on behalf of the Distribution
Estate, and shall deliver to the Bankruptcy Court evidence
of the issuance of a fidelity bond, consistent with the
requirements of Sections 7.8.1 and 7.7.2, respectively, of
the Plan.
7.4.11. OTHER DOCUMENTS. The Reorganized Debtor and
the Distribution Agent, as appropriate, shall execute and
deliver such documents, and take such actions, as reasonably
necessary to complete and evidence the disposition of
assets, vested in either the Reorganized Debtor or the
Distribution Estate, as contemplated by the terms of the
Plan.
7.5. OTHER ACTIONS. The Debtor, the Committee, the Preletz
Group, the Distribution Agent and all Claimants and other parties
in interest shall take such other actions, and execute such other
documents, as are reasonably necessary to consummate the
transactions described in this Plan, and the Reorganized Debtor
shall be free to operate its business and financial affairs, and
to use the Hammer Assets as its own, as it deems appropriate at
all times following the Effective Date, subject only to the
express terms of the Plan.
7.6. PRESERVATION AND VESTING OF CAUSES OF ACTION. As of
the Effective Date, each right, claim, avoiding power or cause of
action arising under Sections 502, 506, 510, 541, 542, 543, 544,
545, 546, 547, 548, 549, 550, 551, 552 and 553 of the Bankruptcy
Code in favor of the Debtor's estate shall be deemed fully
preserved. All such rights, claims, avoiding powers and causes
of action shall vest as follows:
7.6.1. VESTING IN REORGANIZED DEBTOR. As of the
Effective Date, any such rights, claims and causes of
action, but no such avoiding powers, that are Hammer Assets
shall vest in the Reorganized Debtor; and
7.6.2. VESTING IN DISTRIBUTION ESTATE. As of the
Effective Date, the Distribution Estate shall be vested with
all such avoiding powers, and all other such rights, claims
and causes of action that are not Hammer Assets.
7.7. DISTRIBUTION AGENT. The Distribution Agent shall be
selected, and shall serve, as follows:
7.7.1. SELECTION. As soon as practicable following
the Confirmation Date, the Committee shall select the
Distribution Agent, on compensation terms acceptable to the
Distribution Agent, effective as of the Effective Date, and
shall file with the Bankruptcy Court a notice of such
selection.
7.7.2. RESPONSIBILITY AND FIDELITY. At all times on
and after the Effective Date, the Distribution Agent shall
have sole responsibility for maintaining the Distribution
Estate and in making disbursements thereof and disbursements
therefrom in accordance with the terms of the Plan, pursuant
to the provisions of Section 7.8 hereinbelow, and
preserving, enforcing and otherwise disposing of the
Distribution Estate's rights, entitlements, property and
claims. Upon the Distribution Agent's employment, unless
the Debtor and the Committee agree otherwise, the
Distribution Agent shall furnish to the Bankruptcy Court and
to the Debtor, the Committee and the United States Trustee
evidence of the issuance of a fidelity bond covering all of
the Distribution Agent's services under the Plan, in an
amount agreed upon by the Debtor and the Committee, or else
as established by the Bankruptcy Court, which amount may be
adjusted from time to time after the Effective Date by the
Bankruptcy Court on motion by a party in interest served
upon all parties listed in the Postconfirmation List.
7.7.3. TENURE AND REPLACEMENT. The Distribution Agent
shall serve at all times at the pleasure and direction of
the Committee. The Committee may terminate the Distribution
Agent's appointment at any time, with or without cause, in
which case such termination shall become effective, and the
Distribution Agent shall turn over all of his/her records,
upon the Committee's appointment of a replacement
Distribution Agent upon terms acceptable to the Committee
and such replacement agent.
7.8. DISTRIBUTION ESTATE. The Distribution Agent shall
administer the Distribution Estate, subject to each of the
following provisions:
7.8.1. ACCOUNTS. Immediately upon the Effective Date,
the Distribution Agent shall establish one or more deposit
accounts with financial institutions approved by the Office
of the United States Trustee or the Bankruptcy Court or
otherwise qualified pursuant to the provisions of Section
345 of the Bankruptcy Code, for the maintenance of funds of
the Distribution Estate. Whenever possible and practical,
the Distribution Agent shall arrange for the accrual and
earning of interest upon funds held within the Distribution
Estate.
7.8.2. DISTRIBUTION AGENT'S DUTY. It shall be the
duty of the Distribution Agent to liquidate all of the
assets of the Distribution Estate, and to resolve all Claims
thereagainst, in a manner reasonably intended and designed
to maximize recoveries by recipients of distributions from
such estate, consistent with sound and prudent principles of
cash and asset management, subject to all applicable terms
and conditions of Section 7.8.3 hereinbelow and upon
instruction of the Committee. The Distribution Agent shall
report regularly and in detail to the Committee, as
frequently as events dictate or the Committee directs, as to
the status of the administration of the Distribution Estate.
7.8.3. ADMINISTRATION. In disposing of the assets of
the Distribution Estate, and in resolving Claims and other
issues affecting the Distribution Estate, the Distribution
Agent may dispose of assets, compromise controversies and
otherwise administer the Distribution Estate in a manner
determined by the Distribution Agent to be in the best
interests of the Distribution Estate, subject to each of the
following terms and conditions:
7.8.3.1. SMALLER SALES. The Distribution Agent
may sell any asset or set of assets of the Distribution
Estate in a single sale or a related set of sales, with
the express, written approval of the Committee but
without the notice procedure as set forth in Section
7.8.3.2 hereinbelow, provided that the gross purchase
price to be received by the Distribution Estate for
such asset or set of assets does not exceed the sum of
$50,000.00.
7.8.3.2. OTHER DISPOSITIONS. All dispositions of
assets of the Distribution Estate, including without
limitation sales of assets and compromises of disputes,
other than those sales described in Section 7.8.3.1
hereinabove may be made by the Distribution Agent only:
(a) with the express, written approval of the
Committee; and (b) either (i) in the absence of a
timely written objection received by the Distribution
Agent within five (5) Business Days following written
notice given to those parties listed in the
Postconfirmation List, or (ii) in the event of such
timely written notice, upon approval by the Bankruptcy
Court on no less than five (5) Business Days' notice of
a hearing thereon.
7.8.4. DEPOSITS. All funds received by the
Distribution Agent on behalf of the Distribution Estate on
the Effective Date or thereafter, including all funds that
constitute Non-Hammer Assets and all proceeds of other Non-
Hammer Assets as sold, shall be deposited into the
Distribution Estate.
7.8.5. DISBURSEMENTS. Disbursements shall be made
from the Distribution Estate only for the following
purposes: (a) payment of reasonable fees and expenses of
the Distribution Agent, his or her professionals, and the
Committee's professionals, the Committee's members'
reasonable out-of-pocket expenses (excluding members'
professionals' fees and expenses), and quarterly fees of the
United States Trustee, to the extent required by the
provisions of Section 7.10 hereinbelow; (b) payment of all
distributions to the extent required by the provisions of
Sections 3.4.1 (Nonclassified Priority Claims), 4.1
(Priority Claims), 4.2.1 and 4.2.2 (Secured Claims), 5.1
(Convenience Claims) and 6.4.2 (Executory contract Cures);
and (c) periodic distributions upon Allowed Claims within
Class D as required by the provisions of Section 5.2
hereinabove, to the extent of available funds; provided that
no payments need be made upon Claims, other than within
Class C (Convenience Claims), under the amount of $10.00 (a
"De Minimis Amount"). A De Minimis Amount due such Claimant
may be retained by the Distribution Agent and disbursed to
such Claimant only if and when the Claimant has accrued the
right to a distribution of $10.00 or more. The Distribution
Agent may also round off, up or down, on disbursement
amounts.
7.8.6. PERIODIC DISTRIBUTIONS. Beginning on or before
June 30, 1998 and thereafter only as and when directed by
the Committee, until the Distribution Estate has been
exhausted and terminated, the Distribution Agent shall make
distributions upon Allowed Claims within Class D as required
by Section 5.2 hereinabove.
7.8.7. [INTENTIONALLY OMITTED].
7.8.8. UNCLAIMED PAYMENTS TO CLAIMANTS. Distributions
made by the Distribution Agent that are unclaimed for six
(6) months following attempted distribution, including
without limitation distributions of Cash or Reorganized
Shares, shall be reinvested into the Distribution Estate, to
be redistributed consistent with the terms of the Plan.
7.9. COMMITTEE. The Committee shall continue to serve and
function following the Effective Date, with all of the duties,
obligations, defenses and immunities provided by the Plan or
applicable provisions of the Bankruptcy Code, for the purpose of
directing and monitoring the administration and distribution of
the Distribution Estate, subject to the following:
7.9.1. MEMBERSHIP. In the event that any member of
the Committee assigns, releases, transfers or otherwise
ceases to hold all or substantially all of its Allowed Claim
within Class D, such assignment, release, transfer or other
disposition shall be deemed to constitute such member's
resignation from the Committee. In the event that any
member of the Committee resigns, is removed or otherwise
becomes ineligible to serve as a member of the Committee, a
replacement may be selected by the remaining Committee
members from the holders of Allowed Claims within Class D.
7.9.2. RETENTION OF PROFESSIONALS. The Committee
shall be entitled to retain, employ and compensate
professionals, in order to assist with its obligations and
rights under the terms of the Plan, subject to the
requirements of Section 327 of the Bankruptcy Code regarding
Bankruptcy Court approval, provided that entry of the
Confirmation Order shall be deemed to constitute the
Bankruptcy Court's approval of the Committee's continued
retention of the law firm of Murray & Murray, A Professional
Corporation, counsel for the Committee prior to the
Effective Date, as the Committee's counsel on and after the
Effective Date, to the extent that the Distribution Agent
wishes to so retain such firm, without the necessity of
formal application therefor.
7.10. POSTCONFIRMATION FEES AND EXPENSES. The Distribution
Agent shall be entitled, subject to the approval of the
Committee, to retain, employ and compensate professionals, in
order to assist with his or her obligations and rights under the
terms of the Plan, and shall be entitled to receive compensation,
subject to the following:
7.10.1. COURT APPROVAL. The requirements of Section
327 of the Bankruptcy Code regarding Bankruptcy Court
approval of the retention of professionals shall pertain to
professionals retained by the Distribution Agent, subject to
the following: Entry of the Confirmation Order shall be
deemed to constitute the Bankruptcy Court's approval of the
Distribution Agent's retention of the law firms of Goldberg,
Stinnett, Meyers & Davis, A Professional Corporation, and
Murray & Murray, A Professional Corporation, counsel for the
Debtor and the Committee, respectively, prior to the
Effective Date, as the Distribution Agent's counsel on and
after the Effective Date, to the extent that the
Distribution Agent wishes to so retain such firms, without
the necessity of formal application therefor.
7.10.2. PAYMENT OF FEES. All (a) fees and expenses of
the Distribution Agent, his or her professionals, and the
Committee's professionals, and out-of-pocket expenses of the
Committee's members, earned or accrued on or after the
Effective Date, and (b) quarterly fees owing to the United
States Trustee and accruing for any period that includes any
days occurring on or after the Effective Date, shall be
payable from the Distribution Estate. All fees and expenses
described in subpart (a) hereinabove shall be deemed allowed
and approved, and shall be paid by the Distribution Agent
from the Distribution Estate, upon ten (10) Business Days'
notice to all parties listed in the Postconfirmation List,
absent written objections within that period by a party in
interest, or upon approval by the Bankruptcy Court in the
event of such timely written objections.
7.10.3. REPORTING TO THE UNITED STATES TRUSTEE. At
all times on and after the Effective Date, the Distribution
Agent shall comply with all applicable reporting and
administrative regulations, including the payment of fees,
if any, to the United States Trustee pursuant to the
provisions of Section 1930 of Title 28 of the United States
Code. Any such fees owing to the United States Trustee
shall be measured solely by distributions or payments of
Cash from the Distribution Estate, and not by any
distributions, payments, transfers or other dispositions of
funds or assets by the Reorganized Debtor on or after the
Effective Date.
7.11. OBJECTIONS TO CLAIMS. On and after the Effective
Date, the Distribution Agent and any other party in interest may
file and serve timely objections or requests for subordination as
to any claim, except as otherwise provided in the Plan, provided
that such objections or requests are filed with the Bankruptcy
Court, and served upon the Distribution Agent (unless the
Distribution Agent is the objecting party), the Committee and the
holder of such claim, within ninety (90) days following the
Effective Date (or within ninety (90) days following the filing
of such claim, if later).
7.12. TERM OF INJUNCTIONS AND STAYS. Unless otherwise
provided herein or by an order of the Bankruptcy Court, any
injunctions or stays issued or effective as of the Confirmation
Date in the Chapter 11 Case, whether under the provisions of
Sections 105 or 362 of the Bankruptcy Code or otherwise, shall
remain in full force and effect until the Effective Date.
ARTICLE VIII
CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR
8.1. CAPITALIZATION OF REORGANIZED DEBTOR. On and after
the Effective Date, unless Section 7.2.3 hereinabove becomes
operative due to a timely and proper withdrawal by the Preletz
Group, the Reorganized Debtor shall be authorized to issue up to
20,000,000 shares of common stock, the Reorganized Shares,
provided that of such amount, (a) 5,000,000 shares may be issued
at any time at the discretion of the Reorganized Debtor's board
of directors in its business judgment, in return for new capital
investments by the Preletz Group or by one or more third parties,
at a per-share price that is not less than the greater of (i)
$1.00 and (ii) current market value, to the extent that such
market value can be reasonably ascertained; and (b) the other
15,000,000 shares may be issued only upon the following terms:
8.1.1. ESTATE'S SHARES. On the Effective Date, the
Reorganized Debtor shall issue 3,500,000 Reorganized Shares
to the Distribution Estate, in exchange for, among other
things, the revesting of the Hammer Assets in the
Reorganized Debtor.
8.1.2. PARTICIPATING CREDITORS' SHARES. On the
Effective Date, the Reorganized Debtor shall issue the
Subscription Reorganized Shares (2,000,000 Reorganized
Shares) to Participating Creditors, in exchange for their
aggregate contribution of Cash of $650,000.00, pursuant to
the provisions of Section 8.2 hereinbelow.
8.1.3. PRELETZ GROUP SHARES. On the Effective Date,
the Reorganized Debtor shall issue 2,000,000 Reorganized
Shares to the Preletz Group, or its nominees, in exchange
for its contribution of Cash of $650,000.00, pursuant to the
provisions of Section 7.4.3 hereinabove.
8.1.4. STOCK OPTION SHARES. At any time on and after
the Effective Date, the Reorganized Debtor, at its
management's discretion, may issue up to 2,500,000
Reorganized Shares pursuant to "Employee Stock Options," as
defined hereinbelow, subject to the following terms and
conditions:
8.1.4.1. EMPLOYEE STOCK OPTIONS. The term
"Employee Stock Options" is defined as options granted
by the Reorganized Debtor to employees (management
and/or nonmanagement), directors and/or officers as
incentive compensation, which options, to the extent
issued to nonmanagement employees, shall not vest
unless the grantee remains with the Reorganized Debtor
(unless terminated without cause) for at least one year
from the date of the option grant (or longer, if
vesting in increments), and which options shall carry
such other terms and conditions as are customary or as
the Reorganized Debtor's management determines
appropriate;
8.1.4.2. TO MANAGEMENT. Not more than 1,000,000
such shares may be issued, without further conditions,
to the Reorganized Debtor's management or to employees
as determined by such management in its sole
discretion; and
8.1.4.3. TO OTHERS. Not less than 1,500,000 such
shares shall be available to be issued to nonmanagement
employees staged over time pursuant to Employee Stock
Options approved by a majority of the board of
directors of the Reorganized Debtor.
8.1.5. ADDITIONAL SHARES. In addition to the
foregoing, the Reorganized Debtor may issue up to an
additional 5,000,000 Reorganized Shares at any time, at the
discretion of the Reorganized Debtor's management in its
business judgment, for any or all of the following purposes
(allocated among such purposes as the Reorganized Debtor's
management chooses):
8.1.5.1. NEW CAPITAL. In return for new capital
investments by the Preletz Group or by one or more
third parties, at a per-share price that is not less
than the greater of (a) $1.00 and (b) current market
value, to the extent that such market value can be
reasonably ascertained;
8.1.5.2. PRELETZ GROUP OPTIONS. To grant options
to the Preletz Group or their nominees exercisable upon
the achievement of any of the following events, in the
indicated share amounts:
8.1.5.2.1. Up to 2,000,000 Reorganized
Shares in the event that the Reorganized Debtor
remains operating, is generally paying its debts
as they come due, and is not the subject of an
order for relief under the provisions of the
Bankruptcy Code, or an order for general
receivership, as of the first anniversary of the
Effective Date;
8.1.5.2.2. Up to 1,500,000 Reorganized
Shares in the event that the Reorganized Debtor
achieves a Market Value of at least $20,000,000;
and
8.1.5.2.3. Up to 1,500,000 Reorganized
Shares in the event that the Reorganized Debtor
achieves a Market Value of at least $40,000,000;
or
8.1.5.3. ADDITIONAL EMPLOYEE OPTIONS. To grant
additional Employee Stock Options to nonmanagement
employees of the Reorganized Debtor.
8.2. CREDITORS' RIGHTS OFFERING. As of the Effective Date,
unless Section 7.2.3 hereinabove becomes operative due to a
timely and proper withdrawal by the Preletz Group, 2,000,000
Reorganized Shares shall be issued in accordance with the
provisions of Section 8.1.2 hereinabove to creditors
participating in the following Creditors' Rights Offering, which
offering shall be available to all Claimants (the "Eligible
Claimants") asserting Claims which, if Allowed, will be treated
within Class D herein, upon the following terms:
8.2.1. SUBSCRIPTION RIGHTS. Each Eligible Claimant
shall be deemed to have been issued a number of
nontransferable rights (the "Subscription Rights"), each
such right representing the right to subscribe for and
purchase one of the 2,000,000 Reorganized Shares to be
issued pursuant to Section 8.1.2 hereinabove (the
"Subscription Reorganized Shares") for the Cash purchase
price of $0.325 ($650,000 in the aggregate for all
Subscription Rights to purchase all Subscription Reorganized
Shares). Each Eligible Claimant will be deemed to have been
issued a number of Subscription Rights (rounded up to the
nearest whole number) which is equal to the product obtained
by multiplying (i) .06666 by (ii) the Eligible Claimant's
Interim Claim (as defined hereinbelow). Each Eligible
Claimant will be required to exercise all of its
Subscription Rights if it wishes to exercise any of its
Subscription Rights at all; partial exercises will not be
permitted.
8.2.2. INTERIM CLAIM. For purposes of calculations
and distributions pursuant to the Creditors' Rights Offering
solely, an Eligible Claimant's "Interim Claim" shall be the
lesser of (a) the amount of the Eligible Claimant's timely
filed Claim or the amount, if any, shown as undisputed,
liquidated and noncontingent in the Schedules if no timely
Claim has been filed; and (b) the estimated amount of the
Claim, if such estimation has been made by the Bankruptcy
Court pursuant to the provisions of Section 502(c) of the
Bankruptcy Code prior to the Confirmation Date. The Debtor,
the Committee or any other party in interest may seek such
estimation of a Claim upon five (5) Business Days' notice
and opportunity for a hearing provided to the Eligible
Claimant holding such Claim.
8.2.3. SUBSCRIPTION EXERCISE. Subscription Rights
must be exercised by duly completing, signing and dating the
portion of the Ballot marked "Subscription Rights," and
submitting such Ballot in a timely manner as stated on the
Ballot. If the Subscription Rights portion of the Ballot is
otherwise completed by an Eligible Claimant but states an
amount of Subscription Rights different from the amount to
which such Eligible Claimant is entitled, such Ballot shall
be deemed corrected to state the correct amount of
Subscription Rights, as determined by the Committee. If the
Subscription Rights portion of the Ballot is otherwise
incomplete or incorrectly stated, it may be deemed to be
corrected or void, as determined by the Committee.
8.2.4. STANDBY COMMITMENT. United Equities, which is
an Eligible Claimant, shall exercise the Subscription Rights
which will be deemed to have been issued to it, based upon
an Interim Claim of approximately $2,500,000. In addition,
United Equities shall purchase any and all Subscription
Reorganized Shares which are not purchased by any other
Eligible Claimant pursuant to the exercise of Subscription
Rights.
8.2.5. NOTIFICATION AND DEPOSIT. As soon as
practicable following the calculation of exercised
Subscription Rights pursuant to the foregoing provisions,
the Committee shall notify each Eligible Claimant which has
exercised its Subscription Rights (a "Participating
Creditor"), including United Equities as to its standby
commitment amount, of the number of Subscription Reorganized
Shares that such Eligible Claimant shall purchase and the
amount of the Cash purchase price (the "Subscription
Payment") therefor. Upon receipt of such notification, each
such Participating Creditor shall tender its Subscription
Payment in Cash to the Committee's counsel by the deadline
set forth in the notification (which deadline shall be no
earlier than seven (7) days following the date of mailing of
such notification.
8.2.6. SEGREGATED ACCOUNT. The Committee's counsel
shall hold all Subscription Payments in a segregated account
(using the Debtor's tax identification number), in trust for
the Participating Creditors, and shall not disburse such
funds for any purposes other than the following: (a) on the
Effective Date, unless Section 7.2.3 hereinabove becomes
operative due to a timely and proper withdrawal by the
Preletz Group, all such funds (including any interest that
may have been earned thereon) shall be disbursed to the
Reorganized Debtor in exchange for the issuance of the
Subscription Reorganized Shares pursuant to Section 8.1.2
hereinabove; or (b) if the Effective Date does not occur or
Section 7.2.3 hereinabove becomes operative due to a timely
and proper withdrawal by the Preletz Group, all such funds
(including any interest that may have been earned thereon)
shall be returned to those Participating Creditors who
tendered such funds, proportionate to the amounts of such
tenders.
