<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
________________________________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 27, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________
to ______________
Commission File Number: 0-12046
STREAMLOGIC CORPORATION
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(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 No.)
21329 Nordhoff Street, Chatsworth, California 91311
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 701-8400
--------------
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
January 31, 1997: 33,522,644 shares of Common Stock, $1.00 Par Value
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STREAMLOGIC CORPORATION
-----------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page Number
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<C> <S> <C>
PART 1. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
December 27, 1996 and March 29, 1996 2
Condensed Consolidated Statements of
Operations for the Three Months and
Nine Months ended December 27, 1996
and December 29, 1995 3
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended December
27, 1996 and December 29, 1995 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other 14
Item 6 Exhibit and Reports on Form 8-K 14
</TABLE>
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<PAGE>
PART I- FINANCIAL INFORMATION
-----------------------------
STREAMLOGIC CORPORATION
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 27, March 29,
1996 1996
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash, cash equivalents and short- $ 9,783 $ 40,477
term investments
Accounts receivable, net 6,754 19,139
Receivable from Singapore Technologies - 13,966
Inventories 13,697 10,022
Other current assets 2,150 1,033
--------- ---------
Total current assets 32,384 84,637
--------- ---------
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 6,258 5,850
Investments 6,023 -
Intangibles 5,029 1,152
Other assets 95 744
--------- ---------
$ 49,789 $ 92,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Revolving Credit Facility $ 3,575 $ -
10% Subordinated Notes - 20,000
Current maturities of long term debt 645 3,750
Accounts payable 6,819 8,610
Other accrued liabilities 14,546 14,137
--------- ---------
Total current liabilities 25,585 46,497
6% Convertible Subordinated Debentures due 2012 4,789 71,250
Increasing Rate Unsecured Notes 7,957 -
Other Long Term Debt 625 -
Deferred income taxes 1,720 1,720
Shareholders' equity:
Preferred stock, $1.00 par value, 2,000,000
shares authorized, none issued - -
Common stock, $1.00 par value, 50,000,000
shares authorized; 33,522,644 shares issued
and outstanding (15,580,413 in March 1996) 33,523 15,580
Additional paid-in capital 125,982 112,330
Accumulated deficit (150,392) (154,994)
--------- ---------
Total shareholders' equity (deficit) 9,113 (27,084)
--------- ---------
$ 49,789 $ 92,383
========= =========
</TABLE>
See accompanying notes.
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<PAGE>
STREAMLOGIC CORPORATION
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- ------------------------------------
December 27, December 29, December 27, December 29,
1996 1995 1996 1995
------------ ------------ -------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 11,844 $ 41,504 $ 35,980 $ 170,365
Cost of sales 9,827 44,859 32,295 155,860
-------- -------- -------- ---------
Gross margin 2,017 (3,355) 3,685 14,505
-------- -------- -------- ---------
Operating expenses:
Research and development 2,638 9,545 8,707 29,042
Selling, general and administrative 3,767 10,981 10,911 31,103
In-process research and development - - 1,370 -
Restructuring charges 733 - 733 -
-------- -------- -------- ---------
Total operating expenses 7,138 20,526 21,721 60,145
-------- -------- -------- ---------
Loss from operations (5,121) (23,881) (18,036) (45,640)
Interest expense (174) (1,828) (2,743) (4,628)
Interest income 250 381 993 1,172
-------- -------- -------- ---------
Loss before income taxes (5,045) (25,328) (19,786) (49,096)
Income tax provision (benefit) 50 48 60 105
-------- -------- -------- ---------
Loss before extraordinary item (5,095) (25,376) (19,846) (49,201)
Extraordinary item 24,448 - 24,448 -
-------- -------- -------- ---------
Net income (loss) $ 19,353 $(25,376) $ 4,602 $ (49,201)
======== ======== ======== =========
Per Share Data:
Loss before extraordinary item $ (0.21) $(1.63) $(1.06) $(3.18)
Extraordinary item 1.02 - 1.30 -
-------- -------- -------- ---------
Net income (loss) $ .81 $(1.63) $0.24 $(3.18)
======== ======== ======== =========
Weighted average common and
common equivalent shares
outstanding 23,826 15,568 18,788 15,485
======== ======== ======== =========
</TABLE>
See accompanying notes.