8.2.7. DETERMINATIONS BY COMMITTEE. All
determinations made by the Committee as to the Creditors'
Rights Offering, including without limitation calculations
of proper amounts of Subscription Rights, Subscription
Reorganized Shares, Interim Claims and Subscription
Payments, and determinations of the timeliness of exercises
of Subscription Rights and the adequacy and completeness of
information provided in the Subscription Rights portion of
the Ballots, shall be in the Committee's sole discretion and
judgment and shall be final and conclusive for all purposes,
without an opportunity for challenge, appeal or dispute.
8.2.8. UNTIMELY CONTRIBUTIONS. In the event of
untimely receipts, or lack of receipts, of Subscription
Payments, the subscriptions to which they relate shall be
automatically deemed void and such Subscription Rights shall
be deemed reassigned to, and exercised by, United Equities,
which shall deposit with the Committee's counsel such
additional Subscription Payments immediately upon
notification.
8.2.9. DISTRIBUTIONS. Prior to the Effective Date,
the Committee shall provide directions to the Debtor as to
the final Subscription Payment, and amount of Subscription
Reorganized Shares of each Participating Creditor in
accordance with the foregoing provisions, and on the
Effective Date, the Reorganized Debtor shall issue the
2,000,000 Subscription Reorganized Shares pursuant to such
directions of the Committee.
8.2.10. SPECIAL CONSIDERATIONS. A purchase of the
Subscription Reorganized Shares will involve a high degree
of risk, and may result in the loss of the purchaser's
entire investment.
8.3. CORPORATE GOVERNANCE OF REORGANIZED DEBTOR. As of the
Effective Date, unless Section 7.2.3 hereinabove becomes
operative due to a timely and proper withdrawal by the Preletz
Group, the Reorganized Debtor's corporate governance and
operative parameters shall include the following, including
modifications of its charter, articles of incorporation and by-
laws to the extent appropriate:
8.3.1. OPERATIONAL CONTROL. The Preletz Group shall
maintain all operational control of the Reorganized Debtor,
including the appointment, compensation, employment and
retention of the Reorganized Debtor's senior management, for
at least three years following the Effective Date.
8.3.2. BOARD OF DIRECTORS. The Reorganized Debtor's
board of directors shall consist of five (5) directors, and
the Preletz Group shall be entitled to select, remove and
replace three (3) of those five directors at all times
during the first three years following the Effective Date.
8.3.3. FORMALIZED PROVISIONS. The control provisions
set forth in Sections 8.3.1 and 8.3.2 hereinabove shall be
formalized by contractual provisions of shareholder
agreements that shall be deemed adopted and accepted by all
shareholders as of the Effective Date, and by modification
of the Reorganized Debtor's articles of incorporation and
bylaws.
8.3.4. EXTRAORDINARY ACTIONS. Consent of the holders
of a majority of issued and vested Reorganized Shares shall
be required for certain extraordinary nonoperational
actions, including but not limited to merger or
consolidation with another entity, sale of a substantial
portion (at least twenty percent (20%)) of the Reorganized
Debtor's assets, commencement of a case under the Bankruptcy
Code or consent to the appointment of a general receiver of
the Reorganized Debtor's assets.
8.3.5. RELOCATION AND RENT. Prior to the Effective
Date, the Debtor shall relocate its operations and remaining
assets and employees to new facilities, and shall vacate the
premises occupied as of the Petition Date. On and after the
Effective Date and until October 1, 1998, the Distribution
Agent may use a portion of the new facilities rent-free for
storage, and the Reorganized Debtor shall be solely
responsible for all rent obligations arising from the
occupancy of either the Distribution Agent or the
Reorganized Debtor with respect to such facilities.
8.3.6. FREE SERVICES. Following the Effective Date
until the first anniversary of the Effective Date, the
Reorganized Debtor shall provide to the Distribution Agent,
free of charge, the full-time services of Michael O.
Preletz, and the services of other officers of the
Reorganized Debtor on a part-time (20%) basis, in order to
assist in the liquidation of the Raidion Product Line, as
well as to review Claims based upon the Raidion Product
Line. Notwithstanding the foregoing, the Distribution Agent
shall not be required to retain Mr. Preletz or other
officers of the Reorganized Debtor for any such services,
and may release such individuals from continuation of such
services at any time, at the Distribution Agent's sole
discretion.
8.3.7. PUBLIC MARKET. The Reorganized Debtor shall
use its best reasonable efforts to obtain or maintain
registration and public listing of its shares at the
earliest possible time, consistent with applicable
securities laws, sound business judgment and prudent
expenditures of funds, to permit holders of Reorganized
Shares access to public markets to dispose of such shares if
they so desire.
8.3.8. PROHIBITION. To the extent required by the
provisions of Section 1123(a)(6) of the Bankruptcy Code, the
Reorganized Debtor's charter shall be deemed amended as of
the Effective Date so as to prohibit the issuance of
nonvoting equity securities, and to provide, to the extent
that more than one class of securities may exist, such
distributions of voting power as are required by the
provisions of said Section 1123(a)(6).
ARTICLE IX
ASSUMPTION, DISCHARGE AND EXCULPATION
9.1. REORGANIZED DEBTOR'S ASSUMPTION OF LIABILITIES. As of
the Effective Date, the Reorganized Debtor shall be deemed to
have assumed each of the following Claims and liabilities, and
the Distribution Estate shall have no liability, responsibility
or obligation with respect thereto: (a) the Ordinary Course
Expenses to the extent required by the provisions of Section
3.4.2 hereinabove; (b) any and all Hammer Contingent Claims; (c)
rent obligations under the terms of the real property lease of
the Debtor's new facilities, to the extent provided in Section
8.3.5 hereinabove; (d) obligations identified by the Preletz
Group in Schedule 4.2(B) pursuant to the provisions of Section
4.2 hereinabove, to the extent of reinstatement costs, reinstated
obligations and full satisfaction costs; and (e) Cure payments
and ongoing obligations with respect to those executory contracts
identified in Schedule 6.2.1 pursuant to the provisions of
Section 6.2.1(a) hereinabove.
9.2. DISCHARGE. The rights afforded herein, and the
treatment of all Claims and Interests set forth herein, shall be
in full exchange for, and in complete satisfaction, discharge and
release of, all Claims and Interests of any kind or nature
whatsoever, whether known or unknown, matured or contingent,
liquidated or unliquidated, existing, arising or accruing,
whether or not yet due, prior to the Effective Date, including
without limitation any Claims, or interest on Claims, accruing on
or after the Petition Date, against the Debtor or its estate, or
any assets or property thereof. Except as, and to the extent,
expressly provided in the Plan or the Confirmation Order, at all
times on and after the Effective Date, unless Section 7.2.3
hereinabove becomes operative due to a timely and proper
withdrawal by the Preletz Group, (a) all such Claims against, and
Interests in, the Debtor or its estate shall be deemed fully and
finally satisfied, discharged and released; (b) all persons shall
be fully and finally barred, enjoined and precluded from
asserting against the Reorganized Debtor, the Distribution
Estate, or any of their respective successors or assets, any
Claims or Interests based upon any act or omission, transaction,
agreement, right, privilege, duty, entitlement, obligation or
other event or activity of any kind or nature whatsoever that
occurred prior to the Effective Date; and (c) all Claims and
Interests shall be fully and finally discharged and deemed
satisfied to the fullest extent permitted by the provisions of
Section 1141 of the Bankruptcy Code.
9.3. EXCULPATION OF CERTAIN PERSONS. As of the Effective
Date, the Plan shall be deemed to satisfy, waive and release in
full any and all claims of the Debtor or its estate against the
Debtor, the Preletz Group, the Committee, the members of the
Committee and each of their present officers, directors, agents,
advisors, attorneys or accountants from any claim arising out of
or in connection with any act or failure to act in connection
with their rights and duties arising under or related to the
Chapter 11 Case from the Petition Date to and including the
Effective Date, except any claims expressly created or preserved
under the terms of the Plan or any documents executed, or to be
executed, in connection with the Plan. Except as expressly
provided in the Plan or any other document executed or to be
executed in connection with the Plan, neither the Debtor, nor the
Preletz Group, nor the Committee, nor its members, nor any of
their respective present officers, directors, agents, advisors,
attorneys or accountants, shall have any liability to the Debtor,
the Distribution Agent, the Distribution Estate or the
Reorganized Debtor for actions taken or omitted to be taken under
or in connection with the Plan or the Chapter 11 Case.
9.4 IMMUNITY. All actions taken by the Distribution Agent,
the Committee or any of their respective agents, representatives,
attorneys, advisors or accountants, as contemplated under the
terms of the Plan, shall be conclusively deemed to be actions
within the scope of Sections 1103 and 1107 of the Bankruptcy
Code. Except for willful misconduct, neither the Distribution
Agent, the Committee, their respective professionals, the
Committee's members nor United Equities shall be determined
liable to any person or party for any action or omission taken or
made in connection with the Plan or its effectuation, and such
parties may in good faith exercise or refrain from exercising any
right, duty or obligation contemplated hereunder without
challenge or recourse.
ARTICLE X
RETENTION OF JURISDICTION
10.1. GENERALLY. Until the Chapter 11 Case has been
closed, and thereafter upon a motion to reopen the case, the
Bankruptcy Court shall have exclusive jurisdiction of all matters
concerning the allowance of Claims and Interests, and the
interpretation and implementation of the Plan, pursuant to, and
for the purposes of, Sections 105(a) and 1142 of the Bankruptcy
Code, including without limitation the following purposes:
(a) to hear and determine applications for the
assumption or rejection of executory contracts or unexpired
leases, if any are pending on the Effective Date, and the
allowance of Claims resulting therefrom;
(b) to determine any and all claims, causes of action,
adversary proceedings, applications and contested matters
which are pending on the Effective Date or which are
thereafter commenced by or related to the Distribution
Estate;
(c) to hear and determine any objection to
Administrative Expense Claims or to Claims;
(d) to enter and implement such orders as may be
appropriate in the event that the Confirmation Order is for
any reason stayed, revoked, modified, or vacated;
(e) to issue such orders in aid of execution of the
Plan, to the extent authorized by the provisions of Section
1142 of the Bankruptcy Code;
(f) to consider any modifications of the Plan, to cure
any defect or omission, or reconcile any inconsistency in
any order of the Bankruptcy Court, including, without
limitation, the Confirmation Order;
(g) to hear and determine all applications for
Professional Fees accrued through the Effective Date, and
for Professional Fees accrued thereafter in the event of a
timely objection;
(h) to hear and determine disputes arising in
connection with the interpretation, implementation or
enforcement of the Plan;
(j) to hear and determine matters concerning state,
local and federal taxes in accordance with Sections 346,
505, and 1146 of the Bankruptcy Code; and
(k) to enter a final decree closing the Chapter 11
Case, and orders reopening the Chapter 11 Case as
appropriate.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. EXEMPTION FROM TRANSFER TAXES. Pursuant to the
provisions of Section 1146(c) of the Bankruptcy Code, the
issuance, transfer or exchange of notes or equity securities
under the Plan, the creation of any mortgage, deed of trust or
other security interest, the making or assignment of any lease or
sublease, the sale or other transfer of any assets by the
Distribution Agent to a third party, or the making or delivery of
any deed or other instrument of transfer under, in furtherance
of, or in connection with the Plan, including any deeds, bills of
sale or assignments executed in connection with any of the
transactions contemplated under the Plan, shall not be subject to
any stamp, real estate transfer, mortgage recording, sales or
other similar tax.
11.2. EXEMPTION FROM REGISTRATION. Pursuant to the
provisions of Section 1145(a) of the Bankruptcy Code, and except
with respect to underwriters as defined in Section 1145(b) of the
Bankruptcy Code, the offer, sale, issuance and distribution of
shares of stock of the Reorganized Debtor under the terms of this
Plan, and in particular the issuance and distribution of
Reorganized Shares pursuant to any of the provisions of Section
8.1 of the Plan, are, and shall be deemed, fully exempt from, and
unaffected by, any of the provisions of Section 5 of the
Securities Act of 1933 and any State or local law requiring
registration for offer or sale of a security or registration or
licensing of an issuer of, underwriter of, or broker or dealer
in, a security.
11.3. BINDING EFFECT. The Plan shall be binding upon and
inure to the benefit of the Reorganized Debtor, the Preletz
Group, the Committee, the Distribution Estate, the Distribution
Agent and all holders of Claims (including without limitation all
holders of Debentures or Notes) and Interests and their
respective successors and assigns, whether or not they have
accepted the Plan.
11.4. RATIFICATION. Subject to all of the terms of this
Plan, the Confirmation Order shall be deemed to ratify all
transactions effectuated by the Debtor during the pendency of its
chapter 11 case to the extent either in the ordinary course of
business or pursuant to an order of the Bankruptcy Court.
11.5. NOTICES. Any notice required or permitted to be
provided under the terms of the Plan shall be in writing and
shall be served by the quickest practical available method of
delivery (which shall be conclusively presumed to be (a) by hand
delivery or (b) by facsimile with hard copy to follow by
overnight courier, as to the Debtor, the Committee, the
Reorganized Debtor, the Preletz Group and the Distribution
Agent). All notices to the Debtor, the Committee, the
Reorganized Debtor, the Preletz Group or the Distribution Agent
shall be delivered as follows (or as otherwise directed by such
party by notice given pursuant hereto):
If to the Debtor (prior to the Effective Date), to:
StreamLogic Corporation
8450 Central Avenue
Newark, California 94560
Attn: Michael O. Preletz, C.E.O.
Telephone: (510) 608-4075
Telecopier: (510) 608-4012
With a copy to:
Goldberg, Stinnett, Meyers & Davis
A Professional Corporation
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Attn: Merle C. Meyers, Esq.
Telephone: (415) 362-5045
Telecopier: (415) 362-2392
If to the Reorganized Debtor (on and after the Effective
Date), to:
StreamLogic Corporation
8450 Central Avenue
Newark, California 94560
Attn: Michael O. Preletz, C.E.O.
Telephone: (510) 608-4075
Telecopier: (510) 608-4012
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, CA 90064-1614
Attn: T. Hale Boggs, Esq.
Telephone: (310) 312-4000
Telecopier: (310) 312-4224
If to the Committee (prior to the Effective Date), to:
Murray & Murray
A Professional Corporation
3030 Hansen Way, Suite 200
Palo Alto, California 94304
Attn: Patrick M. Costello, Esq.
Telephone: (415) 852-9000
Telecopier: (415) 852-9244
If to the Preletz Group, to:
MBI Group
1334 Parkview Avenue, Suite 245
Manhattan Beach, CA 90266
Attn: Michael O. Preletz
Telephone: (310) 545-3504
Telecopier: (310) 546-4206
With a copy to:
Graven Perry Block Brody & Qualls
523 West Sixth Street, Suite 1130
Los Angeles, CA 90014
Attn: Kriston D. Qualls, Esq.
Telephone: (213) 680-9770
Telecopier: (213) 489-1332
If to the Distribution Agent: As directed by notice
provided by or on behalf of the Distribution Agent on or as
soon as practicable after the Effective Date, with copies
to:
Goldberg, Stinnett, Meyers & Davis
A Professional Corporation
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Attn: Merle C. Meyers, Esq.
Telephone: (415) 362-5045
Telecopier: (415) 362-2392
and
Murray & Murray
A Professional Corporation
3030 Hansen Way, Suite 200
Palo Alto, California 94304
Attn: Patrick M. Costello, Esq.
Telephone: (415) 852-9000
Telecopier: (415) 852-9244
11.6. GOVERNING LAW. Except to the extent that the
Bankruptcy Code or Bankruptcy Rules are applicable, the rights
and obligations arising under the Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State
of California, without giving effect to the conflict of laws
provisions thereof.
11.7. HEADINGS. Headings are used in the Plan for
convenience and reference only, and shall not constitute a part
of the Plan for any other purpose.
11.8. EXHIBITS. Any and all exhibits to the Plan are
incorporated into and are a part of the Plan as if set forth in
full herein.
11.9. CLOSING CASE. At such point as the Court determines,
upon a motion of the Distribution Agent, and following ten (10)
Business Days' notice and an opportunity for hearing to all
parties listed in the Postconfirmation List, that all pending
claims objections, contested matters and adversary proceedings
have been resolved, or that the Chapter 11 Case need remain open
no longer despite the pendency of such objections, matters or
proceedings, the Chapter 11 Case may be closed by the terms of a
final decree of the Bankruptcy Court, provided that such case
will be reopened thereafter if necessary in order to facilitate
any of the actions contemplated by the terms of Section 10.1
hereinabove.
11.10. EXPENSES. In the event that any action, motion,
contested matter, complaint, answer, counterclaim, cross-claim or
other action is filed or taken by the Distribution Agent or the
Reorganized Debtor after the Effective Date either in the
Bankruptcy Court or otherwise, in order to enforce or interpret
any terms of the Plan or the Confirmation Order, or any order or
agreement made in implementation of the Plan, the prevailing
party in such matter (as determined by a court of competent
jurisdiction) shall be entitled to recover from any opposing
party its expenses, including reasonable attorneys' fees and
costs, incurred in such matter.
11.11. MODIFICATION AND ENFORCEMENT. The following shall
pertain, in addition to applicable provisions of the Bankruptcy
Code and the Bankruptcy Rules, to the modification or enforcement
of the Plan:
11.11.1. MODIFICATION. Following the Effective Date,
the Reorganized Debtor or the Distribution Agent may jointly
or separately institute a proceeding or motion in the
Bankruptcy Court in order to remedy any defects or
omissions, or to reconcile any inconsistencies, in the Plan,
the Disclosure Statement or the Confirmation Order, upon no
less than ten (10) Business Days' notice of such proceedings
or motion shall be served on all parties listed in the
Postconfirmation List, or upon such parties as authorized by
the Bankruptcy Court.
11.11.2. ENFORCEMENT. The Reorganized Debtor or the
Distribution Agent may jointly or separately take such
actions, including the initiation of proceedings or the
prosecution of a motion, as may be reasonably necessary in
order to interpret or enforce the purposes and intent of the
Plan.
DATED: December 10, 1997
STREAMLOGIC CORPORATION, a Delaware
corporation
By: ______________________________
Michael O. Preletz
Chief Executive Officer
Submitted By:
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
By: __________________________________
Merle C. Meyers, Esq.
Attorneys for Debtor-in-Possession
<PAGE>
EXHIBIT "A"
SCHEDULE OF DEFINITIONS
As used herein or in the Plan, the following terms have the
meanings specified below, unless the context otherwise requires:
A. ADMINISTRATIVE EXPENSE CLAIM means any Claim arising
before the Effective Date under Sections 503(b) and 507(a)(1) of
the Bankruptcy Code, including, without limitation, any actual
and necessary expenses of preserving the Debtor's estate, any
actual and necessary expenses of operating the business of the
Debtor, all compensation or reimbursement of expenses allowed by
the Bankruptcy Court under the provisions of Sections 330, 331 or
503 of the Bankruptcy Code, any fees or charges assessed against
the Debtor's estate under the provisions of Section 1930 of
chapter 123 of title 28 of the United States Code, and all Claims
arising from employment with the Debtor on or after the Petition
Date, except for Claims that are also Secured Claims.
B. ALLOWED means:
1. With respect to a Claim, any Claim that is neither
a Disputed Claim nor a Disallowed Claim, and proof of which
was timely and properly filed or, if no proof of claim was
filed, which has been or hereafter is listed by the Debtor
on its Schedules as liquidated in amount and not disputed or
contingent. "Allowed Administrative Expense Claim" or
"Allowed Claim" shall not include interest on such
Administrative Expense Claim or Claim from and after the
Petition Date except as expressly specified in the Plan;
2. With respect to an Interest, any Interest as of
the Effective Date, as defined elsewhere in this Exhibit
"A."
C. ALLOWED . . . CLAIM means an Allowed Claim within the
particular Class or category identified.
D. BALLOT means each of the voting forms to be distributed
with the Plan and the Disclosure Statement to holders of Claims
or Interests in Classes that are impaired under the terms of the
Plan and are entitled to vote in connection with the solicitation
of acceptances of the Plan.
E. BANKRUPTCY CODE means title 11 of the United States
Code, as amended from time to time, as applicable to the Chapter
11 Case.
F. BANKRUPTCY COURT means the United States Bankruptcy
Court for the Northern District of California, San Francisco
Division, or such other court having competent jurisdiction over
the Chapter 11 Case.
G. BANKRUPTCY RULES means the Federal Rules of Bankruptcy
Procedure, as amended from time to time, as applicable to the
Chapter 11 Case, including the Local Rules of the Bankruptcy
Court.
H. BUSINESS DAY means any day on which commercial banks
are generally open for business in San Francisco, California,
other than a Saturday, Sunday or legal holiday in the State of
California.
I. CASH means the legal tender of the United States of
America.
J. CHAPTER 11 CASE means the case under chapter 11 of the
Bankruptcy Code commenced by the Debtor, styled as IN RE
STREAMLOGIC CORPORATION, A DELAWARE CORPORATION, FORMERLY KNOWN
AS MICROPOLIS CORPORATION, Case No. 97-32984 DM, currently
pending in the Bankruptcy Court.
K. CLAIM means (a) any right to payment from the Debtor,
whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured, (b) any
right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment from the Debtor, whether
or not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured, or (c) any claim as defined by the
provisions of Section 101(5) of the Bankruptcy Code.
L. CLAIMANT means a person asserting a Claim against the
Debtor or the Debtor's estate.
M. CLASS means a category of holders of Claims or
Interests as established by the terms of Article II of the Plan.
N. COMMITTEE means the Official Committee of Unsecured
Creditors appointed in the Chapter 11 Case, as it may be
constituted from time to time.
O. CONFIRMATION DATE means the date on which the Clerk of
the Bankruptcy Court enters the Confirmation Order.
P. CONFIRMATION HEARING means the hearing before the
Bankruptcy Court for the purpose of determining whether the Plan
will be confirmed by the Bankruptcy Court pursuant to the
provisions of Section 1129 of the Bankruptcy Code.