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STREAMLOGIC CORPORATION
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
December 27, December 29,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,602 $ (49,201)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,746 15,286
Write off in-process research and development 1,370 -
(Gain) loss on disposal of fixed assets - (484)
(Gain) loss on extraordinary item (24,448) -
Deferred income taxes - 445
Increase (decrease) from changes in:
Accounts receivable 14,823 (5,965)
Inventories (256) 5,708
Other current assets (429) 691
Other assets 85 (68)
Accounts payable and other accrued liabilities (8,575) (1,410)
------------ ----------
Net cash used in operating activities (11,082) (34,998)
Cash flows from investing activities:
Investment in Concentric Network Corporation (2,500) -
Net change in short-term investments 21,034 (1,905)
Proceeds from sale of drive business 13,966 -
Proceeds from sale of equipment - 16
Additions to property, plant and equipment (567) (24,368)
Other assets 564 -
Acquisition of FWB hardware business (5,750) -
------------ ----------
Net cash provided by (used in) investing activities 26,747 (26,257)
Cash flows from financing activities:
Proceeds from credit facility 3,575 -
Increase (decrease) in 10% subordinated notes (20,000) 20,000
Increase in Term Loan Facility - 18,520
Cash in Exchange for 6% CSD's (8,425) -
Costs and fees to exchange 6% CSD's (973) -
Proceeds from sale of common stock, net 498 1,430
------------ ----------
Net cash provided by (used in) financing activities (25,325) 39,950
Net decrease in cash and equivalents (9,660) (21,305)
Cash and equivalents at beginning of period 15,443 35,959
------------ ----------
Cash and equivalents at end of period 5,783 14,654
Short-term investments 4,000 13,242
------------ ----------
Total cash, cash equivalents and short-term investments $ 9,783 $ 27,896
============ ==========
Supplemental cash flow information
Interest payments $ 183 $ 3,352
Income tax payments $ 337 $ 503
</TABLE>
See accompanying notes
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<PAGE>
STREAMLOGIC CORPORATION
-----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
DECEMBER 27, 1996
-----------------
(Unaudited)
NOTE 1. General
- -----------------
The accompanying condensed consolidated financial statements have not been
audited by independent auditors but, in the opinion of the Company, such
unaudited statements include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position as of December 27, 1996, and the consolidated results of operations for
the three and nine month periods ended December 27, 1996 and December 29, 1995
and cash flows for the nine month periods ended December 27, 1996 and December
29, 1995. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. Nevertheless, the Company believes
that the disclosures in these financial statements are adequate to make the
information presented not misleading. Interim results are not necessarily
indicative of the results for the full fiscal year.
On May 13, 1996 the Company elected to change its fiscal year from the last
Friday in December to the last Friday in March beginning with March 1996. The
Company has elected to disclose the consolidated results of operations and cash
flows for the three and nine month periods ended December 27, 1996 in
comparative form with the three and nine month periods ended December 29, 1995,
because it believes comparability is improved.
The three and nine month periods ended December 27, 1996 exclude the
results of operations of the hard disk drive business operated under the name
"Micropolis Corporation" and sold by the Company as of March 29, 1996.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the three month
transition period ended March 29,1996 filed with the Securities and Exchange
Commission.
NOTE 2. Inventories
- --------------------
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market:
<TABLE>
<CAPTION>
December 27, March 29,
1996 1996
------------ ---------
(In thousands)
<S> <C> <C>
Raw materials and purchased parts $ 7,086 $ 4,564
Work in process 2,513 1,487
Finished goods 4,098 3,971
------- --------
$13,697 $ 10,022
======= ========
</TABLE>
NOTE 3. Per Share Information
- ------------------------------
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock and applicable common
stock equivalents when dilutive outstanding during the period. Primary and
fully diluted income (loss) per share are the same.
-5-
<PAGE>
NOTE 4. Acquisition of FWB Inc.
- -------------------------------
Effective July 1, 1996 the Company purchased all of the net assets related
to the hardware business of FWB Software Inc., ("FWB") a developer of
performance computer storage products for pre-press, multi-media and graphics
applications. In addition, the Company made an 11% equity investment in the
software business being retained by FWB Software Inc. In consideration for such
net assets and minority equity investment, at closing the Company paid cash of
approximately $5 million and issued 1,256,123 shares of StreamLogic Common
Stock.