Q. CONFIRMATION ORDER means the order of the Bankruptcy
Court confirming the Plan pursuant to the provisions of Section
1129 of the Bankruptcy Code.
R. CONVENIENCE CLAIMS means any Allowed Unsecured Claim
(other than a Subordinated Claim or Rescission Claim) of
$3,000.00 or less, and all Allowed Unsecured Claims (other than
Subordinated Claims and Rescission Claims) in excess of $3,000.00
whose holders exercise the "opt-in" election set forth in Section
5.1.1 of the Plan, but excluding Claims whose holders exercise
the "opt-out" election set forth in Section 5.1.2 of the Plan.
S. CREDITOR means any person that has a Claim against the
Debtor that arose on or before the Petition Date, or a claim
against the Debtor of any kind specified in sections 502(f),
502(g), 502(h) or 502(i) of the Bankruptcy Code.
T. CREDITORS' RIGHTS OFFERING means the offering of
Reorganized Shares to Claimants as set forth in Section 8.2 of
the Plan.
U. CURE means the distribution of Cash as and to the
extent required for the cure and assumption of an unexpired
executory contract pursuant to the provisions of Section 365(b)
of the Bankruptcy Code, or for the cure and reinstatement of a
secured obligation pursuant to the provisions of Section 1124(2)
of the Bankruptcy Code.
V. DEBENTURES means the 6% Convertible Subordinated
Debentures due 2012 and issued pursuant to the Indenture dated as
of March 15, 1987 between the Debtor and Harris Trust and Savings
Bank, as successor indenture trustee.
W. DEBTOR means StreamLogic Corporation, a Delaware
corporation formerly doing business as Micropolis Corporation,
the debtor-in-possession in the Chapter 11 Case and the proponent
of the Plan.
X. DEBTOR-IN-POSSESSION means the Debtor, as debtor-in-
possession in the Chapter 11 Case.
Y. DISALLOWED CLAIM means:
1. Any Claim, proof of which was not timely
and properly filed and, in the case of a Claim other than
an Administrative Expense Claim, which is listed in the
Schedules as unliquidated, disputed or contingent, or
is not listed in the Schedules; and
2. Any Claim that has not been allowed by an
earlier order of the Bankruptcy Court or by the terms
of the Plan and as to which the Debtor, the Reorganized
Debtor or any other party with authority to file
objections to Claims, has filed an objection or request
for estimation within ninety (90) days following the
Effective Date (or within ninety (90) days following
the filing of such Claim, if later) or such other
applicable limitation period fixed by the Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy
Court, to the extent that such Claim is disallowed by a
Final Order.
Z. DISCLOSURE STATEMENT means the disclosure statement
relating to the Plan, as approved by the Bankruptcy Court
pursuant to the provisions of Section 1125 of the Bankruptcy
Code.
AA. DISPUTED CLAIM means any Claim that has not been
allowed by an earlier order of the Bankruptcy Court or by the
terms of the Plan and as to which the Debtor, the Reorganized
Debtor, the Distribution Agent or any other party with authority
to file objections to Claims, has filed an objection or request
for estimation within ninety (90) days following the Effective
Date (or within ninety (90) days following the filing of such
Claim, if later) or such other applicable limitation period fixed
by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court, except to the extent that such objection or
request for estimation has been withdrawn or determined by a
Final Order.
AB. DISTRIBUTION AGENT means the individual, in his or her
official capacity, selected to manage the Distribution Estate
pursuant to the provisions of Section 7.7 of the Plan.
AC. DISTRIBUTION ESTATE means the remaining estate on and
after the Effective Date maintained by the Distribution Agent for
the benefit of holders of Allowed Claims and Allowed Interests,
pursuant to the provisions of Section 7.8 of the Plan.
AD. EFFECTIVE DATE means the effective date of the Plan,
which shall be a date designated by the Debtor, the Committee and
the Preletz Group, but which date shall be no less than 11 days,
and no more than 30 days, following the Confirmation Date (or
such later date as may be agreed upon by the Debtor and the
Preletz Group, each in their sole and absolute discretion, in the
event that effectuation of the Plan is enjoined or stayed by a
court of competent jurisdiction for any period of time, provided
that such later date is not later than 30 days following
expiration of such stay or injunction).
AE. ELIGIBLE CLAIMANT shall have the meaning identified in
Section 8.2 of the Plan.
AF. ERISA means the Employee Retirement Income Security Act
of 1974, as amended from time to time, together with all
regulations issued pursuant thereto.
AG. FARRINGTON means Farrington Investments, Ltd., a Cayman
Islands corporation with offices at P.O. Box 1092, Fort Street,
Grand Cayman, Cayman Islands.
AH. FILING DATE means the Petition Date.
AI. FINAL ORDER means an order of a court of competent
jurisdiction as to which the time to appeal, petition for
certiorari, or move for reargument or rehearing has expired and
as to which no appeal, petition for certiorari, or other
proceedings for reargument or rehearing shall then be pending or
as to which any right to appeal, petition for certiorari,
reargument or rehearing shall have been waived, or, in the event
that an appeal, writ of certiorari, reargument or rehearing
thereof has been sought, such order shall have been determined by
the highest court to which such order was appealed, or
certiorari, reargument or rehearing shall have been denied and
the time to take any further appeal, petition for certiorari or
move for reargument or rehearing shall have expired.
AJ. HAMMER ASSETS shall have the meaning identified in
Section 7.3.1 of the Plan.
AK. HAMMER CONTINGENT CLAIMS means any Claim arising from
the sale by the Debtor of products within the Hammer Product
Line, including without limitation any and all Claims for refund,
return, reimbursement, breach of warranty or product defects.
AL. HAMMER PRODUCT LINE means the Debtor's business and
product line based upon the "Hammer" products, together with all
related products of the Debtor and all intellectual property
rights owned by the Debtor immediately preceding the Effective
Date.
AM. INDENTURE means, with respect to the Debentures, the
Indenture dated as of March 15, 1987 between the Debtor and
Harris Trust and Savings Bank, as successor indenture trustee,
and, with respect to the Notes, the Indenture dated as of
November 29, 1996 between the Debtor and Norwest Bank Minnesota,
N.A., as indenture trustee.
AN. INDENTURE TRUSTEE means Harris Trust and Savings Bank
with respect to the Debentures and Norwest Bank Minnesota, N.A.,
with respect to the Notes, or its respective successor.
AO. INTEREST means (a) any equity interest in the Debtor,
and any option, warrant or other agreement requiring the issuance
of any such equity interest to the extent fully exercised in
accordance with applicable terms, that is a matter of the records
of the Debtor's stock transfer agent as of the Effective Date;
and (b) any Rescission Claim.
AP. INTERIM CLAIM shall have the meaning identified in
Section 8.2.1 of the Plan.
AQ. MARKET VALUE means the total value of the Reorganized
Debtor's issued and outstanding shares, as measured by pricing in
a public market if the Reorganized Shares are publicly traded; or
by an arm's-length purchase of all or substantially all of its
assets, less liabilities, to a purchaser with whom the Preletz
Group has no past, present or contemplated economic relationship;
or by a sale by the Reorganized Debtor of no less than 1,000,000
Reorganized Shares to one or more parties that are not Affiliates
(as defined within Section 101(2) of the Bankruptcy Code) of the
Preletz Group or the Reorganized Debtor's management.
AR. NONCLASSIFIED PRIORITY CLAIM means a Priority Claim
that is either a Priority Tax Claim or an Administrative Expense
Claim.
AS. NON-HAMMER ASSETS shall have the meaning identified in
Section 7.3.2 of the Plan.
AT. NOTES means the Increasing Rate Unsecured Promissory
Notes due November 29, 1998 and issued pursuant to the Indenture
dated as of November 29, 1996 between the Debtor and Norwest Bank
Minnesota, N.A., as indenture trustee.
AU. ORDINARY COURSE EXPENSES means a liability incurred by
the Debtor on or after the Petition Date in the ordinary course
of its business, specifically excluding income tax liabilities,
tort liabilities, environmental cleanup or indemnity claims,
liabilities arising under ERISA, and other items not customarily
incurred by the Debtor in the ordinary operation of its business.
AV. PARTICIPATING CREDITOR shall have the meaning
identified in Section 8.2.5 of the Plan.
AW. PATENT SALE AGREEMENT means the Agreement For The Sale
Of Patents entered into as of September 2, 1997 between the
Debtor and Farrington, for the sale of certain patents and other
intellectual property rights, which sale was completed as of
October 14, 1997.
AX. PETITION means the voluntary petition filed by the
Debtor with the Bankruptcy Court in order to commence the Chapter
11 Case on June 26, 1997.
AY. PETITION DATE means June 26, 1997, the date on which
the Petition was filed with the Bankruptcy Court, commencing the
Chapter 11 Case.
AZ. PLAN means this Debtor's Plan Of Reorganization (Dated
December 10, 1997) (including all exhibits and schedules annexed
hereto or filed separately), either in its present form or as it
may be legally altered, amended, or modified from time to time.
BA. POSTCONFIRMATION LIST means the United States Trustee,
the Reorganized Debtor and its counsel, the Distribution Agent
and his/her counsel, the Committee and its members and counsel,
and those parties who, subsequent to the Confirmation Date, file
with the Bankruptcy Court and serve upon the parties and counsel
named above written requests for special notice as provided by
the terms of the Plan, provided, that any such requesting party
may be eliminated from such list from time to time by consent of
such party or by order of the Bankruptcy Court on notice to the
then-constituted Postconfirmation List, upon a showing that such
party no longer holds material interests or claims in the Chapter
11 Case.
BB. PRELETZ GROUP means Michael O. Preletz, and other
investors as may be designated by Mr. Preletz, agreeing to invest
in the Reorganized Debtor, conditioned upon the occurrence of the
Effective Date according to the terms of the Plan.
BC. PRIORITY CLAIM means a Claim entitled to priority
treatment under the provisions of Section 507(a) of the
Bankruptcy Code.
BD. PRIORITY TAX CLAIM means a Priority Claim of a
governmental unit entitled to priority treatment pursuant to the
provisions of Sections 502(i) and 507(a)(8) of the Bankruptcy
Code, other than Secured Claims.
BE. PRO RATA means:
1. Regarding Claims, the ratio of the amount of an
Allowed Claim in a particular Class to the aggregate amount
of all Allowed Claims in such Class; and
2. Regarding Interests, the ratio of the amount of
the Allowed Interest in a particular Class to the aggregate
amount of all Allowed Interests in such Class.
BF. PROFESSIONAL FEES means a Claim for compensation or
reimbursement of expenses of a professional retained in the
Chapter 11 Case in accordance with the provisions of Sections 327
et seq. of the Bankruptcy Code.
BG. PTG means Peripheral Technology Group, Inc., a
Minnesota corporation.
BH. PUBLIC DEBT SECURITIES means the Notes and the
Debentures.
BI. RAIDION PRODUCT LINE means the business and products
formerly supported by the Debtor with respect to "Raidion"
products, all of the patents and patent applications which have
been transferred to Farrington pursuant to the Patent Sale
Agreement.
BJ. REORGANIZED DEBTOR means the Debtor as reorganized
pursuant to the terms of the Plan, on and after the Effective
Date.
BK. REORGANIZED SHARES means all shares of common stock
issued by the Reorganized Debtor on and after the Effective Date
pursuant to the provisions of Section 8.1 of the Plan.
BL. RESCISSION CLAIM means a Claim arising from the
rescission of a purchase or sale of common stock of the Debtor or
an affiliate of the Debtor, for damages arising from the purchase
or sale of such stock, or for reimbursement or contribution
allowed under Section 502 of the Bankruptcy Code on account of
such a Claim.
BM. SCHEDULE 4.2(A) means the schedule described and
defined as such in Section 4.2 of the Plan.
BN. SCHEDULE 4.2(B) means the schedule described and
defined as such in Section 4.2 of the Plan.
BO. SCHEDULE 6.2.1 means the schedule to be filed and
served pursuant to the provisions of Section 6.2.1 of the Plan.
BP. SCHEDULES means the schedules of assets and liabilities
and the statement of financial affairs filed by the Debtor in the
Chapter 11 Case as required by the provisions of Section 521 of
the Bankruptcy Code and Bankruptcy Rule 1007, and all amendments
or modifications filed with respect thereto.
BQ. SECURED CLAIM means an Allowed Claim held by any entity
to the extent of the value, as set forth in the Plan, as
determined by a Final Order of the Bankruptcy Court pursuant to
Section 506(a) of the Bankruptcy Code or as agreed upon by such
entity, on the one hand, and the Reorganized Debtor (as to Claims
secured by Hammer Assets) or the Distribution Agent (as to Claims
secured by Non-Hammer Assets), on the other hand, of any duly
perfected interest in property of the Debtor's estate validly and
enforceably securing such Allowed Claim.
BR. SECURED CREDITOR means the holder of a Secured Claim.
BS. SUBSCRIPTION PAYMENT shall have the meaning identified
in Section 8.2.5 of the Plan.
BT. SUBSCRIPTION REORGANIZED SHARES shall have the meaning
identified in Section 8.2.1 of the Plan.
BU. SUBSCRIPTION RIGHTS shall have the meaning identified
in Section 8.2.1 of the Plan.
BV. UNITED EQUITIES means United Equities Company, a
company holding Unsecured Claims of approximately $2,500,000
arising from the Debentures.
BW. UNSECURED CLAIM means any Claim that is not a Secured
Claim or Priority Claim. Such Unsecured Claims include, without
limitation, all Claims arising from the rejection of leases and
other executory contracts, guarantee claims, all Claims held by
the Debtor's trade vendors and suppliers.
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #066849
KATHERINE D. RAY, ESQ. #121002
KENNETH G. DEJARNETTE, ESQ. #168074
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Attorneys for Debtor-in-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Chapter 11
a Delaware corporation )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax I.D. No. 95-3093858 )
________________________________________)
DEBTOR'S DISCLOSURE STATEMENT
(DATED DECEMBER 10, 1997)
THIS DISCLOSURE STATEMENT, AND ITS DISTRIBUTION TO CREDITORS AND
OTHER PARTIES IN INTEREST, HAS BEEN APPROVED BY THE UNITED STATES
BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA AS
CONTAINING ADEQUATE INFORMATION AS REQUIRED BY THE BANKRUPTCY
CODE FOR SOLICITATION OF ACCEPTANCES OF THE PLAN OF
REORGANIZATION DESCRIBED HEREIN. THE COURT HAS MADE NO
INDEPENDENT INVESTIGATION OR DETERMINATION OF ANY FACTUAL
STATEMENT OR DOLLAR VALUE SET FORTH IN THE PLAN OR IN THIS
DISCLOSURE STATEMENT.
<PAGE>
TABLE OF CONTENTS
PAGE
I. INTRODUCTION.......................................................1
A. Generally.................................................1
B. Right to Vote on the Plan.................................4
II. OVERVIEW OF THE PLAN...............................................6
III. PREPETITION BACKGROUND.............................................9
A. History of Business.......................................9
1. Generally........................................9
2. Sale to Micropolis...............................10
3. Purchase from FWB................................11
B. Industry Segment and Market...............................12
C. Products..................................................13
D. Discontinued Operations...................................14
1. Video Servers....................................14
2. Video Disk Recorder Technology...................15
3. Raidion Product Line.............................16
E. International Operations and Foreign Subsidiaries.........16
F. Competition...............................................17
G. Patents and Know-How......................................18
H. Employees.................................................19
I. Real Property.............................................19
J. Investments...............................................20
1. Concentric Network Stock.........................20
2. Note from Titanium Memory Systems................21
K. Debentures and Notes......................................22
1. Convertible Debentures...........................22
2. 1996 Exchange Offer; Increasing Rate Notes.......23
3. Remaining Debentures and Litigation..............24
L. Relocation and Consolidation..............................24
M. Change in Management......................................26
N. Debt Repayment Plans......................................27
O. Events Preceding Chapter 11 Case Commencement.............28
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE......................29
A. Continuation of Business; Stay of Litigation..............29
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B. Appointment of the Creditors' Committee...................30
C. Representation of the Debtor and the Committee............32
D. Development and Implementation of Strategic Plan..........32
E. Bar Date for Filing Proofs of Claim.......................34
F. Asset Sales Relating to Raidion Product Line..............34
G. Dispute with Newark Landlord..............................35
H. Remaining Assets..........................................37
V. THE PLAN OF REORGANIZATION.........................................38
A. Classification and Treatment of Claims and
Interests.................................................38
1. Nonclassified Claims.............................38
2. Class A -- Other Priority Claims.................43
3. Class B -- Secured Claims........................44
4. Class C -- Convenience Claims....................46
5. Class D -- General Unsecured Claims..............47
6. Class E -- Stock Interests.......................49
B. Recapitalization of the Debtor............................50
1. Revesting of Assets..............................51
2. Reorganized Shares...............................52
3. Creditors' Rights Offering.......................52
4. Corporate Governance.............................54
C. Distribution Estate.......................................55
D. Discharge and Exculpation.................................56
E. Executory Contracts.......................................58
F. Other Provisions..........................................59
VI. CONFIRMATION PROCEDURE.............................................60
A. Solicitation of Votes.....................................60
B. The Confirmation Hearing..................................61
C. Confirmation..............................................62
1. Acceptance.......................................62
2. Nonconsensual Confirmation.......................63
a. Unsecured Creditors.....................63
b. Equity Interests........................63
3. Feasibility......................................63
4. Best Interests Test..............................64
D. Consummation..............................................65
VII. MANAGEMENT OF THE REORGANIZED DEBTOR...............................65
A. Composition of the Board of Directors.....................65
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B. Identity of Officers......................................66
C. Compensation of Executive Officers........................67
D. Compensation of Directors.................................68
VIII. APPLICABILITY OF CERTAIN FEDERAL AND OTHER
SECURITIES LAWS TO THE REORGANIZED SHARES
DISTRIBUTED UNDER THE PLAN...........................................68
A. Generally.................................................68
B. Resale Considerations.....................................69
C. Hart-Scott-Rodino Act Requirements........................73
IX. CERTAIN RISK FACTORS TO BE CONSIDERED..............................73
A. Overall Risks to Recovery Upon Claims.....................73
B. Projected Financial Information...........................74
C. Dividend Policy...........................................74
X. PROJECTIONS AND LIQUIDATION ALTERNATIVES...........................75
A. Projected Performance.....................................75
B. Liquidation Alternative...................................77
C. Projected Recoveries......................................81
XI. CONCLUSION AND RECOMMENDATION......................................81
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EXHIBITS
Exhibit A -- Statement of Support of Debtor's Plan
Exhibit B -- Debtor's Monthly Operating Report for the Month of
October 1997
Exhibit C -- Proforma Financial Summary
Exhibit D -- Liquidation Analysis of Non-Hammer Assets
Exhibit E -- Liquidation Analysis of Hammer Assets
Exhibit F -- Projected Distributions in Class D
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I. INTRODUCTION
A. GENERALLY.
STREAMLOGIC CORPORATION, a Delaware corporation formerly
known as Micropolis Corporation ("StreamLogic" or the "Debtor"),1
commenced this chapter 11 reorganization case on June 26, 1997,
in the United States Bankruptcy Court for the Northern District
of California, San Francisco Division, by the filing of a
voluntary petition on that date. This Debtor's Disclosure
Statement (Dated December 10, 1997) (as hereafter amended,
modified or supplemented, the "Disclosure Statement") has been
prepared by the Debtor for distribution to creditors, equity
interest holders and other parties in interest for the purpose of
soliciting acceptances of the Debtor's Plan of Reorganization
(Dated December 10, 1997) (as hereafter amended, modified or
supplemented, the "Plan") proposed and served concurrently
herewith by the Debtor. The Disclosure Statement is being
provided to parties in interest in order to provide adequate
information to enable such parties to make informed judgments
about the Plan before exercising their rights to vote for
acceptance or rejection of the Plan.
This Disclosure Statement has been approved as containing
adequate information by an order of the Bankruptcy
Court, and its distribution to parties in interest has
been authorized and directed by the Bankruptcy Court in
that order. NONETHELESS, THE DEBTOR IS UNABLE TO
WARRANT OR REPRESENT THAT ALL INFORMATION CONTAINED IN
THIS DISCLOSURE STATEMENT OR IN EXHIBITS ATTACHED
HERETO IS WITHOUT ERROR, ALTHOUGH ALL REASONABLE
EFFORTS UNDER THE CIRCUMSTANCES HAVE BEEN MADE TO BE
ACCURATE. IN PARTICULAR, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE DEBTOR NOTES THAT THE
ASSUMPTIONS AND PROJECTIONS OF FUTURE PERFORMANCE AND
ALTERNATIVE SCENARIOS ARE ONLY PREDICTIONS OF FUTURE OR
HYPOTHETICAL EVENTS, MOST OF WHICH ARE BEYOND THE
DEBTOR'S CONTROL, AND THEREFORE THERE CAN BE NO
ASSURANCES THAT THE ASSUMPTIONS WILL IN FACT
MATERIALIZE OR THAT THE PROJECTIONS WILL IN FACT BE
MET.
IN ADDITION, THE DEBTOR NOTES:
- --------
1 Unless otherwise expressly defined herein, or unless the
context requires otherwise, all capitalized terms used in this
Disclosure Statement shall have the meanings assigned to them in
the Plan, including the Schedule of Definitions that is attached
to the Plan as Exhibit "A."
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- -- ANY DESCRIPTION OF THE TERMS OF THE PLAN CONTAINED HEREIN IS
A SUMMARY ONLY, AND YOU ARE CAUTIONED TO REVIEW CAREFULLY
THE TERMS OF THE PLAN ITSELF FOR SIGNIFICANT DETAILS. ALL
CLAIMANTS AND EQUITY INTEREST HOLDERS ARE ENCOURAGED TO READ
THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY.
PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE
STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE PLAN, OTHER EXHIBITS ANNEXED HERETO AND OTHER DOCUMENTS
REFERENCED AS FILED WITH THE BANKRUPTCY COURT PRIOR TO OR
CONCURRENT WITH THE FILING OF THIS DISCLOSURE STATEMENT.
- -- THERE CAN BE NO ASSURANCE: (A) THAT THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY ACCURATE; OR
(B) THAT THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL
INFORMATION. FURTHER, ALL CLAIMANTS AND EQUITY INTEREST
HOLDERS SHOULD READ CAREFULLY AND CONSIDER FULLY THE "RISK
FACTORS" SECTION HEREINBELOW BEFORE VOTING FOR OR AGAINST
THE PLAN.
- -- THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE
WITH SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF
THE FEDERAL RULES OF BANKRUPTCY PROCEDURE AND NOT IN
ACCORDANCE WITH ANY FEDERAL OR STATE SECURITIES LAWS OR
OTHER APPLICABLE NONBANKRUPTCY LAW. PERSONS OR ENTITIES
TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING
SECURITIES OF THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE
STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH
THEY WERE PREPARED.
- -- THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF ANY OF THE STATEMENTS CONTAINED HEREIN.
- -- AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT
SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY
FACT OR LIABILITY, STIPULATION OR WAIVER, BUT RATHER AS A
STATEMENT MADE IN SETTLEMENT NEGOTIATIONS.
- -- THIS DISCLOSURE STATEMENT SHALL NOT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL
EFFECTS OF THE DEBTOR'S REORGANIZATION AS TO HOLDERS OF
CLAIMS AGAINST, OR EQUITY INTERESTS IN, THE DEBTOR.
- -- THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY
THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE
SOLICITATION OF VOTES ACCEPTING OR REJECTING THE PLAN. NO
REPRESENTATION CONCERNING THE DEBTOR, ITS BUSINESS
OPERATIONS, THE VALUE OF ITS ASSETS OR THE VALUE OF ANY
SECURITIES TO BE ISSUED OR BENEFITS OFFERED PURSUANT TO THE
PLAN ARE AUTHORIZED BY THE BANKRUPTCY COURT, EXCEPT AS
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EXPLICITLY SET FORTH IN THIS DISCLOSURE STATEMENT OR IN ANY
OTHER DOCUMENT APPROVED FOR DISTRIBUTION BY THE BANKRUPTCY
COURT.
Attached as exhibits to this Disclosure Statement are copies
of the following, as referenced elsewhere herein:
-- A Support Statement evidencing the support of the
Official Committee of Unsecured Creditors and of
Michael O. Preletz for confirmation of the Plan
(Exhibit "A");
-- The Debtor's Monthly Operating Report for the
Month of October 1997 (Exhibit "B");
-- Proforma Financial Summary (Exhibit "C");
-- Liquidation Analysis of Non-Hammer Assets (Exhibit
"D");
-- Liquidation Analysis of Hammer Assets (Exhibit
"E"); and
-- Projected Distribution Results (Exhibit "F").
In addition, the Plan, a ballot for the acceptance or rejection
of the Plan (the "Ballot") and other pertinent documents are
enclosed with the Disclosure Statement submitted herewith.
Further, copies of the most recent annual and quarterly reports
filed by the Debtor with the Securities and Exchange Commission,
up to the quarter ending December 31, 1996, are available upon
written request to the Debtor or from the Securities and Exchange
Commission pursuant to customary procedures of such agency.
B. RIGHT TO VOTE ON THE PLAN
Pursuant to the provisions of the Bankruptcy Code, only
holders of allowed claims or equity interests in classes of
claims or equity interests that are impaired under the terms and
provisions of the Plan are entitled to vote to accept or reject
the Plan. Holders of allowed claims in classes of claims that
are unimpaired under the terms and provisions of the Plan are
conclusively presumed to have accepted the Plan and therefore are
not entitled to vote on the Plan. Further, holders of allowed
claims or equity interests in classes which will receive nothing
under the terms and provisions of the Plan are conclusively
presumed to have rejected the Plan and therefore are not entitled
to vote on the Plan.
The Debtor believes that Classes A and B of the Plan are
unimpaired, are conclusively presumed to have accepted the Plan,
and therefore do not have the right to vote on the Plan. Holders
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of Claims in Classes C and D are impaired and therefore are
entitled to vote to accept or reject the Plan. Holders of
Interests in Class E will receive nothing under the terms of the
Plan, are conclusively presumed to have rejected the Plan, and
therefore do not have the right to vote on the Plan.
The Bankruptcy Code defines "acceptance" of a plan by a
class of claims as acceptance by creditors in that class that
hold at least two-thirds in dollar amount, and more than one-half
in number, of claims that cast ballots for acceptance or
rejection of the plan. The Bankruptcy Code defines "acceptance"
of a plan by a class of equity interests as acceptance by equity
interest holders in that class that hold at least two-thirds in
amount of the allowed interests that cast ballots for acceptance
or rejection of the plan.
If a Class of Claims or Interests rejects the Plan or is
deemed to reject the Plan, the Debtor has the right, and does
intend, to request confirmation of the Plan pursuant to Section
1129(b) of the Bankruptcy Code. Section 1129(b) permits the
confirmation of a plan notwithstanding the nonacceptance of such
plan by one or more impaired classes of claims or equity
interests if the proponent thereof complies with the provisions
of that section. Under that section, a plan may be confirmed by
a bankruptcy court if it does not discriminate unfairly and is
fair and equitable with respect to each nonaccepting class.
The Debtor believes that through the Plan, creditors will
obtain a greater recovery from the estate of the Debtor than the
recovery which would be available if the assets of the Debtor
were liquidated under the provisions of chapter 7 of the
Bankruptcy Code.
THE DEBTOR BELIEVES THAT ACCEPTANCE OF THE PLAN IS IN THE
BEST INTERESTS OF THE DEBTOR AND ITS CREDITORS AND EQUITY
INTEREST HOLDERS. AS EVIDENCED IN THE SUPPORT STATEMENT ATTACHED
HERETO AS EXHIBIT "A," THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS (THE "COMMITTEE") APPOINTED HEREIN TO REPRESENT THE
INTERESTS OF UNSECURED CREDITORS GENERALLY, HAS STATED THAT IT
TOO SUPPORTS CONFIRMATION OF THE PLAN AS BEING IN THE BEST
INTERESTS OF THE DEBTOR'S UNSECURED CREDITORS. ACCORDINGLY, THE
DEBTOR URGES ALL PARTIES IN INTEREST, TO THE EXTENT ENTITLED TO
VOTE, TO VOTE TO ACCEPT THE PLAN.
An acceptance or rejection of the Plan may be voted by
completing the Ballot which accompanies the Plan and this
Disclosure Statement and mailing it to Merle C. Meyers, Esq. of
Goldberg, Stinnett, Meyers & Davis, A Professional Corporation,
44 Montgomery Street, Suite 2900, San Francisco, California
94104, in the enclosed envelope, for actual receipt on or before
the date set forth as the deadline in the Ballot or in other
documents accompanying the Plan and the Disclosure Statement.
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II. OVERVIEW OF THE PLAN
The Plan is the product of extensive negotiations over the
course of several months among the Debtor, the Committee and the
Preletz Group (Michael O. Preletz and affiliated investors) to
design a plan which maximizes the recoveries to creditors and
other parties in interest and creates a sound capital structure
for the reorganized entity. Under the Plan, the reorganized
Debtor will emerge from bankruptcy recapitalized and prepared to
implement a business plan that, if fulfilled, will result in
increased value and profitability, to the benefit of both its new
investors and the estate herein.
Under the terms of the Plan, the reorganized Debtor will
retain certain core assets of its Hammer business, the Hammer
Assets, and the remaining estate will retain and sell all other
assets, the Non-Hammer Assets. The assets of the remaining
estate, including the Non-Hammer Assets and a block of 3,500,000
shares of stock of the reorganized Debtor, will be managed by a
bonded Distribution Agent and sold for the benefit of creditors.
Former shareholders, consistent with the priority scheme set
forth in the Bankruptcy Code and the present lack of equity in
the Debtor, will receive nothing under the terms of the Plan.
All existing shares of stock of the Debtor will be cancelled
on the Plan's Effective Date, and the reorganized Debtor will
issue new shares in favor of the estate, the company's new
investors and others. In particular, the remaining estate will
receive 3,500,000 shares; the Preletz Group will receive
2,000,000 shares in exchange for a cash investment of $650,000;
2,000,000 shares will be distributed to creditors in exchange for
cash investments of $650,000 in the aggregate, pursuant to a
creditors' rights offering, as explained below; and 2,500,000
shares will be available for distribution pursuant to stock
options granted to management and nonmanagement employees.
Thereafter, an additional 10,000,000 shares may be issued by the
reorganized Debtor for various stock options or sales, within
limitations described in the Plan.
The Plan designates various classes of Claims and Interests
and provides for distribution rights for each such class, in a
manner consistent with the priority system of the Bankruptcy
Code. In essence, the net proceeds of sale of all assets in the
Distribution Estate, after costs and full payment of priority
expenses and claims, will be distributed on a pro-rata basis to
holders of Allowed Claims, until all funds of the Distribution
Estate have been exhausted.
The Preletz Group, which will be a new investor in the
reorganized Debtor, includes Michael O. Preletz and Chapman A.
Stranahan, who presently serve as the Debtor's senior management.
Those same individuals will continue in their senior management
5
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positions in the reorganized Debtor, and will receive valuable
consideration in exchange for their investments in, and
management of, the reorganized Debtor. Because of the Preletz
Group's role in the matter, the Debtor has engaged the Committee
in direct negotiations with respect to the terms of the Plan, and
as a result, the terms of the Plan, particularly as they affect
the Preletz Group and present management of the Debtor, are the
product of extensive and good faith negotiations among the
Preletz Group, the Debtor and the Committee. It is on the basis
of those negotiations that both the Debtor and the Committee have
concluded that the Plan is in the best interests of the estate
herein, and in the view of the Debtor, the recoveries that will
occur pursuant to the Plan are better than the likely recovery
under any alternative reorganization or liquidation.
As stated, the Plan is supported by the Committee and by the
Preletz Group. That support is evidenced by the statement of
support that is attached hereto as Exhibit "A."
III. PREPETITION BACKGROUND
A. HISTORY OF BUSINESS
1. GENERALLY. The Debtor is a developer and manufacturer
of information storage products and systems. StreamLogic sells
its products and systems directly to original equipment
manufacturers, or OEMs, and system integrators, and through
independent distributors and valued-added resellers, or VARs, for
resale to end users. The Debtor is headquartered in Newark,
California and presently employs approximately 33 employees.
The Debtor was initially incorporated in California in
December 1976 under the name Micropolis Corporation, and was
reincorporated in Delaware in April 1987. In April 1996, the
Debtor changed its name from Micropolis Corporation to
StreamLogic Corporation.
Prior to April 1996, the Debtor's business was substantially
larger than it is presently, with a large percentage of the
company's business devoted to the design, manufacture and sale of
disk drives. However, as a result of the sale of the disk drive
business in early 1996, as described below, the Debtor's business
became significantly smaller, with the number of employees
decreasing from approximately 2,000 immediately prior to the sale
to approximately 150 persons shortly after the sale. The
company's stock was publicly traded on the NASDAQ National Market
System, or NASDAQ, until it was de-listed on June 25, 1997, the
day preceding the chapter 11 filing.
2. SALE TO MICROPOLIS. On January 24, 1996, the Debtor
entered into an agreement with ST Chatsworth Pte. Ltd., a
Singapore corporation which was later renamed "Micropolis (S)
6
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Pte. Ltd." ("Micropolis"), a wholly owned subsidiary of Singapore
Technologies, to sell substantially all of the Debtor's assets
(other than cash and accounts receivable) related to the Debtor's
disk drive business, and the sale was consummated on March 29,
1996, following approval by the Debtor's shareholders. The
transferred assets included the name "Micropolis" and the capital
stock of Micropolis Thailand, the Debtor's manufacturing
subsidiary in Thailand, a newly constructed manufacturing
facility in Singapore, and five of the Debtor's European and
Asian sales and marketing subsidiaries. In exchange for those
assets, Micropolis paid the Debtor approximately $54 million in
cash and assumed certain limited liabilities of the Debtor
relating to the disk drive business.
As a result of the sale of the disk drive business, the
Debtor's revenues and ongoing expenses shrank considerably. As
of June 28, 1996, for example, the book value of the Debtor's
property, plant and equipment totalled approximately $6 million,
as compared to approximately $47 million for the same period in
1995, and net sales decreased 84% to $11.2 million in the quarter
ending June 30, 1996, as compared to sales of $70.1 million for
the same quarter in 1995.
3. PURCHASE FROM FWB. Subsequent to the divestiture of
its disk drive business, the Debtor acquired a new business:
Effective as of July 1, 1996, the Debtor acquired all of the
assets and liabilities relating to the hardware business of FWB
Software, Inc., a California corporation doing business as FWB,
Inc. ("FWB"), a developer of performance computer storage
products, including the "Hammer" line of products. In connection
with the FWB hardware business acquisition, one of the Debtor's
subsidiaries made an 11% equity investment in FWB Software, LLC,
a limited liability company newly formed by FWB and the Debtor to
operate the software business retained by FWB.
In consideration for FWB's hardware business assets and the
minority equity investment in the software business, the Debtor
paid FWB cash in the approximate amount of $5.75 million and
issued 1,256,123 shares of its common stock. Pursuant to the
agreement between FWB and the Debtor, that number of shares was
to be adjusted, by the Debtor's issuance of additional shares or
FWB's return of delivered shares, to the extent necessary to
provide FWB with a market value of stock equal to $7.5 million as
of October 29, 1996. However, because of a drop in the Debtor's
average stock prices, that adjustment would have required the
issuance of over 3 million additional shares to FWB and would
have contravened other terms of the parties' agreement and
certain NASDAQ rules. Accordingly, the parties agreed on
November 1, 1996 that instead, the Debtor would issue 1,380,000
additional shares to FWB, together with a $1,250,000 promissory
note and cash of $500,000. The transaction was then completed,
with the note being issued by StreamLogic Software, Inc. ("SLC
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Software"), one of the Debtor's wholly owned subsidiaries, and
secured by SLC Software's equity interest (reduced from 11% to
7.5%) in FWB Software LLC. The note is guaranteed by the Debtor.
The aggregate consideration paid for the net assets related
to the hardware business of FWB and investment in FWB Software
LLC, including costs of acquisition, was approximately $7,900,000
and $3,400,000, respectively. The acquisition was accounted for
as a purchase and, accordingly, the acquired assets and
liabilities were recorded at their estimated fair market values.
Approximately $1,400,000 of the total purchase price represented
the value of in-process research and development that had not yet
reached technological feasibility and was charged to the Debtor's
operations.
B. INDUSTRY SEGMENT AND MARKET
The Debtor operates within the data storage technology
industry and competes in the external storage market for high-end
desktop PCs and workstations (host). An external storage
subsystem will consist of one or more disk drives in an external
enclosure that is attached to the host system via cables. The
disk drives are configured for use by the host system through
special software and hardware to meet the needs of the specific
application being run on the host. External storage subsystems
are popular choices for high-end desktop PCs and workstations to
meet capacity, performance, or reliability needs not available in
the host systems. The market for this technology can be further
segmented into categories for the specific application being run
on the host and the operating systems employed by the end user.
The Debtor is currently focused in two application market
segments: professional desktop publishing known as "Prepress"
and digital media creation or multimedia creation. Examples of
digital media creation are digital video, two- or three-
dimensional modeling, computer-aided design, animation, virtual
reality and graphics.
C. PRODUCTS
The Debtor's development efforts are currently focused
around the Hammer product line, historically used primarily with
the Apple Macintosh ("MAC") operating system. The Debtor also
offers limited products for use with the Silicon Graphics Irix
and Microsoft Windows NT operating systems. The Debtor plans to
continue developing its products for all three operating system
marketing segments to broaden its market, especially the
multimedia applications.
The Debtor's products are sold in a wide variety of
configurations of hardware and software addressing specific
applications. A basic Hammer storage subsystem consists of three
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components: software, hardware controller, and enclosure with
drive(s). The software is operating system-specific and consists
of a graphical user interface (GUI), utilities to configure the
disk drives, and a driver to facilitate data transfer between the
host and storage subsystem. The controller can be either a
Jackhammer SCSI controller board for high-performance
applications and/or a RAID controller used for high-reliability
applications. The enclosures range from the single-drive
Pockethammer, to the multi-drive Sledgehammer, to the removable-
drive Sledgehammer Pro. (A hardware-based RAID controller is
currently available for only the MAC and Windows NT operating
systems.)
D. DISCONTINUED OPERATIONS
In addition to the Debtor's former disk drive business,
other discontinued operations and product lines of the Debtor
include the following:
1. VIDEO SERVERS. Video servers are used to play back
video material that has been previously digitally encoded and
compressed. Video servers, which can replace video-cassette
recorder systems, use hard disk drives to store and retrieve
audio and full motion video signals. The Debtor previously
marketed its line of video server products to hospitality,
multimedia and cable television markets. Video server
applications in the hospitality and related markets included
displaying digitally encoded and compressed movies to guests in
hotels, aircraft and cruise ships. Multimedia applications
included corporate training, campus training and video libraries.
In 1995, the Debtor entered into a development agreement
with Matsushita Avionics System Corporation ("MASC") regarding
the development of the Debtor's video server technology for
aircraft use and the sale of products using that technology to
MASC. However, financial difficulties arose in the
implementation of that agreement, and in March 1997, the parties
entered into a termination agreement pursuant to which, among
other things, the relationship was curtailed and the Debtor
transferred various inventory, equipment and other assets to
MASC, including a nonexclusive license of its video server
technology.2 As a result, the Debtor is not presently developing
any of its video server technology.
Also, in March 1997 the Debtor entered into an agreement
with Sumitomo Corporation or an affiliate ("Sumitomo") pursuant
- --------
2 The Debtor is presently in the process of reviewing its
previous transactions with MASC and its 1997 transfers to MASC in
order to determine the present status of any claims or rights of
either the Debtor or MASC against each other.
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to which the Debtor sold excess inventory and a license relating
to the Debtor's video server products to Sumitomo. The inventory
was sold on an "as is" basis for cash consideration in the
approximate amount of $300,000.
2. VIDEO DISK RECORDER TECHNOLOGY. Prior to the
commencement of the Chapter 11 Case, the Debtor had been
developing a line of low cost digital video disk recorders using
hard disk drives to store and retrieve audio and full motion
video signals. In 1995, the Debtor entered into a development
agreement with BTS Broadcast Television Systems GmBH ("BTS") for
the joint development design, development and manufacture of a
family of video disk recorders. Under the agreement, BTS was to
provide funding to the Debtor in the total amount of $1,000,000,
payable in specified increments upon the Debtor achieving certain
milestones in the development of certain technology and products,
and in exchange, BTS was granted certain rights in the technology
developed.
The Debtor received an aggregate amount of $650,000 from BTS
under the agreement, but prior to the commencement of the Chapter
11 Case, disputes arose between the parties regarding the extent
and nature of BTS' rights in and to the technology developed.
Both parties ceased any further significant activities or
payments under the terms of their development agreement, although
neither party has given formal notice of termination of the
agreement. The Debtor is presently reviewing its legal options
with respect to its relationship with BTS.
3. RAIDION PRODUCT LINE. During the last several months,
beginning prior to the commencement of the Chapter 11 Case, the
Debtor has restructured its operations so as to discontinue its
support of its Raidion line of products. The Raidion product
line consists of data storage products and systems using the RAID
(redundant array of independent disk drives) technology. Since
the commencement of the Chapter 11 Case, the Debtor has sold most
of the assets that comprised the Raidion product line, consisting
primarily of patents, inventory and equipment, as more fully
described hereinbelow.
E. INTERNATIONAL OPERATIONS AND FOREIGN SUBSIDIARIES
The Debtor sells its products into European, as well as
domestic, markets. Historically, the Debtor's foreign sales
originated primarily from the company's Singapore facility, which
was sold to Micropolis as part of the divestiture of the disk
drive business. Based on the Debtor's most recent Forms 10-K and
10-Q reportings, export sales (sales originating in the United
States to customers in foreign countries) have most recently
represented less than ten percent (10%) of total sales for
consolidated operations.
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Following the sale of its disk drive business, the Debtor
has served foreign markets primarily through two European
operating subsidiaries, located in the United Kingdom
(StreamLogic Ltd.) and Germany (StreamLogic GmBH). StreamLogic
Ltd. has served as the distribution and repair center for all of
the Debtor's European sales. StreamLogic GmBH has served as a
sales facility for European markets. In addition, other wholly
owned foreign subsidiaries of the Debtor include StreamLogic Pty
Ltd. (Australia), Micropolis BV (Netherlands) and StreamLogic
(Cayman Islands), each of which is inactive.
None of the Debtor's subsidiaries is a debtor under the
provisions of the Bankruptcy Code, but StreamLogic Ltd. and
StreamLogic GmBH ceased operations following the commencement of
the Debtor's Chapter 11 Case. The Debtor believes that it has no
material financial obligations owing with respect to the
operations or affairs of any of its subsidiaries, and as of June
1997, the Debtor's books and records reflected net intercompany
accounts receivable owing to the Debtor. However, the Debtor
estimates that intercompany accounts receivable are largely
uncollectible.
F. COMPETITION
The data storage industry is competitive and characterized
by price erosion over the life of a product. The Debtor believes
that being first to market with new products is a critical
element in the achievement of desired gross margins. Being first
to market provides initial price advantages to the Debtor and the
opportunity to accelerate learning and cost reduction curves due
to increased production volumes. In the high-performance market
in which the Debtor competes, the principal dimensions of
competition are generally data storage capacity, data transfer
rate, average access time, form factor, timely delivery in
quantity, reliability and price.
Some of the Debtor's competitors are much larger in size and
have access to greater financial and other resources than the
Debtor. The Debtor believes that its future success hinges on
its ability to bring cost and feature-competitive products to
market on a timely basis. Competitors in the high-performance
desktop computers and workstation external storage subsystems
market include Megadrive, Micronet and Eurologic.
G. PATENTS AND KNOW-HOW
The Debtor's management believes that the ability to develop
and manufacture products is dependent upon the know-how and
special skills within the Debtor. In addition, the Debtor has
obtained and presently owns a number of patents, patent
applications, and patent and technology licenses. It is the
Debtor's policy to enforce its proprietary rights. The Debtor's
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management believes that the patents and know-how rights
currently owned, which are exclusive of patents relating to the
Raidion business which were sold during the Chapter 11 Case, are
adequate for the conduct of its Hammer business. In the opinion
of the Debtor's management, however, no individual patent or
license is of critical importance.
H. EMPLOYEES
As of October 31, 1997, the Debtor employed approximately 33
full-time employees. Of those employees, eight were engaged in
manufacturing, seven were engaged in sales and marketing, six
were engaged in research and engineering, six were engaged in
customer service and operations and the remaining six were
administrative and clerical personnel. The Debtor believes that
labor relations in the Company are generally satisfactory.
I. REAL PROPERTY
The Debtor owns real property in the City of Chatsworth, Los
Angeles County, California where its operations and corporate
headquarters were formerly located. The Chatsworth property,
commonly known as 21329 Nordhoff Street, consists of a 75,650
square foot, light manufacturing facility situated on a 2.29-acre
site.
According to the Debtor's books and records, the land and
improvements cost the Debtor approximately $7.6 million. Based
on a February 1997 appraisal of the property, the property had a
fair market value of $3,500,000 at that time. Since the
commencement of this Chapter 11 Case, the Debtor has received an
offer to purchase the property for a gross price of $3,000,000.
The Debtor is presently in the process of negotiating with
prospective purchasers and listing brokers in an effort to sell
the property for the highest return possible. The property is
not encumbered by any security interests securing any Claims of
significant amounts.
J. INVESTMENTS
1. CONCENTRIC NETWORK STOCK. In September 1996, the
Debtor purchased $2.5 million of shares of preferred stock of
Concentric Network Corporation ("Concentric") from Sattel
Communications ("Sattel"). Founded in 1991 and headquartered in
Cupertino, California, Concentric is a provider of virtual
private networks and intranet customized consumer applications.
Sattel acquired the Concentric stock pursuant to a Preferred
Stock Purchase Agreement dated August 21, 1996 among Concentric,
Sattel and others (the "Stock Purchase Agreement"). At the time
the Debtor acquired the Concentric stock from Sattel, Concentric
was a privately held corporation.
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On July 30, 1997, Concentric was reincorporated in Delaware
and effected a 1-for-15 reverse stock split. On July 31, 1997,
Concentric made an initial public offering (the "IPO") of
4,300,000 shares of its common stock at an initial price of $12
per share, and public aftermarket trading began on August 1, 1997
in the Nasdaq National Market stock listings under the symbol
"CNCX."
As a result of the reincorporation and reverse split and
completion of the IPO, the Debtor's 1,838,235 shares of
Concentric preferred stock have been exchanged for 128,272 shares
of Concentric common stock, and by virtue of the terms of the
Stock Purchase Agreement, the Debtor is restricted from selling
the shares for a period of 180 days from the date of the IPO. As
of December 3, 1997, the Concentric shares were trading at a
price of $10.50 per share. The Debtor estimates that the
approximate market value of the Concentric shares as being
$1,346,856 as of December 3, 1997, subject to the trading
restrictions identified above and the effect that those
restrictions may have upon value.
2. NOTE FROM TITANIUM MEMORY SYSTEMS. In 1992, the Debtor
purchased an equity interest of approximately 27% of the stock of
Titanium Memory Systems, Inc., formerly known as Tulip Memory
Systems, Inc. ("TMS"), a start-up company formed to develop
substrates used in the manufacture of computer disk drives.
During 1994, the Debtor increased its ownership to approximately
60%, pending anticipated outside investment. In connection with
its original investment, the Debtor agreed to guarantee the
obligations of TMS to pay the acquisition cost of equipment. In
order to consummate the sale of its disk drive business, the
Debtor paid its $1.3 million guaranty obligation under the
agreement with TMS. The Debtor discontinued funding of TMS in
early 1996.
In June 1996, TMS was recapitalized, and in connection
therewith the Debtor agreed to accept 1,498,645 shares of
preferred stock of TMS, having a book value of approximately
$0.14 per share, and a promissory note issued by TMS in the
principal amount of $500,000, all in exchange for cancellation of
TMS's debt to the Debtor in an aggregate, approximate amount of
$10 million.
In May 1997, the Debtor sold all of its TMS stock, as
follows: Approximately 749,322 shares were repurchased by TMS at
a price of $0.20 per share, or $149,864.40, and the remaining
749,322 shares were sold to Titanium Metals Corporation, another
investor in TMS, in exchange for cash in the amount of
$149,864.40. At the present time, the Debtor holds the $500,000
note issued by TMS, which is payable in ten annual installments
of approximately $50,000, beginning in 1998.
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K. DEBENTURES AND NOTES
1. CONVERTIBLE DEBENTURES. In 1987 the Debtor entered
into an Indenture dated as of March 15, 1987 (the "Indenture")
between the Company and First Interstate Bank of California, as
trustee, later replaced by Harris Trust and Savings Bank, as
trustee (the "Trustee"). Pursuant thereto, the Debtor issued
debentures in an aggregate principal amount of $75 million,
bearing 6 percent interest and due in the year 2012. The
debentures were convertible to stock under certain circumstances,
were subordinated to certain indebtedness of the Company and
carried various other terms, conditions and other features.
Subject to adjustments set forth in the Indenture, the conversion
price for the Debentures was $48.50 per share.
In particular, the Debentures were subordinated in right of
payment to certain indebtedness of the Debtor, including
indebtedness arising from money borrowed or notes or similar
instruments given in connection with the acquisition of
businesses, properties or other assets, obligation arising under
capital leases and indebtedness arising from the renewals,
extensions or refundings of such obligations. In light of the
specific wording and terms of the Indenture, the Debtor does not
believe that it owes any indebtedness to which the Debentures are
presently subordinated.
2. 1996 EXCHANGE OFFER; INCREASING RATE NOTES. In early
1996, the Debtor evaluated several alternatives with respect to a
restructuring of the Debentures, and Loomis Sayles & Company,
L.P. ("Loomis Sayles"), an entity which advises investors that
collectively held approximately 79% of the aggregate principal
amount of the outstanding Debentures, indicated to the Debtor its
potential interest in reaching an agreement with respect to a
restructuring of the Debentures after the sale of the disk drive
business had been completed.
Therefore, in October 1996, the Debtor commenced a tender
offer for the Debentures, pursuant to which the Debentures were
to be exchanged for cash, increasing rate unsecured promissory
notes, common stock and warrants of the Debtor. Of the $75
million of the Debentures originally issued, holders of
approximately 94% of the outstanding Debentures accepted the
exchange, representing approximately $70.2 million in aggregate
principal amount. The Debtor subsequently exchanged the tendered
Debentures for approximately $8.5 million in cash, $8 million in
unsecured promissory notes due in 1998, 15.2 million shares of
common stock, and warrants to purchase an additional 2.8 million
shares of common stock.
As a result, among the Debtor's present obligations are
approximately $8 million in increasing-rate unsecured promissory
notes (the "Notes") issued in exchange for approximately $70.2
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million in formerly outstanding Debentures, as well as
approximately $4.8 million in Debentures that were not tendered
in the exchange.
3. REMAINING DEBENTURES AND LITIGATION. Following the
exchange, there remained Debentures of approximately $4.8 million
in aggregate principal balance that had not been exchanged or
extinguished. With respect to those remaining Debentures, issues
arose as to whether the Debtor had failed to make interest
payments thereon in a timely fashion and whether, as a
consequence, the holders of the Debentures had properly and
timely declared an acceleration of all amounts owing under the
Debentures. As a result of those disputes, litigation ensued in
the United States District Court for the Southern District of New
York between the Debtor and United Equities Company ("United
Equities"), an entity which owns or controls a majority of the
outstanding aggregate principal balance of the remaining
Debentures. As of the date of commencement of the Chapter 11
Case herein, that litigation, which began in December 1996,
remained pending, although neither party to the action is
presently pursuing the matter actively. Assuming that the Plan
becomes effective, the matter of acceleration of the Debentures
will become moot, by virtue of the distribution provisions of the
Plan.
L. RELOCATION AND CONSOLIDATION
In late 1996, the Debtor announced its plans to consolidate
and relocate its operations and corporate headquarters from
Chatsworth, California to Northern California. In conjunction
therewith, on November 7, 1996, the Debtor entered into a long-
term lease of commercial real property located at 7015 Gateway
Boulevard, Newark, California, consisting of office,
manufacturing and warehouse space of approximately 56,000 square
feet. Pursuant to the terms of the lease, the Debtor delivered
to the landlord an irrevocable standby letter of credit in the
amount of $252,288, issued by Wells Fargo Bank, to secure its
performance of obligations under the lease, and also provided a
deposit of one month's rent of approximately $50,000. In order
to provide collateral for the issuance of the letter of credit,
the Debtor deposited cash funds with Wells Fargo Bank in exchange
for a certificate of deposit in the amount of the letter of
credit. Once the lease was executed, tenant improvements were
undertaken by the landlord, and those improvements were completed
in or about April 1997, at a cost of approximately $963,533, of
which the landlord had agreed to pay $839,985.
In early 1997, the Debtor proceeded with the closure of its
Chatsworth facility and relocated its corporate headquarters and
administrative offices to Menlo Park, California on an interim
basis, in the offices previously occupied by FWB prior to the
Debtor's acquisition of FWB's assets. Thereafter, as planned,
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the Debtor completed its relocation to the Newark premises, on or
about June 30, 1997.
Concurrent with its relocation efforts, the Debtor also
reduced its staffing and administrative expenses substantially,
through the discontinuation of certain of the Debtor's product
lines, including the Raidion product line and video server and
video disk recorder technologies. That downsizing effort began
prior to the commencement of the within Chapter 11 Case and
continued thereafter and even to the present time.
M. CHANGE IN MANAGEMENT
As of the end of 1996, the Debtor's board of directors
consisted of five directors, namely J. Larry Smart, Greg Reyes,
Jr., Chriss W. Street, Ericson M. Dunstan and Elliott D. James.
Executive officers of the company at that time included Mr.
Smart, as the Debtor's president and chief executive officer, and
Barbara V. Scherer, as the company's senior vice president and
chief financial officer. In January 1997, the Debtor's board of
directors was expanded from five members to seven members,
pursuant to the terms of the November 1996 debenture exchange,
and two additional directors, Jack S. Kenney and Mark M.
Glickman, were designated by Loomis Sayles.
During the first half of 1997, all of the aforementioned
directors other than Mr. Glickman resigned from the board, and
Michael O. Preletz, a turnaround expert with many years'
experience in assisting troubled technology companies, was named
to the board. In particular, Mr. Dunstan resigned as of January
22, 1997; Mr. Smart resigned from all positions with the Debtor
as of March 23, 1997; and following the remaining directors'
appointment of Mr. Preletz as an additional director and as chief
executive officer as of March 24, 1997, Messrs. James, Reyes,
Street and Kenney resigned as directors, and Ms. Scherer resigned
as an officer, in April and May 1997. Mr. Glickman was elected
to replace Ms. Scherer as chief financial officer, upon her
resignation.
Following the commencement of the Debtor's chapter 11 case,
and effective as of August 5, 1997, Mr. Glickman resigned as an
officer and director of the Debtor, and as a result, Mr. Preletz
is presently the sole director and chief executive officer of the
Debtor.
N. DEBT REPAYMENT PLANS
During the three to six months immediately preceding the
commencement of the Debtor's chapter 11 case, the Debtor
experienced extreme cash flow difficulties and as a result, found
itself unable to pay invoices as they became due. In order to
maintain essential working relationships with important trade
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creditors, the Debtor entered into a variety of informal, largely
undocumented arrangements with trade creditors to pay past-due
amounts and to continue to receive services and products. Those
arrangements included extending invoice terms of past-due
receivables, paying past-due invoices pursuant to negotiated
payment schedules while keeping current invoices paid, and making
partial payments on past-due invoices depending on the Debtor's
needs and cash flow.
Trade creditors with whom the Debtor entered into such
payment arrangements included Mountain Gate, Seagate Technology,
Inc., Sony Electronics, Wyle Electronics, Elliott Laboratories,
Federal Express, Micron Electronics, Andataco, Nakasuji
Associates, Q Logic, Bell Microproducts and Rational Technology,
Inc. At present, the Debtor is investigating the extent and
circumstances of such payments in order to determine whether any
such payments may be avoidable under the preference provisions of
Section 547 of the Bankruptcy Code. Based upon a preliminary
analysis, the Debtor believes that a significant amount of such
payments may be recoverable under applicable preference rules.
O. EVENTS PRECEDING CHAPTER 11 CASE COMMENCEMENT
Operations of the Debtor in 1996 and early 1997 produced
operating losses, draining the Company of its operating funds.
In addition, after the Debtor's new management was installed, it
found the books and records of the Debtor to be in substantial
disarray, and determined that ongoing revenues were materially
less than had been projected by prior management, resulting in
further losses.
The Debtor estimated its net losses for the quarter ending
March 28, 1997 to be approximately $20.8 million, and for the
full year ending March 28, 1997, the Debtor estimated that it
lost $16.1 million. As those losses translated themselves into
negative cash flow, the Debtor found itself in a substantial cash
crisis, causing it to suspend payments on many accounts and to
respond to various collection actions initiated and threatened
against it.
Whereas in the spring of 1997, the Debtor attempted various
means to solve its cash crisis, including refinancings,
recapitalizations and negotiated settlements and payout schedules
with creditors, the Debtor ultimately determined that none of
those efforts would avoid the necessity of a full and formal
reorganization of its operations and finances, which could not be
accomplished without the protections and benefits of chapter 11
of the Bankruptcy Code.
Finally, in mid-June 1997, a creditor obtained an attachment
order against assets of the Debtor, threatening to paralyze all
of the Debtor's operations, and the Debtor was compelled to
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commence the present Chapter 11 Case in order to remove the lien
arising from that attachment order and to preserve the company's
ongoing operations.
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE
Since the Debtor commenced its Chapter 11 Case, it has
continued to operate as a debtor-in-possession pursuant to
Sections 1107 and 1108 of the Bankruptcy Code. The following is
a brief description of some of the major events that have
occurred during the Chapter 11 Case.
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION
Following the commencement of its Chapter 11 Case, the
Debtor has continued to operate its business and manage its
properties as a debtor-in-possession, no trustee having been
appointed. The Bankruptcy Court has certain supervisory powers
over the Debtor's operations during the Chapter 11 Case,
particularly as to proposed transactions outside of the ordinary
course of business. In addition, Bankruptcy Court approval is
required for certain other transactions, such as the borrowing of
money on a secured basis or the employment of attorneys,
accountants and other professionals. Most importantly, the
Bankruptcy Court must confirm a reorganization plan for the plan
to become effective.
An immediate effect of the filing of the Chapter 11 Case was
the imposition of the automatic stay under the provisions of
Section 362(a) of the Bankruptcy Code which, with limited
exceptions, enjoins the commencement or continuation of all
prepetition litigation against, and efforts to collect funds
from, the Debtor. This injunction remains in effect unless
modified or lifted by order of the Bankruptcy Court.
B. APPOINTMENT OF THE CREDITORS' COMMITTEE
On July 18, 1997, the United States Trustee appointed an
official committee of unsecured creditors (the "Committee") to
represent the collective interests of all unsecured creditors of
the Debtor, pursuant to Section 1102 of the Bankruptcy Case. The
membership of the Committee has been supplemented twice since
then.
Since its formation, the Committee has consulted extensively
with the Debtor concerning the administration of the Chapter 11
Case, and the Debtor has kept the Committee informed about its
operations and has sought the concurrence of the Committee for
actions and transactions taken outside of the ordinary course of
the Debtor's business, wherever possible. In particular, as
described elsewhere, the Committee has participated actively and
extensively, together with the Debtor's management and
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professionals, in reviewing the Debtor's business plan and
negotiating a consensual plan of reorganization.
The Committee currently consists of seven voting members and
two nonvoting members, and includes representatives of each of
the principal constituencies of unsecured creditors of the
Debtor. The current members of the Committee are as follows:
VOTING MEMBERS:
CDI CORPORATION
Attn: Brian Marricone
100 Penn Center
18th and Market Street, 12th Floor
Philadelphia, PA 19103
FWB SOFTWARE, INC.
Attn: Steven Gibbs, C.F.O.
2750 El Camino Real
Redwood City, CA 94061-3911
MICROPOLIS INC.
Attn: Thomas Burns, V.P. Finance
21211 Nordhoff Street
Chatsworth, CA 91311
NETWORK STORAGE SOLUTIONS
Attn: Joseph Pisula
600 Herndon Parkway
Herndon, VA 22070
NORWEST BANK MINNESOTA, N.A.
Attn: Mimi Traynor, V.P.
608 Second Avenue, South 12th Floor
Minneapolis, MN 55479-0069
SEAGATE TECHNOLOGY
Attn: Bill Hayward, Senior Director
920 Disc Drive
Scotts Valley, CA 95066
UNITED EQUITIES COMPANY
Attn: Philippe D. Katz
160 Broadway
New York, NY 10038
Non-Voting Members:
LOOMIS, SAYLES & COMPANY, LP
Attn: Frederick Vyn, V.P.
One Financial Center
Boston, MA 02111
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HARRIS TRUST AND SAVINGS BANK
Attn: Kevin Healey, V.P.
311 W. Monroe Street, 12th Floor
Chicago, IL 60606
C. REPRESENTATION OF THE DEBTOR AND THE COMMITTEE
Since the commencement of the Debtor's Chapter 11 Case, the
law firm of Goldberg, Stinnett, Meyers & Davis, A Professional
Corporation, whose offices are located at 44 Montgomery Street,
Suite 2900, San Francisco, California 94104, has acted as
StreamLogic's general bankruptcy counsel, with Bankruptcy Court
approval. In addition, the Debtor has retained the following
special counsel and advisors with Bankruptcy Court approval:
FIRM PURPOSE
Manatt, Phelps & Phillips, Special Counsel
LLP (Corporate and
Securities)
Hickey and Hill, Inc. Financial Advisor
Oppenheimer, Poms, Smith, Special Counsel
Lande & Rose (Intellectual
Property Rights)
The Committee has retained the law firm of Murray & Murray,
located at 3030 Hansen Way, Suite 200, Palo Alto, California
94304-1009 to act as its counsel in the Chapter 11 Case, and the
accounting firm of Price Waterhouse LLP to act as its financial
advisor, with Bankruptcy Court approval.
D. DEVELOPMENT AND IMPLEMENTATION OF STRATEGIC PLAN
Since the commencement of the Debtor's Chapter 11 Case,
through the auspices and direction of the company's new senior
management, the Debtor has continued its efforts to restructure
its operations and develop and implement its strategic plan.
First, as stated earlier, the Debtor restructured its
operations so as to focus on one of its product lines. Until
that restructuring, the Debtor supported two distinct lines of
products, its Raidion product line and its Hammer product line.
The Raidion line consists of data storage products and systems
using the RAID (redundant array of independent disk drives)
technology, which renders the system fault-tolerant through
either hardware or software. The Raidion products are used in
applications in which the integrity of large amounts of data is
of paramount concern. The Hammer product line, on the other
hand, while also a data storage product, is more targeted to uses
in which data transfer speed, rather than total capacity, is the
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primary concern. Typical uses of Hammer products involve desktop
digital video and color publishing.
During the last several months, the Debtor has restructured
its operations so as to discontinue its support of the Raidion
product line and focus its efforts on the Hammer product line.
In May 1997, the Debtor began outsourcing the production of
certain of its Raidion line of products pursuant to an
arrangement with JMR Electronics, Inc., a Chatsworth company
which had provided assembly services to the Debtor in the past
for its Raidion products.
As part of its restructuring of operations and
discontinuance of parts of those operations, the Debtor has also
continued its downsizing in order to reach a level of expenses
consistent with its revenue base. As a result of present
management's restructuring efforts, the head count has been
reduced by approximately 78%, from approximately 150 at the end
of the Debtor's fiscal 1996 year (i.e., March 29, 1996) to 33 at
present.
E. BAR DATE FOR FILING PROOFS OF CLAIM
The Bankruptcy Court set November 3, 1997 as the deadline
for the filing of proofs of claim, other than claims of
governmental entities. Since that deadline passed, the Debtor
has begun its review of filed proofs of claim in order to
determine whether, and to what extent, objections to disputed
claims will be necessary.
F. ASSET SALES RELATING TO RAIDION PRODUCT LINE
In the process of restructuring its operations, the Debtor
has sold most of the assets relating to its Raidion product line,
consisting primarily of patents, inventory and tooling. On
October 1, 1997, the Court issued its order granting the Debtor's
motion and approving a sale of the Raidion patents to Farrington
Investments, Ltd. ("Farrington") for the purchase price of
$1,020,000, and that sale was consummated on or about October 14,
1997. The proceeds of the sale are maintained by the Debtor in a
segregated, interest-bearing account and have not been treated as
part of the Debtor's general operating funds. Disbursements from
that account, such as for Court-approved professional fees, have
been made only upon order of the Bankruptcy Court or consent of
the Debtor and the Committee.