Pursuant to such agreement, FWB was to receive additional shares or return
shares of StreamLogic Common Stock such that the market value (based on the
average price as defined in the Operating Agreement of FWB Software, LLC) of the
shares contributed to FWB would be equal to $7.5 million, such adjustment to
have occurred on October 29, 1996. Since the average price of the Company's
common stock during the defined period was approximately $1.73, such adjustment
would have required the issuance of approximately 3,079,000 additional shares of
StreamLogic Common Stock to FWB which issuance, if made, would have contravened
the terms of the agreement relating to the offer to exchange discussed in Note
5, as well as certain Nasdaq rules relating to the issuance of 20% or greater of
an issuer's outstanding common stock. The Company did not issue such additional
shares to FWB on October 29, 1996, and on November 1, 1996 reached an agreement
with FWB whereby the Company issued to FWB 1,380,000 additional shares of Common
Stock, a $1.25 million promissory note bearing interest at Bank of America's
reference rate plus 2% due November 1998 and secured by the Company's equity
interest in FWB Software LLC, and paid to FWB $500,000 in cash. In addition,
the Company's equity interest in FWB Software LLC was reduced from 11% to 7.5%.
The total 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 $8.0 million and $3.3 million, respectively.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values and the results of operations of the hardware business of FWB are
included in the accompanying statements of operations from the date of
acquisition. The purchase price plus costs directly attributable to the
completion of the acquisition have been allocated to the assets and liabilities
acquired. Approximately $1.4 million 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 Company's operations during the
quarter ended September 27, 1996. The investment in FWB Software LLC is being
accounted for at cost. The allocation of purchase price among the identified
tangible and intangible assets of the hardware business, including developed
technology, trademarks, customer lists and assembled workforce is based on
management estimates and an independent valuation study completed during the
quarter ended December 27, 1996.
Note 5. Investment in Concentric Network Corporation
- -----------------------------------------------------
On September 18, 1996 the Company purchased $2.5 million of Concentric
Network Corporation ("CNC") Series D Preferred Stock. The Preferred Stock
Purchase Agreement, originally dated August 21, 1996, included certain other
institutional purchasers of the preferred shares. CNC, based in Cupertino,
California, is a provider of virtual private networks, intranet customized
consumer applications and is one of the largest gateways to the Internet.
Founded in 1991, CNC is privately held. The purchase is accounted for as an
investment and is carried at cost on the Company's balance sheet.
-6-
<PAGE>
Note 6. Exchange Offer
- -----------------------
On June 14, 1996 the Company entered into an agreement (the "Initial
Tender Agreement") with Loomis Sayles & Company, L.P. ("Loomis Sayles"), an
entity which advises investors that collectively hold approximately 79% of the
Company's outstanding $75 million issue of 6% Convertible Subordinated
Debentures ("Debentures") to exchange its Debentures for a package of cash and
securities of the Company. On September 13, 1996, the Company announced an
amendment to the Initial Tender Agreement (the "First Amendment"), and on
October 4, 1996 the Company announced a second amendment to the Initial Tender
Agreement (the "Second Amendment"; the Initial Tender Agreement, as amended by
both the First Amendment and the Second Amendment, is referred to as the "Tender
Agreement").
Pursuant to the Tender Agreement, the Company commenced a tender offer for
the Debentures on October 7, 1996. In the tender offer, the Company offered to
exchange its Debentures such that, for each $1,000 face amount of Debentures
tendered, the holders will receive (a) $120 in cash, (b) $113.33 in
increasing rate unsecured promissory notes, (c) 216.66667 shares of
StreamLogic Common Stock, and (d) warrants to purchase 40 shares of StreamLogic
Common Stock at an initial exercise price of $3.60 per share of Common Stock.
The exercise price of the warrants is subject to downward adjustment in certain
circumstances, and contains antidilution adjustments. The approval of the
Company's shareholders was required pursuant to Nasdaq rules and regulations.
Holders of 93.61% of the outstanding Debentures accepted the exchange. The
Company subsequently has exchanged the tendered Debentures for approximately
(a) $8.4 million in cash, (b) $8 million in unsecured promissory notes due
1998, (c) 15.2 million shares of common stock, and (d) warrants to purchase 2.8
million shares of common stock. As a result, the transaction increased the
Company's net tangible assets by $51 million, previously estimated to be $51.6
million in the Company's 8-K report filed on November 21, 1996. The transaction
resulted in an extraordinary gain of $24.4 million in the quarter ended December
27, 1996 as set forth below (in thousands):
<TABLE>
<S> <C>
Face Value of Debentures tendered $ 70,211
Cash consideration (8,425)
Promissory Notes Issued (7,957)
Accrued Interest on Promissory Notes (2,387)
Reversal of Accrued Interest on Debentures 2,516
Value of Common Stock Issued (at $1.56 per share) (23,731)
Transaction Fees and Expenses (1,548)
Charge off unamortized bond issuance costs (1,123)
Fair Market Value of Warrants Issued (2,808)
Other (300)
--------
Extraordinary Gain $ 24,448
========
</TABLE>
The tax effect of the extraordinary gain is minimal due to the utilization of
net operating loss carryforwards. However, the Exchange Offer also resulted in
a change of ownership as defined under Section 382 of the Internal Revenue
Service ("IRS") regulations, and the Company's ability to utilize its net
operating loss carryforwards in subsequent periods will be substantially
limited.