As of September 25, 1997, the Debtor entered into an
agreement to sell most of the rest of its Raidion assets, namely
inventory, molding and tooling equipment and certain licenses
relating to the Raidion product line, to Peripheral Technology
Group, Inc. ("PTG") for the purchase price of $263,000, subject
to Court approval and certain contractual adjustments. Two
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creditors, JMR Electronics, Inc. ("JMR") and A&S Mold And Die
Corporation ("A&S"), have asserted liens against the assets sold
to PTG, which liens are disputed by the Debtor. On November 21,
1997, the Bankruptcy Court issued orders granting the Debtor's
motions seeking approval of sale free and clear of the disputed
liens of JMR and A&S, and the sale was consummated on December 2,
1997. At present, the Debtor maintains the net proceeds of sale,
in the approximate amount of $135,000, in a separate, segregated
account, pending resolution of JMR's and A&S's disputed liens.
G. DISPUTE WITH NEWARK LANDLORD
As stated above, in late 1996 the Debtor executed a long-
term lease for commercial premises in Newark, California and in
June 1997, the Debtor moved into the facility. Shortly before
the commencement of its Chapter 11 Case, the Debtor reached oral
agreements with the landlord, WHLNF Real Estate Limited
Partnership ("Lincoln"), and Decibel Instruments, Inc.
("Decibel") to sublet approximately one-half of the premises to
Decibel, a start-up company in the business of developing and
manufacturing hearing aid and diagnostics products. However, as
of the Petition Date, no written agreements had been executed
with either Lincoln or Decibel in order to implement the oral
sublease agreement.
After the Petition Date, on July 25, 1997, with the initial
support of Lincoln, Decibel and the Committee, the Debtor filed a
motion seeking Bankruptcy Court approval of the assumption of the
master lease with Lincoln and execution of the sublease with
Decibel. From the Debtor's perspective, the transactions would
allow the Debtor to preserve a master lease carrying a rental
rate below current market rates, while defraying one-half of the
monthly obligation by subleasing unused space.
However, once the motion had been filed, Lincoln apparently
had a change of heart, indicating its intention to oppose the
Debtor's motion and imposing discovery demands upon the Debtor.
At the same time, the Committee concluded that assumption of the
master lease would be premature until reorganization prospects
were better defined, and requested that the Debtor withdraw its
motion. Accordingly, the Debtor withdrew its motion and advised
Decibel that it would be unable to complete the sublease
arrangement.
After the motion was withdrawn, the Landlord filed a motion
to compel the Debtor to assume or reject the Newark lease on an
expedited basis. The Debtor opposed the motion and filed a
cross-motion for extension of assumption deadlines, and in a
hearing on September 12, 1997, the Bankruptcy Court granted the
Debtor's motion on an interim basis and deferred Lincoln's
motion.
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Meanwhile, the Debtor found alternative premises within
Newark, approximately two miles from its first premises. The new
premises, approximately 8,500 square feet, more closely fit the
Debtor's space needs and cost much less (approximately $9,000 per
month versus approximately $51,000). Accordingly, in early
November 1997, the Debtor rejected its lease with Lincoln,
vacated that lease's premises and relocated to its new, smaller
Newark premises.
As stated, Lincoln holds more than $300,000 of deposits in
order to offset any damages arising from the Debtor's rejection
of its lease. However, the Debtor believes that the lease's
contractual rental rate is significantly below current market
rates and that Lincoln will in fact suffer no such damages in any
event (and may in fact be benefitted by the Debtor's rejection).
Therefore, the outcome of the deposits held by Lincoln, and any
claims for damages which it may assert, are undetermined, and the
Debtor intends to review the matter closely for the estate's
benefit.
H. REMAINING ASSETS
As of early December 1997, following the sales and
dispositions of assets referenced hereinabove, the Debtor owned
the following remaining significant assets (excluding assets of
nonmaterial or highly speculative value): the building and
related real property in Chatsworth, California referred to in
Section III(I) hereinabove; the Hammer product line and related
technology and inventory; cash proceeds of the sale of Raidion
patents, net of Court-approved disbursements for interim
professional fees, in the approximate net amount of $800,000;
cash proceeds from the sale of Raidion inventory and related
assets in the approximate amount of $135,000, subject to disputed
lien claims of JMR and A&S; 128,272 shares of common stock of
Concentric, as described in Section III(J)(1) hereinabove; a
promissory note in the principal amount of $500,000 from Titanium
Memory Systems, as described in Section III(J)(2) hereinabove;
miscellaneous office furnishings and equipment of undetermined
value; possible preference causes of action related to debt
repayments prior to the commencement of the Chapter 11 Case, as
described in Section III(N) hereinabove; a certificate of deposit
maintained with Wells Fargo Bank in the approximate principal
amount of $252,000, subject to the bank's lien thereagainst in
conjunction with the letter of credit issued to the Debtor's
former Newark landlord; restricted funds against which former
officers and directors assert interests; a directors' and
officers' liability policy; and possible causes of action against
third parties with respect to prepetition events and
transactions.
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V. THE PLAN OF REORGANIZATION
The following is a limited summary of the terms of the Plan,
served concurrently with this Disclosure Statement and the
Ballot. The summary is qualified in its entirety, however, by
reference to the more detailed provisions set forth in the Plan
itself, which control for all purposes.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
1. NONCLASSIFIED CLAIMS. Applicable provisions of the
Bankruptcy Code provide that certain claims, namely,
administrative expenses incurred during the Chapter 11 Case and
priority tax claims incurred before the commencement of the
Chapter 11 Case, are not to be classified in a plan, but instead
treated in the manner required by the Bankruptcy Code. In
particular, all administrative expenses must be paid upon the
Plan's effectiveness, and priority tax claims can be paid over a
defined period of time.
Under the Plan, all such nonclassified claims will be paid
in full on the latest of the following dates: (a) on, or as soon
as practicable after, the Administrative Bar Date (which is
thirty days following the Effective Date), or such later date as
to which the claimant may consent; (b) on the date when the claim
becomes due, according to applicable contractual, statutory or
other terms; or (c) once an order of the Bankruptcy Court
allowing the claim becomes final, if the claim is disputed or
requires Bankruptcy Court approval (such as is the case with
Professional Fees).
Proofs of claim for nonclassified expenses which consist of
priority tax claims must be filed by the deadline already
established by the Bankruptcy Court for governmental claims
generally, to wit, December 23, 1997. With respect to
nonclassified expenses which consist of administrative expenses
(that is, claims incurred by the Debtor after the Petition Date
and before the Effective Date), other than certain Ordinary
Course Expenses (see the definition of "Ordinary Course Expenses"
below), PROOFS OF SUCH CLAIMS, OR REQUESTS FOR PAYMENT, MUST BE
FILED WITH THE BANKRUPTCY COURT AND SERVED UPON THE DISTRIBUTION
AGENT, THE REORGANIZED DEBTOR AND THE UNITED STATES TRUSTEE BY
THE THIRTIETH DAY (THE "ADMINISTRATIVE BAR DATE") FOLLOWING THE
EFFECTIVE DATE, ABSENT WHICH SUCH CLAIMS WILL NOT BE ALLOWED AND
NO DISTRIBUTION OR PAYMENT WILL BY MADE ON SUCH CLAIMS.
As defined and used in the Plan, the term "Ordinary Course
Expenses" means liabilities incurred by the Debtor on or after
the commencement of the Chapter 11 Case in the ordinary course of
its business, specifically excluding income tax liabilities, tort
liabilities, environmental cleanup or indemnity claims,
liabilities arising under the Employee Retirement Income Security
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Act of 1974 (as amended), and any other items not customarily
incurred by the Debtor in the ordinary operation of its business.
The reorganized Debtor will be responsible for paying all
allowed Ordinary Course Expenses other than Professional Fees,
certain lease obligations and warranty, return, product refund or
defect claims relating to products other than Hammer products.
The Distribution Agent will be responsible for payment of all
other allowed nonclassified claims.
The Debtor estimates that Ordinary Course Expenses for which
the reorganized Debtor will be responsible will be approximately
$270,000, representing approximately one month's general and
administrative expenses, plus a variable amount representing
costs of goods.
Professional Fees, that is, compensation and expense
reimbursements earned by attorneys, advisors, accountants and
other professionals retained in the Chapter 11 Case by the Debtor
or the Committee, are estimated as follows:
For services rendered through September 30, 1997, the
following fees and expenses have been approved by the Bankruptcy
Court, and paid by the Debtor or credited against retainer
balances, on an interim basis:
PROFESSIONAL: INTERIM AMOUNT:
Goldberg, Stinnett, Meyers &
Davis $190,254.99
Murray & Murray 47,514.13
Manatt, Phelps & Phillips3 32,978.47
Oppenheimer, Smith, Poms, Lande
& Rose 8,871.14
Price Waterhouse LLP 13,872.00
TOTAL: $293,490.73
For services rendered after September 30, 1997 and until the
Effective Date, and for remaining unpaid amounts for services
rendered up to September 30, 1997, the Debtor estimates that the
estate will incur additional fees and expenses (with the caution
that it is an estimate only, and subsequent events may cause the
estimated amounts to increase or decrease significantly) in the
- --------
3Fees and expenses awarded to the Manatt firm are for services
rendered through October 24, 1997.
25
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approximate amount of $350,000.
In addition to the foregoing, the Debtor estimates that as
of the Effective Date, there may be owed approximately $4,000 in
unpaid quarterly fees owing, but not yet due, to the United
States Trustee, and that there may be owed an undetermined amount
in reimbursements of expenses to members of the Committee. Also,
Section 503(b) of the Bankruptcy Code provides for payment of
compensation to creditors, indenture trustees and other persons
making a "substantial contribution" to a reorganization case, and
to attorneys for, and other professional advisors to, such
persons. Also, certain of the professionals retained by the
Debtor or the Committee may request approval and payment of
additional bonus or success compensation. The amounts, if any,
which may be sought by entities for such compensation are not
known by the Debtor at this time. Requests for compensation must
be approved by the Bankruptcy Court after a hearing on notice at
which the Debtor and other parties in interest may participate
and, if appropriate, object to the allowance of any compensation
and reimbursement of expenses.
Priority tax claims are those claims for taxes entitled to
priority in payment under Section 507(a)(8) of the Bankruptcy
Code. The aggregate amount of priority tax claims as reflected
in proofs of claim filed by taxing authorities, or, in the event
that no proof of claim was filed, in the Debtor's Schedules, is
approximately $470,000 (excluding duplications). The Debtor
estimates that of that amount, approximately $100,000 or less
will be allowed, based upon its preliminary analysis of the
claims.
The difference between the aggregate amount of asserted tax
claims and the Debtor's estimate of those claims that will
eventually be allowed arises largely from disputes regarding
claims filed by the Comptroller for the State of Texas in the
amount of $344,848.45 and by the Internal Revenue Service in the
amount of $64,800.08. The Debtor believes that both claims
should be disallowed or reduced substantially, resulting in the
estimated amount of allowable tax claims mentioned above.
2. CLASS A -- OTHER PRIORITY CLAIMS. Priority claims
within Class A are certain non-tax claims incurred by the Debtor
prior to the commencement of the Chapter 11 Case which are
entitled to priority in accordance with Sections 507(a)(2), (3),
(4), (5), (6) or (7) of the Bankruptcy Code. Such claims include
(i) unsecured claims for accrued employee compensation earned
within ninety days prior to commencement of the Chapter 11 Case
to the extent of $4,000.00 per employee and (ii) contributions to
employee benefit plans arising from services rendered within 180
days prior to the commencement of the Chapter 11 Case, but only
for each such plan to the extent of (x) the number of employees
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covered by such plan multiplied by $4,000.00, less (y) the
aggregate amount paid to such employees from the estates for
priority wages, salaries and commissions.
The Debtor estimates that the allowed amount of Class A
priority claims will be approximately $35,000, all arising from
employee wage and benefit obligations incurred by the Debtor
shortly before the Petition Date. Actual claims filed by
creditors asserting priority status are in an aggregate,
approximate amount of $150,000, but of that amount, the Debtor
believes that at least $100,000 is either overstated or not
entitled to priority treatment, resulting in the lesser estimated
amount mentioned above.
Pursuant to the Plan, allowed Class A priority claims will
be paid in full, and are thus unimpaired. As such, the holders
of Class A claims are conclusively presumed to have accepted the
Plan. Payment of such claims, to the extent allowed, will occur
on the latest of the following dates: (a) on, or as soon as
practicable after, the Effective Date, or such later date as to
which the claimant may consent; (b) on the date when the claim
becomes due, according to applicable contractual, statutory or
other terms; or (c) once an order of the Bankruptcy Court
allowing the claim becomes final, if the claim is disputed.
3. CLASS B -- SECURED CLAIMS. Class B consists of all
secured claims, that is, claims secured by valid, perfected and
enforceable liens or security interests encumbering assets of the
Debtor. To the best of the Debtor's knowledge, the only secured
claims, if there are any at all, consist of (a) the claim of
Wells Fargo Bank in the approximate principal amount of $252,000,
secured by the bank's certificate of deposit issued in
conjunction with the Debtor's former Newark real property lease,
described hereinabove; and (b) warehouse, mechanics' or other
possessory liens asserted by certain of the Debtor's suppliers,
vendors or materialmen, including the disputed liens asserted by
JMR and A&S.
In all, exclusive of claims of equipment lessors, claims
have been filed by creditors asserting security interests in an
aggregate, approximate amount of $670,000. However, secured
creditors are not required to file claims in order to preserve
their lien rights, and in particular, Wells Fargo Bank, holding a
lien against $252,000 of funds of the Debtor, has not filed a
claim. The Debtor estimates that the only secured claims that
will be ultimately allowed are those of Wells Fargo Bank in the
above-stated amount and the lien claims of JMR and A&S, but only
to the extent that those claims survive challenge by the Debtor.
By an order of the Bankruptcy Court issued on November 21,
1997 at the Debtor's request, the disputed lien claims of JMR and
A&S have been limited to sale proceeds in the aggregate,
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approximate amount of $135,000, subject to the Debtor's
challenges; the Debtor believes that the actual amounts of JMR's
and A&S's valid liens may be considerably less, and may in fact
be zero. Nonetheless, as a matter of conservative estimation for
purposes of this Disclosure Statement, and without waiving any
rights with respect thereto, the Debtor estimates aggregate
allowed secured claims within Class B to be approximately
$390,000, based upon the foregoing.
All secured claims within Class B, to the extent allowed,
will be unimpaired, in accordance with the provisions of Section
1124 of the Bankruptcy Code, as follows: As to each such claim,
the reorganized Debtor or the Distribution Agent (depending upon
whether the collateral is a Hammer Asset or a Non-Hammer Asset)
will either (a) cure any defaults and reinstate the obligations,
going forward on normal contractual terms; (b) pay the claim in
full in exchange for a full release of liens; or (c) abandon to
the creditor the collateral securing the claim. The particular
treatment of each such claim will be set forth in Schedules
4.2(A) and 4.2(B) to be filed and served by the Debtor and the
Preletz Group, respectively, at or prior to the commencement of
the Confirmation Hearing.
Any holder of a Secured Claim that is not reinstated may
assert an unsecured deficiency claim, if any, within Class C or D
by filing and serving a claim therefor no later than 30 days
following the Effective Date, subject to any timely objections
that may be asserted by parties in interest.
4. CLASS C -- CONVENIENCE CLAIMS. Class C claims are
impaired by the Plan, and therefore are entitled to vote to
accept or reject the Plan. Class C claims consist of allowed
claims that are equal to, less than, or reduced to, $3,000.00,
which the Plan treats separately for administrative convenience.
Claimants may elect to be within or without Class C by the
following procedure: Claims of $3,000.00 or less will
automatically be classified within Class C unless the holder of
such claim elects in writing to opt out of the class, in which
case such claim will be within Class D; holders of claims greater
than $3,000.00 may elect in writing to reduce their claims to the
amount of $3,000.00 and be treated within Class C, in which event
the claim amount in excess of $3,000.00 will be deemed fully
waived. IN EITHER CASE, WRITTEN ELECTIONS MUST BE MADE BY
COMPLETING THE APPROPRIATE INFORMATION AND BOX WITHIN THE BALLOT
AND RETURNING THE BALLOT IN THE MANNER AND WITHIN THE DEADLINE
STATED THEREON.
Under the terms of the Plan, each holder of an allowed claim
within Class C will receive a payment from the Distribution
Estate in an amount equal to ten percent (10%) of the allowed
amount of the claim. The payment will be made within 60 days
following the Effective Date, or upon final resolution of any
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<PAGE>
disputes as to the claim, whichever is later. The Debtor
anticipates that holders of approximately 340 allowed claims, in
an aggregate amount of approximately $360,000 (before required
reductions), will elect to be within Class C, and that the
distributions thereon will be approximately $34,000. Those
amounts assume that holders of claims of up to $4,000.00 will
elect to reduce their claims to be within Class C.
5. CLASS D -- GENERAL UNSECURED CLAIMS. Class D consists
of all allowed claims that are unsecured and not in any other
designated class. Such claims include claims of the Debtor's
trade vendors and suppliers, claims arising from product
warranties and related obligations of the Debtor with respect to
the purchase and use of Non-Hammer products, claims arising from
the rejection of leases of equipment or other real or personal
property and other executory contracts. Class C claims also
include claims arising under the Debentures and Notes described
above.
The Debtor estimates that the aggregate amount of all
allowed claims within Class D, including the aforementioned
Debentures and Notes, will be approximately $30,000,000 (after
elimination of Class C claims), although the amount may be higher
or lower once all proofs of claim are filed, reviewed and
resolved. The aggregate amount of all claims asserted in Class
D, as reflected in proofs of claim filed by creditors, or, in the
event no proof of claim was filed, in the Debtor's Schedules, is
approximately $40,000,000, excluding claims for which no amounts
were specified and otherwise unliquidated claims. The Debtor's
estimates of allowed claims is based only upon its preliminary
analysis of the claims, and may change as further analysis is
made.
Claims within Class D will be impaired by the Plan, and thus
Class D claimants are entitled to vote to accept or reject the
Plan, based upon the following treatment:
Holders of Allowed Claims within Class D will receive pro-
rata distributions of funds from the Distribution Estate on a
periodic basis, as funds become available for such distributions,
beginning no later than June 30, 1998. Each distribution will be
made from available funds after accounting for reserves for
disputed claims, anticipated administrative costs and any other
payments not yet made but required by the terms of the Plan.
Some of the particular provisions of the Plan affecting those
distributions are as follows:
-- Notwithstanding certain subordination terms set forth
in the Debentures (which the Debtor believes are
inoperative), there will be no subordination between
claims arising from Notes and claims arising from
Debentures, all of which claims will be treated as
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<PAGE>
Class D claims, to the extent allowed, on a pari passu
basis.
-- A portion of the stock of the reorganized Debtor, the
Reorganized Shares as described in Section V(B)(2)
hereinbelow, will be distributed among holders of
allowed claims within Class D on a pro-rata basis, with
each share deemed to have a value of $0.325 for
purposes of calculating distributions. No fractional
shares will be issued, and the Plan provides for
rounding to whole numbers and disposition of any
remainder shares held by the Distribution Estate after
stock distributions have been completed.
-- Some claims within Class D may be subject to
subordination to other claims within Class D, either in
part or in whole, by order of the Bankruptcy Court.
All parties will be deemed to have preserved their
right to assert rights to such subordination within
Class D, other than subordination between claims under
Debentures and Notes as described above.
-- Certain specific provisions, set forth in Section 5.2.6
of the Plan, pertain specifically to claims arising
from Debentures or Notes, which provisions provide for
the cancellation of such securities in exchange for
distribution rights under the Plan, a record date for
purposes of voting and distributions, and procedures
for claims that may be asserted by indenture trustees
for compensation, indemnification and reimbursement.
The Debtor estimates that distributions upon allowed claims
within Class D will be in an aggregate amount that is
approximately 17.76 percent of the total amount of such allowed
claims, based upon the analysis set forth in EXHIBIT "F" attached
hereto. That estimate is of course subject to change based upon
events and claims resolutions that cannot be accurately predicted
at this time, including the outcome of causes of action against
third parties on behalf of the Distribution Estate, resolution of
disputes regarding claims asserted against the Distribution
Estate, the effect of assumptions or rejections of executory
contracts for which claims have not yet been asserted and the
like. Also, the Debtor believes that distributions upon such
allowed claims will occur over a period of time, spanning at
least one to two years, and no attempt has been made to determine
the present value of such distributions.
6. CLASS E -- STOCK INTERESTS. Class E consists of all
Interests in the Debtor, meaning all shares of the Debtor's
common stock and all options, warrants and other rights affecting
the Debtor's stock or equity interests.
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On the Effective Date, all existing shares of the Debtor
will be cancelled and all options, warrants and other rights
affecting such stock will be terminated. All Interests
(including Rescission Claims, which are primarily claims arising
from the rescission or breach of contracts for purchase or sale
of stock, together with related claims) shall be deemed fully and
finally released and discharged entirely. No distributions will
be made upon any Interests, either by the Distribution Estate or
by the reorganized Debtor. Thus, holders of Interests within
Class E are deemed to have rejected the Plan, because they will
receive and retain nothing under the Plan's terms.
The Plan provides for no distribution to holders of
Interests because the Debtor has determined, through review of
its assets and liabilities and in consultation with its advisors,
that the aggregate value of the Debtor's assets is exceeded, by a
large amount, by the sum of allowable claims against the Debtor.
As a result, there is no present equity in the Debtor and, in the
Debtor's view, all present shares of stock of the Debtor are
worthless.
B. RECAPITALIZATION OF THE DEBTOR
On the effective date of the Plan (which will occur within
30 days following the Plan's confirmation), the Debtor will be
reorganized and will emerge from bankruptcy with a new capital
structure and working capital which its management believes is
sufficient to return the company to profitability, through
support of its Hammer product line and related operations. The
recapitalization necessary for that reorganization will occur as
follows:
1. REVESTING OF ASSETS. On the Plan's effective date, all
assets related to the Hammer product line, as defined in detail
in Section 7.3.1 of the Plan and known as the "Hammer Assets,"
will be revested in the reorganized Debtor as the core of its
ongoing business. All other assets of the Debtor will vest in
the Distribution Estate, as described below. In exchange for the
Hammer Assets, the reorganized Debtor will issue a portion of its
stock to the Distribution Estate, for distribution to creditors,
as described below.
As defined within the Plan, "Hammer Assets" include
essentially all of the Debtor's intellectual property rights
remaining after disposing of the Raidion product line, all
inventory and equipment used in the Hammer product line, all cash
(other than restricted funds) as of the Plan's effective date,
certain executory contracts and secured assets which the
reorganized Debtor elects to assume and cure, any and all causes
of action necessary to preserve the benefit and protection of
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other Hammer Assets,4 and other related assets. As used in the
Plan, the term "Non-Hammer Assets" refers to all assets of the
Debtor immediately preceding the Plan's effective date other than
Hammer Assets.
2. REORGANIZED SHARES. On the Plan's effective date, the
reorganized Debtor will issue the following new shares of common
stock, or "Reorganized Shares": 3,500,000 Reorganized Shares to
the Distribution Estate for distribution to creditors; 2,000,000
Reorganized Shares to participating creditors in the Creditors'
Rights Offering described below, in exchange for cash
contributions of $650,000; and 2,000,000 Reorganized Shares to
the Preletz Group in exchange for a cash contribution of
$650,000. Also, as set forth in detail in the Plan, the
reorganized Debtor may issue additional Reorganized Shares, up to
a total of 20,000,000 outstanding Reorganized Shares, for new
cash consideration or as employee stock options or incentive
bonuses, all within the limitations and restrictions set forth in
the Plan. In this manner, existing creditors of the Debtor will
collectively own a substantial portion of the equity of the
reorganized Debtor, and will have an opportunity to benefit from
any appreciation in value of the reorganized Debtor, if it
occurs, while the Debtor, as reorganized, will be newly
capitalized, with working capital which the Debtor believes will
be sufficient to return its operations to profitability.
3. CREDITORS' RIGHTS OFFERING. As set forth in Section
8.2 of the Plan, a portion of the Reorganized Shares will be
issued in conjunction with a Creditors' Rights Offering available
to all existing creditors of the Debtor. Through the procedures
set forth in said Section 8.2, existing creditors will have an
opportunity to acquire Reorganized Shares for NEW CASH
CONTRIBUTIONS at the same per-share price as the Preletz Group,
and on a pro-rata basis among them. United Equities, holding
claims of approximately $2.5 million arising from Debentures, has
agreed to participate in the offering, by committing to purchase
whatever Offering shares are not purchased by other existing
creditors.
In order to participate in the Creditors' Rights Offering,
each creditor must elect to do so in the space provided therefor
in the Ballot which accompanies this Disclosure Statement and the
Plan and returning the Ballot within the time frame, and in the
manner, stated on the face of the Ballot. Each eligible claimant
will be entitled to subscribe for an aliquot share of 2,000,000
Reorganized Shares based upon such claimant's entire claim, all
as set forth more fully in Section 8.2 of the Plan. All
- --------
4 As of the date of this Disclosure Statement, the Debtor is
unaware of any events or actions that would give rise to any such
causes of action.
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determinations of eligibility, aliquot share, timeliness of
election and share calculations will be made by the Committee and
shall not be subject to challenge.
As stated, in order to participate in the offering, eligible
creditors must timely elect to do so by completing the
appropriate space on the Ballot and returning the Ballot in a
timely manner. Thereafter, THOSE PARTICIPATING CLAIMANTS WILL BE
REQUIRED TO DEPOSIT THEIR SUBSCRIPTION PAYMENTS IN CASH WITH THE
COMMITTEE'S COUNSEL, upon notification of the timing and amount
thereof, and such counsel will hold all such deposits in trust in
a segregated account pending the effectiveness of the Plan. All
creditors who are interested in so subscribing should read the
details of Section 8.2 carefully in all respects.
4. CORPORATE GOVERNANCE. Following the Plan's effective
date, the reorganized Debtor will be free of the constraints of
the chapter 11 process, but will be subject to certain rules of
corporate governance set forth in Section 8.3 of the Plan. In
particular, the Preletz Group will be allowed to maintain full
operational control over the reorganized Debtor for at least
three years following the Plan's effective date, and will have
full control over the appointment, compensation, employment and
retention of the reorganized Debtor's senior management. In
addition, the Preletz Group will be entitled to select, remove
and replace three of the reorganized Debtor's five directors for
the first three years following the Plan's effective date, but no
extraordinary nonoperational actions, such as mergers or
consolidations, sale of substantial portions of assets or
commencement of a succeeding bankruptcy case, will be permitted
without the consent of the holders of a majority of issued and
vested Reorganized Shares.
Among other details of corporate governance, the reorganized
Debtor will provide rent-free space for storage of assets, books
and records of the Distribution Estate at least until October 1,
1998; certain officers of the reorganized Debtor will provide
services to the Distribution Estate free of charge in order to
assist in the disposition of remaining assets within such estate,
at the discretion of the Distribution Agent; and the reorganized
Debtor will use its best reasonable efforts to maintain
registration and public listing of its shares, within certain
constraints set forth in the Plan.
C. DISTRIBUTION ESTATE
As of the Plan's effective date, all assets that will not be
revested in the reorganized Debtor, that is the "Non-Hammer
Assets," will be retained and vested in a Distribution Estate
created for the benefit of creditors. The Distribution Estate
will be maintained and administered by a Distribution Agent,
under the monitoring and governance of the Committee, which will
33
<PAGE>
continue to operate after such effective date. The Distribution
Agent will be selected by the Committee, and shall manage the
Distribution Estate subject to the following provisions of the
Plan, among others:
-- The Distribution Agent will serve at the pleasure and
direction of the Committee, which will be entitled to
terminate and replace the Distribution Agent at any
time.
-- It shall be the Distribution Agent's duty to dispose of
all assets of the Distribution Estate and to resolve
all claims against that estate, at the instruction of
the Committee and in a manner reasonably intended and
designed to maximize recoveries by creditors, and the
Distribution Agent shall report regularly and in detail
to the Committee with regard to the status of the
administration of such estate.
-- The Distribution Agent will be authorized to sell
assets with the Committee's approval but without other
notice, provided that the gross purchase price of each
such sale does not exceed the sum of $50,000. For
other dispositions, including larger sales and any
compromises of disputes, the Distribution Agent will be
authorized to implement such dispositions only with the
approval of the Committee and either (a) in the absence
of a timely written objection received within five
Business Days following written notice to certain
parties within a "Postconfirmation List,"5 or (b) in
the event of such timely written notice, upon approval
by the Bankruptcy Court on no less than five Business
Days' notice of a hearing thereon.
-- Disbursements will be made to creditors by the
Distribution Agent from time to time as directed by the
Committee, with appropriate reserves for existing and
anticipated administrative expenses as well as reserves
for disputed claims.
- --------
5 For these purposes and for all other purposes under the Plan,
the term "Postconfirmation List" refers to the United States
Trustee, the Reorganized Debtor and its counsel, the Distribution
Agent and his or her counsel, the Committee and its members and
counsel, and those parties who, subsequent to the Plan's
confirmation, file with the Bankruptcy Court and serve upon the
aforementioned parties and counsel requests for special notice;
provided that some parties may be removed from the list from time
to time either by consent or by order of the Bankruptcy Court on
notice, based upon a showing that such parties no longer hold
material interests or claims in the Chapter 11 Case.
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-- Both the Distribution Agent and the Committee will be
authorized to retain professionals in order to assist
in their respective obligations and rights under the
terms of the Plan, with the Committee's approval, and
in particular, the Distribution Agent will be entitled
to retain the Debtor's present bankruptcy counsel and
the Committee's present counsel without further order
of the Bankruptcy Court, and the Committee will be
authorized to continue to retain its counsel without
further order of the Bankruptcy Court. Fees and
expenses of the Distribution Agent, the Committee and
their respective professionals earned or accrued on or
after the Plan's effective date, together with
quarterly fees owing to the United States Trustee, will
be paid periodically from the Distribution Estate.
-- Fees and expenses other than those owing to the United
States Trustee will be paid only upon ten Business
Days' notice to parties within the Postconfirmation
List, either absent written objections or upon approval
by the Bankruptcy Court in the event of timely
objections.
D. DISCHARGE AND EXCULPATION
Under the terms of the Plan, the reorganized Debtor will be
fully discharged of all debts accruing prior to the Plan's
effective date, and the effectiveness of the Plan shall operate
as a permanent injunction against asserting such obligations
against the reorganized Debtor, except for those obligations
which the reorganized Debtor expressly assumes under the terms of
the Plan. Such assumed obligations will include the following:
(a) certain Ordinary Course Expenses, as described hereinabove;
(b) all claims for warranty, return, refund, product defect and
the like, to the extent arising from the purchase of Hammer
products; (c) rent obligations with respect to the Debtor's new
Newark office lease, to the extent set forth in the Plan; (d) any
obligations which the Preletz Group elects to assume with respect
to the cure and reinstatement or satisfaction of secured claims;
and (e) any cure payments and ongoing obligations which the
reorganized Debtor elects to assume with respect to executory
contracts affecting Hammer Assets. In all other respects, the
effectiveness of the Plan shall operate as a complete and final
discharge, release and satisfaction of all claims that might be
asserted against the Debtor at any time prior to the Plan's
effective date, whether those claims are known or unknown,
matured or contingent, liquidated or unliquidated.
In addition, the Plan's effectiveness will operate to
release any claims which the Debtor may have against the Debtor,
the Preletz Group, the Committee, members of the Committee and
each of their present officers, directors, agents, advisors,
35
<PAGE>
attorneys or accountants or any claim arising out of or in
connection with an act or failure to act in connection with
rights and duties related to the Chapter 11 Case, except any
claims expressly created or preserved under the terms of the Plan
or related documents. The Debtor knows of no claims against such
parties at the present time.
Also, the Plan provides that actions taken by the Committee
or by the Distribution Agent, or their respective
representatives, agents and counsel, in implementing the terms of
the Plan following the Plan's effective date will be deemed to be
within the scope of duties and functions set forth in Sections
1103 and 1107 of the Bankruptcy Code. As such, and absent
willful misconduct, each of such parties will be immune from
challenge or liability for actions taken or not taken during the
course of such Plan implementation.
E. EXECUTORY CONTRACTS
Article VI of the Plan provides for treatment of executory
contracts, including unexpired leases, to which the Debtor is a
party as of the Plan's effective date and which were entered into
by the Debtor prior to the commencement of the Chapter 11 Case.
In summary form, all such executory contracts will be deemed
rejected unless they are assumed by specific provision of the
Plan, by a separate order of the Bankruptcy Court or by a
schedule of assumed contracts (the "Schedule 6.2.1") to be filed
by the Debtor no later than ten days prior to the commencement of
the Confirmation Hearing. To the extent that executory contracts
are rejected, claims arising from such rejection must be filed no
later than 30 days following the Plan's effective date (or
earlier if the Bankruptcy Court or Bankruptcy Code establishes an
earlier deadline), and all such rejection claims will be
classified and treated within Classes C or D, to the extent
allowed.
To the extent that Schedule 6.2.1 identifies a contract to
be assumed, such schedule will indicate whether the contract is
to be assumed by the reorganized Debtor (with respect to Hammer
Assets) or by the Distribution Estate (with respect to Non-Hammer
Assets), and will identify the amount of any monetary default
that must be cured in order to effectuate such assumption. Any
party to a contract identified in such schedule who disputes the
cure amount set forth therein will be required to file and serve
an objection thereto within five Business Days following the
Plan's confirmation, absent which any amount of cure in excess of
the amount set forth in said Schedule 6.2.1 will be deemed
discharged and barred. Payment of all allowed cure amounts will
be made by the assuming party (the reorganized Debtor or the
Distribution Agent) on the Plan's effective date, on such later
date as such cure becomes due under applicable terms, or when a
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final order determining the cure amount is entered, as to any
disputed portions of such cure amounts.
F. OTHER PROVISIONS
Parties in interest are urged to review the entire Plan
fully and carefully, particularly with respect to many details
not fully addressed herein. The following is a summary, but not
a comprehensive listing, of some of the remaining details of the
Plan not described hereinabove:
-- All causes of action owned by the Debtor prior to the
Plan's effective date shall be deemed fully preserved,
and except as to those causes of action relating to the
benefit or protection of Hammer Assets, all such causes
of action shall vest in the Distribution Agent as of
the Plan's effective date. It will be the Liquidation
Agent's responsibility, in consultation with the
Committee, to prosecute all such causes of action to
the extent beneficial to the Distribution Estate.
-- The Preletz Group has agreed to invest in the
reorganized Debtor as described elsewhere herein with
the proviso that it may withdraw from that commitment,
upon ten days' notice, in the event of a material
adverse change in the operations or business of the
Debtor's Hammer product line prior to the Plan's
effective date. The Plan provides, in Section 7.2.3
and elsewhere, that in the event of such withdrawal,
the Plan will nonetheless become effective and all
assets of the estate, including those that would
otherwise have constituted Hammer Assets, will vest in
the Distribution Estate and will be liquidated for the
benefit of creditors.
-- Section 11.5 of the Plan provides for noticing of
certain parties, including the Debtor, the Preletz
Group, the Committee and the Distribution Agent, and
any notices required by other provisions of the Plan
will not be considered complete unless the notice
procedures of such Section 11.5 have been satisfied.
-- Exhibit "A" attached to the Plan sets forth the meaning
of a number of defined terms of the Plan, and it is
important to review such definitions in order to fully
understand the ramifications of terms and conditions
set forth in the Plan.
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VI. CONFIRMATION PROCEDURE
A. SOLICITATION OF VOTES
In accordance with Section 1124 of the Bankruptcy Code, the
Claims and Interests in Classes C, D and E of the Plan are
impaired. The holders of Claims in Classes C and D are entitled
to vote to accept or reject the Plan, and the holders of
Interests are deemed to have voted to reject the Plan. The
holders of Allowed Claims in Classes A and B are unimpaired, and
are deemed to have accepted the Plan.
As to classes of claims entitled to vote on a plan, the
Bankruptcy Code defines acceptance of a plan by a class of
creditors as acceptance by holders of at least two-thirds in
dollar amount and more than one-half in number of the claims of
that class that have timely voted to accept or reject a plan. A
vote may be disregarded if the Bankruptcy Court determines, after
notice and a hearing, that such acceptance or rejection was not
solicited or procured in good faith or in accordance with the
provisions of the Bankruptcy Code.
Any creditor within Classes C or D (i) whose claim has been
listed by the Debtor in the Schedules filed with the Bankruptcy
Court (provided that such claim has not been scheduled as
disputed, contingent or unliquidated), or (ii) who filed a proof
of claim within any other applicable period of limitations, or
with leave of the Bankruptcy Court, which claim or vote is not
the subject of an objection, is entitled to vote.
B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a confirmation hearing. The Confirmation Hearing
in respect of the Plan has been scheduled before the Honorable
Dennis Montali, United States Bankruptcy Judge at the United
States Bankruptcy Court, 235 Pine Street, Courtroom 22, San
Francisco, California, at a date and time identified in a notice
accompanying this Disclosure Statement. The Confirmation Hearing
may be adjourned from time to time by the Bankruptcy Court
without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing. Any objection
to confirmation must be made in writing and specify in detail the
name and address of the objector, all grounds for the objection
and the amount of the Claim or number of shares of stock of the
Debtor held by the objector. Any such objection must be filed
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and served in the manner and timing set forth in a notice
accompanying this Disclosure Statement.
C. CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will
confirm the Plan only if all of the requirements of Section 1129
of the Bankruptcy Code are met. Among the requirements for
confirmation of a plan are that the plan is (i) accepted by all
impaired classes of claims and equity interests or, if rejected
by an impaired class, that the plan "does not discriminate
unfairly" and is "fair and equitable" as to such class, (ii)
feasible, and (iii) in the "best interests" of creditors and
stockholders which are impaired under the plan.
1. ACCEPTANCE. Classes C and D of the Plan are impaired
under the Plan and are entitled to vote to accept or reject the
Plan. The Debtor reserves the right to seek nonconsensual
confirmation of the Plan under Section 1129(b) of the Bankruptcy
Code with respect to either such Class if it rejects the Plan.
In addition, as stated, Class E is deemed to have voted to reject
the Plan, and the Debtor will seek nonconsensual confirmation of
the Plan under Section 1129(b) of the Bankruptcy Code with
respect to that Class.
2. NONCONSENSUAL CONFIRMATION. In order to obtain
nonconsensual confirmation of the Plan, the Debtor must
demonstrate to the Bankruptcy Court that the Plan "does not
discriminate unfairly" and is "fair and equitable" with respect
to each impaired, nonaccepting Class. The Bankruptcy Code
provides nonexclusive definitions of the term "fair and
equitable," including the following:
a. UNSECURED CREDITORS. For a class of unsecured
claims, either (i) each impaired unsecured creditor within
the dissenting class receives or retains under the plan
property of a value equal to the amount of its allowed
claim, or (ii) the holders of claims and interests that are
junior to the claims of the dissenting class will not
receive or retain any property under the plan.
b. EQUITY INTERESTS. For classes of equity
interests, either (i) each holder of an equity interest will
receive or retain under the Plan the value or fixed
preference or redemption price, whichever is higher, or (ii)
no classes of claims or interests junior to such equity
interests receive or retain any property under the plan.
The Debtor believes that the Plan and the treatment of all
Classes of Claims and Interests under the Plan satisfy the
foregoing requirements for nonconsensual confirmation of the
Plan.
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3. FEASIBILITY. The Bankruptcy Code also requires that,
as a prerequisite to confirmation of a plan, the plan proponent
demonstrate that confirmation is not likely to be followed by a
liquidation or the need for further financial reorganization,
unless such liquidation or reorganization is contemplated by the
plan. As set forth in Section X(A) hereinbelow, the Debtor
believes that no liquidation or further reorganization, other
than that which is expressly contemplated by the Plan, will be
required, and that the Plan therefore satisfies the feasibility
requirements of the Bankruptcy Code.
4. BEST INTERESTS TEST. The Bankruptcy Code also
requires, as a prerequisite to confirmation of a plan, that with
respect to each impaired class of claims or interests, each
holder of a claim or interest either (i) accepts the plan or (ii)
receives or retains under the plan property of a value, as of the
effective date, that is not less than the amount that such holder
would receive or retain if the Debtor were liquidated under
chapter 7 of the Bankruptcy Code.
With respect to the Plan, Classes C, D and E are impaired,
and the Debtor believes that the Plan satisfies the foregoing
"best interests" test as to each such class. As set forth in
Section X(B) hereinbelow, the Debtor believes that in a chapter 7
liquidation of the Debtor's estate, there would be no recovery at
all for holders of equity interests (shareholders), and that the
net distribution to unsecured creditors would be less than is
contemplated under the terms of the Plan. Therefore, the Debtor
believes that holders of Allowed Claims within Classes C and D
will likely receive greater distributions under the Plan than
they would in a chapter 7 liquidation, and that shareholders
within Class E will do no worse under the Plan than they would in
a chapter 7 liquidation, because they would receive no
distribution in either event.
D. CONSUMMATION
Under the terms of the Plan, its provisions will become
binding and effective as of an Effective Date, as defined within
Exhibit "A" attached to the Plan. Pursuant to that definition,
the Plan's effective date will occur within 30 days following the
Plan's confirmation (or later in the event of a Court-imposed
stay of implementation), on a date jointly selected by the
Debtor, the Committee and the Preletz Group.
VII. MANAGEMENT OF THE REORGANIZED DEBTOR
As of the Plan's effective date, the management, control and
operation of the reorganized Debtor will become the general
responsibility of its Board of Directors, subject to the
governance provisions summarized in Section X(B)(4) hereinabove.
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Senior management of the reorganized Debtor will be subject to
the following:
A. COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the reorganized Debtor will
consist of five directors, including Michael O. Preletz (the
Chief Executive Officer of the Debtor), Chapman A. Stranahan (the
Debtor's Assistant C.E.O.) and other individuals to be selected.
As stated, the Preletz Group will be entitled to select, remove
and replace three of those five directors at all times during the
first three years following the Plan's effective date.
B. IDENTITY OF OFFICERS
It is currently anticipated that the present officers of the
Debtor will continue in their current positions as the officers
of the reorganized Debtor, at least initially. Set forth below
is the name and position with the Debtor of each current officer,
together with a brief description of each officer's employment
history:
It is currently anticipated that the officers of the Debtor
immediately prior to the Effective Date will continue in their
current positions as the officers of the Reorganized Debtor, at
their current compensation levels. Set forth below is the name
and position with the Debtor of each current officer, together
with a description of each officer's prior business experience:
MICHAEL O. PRELETZ, CHIEF EXECUTIVE OFFICER. Mr. Preletz
joined the Debtor as a director and chief executive officer on
March 24, 1997, following the resignation of J. Larry Smart. Mr.
Preletz has over 35 years of experience as a successful
turnaround expert for companies in the high technology industry.
He has held senior management positions with a number of
companies and has overseen the restructuring of Redcor (which
later became Silicon General), Magnuson Computer (which was later
acquired by Storage Technologies), Zymed Medical, Rexon
Corporation, ADAC Laboratories, Visual Technology and Read-Rite
Corporation.
CHAPMAN A. STRANAHAN, PRESIDENT AND CHIEF OPERATING OFFICER.
Mr. Stranahan joined the Debtor in August 1997 as part of the
restructuring team. Mr. Stranahan has over 20 years' experience
in helping small and mid-sized high technology companies grow and
expand. He has held management positions in the areas of sales
and marketing, operations and quality control. Prior to joining
the Debtor, Mr. Stranahan held various positions with TRW
Semiconductors, Silicon General, Wangtek, Read-Rite Corporation,
and most recently with Technistar.
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MARK R. KOZIOL, EXECUTIVE VICE PRESIDENT. Mr. Koziol joined
the Debtor in June 1997 as part of the turnaround team. Mr.
Koziol currently is responsible for sales and marketing, service
and engineering. Mr. Koziol has nearly 20 years' experience in
the storage subsystem market. He has held management positions
in sales, marketing and engineering. Prior to joining the
Debtor, Mr. Koziol held various senior management positions with
Unisys, Memorex Telex, Storage Dimensions, and most recently with
Sandisk Corporation.
GEORGE D. OLIVA, VICE PRESIDENT OF FINANCE AND
ADMINISTRATION. Mr. Oliva joined the Debtor in August 1997 as
part of the turnaround team. Mr. Oliva has over 10 years of
experience in high growth, high technology public companies. He
has held a variety of senior financial positions, several of
which were within the disk drive or data storage industry. Prior
to joining the Debtor, Mr. Oliva held positions with Conner
Peripherals, Read-Rite Corporation, KLA Instruments, DSC
Communications and Arthur Andersen & Company.
C. COMPENSATION OF EXECUTIVE OFFICERS
Whereas no final determination has yet been made, it is
presently contemplated by the Debtor that the reorganized
Debtor's executive officers will receive the following annual
salaries, exclusive of incentive bonuses and stock option plans
that may be implemented in accordance with the terms of Sections
8.1.4 and 8.1.5 of the Plan:
Michael O. Preletz $300,000
Chapman A. Stranahan $120,000
Mark R. Koziol $185,000
George D. Oliva $120,000
B. COMPENSATION OF DIRECTORS
Whereas no final determination has yet been made, it is
presently contemplated by the Debtor that the reorganized
Debtor's outside directors (i.e., those directors who are not
also officers or employees of the Debtor), will receive
compensation equal to $1,500 for each meeting of the Board of
Directors which they attend, plus compensation at the rate of
$100 per hour for other services rendered, and that inside
directors will receive no compensation therefor other than the
compensation agreed upon by the Debtor with respect to their
roles as officers or employees.
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VIII. APPLICABILITY OF CERTAIN FEDERAL
AND OTHER SECURITIES LAWS TO THE
REORGANIZED SHARES DISTRIBUTED UNDER
THE PLAN
A. GENERALLY
As stated elsewhere hereinabove, the Plan provides for the
issuance of the Reorganized Shares on and after the Plan's
effective date. The Reorganized Shares will be issued without
registration under the Securities Act of 1933, as amended, or
under any state or local law, at least initially, in reliance
upon the exemptions set forth in Section 1145 of the Bankruptcy
Code and Section 11.2 of the Plan.
Under the provisions of Section 1145 of the Bankruptcy Code,
securities issued under a plan are exempt from registration if,
among other things, they are offered or sold by the Debtor, an
affiliate or successor in exchange for claims against the Debtor,
or principally in such exchange and partly for cash or property.
Under the Plan, the Reorganized Shares will be issued and
distributed principally in exchange for the discharge of, and in
exchange for, claims against the Debtor and partly for cash (such
as shares issued pursuant to the Creditors' Rights Offering or to
the Preletz Group), and therefore, in the Debtor's view, the
exemption provisions of Section 1145 of the Bankruptcy Code
pertain. In particular, the provisions of Section 11.2 of the
Plan establish that all such Reorganized Shares shall be deemed
exempt pursuant to the provisions of Section 1145.
B. RESALE CONSIDERATIONS
The Debtor believes that the resale or disposition by the
recipients of the Reorganized Shares will be exempt from
registration under the Securities Act of 1933 if the recipients
are not deemed to be "underwriters" under Section 1145(b) of the
Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines
four types of underwriters: (a) a person who purchases a claim
against, interest in, or claim for administrative expense in the
case concerning, a debtor with a view to distributing any
security received in exchange for that claim or interest; (b) a
person who offers to sell securities offered or sold under a plan
for the holders of those securities; (c) a person who offers to
buy those securities from the holders of those securities, if the
offer is (i) made with a view to distribution of the securities,
and (ii) made under an agreement made in connection with the
plan, its consummation or the offer or sale of securities under
the plan; and (d) a person who is an "issuer" with respect to the
securities as the term "issuer" is defined in Section 2(11) of
the Securities Act of 1933.
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Under Section 2(11) of the Securities Act of 1933 an
"issuer" will include any person directly or indirectly
controlling or controlled by the Debtor, or any person under
direct or indirect common control with reorganized Debtor (an
"Affiliate"). Whether a person is an Affiliate, and therefore an
"underwriter", with respect to the reorganized Debtor for
purposes of Section 1145(b) of the Bankruptcy Code will depend on
a number of factors. These factors include: (a) the person's
equity interest in the reorganized Debtor; (b) the distribution
and concentration of other equity interests in the reorganized
Debtor; (c) whether the person is an officer or director of the
reorganized Debtor; (d) whether the person, either alone or
acting in concert with others, has a contractual or other
relationship giving that person power over management policies
and decisions of the reorganized Debtor; and (e) whether the
person actually has that power notwithstanding the absence of
formal indicia of control. An officer or director of the
reorganized Debtor may be deemed an Affiliate.
To the extent that a person deemed to be an "underwriter"
receives securities, resales by that person would not be exempted
by Section 1145 of the Bankruptcy Code from registration under
the Securities Act of 1933 except in "ordinary trading
transactions" (within the meaning of Section 1145(b)(1) of the
Bankruptcy Code). The Bankruptcy Code does not define the term
"ordinary trading transactions," and the Securities and Exchange
Commission (the "Commission") has not given definitive guidance
with respect to the proper construction of the term. In a no-
action letter the staff of the Commission has, however, concurred
in the view that a transaction will be an "ordinary trading
transaction" if it is carried out on an exchange or in the over-
the-counter market at a time when the issuer of the traded
securities is a reporting company under the Exchange Act and does
NOT involve any of the following factors:
(i) (x) concerted action by two or more recipients of
securities issued under a plan of reorganization in
connection with the sale of those securities, or (y)
concerted action by distributors on behalf of one or more
such recipients in connection with sales;
(ii) the preparation or use of informational documents
concerning the offering of the securities to assist in the
resale of the securities, other than the disclosure
statement approved in connection with the plan (and any
supplement thereto) and documents filed with the Commission
by the debtors or the reorganized company pursuant to the
Exchange Act; or
(iii) special compensation to brokers or dealers in
connection with the sale of the securities designed as a
special incentive to resell the securities, other than
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compensation that would be paid pursuant to arm's-length
negotiations between a seller and a broker or dealer, each
acting unilaterally that is not greater than the
compensation that would be paid for a routine similar-sized
sale of similar securities of a similar issuer.
In addition, a person deemed to be an "underwriter" solely
because he is an Affiliate may be able to sell securities without
registration, in accordance with Rule 144 under the Securities
Act of 1933, which permits public sales of securities received
pursuant to a plan by statutory underwriters subject to volume
limitations and certain other conditions. Based on the views of
the Commission expressed in no-action letters, a person deemed to
be an underwriter solely because he is an Affiliate may be able
to sell securities without registration in accordance with Rule
144, without complying with the holding period requirement of
Rule 144(d).
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION
WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTOR
MAKES NO REPRESENTATIONS CONCERNING THE ABILITY OF ANY PERSON TO
DISPOSE OF THE REORGANIZED SHARES. THE DEBTOR RECOMMENDS THAT
RECIPIENTS OF SECURITIES UNDER THE PLAN CONSULT WITH THEIR OWN
COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY TO DISPOSE OF
THOSE SECURITIES.
C. HART-SCOTT-RODINO ACT REQUIREMENTS
Those that are to receive equity securities under the Plan
may have to observe the filing and waiting period requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"). Holders required to make HSR Act filings cannot
receive any such distribution of equity securities until the
expiration or early termination of the waiting periods under the
HSR Act. Such holders should consult their own counsel regarding
their potential responsibilities under the HSR Act.
IX. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND
CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE
DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY
REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE
RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE
ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
A. OVERALL RISKS TO RECOVERY UPON CLAIMS
The ultimate recoveries under the Plan to holders of claims
(other than those holders who are paid in cash under the Plan)
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depend upon the realizable value of the Non-Hammer Assets to be
sold pursuant to the Plan and the Distribution Estate's
Reorganized Shares, as well as the ultimate amount of claims
allowed. The securities to be issued pursuant to the Plan are
subject to a number of material risks, including, but not limited
to, those specified below. Prior to voting on the Plan, each
holder of a claim entitled to vote should carefully consider the
risk factors specified or referred to below, the exhibits annexed
hereto, and all of the information contained in the Plan and
exhibits thereto.
B. PROJECTED FINANCIAL INFORMATION
The projected financial information included in this
Disclosure Statement is dependent upon the successful
implementation of the business plan upon which the projections
are based, and upon the validity of other assumptions contained
therein. Those projections reflect numerous assumptions,
including confirmation and consummation of the Plan in accordance
with its terms, the anticipated future performance of the
reorganized Debtor, industry performance, certain assumptions
with respect to competitors of the Debtor, the development of the
reorganized Debtor's products, general business and economic
conditions, and other matters, most of which are beyond the full
control of the Debtor. In addition, unanticipated events and
circumstances occurring subsequent to the preparation of the
projections may affect the actual financial results of the
operations of the reorganized Debtor.
C. DIVIDEND POLICY
The reorganized Debtor does not anticipate that the
reorganized Debtor will pay any dividends upon the Reorganized
Shares in the foreseeable future. Certain institutional
investors may only invest in dividend-paying equity securities or
may operate under other restrictions which may prohibit or limit
their ability to invest in the Reorganized Shares.
X. PROJECTIONS AND LIQUIDATION ALTERNATIVES
Based upon the Debtor's best estimates of the future
performance of the reorganized Debtor's business, the prospects
for liquidation proceeds of the Debtor's various assets and
review of claims asserted against the estate herein, and in
consultation with its financial advisors and counsel, the Debtor
makes the following estimates of future results of liquidation
alternatives:
A. PROJECTED PERFORMANCE
The Debtor believes that the recapitalization and
restructuring of the reorganized Debtor's finances and operations
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under the terms of the Plan will enable the company to achieve
profitability and enhanced revenue over the course of the first
few years following the Plan's effective date. In particular,
the Debtor believes, based upon what it believes to be reasonable
assumptions of future events, that it will achieve revenues of
approximately $12 million in 1998, $21 million in 1999, $36
million in 2000 and $82 million in 2001. During those same
periods, the Debtor projects a net loss of $154,000 in 1998, and
net income of $447,000 in 1999, $1,647,000 in 2000 and $9,011,000
in 2001. For the same periods, and based upon a beginning net
equity of $1,300,000, the Debtor projects net equity of
$1,146,000 at the end of 1998, $6,594,000 at the end of 1999
(assuming an infusion of approximately $5 million in additional
capital in that year), $8,250,000 at the end of 2000 and
$17,261,000 at the end of 2001.
All such projections and estimates, together with the
primary assumptions upon which the projections are based, are set
forth in EXHIBIT "C" attached hereto, which has been prepared by
the Debtor's financial advisors, Hickey & Hill, Inc., in
consultation with the Debtor's senior management. Hickey & Hill,
Inc. have advised the Debtor that in the event that the Debtor is
able to achieve the projected revenues and margins forecast by
the Debtor's senior management, and otherwise achieve the
assumptions set forth in the projections, such advisors believe
that the reorganized Debtor will be able to accomplish the
aforementioned projections. The advisors have noted that the
revenue growth rates included in the projections are very
aggressive and will require the successful introduction of new
products by the year 2000 in order to be achieved, together with
substantially improved profitability derived from the growth in
revenues.
In contrast to those projections, the Debtor's current
operations are not profitable, and produce revenues substantially
below those forecast for the reorganized Debtor. For example, as
set forth in EXHIBIT "B" attached hereto, the company's results
for the month of October 1997 indicate gross revenues of
$979,128, and a net loss for the month of $166,335. The
company's results for the month of September 1997 indicate gross
revenues of only $555,317, and a net loss for the month of
$228,584. Thus, on an annualized basis, the company's two most
recent months' results indicate annual gross revenues of only
$9,206,670, and a net annual loss of $2,369,514.
Nonetheless, the Debtor believes that its projected
performance following its reorganization is reasonable, and that
the benefit that will be derived from reorganization and
recapitalization will permit the company to achieve the
milestones forecast therein. Therefore, to the extent that the
reorganized Debtor's future performance is a factor in
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determining the feasibility of the Plan, the Debtor believes that
the Plan is fully and demonstrably feasible.
B. LIQUIDATION ALTERNATIVE
The Debtor believes that the only practical alternative for
resolving the Debtor's finances, other than reorganization under
the Plan, is a liquidation of all assets pursuant to the
provisions of chapter 7 of the Bankruptcy Code. The Debtor
believes that such an alternative would produce a far less
favorable outcome for creditors and other parties in interest.
In a chapter 7 liquidation, a trustee would be appointed by
the United States Trustee in order to liquidate all of the
estate's assets for a fee, and creditors would receive the
proceeds of that liquidation, on a pro-rata basis, net of the
costs of liquidation. In the view of the Debtor, the gross
proceeds of that liquidation would be less, and the costs of
liquidation would be greater, than under the terms of the Plan.
Under the Plan, the Non-Hammer Assets will be sold by the
Distribution Agent for the benefit of creditors, much as they
would be liquidated by a chapter 7 trustee. However, the Debtor
believes that a chapter 7 trustee's fees would be substantially
greater than those of the Distribution Agent, inasmuch as the
trustee would likely receive a percentage (up to approximately 3
or 4 percent of gross proceeds), whereas a Distribution Agent is
expected to receive more modest fees based upon an hourly rate
and actual services rendered.
In addition, the chapter 7 trustee would liquidate the
Hammer Assets, rather than receive stock in the reorganized
Debtor as will the Distribution Agent, and that substitution
would diminish ultimate recoveries by creditors, in the Debtor's
view. As set forth in EXHIBIT "E," the Debtor's financial
advisors, Hickey & Hill, Inc., have opined that the liquidation
of the Hammer Assets is approximately $771,000, net of costs
directly attributable to that liquidation. Under the Plan,
creditors will receive 3,500,000 shares of stock of the
reorganized Debtor; using the same per-share valuation at which
the Preletz Group and United Equities have agreed to purchase
that stock, $0.325, those 3,500,000 shares have an imputed value
of $1,137,500. Further, whereas the shares may ultimately
diminish in value, they may also increase substantially in value,
thereby providing to creditors an opportunity for appreciation.
Based upon the Debtor's projections of future performance, and
assuming achievement of such results, the Debtor believes that
the reorganized Debtor's stock will have a value materially
higher than the aforementioned imputed value.
Also, in a chapter 7 liquidation, the claims against the
estate would likely be greater. Under the Plan, the reorganized
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Debtor will assume potentially large warranty and product return
rights with respect to the Hammer product line, but in a
liquidation, those claims would be asserted against the estate,
thereby increasing the overall claims against limited assets. In
addition, to the extent that the reorganized Debtor assumes and
cures any executory contracts or secured claims under the Plan,
such assumption and cure will reduce claims against the estate,
whereas in a chapter 7 liquidation, there would be no offsetting
assumptions. Further, under the Plan, the Distribution Estate
will benefit from free rent for a limited period of time and the
free services of management officials of the reorganized Debtor
in order to assist in disposing of estate assets, none of which
would be available to the Trustee in a chapter 7 liquidation.
Finally, the Debtor believes that recoveries for creditors
would be delayed by a chapter 7 liquidation, inasmuch as (a) new
personnel, including the trustee and professionals whom the
trustee retained, would require some time to familiarize
themselves with the assets and circumstances of the Debtor's
estate, and (b) the necessity of liquidating the Hammer Assets as
well as the Non-Hammer Assets would increase the burden and slow
the timing of the administration of the Debtor's estate.
Attached as EXHIBITS "D" and "E" hereto are liquidation
analyses of the Non-Hammer Assets and the Hammer Assets,
respectively, prepared by Hickey & Hill, Inc. Together, the
analyses indicate probable liquidation proceeds of all of the
assets of the estate herein in an aggregate amount of
approximately $5,569,000, net of costs directly attributable to
liquidation efforts, but before the general administrative
expenses and other priority claims of the estate. Assuming the
same administrative expenses and priority claims as projected
under the Plan, those liquidation proceeds would be reduced by
approximately $900,000, producing net funds available for
unsecured creditors of approximately $4,700,000. The Debtor
believes that in a chapter 7 liquidation, allowable claims would
exceed $32.5 million, having been increased by additional
warranty and product defect and return claims, as well as
additional executory contract rejection claims. Assuming those
amounts, the Debtor believes that unsecured creditors would
receive distributions of between 14 and 15 percent of their
allowable claims, and that shareholders would receive no
distributions at all.
As set forth hereinbelow, the Debtor estimates recoveries
available for general unsecured creditors under the Plan to be
approximately $5,416,500, to be divided among a pool of a smaller
amount of claims. Thus, the Debtor believes that distributions
to creditors under the Plan, estimated to be approximately 17.76%
of claims, will be greater than distributions in a chapter 7
liquidation would be.
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For all of the reasons set forth above, the Debtor believes
that recoveries for creditors under the Plan will be more
favorable than that outcome, and accordingly, the Debtor believes
that the "best interests" test described in Section VI(C)(4)
hereinabove is satisfied by the terms of the Plan.
C. PROJECTED RECOVERIES
Attached hereto as EXHIBIT "F" are the Debtor's best
estimates and projections for recoveries available for
distribution to creditors within Class D, under the terms of the
Plan. As set forth therein and in the notes which accompany the
projections, the Debtor believes that creditors will receive
approximately $5,416,500 in cash and shares of the reorganized
Debtor (assuming an imputed present value for the shares without
accounting for any depreciation or appreciation in the value of
the reorganized Debtor's equity). Based thereon, the Debtor
believes that holders of allowed claims within Class D will
receive distributions equal to approximately 17.76 percent of
their claims.
Those estimates do not include any amounts attributable to
causes of action that may be asserted against third parties,
other than estimated preference causes of action, and do not
assume any costs in pursuing such causes of action. Also, the
projections are subject to all of the cautionary statements
contained elsewhere herein, including the prospect of material
changes in assumed facts and events. Finally, the projections do
not take into account the time value of money, or interest that
may be earned, with respect to funds held by the Distribution
Estate. Nonetheless, the Debtor believes that the projections
constitute reasonable estimates of recoveries for creditors under
the terms of the Plan.
XI. CONCLUSION AND RECOMMENDATION
The Debtor believes that confirmation and implementation of
the Plan is preferable to any alternative because it will provide
the greatest recoveries, in the shortest possible time, to
creditors. The Debtor therefore urges creditors entitled to vote
on the Plan to vote to accept the Plan and to evidence such
acceptance by returning their ballots in a timely manner.
DATED: December 10, 1997
STREAMLOGIC CORPORATION,
a Delaware corporation
By: ______________________________
Michael O. Preletz
Chief Executive Officer
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Submitted By:
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
By: __________________________________
Merle C. Meyers, Esq.
Attorneys for Debtor-in-Possession
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EXHIBIT "F"
PROJECTED DISTRIBUTIONS IN CLASS D
1. Net Assets Available for Class D Distributions:
SOURCE OR USE NOTE AMOUNT BALANCE
A. Non-Hammer Assets, net 1 $4,798,000 $4,798,000
B. 3,500,000 Reorganized
Shares 2 1,137,500 5,935,500
C. Preference Recoveries,
net 3 400,000 6,335,500
D. Other Causes of Action 4 Unknown 6,335,500
E. Less Priority tax claims 5 (100,000) 6,235,500
F. Less administrative
expenses, preconfirmation 6 (650,000) 5,585,500
G. Less administrative
expenses, postconfirmation 7 (100,000) 5,485,500
H. Less Class A priority
claims 8 (35,000) 5,450,500
I. Less Class B secured
claims 9 -0- 5,450,500
J. Less Class C convenience
claims 10 (34,000) 5,416,500
AVAILABLE FOR CLASS D DISTRIBUTIONS: $5,416,500
2. Calculation of Percentage Distributions:
DESCRIPTION AMOUNT
A. Claims estimation: $30,000,000
B. Additional claims from
preference recoveries: 500,000
C. Total Claims: $30,500,000
D. Available for distributions: $ 5,416,500
E. Percentage (Item D, divided
by Item C): 17.76%
F-1
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3. Notes to Calculations:
(1) Based upon the liquidation analysis of Non-Hammer
Assets, net of costs directly attributable to
liquidation efforts and claims secured thereagainst, as
set forth in Exhibit "D" attached to the Disclosure
Statement.
(2) Imputed value based upon the per-share price ($0.325)
at which the Preletz Group and United Equities will
purchase shares of stock of the reorganized Debtor.
(3) Assumes gross preference recoveries of $500,000, less
$100,000 in attributable attorneys' fees and costs.
(4) The extent and quantification of causes of action
against third parties, other than preference causes of
action, cannot yet be determined, and therefore no
recoveries or attributable costs are assumed.
(5) Estimated amount of priority tax claims, as set forth
in Section V(A)(1) of the Disclosure Statement.
(6) Assumes unpaid and awarded fees and expenses of
approximately $230,000 through September 30, 1997,
additional unpaid fees and expenses for the same period
of approximately $70,000, and ongoing fees and expenses
after September 30, 1997 and until confirmation of
approximately $350,000. See Section V(A)(1) of the
Disclosure Statement.
(7) Estimated administrative costs of the Distribution
Estate, excluding litigation costs attributable to
preference causes of action and other causes of action
against third parties, and excluding costs directly
attributable to liquidation efforts (which costs are
included as an offset in Item A and Note 1 above).
(8) Estimated amount of Class A priority claims, as set
forth in Section V(A)(2) of the Disclosure Statement.
(9) All secured claims are accounted for in Item A and Note
1 above, and therefore no payment of secured claims is
assumed under Item I.
(10) Estimated amount of Class C convenience claims, as set
forth in Section V(A)(4) of the Disclosure Statement.
F-2
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