-7-
<PAGE>
NOTE 7. Litigation
- --------------------
On December 23, 1996 the Company announced filing suit in New York seeking a
declaratory judgment invalidating a purported acceleration of the remaining $4.8
million of the company's 6% Convertible Subordinated Debentures left outstanding
after the company's recently completed exchange offer.
In the exchange offer, StreamLogic retired approximately $70.2 million aggregate
principal amount of the $75 million of Debentures originally issued. The
consideration given by StreamLogic for Debentures tendered in the exchange offer
included consideration for the interest payment otherwise due on September 15,
1996.
United Equities Company ("United Equities"), which purports to be a continuing
debenture holder and to represent other continuing debenture holders, has sought
to have the interest and principal on the remaining $4.8 million of Debentures
declared due and payable immediately. StreamLogic believes that the trustee for
the Debentures had on deposit sufficient funds to pay the interest that had been
due on September 15 (together with interest on such interest) at the time of
their acceleration demand and that the demand was ineffective. On December 27,
1996 the trustee distributed the amount originally due on September 15 (together
with interest on such amount) to Debenture holders of record on December 26,
1996.
On January 13, 1997, United Equities answered the Company's complaint and
counterclaimed seeking a declaratory judgment that United Equities had properly
and timely invoked the acceleration provisions of the indenture governing the
Debentures.
On February 5, 1997, the Company replied to the counterclaim contained in the
answer of defendant United Equities. The Company generally denied United
Equities' allegations, asserted various affirmative defenses and requested
judgment in favor of StreamLogic. The Company intends to continue to pursue
the litigation vigorously.
NOTE 8. Cash and Liquidity
- ----------------------------
The Company anticipates that cash used in operations during the fourth
fiscal quarter of 1997 will amount to $2-$4 million principally as a result of
continuing operating losses. The actual amount will depend upon the results of
the Company's efforts to reduce its losses by decreasing expenses and reducing
costs, and its plans to decrease inventories to generate cash and fund the
anticipated loss for the quarter. The Company is also working to sell assets
not anticipated to be required after the consolidation to Northern California in
the first quarter of fiscal 1998, and to raise additional financing. While the
Company believes it has sufficient financial resources to meet its short term
financial needs, should internal financial plans and objectives not be met,
including the sale of certain assets and planned reductions in inventories, the
Company will require additional financing to continue operations. While the
Company currently believes such financing may be obtainable from sources it is
currently in discussions with, there can be no assurance as to the terms on
which it would be available, if at all.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Three Months Ended December 27, 1996 Compared to Three Months Ended December 29,
- --------------------------------------------------------------------------------
1995
- ----
Net sales decreased 71.5% to $11.8 million in the December 1996 quarter
as compared to $41.5 million in the December 1995 quarter. The decline in
revenues was due to the sale of the hard disk drive business by the Company as
of March 29, 1996. The December 1996 quarter was the second period for which
the Company's results of operations included those of the FWB Hammer hardware
business purchased from FWB Software, Inc. effective July 1, 1996. The Hammer
hardware lines accounted for approximately $5 million in revenue to the Company
for the December 1996 quarter. Revenue for the December 1996 quarter included
that of the Company's RAIDION family of high-performance and fault-tolerant RAID
solutions, the Hammer high-performance storage products and the VIDEON family of
video server systems. Such December 1996 quarter revenues for the RAIDION and
VIDEON products decreased by 27% from those of the December 1995 quarter. Such
decline was largely attributable to the decline in sales of the Microdisk
family of external, modular storage sub-systems, and to a lesser extent, a
decline in the sales of video servers. The decline in Microdisk revenues
accounted for 84% of the total decline from the year ago period. Management has
de-emphasized sales of this product by holding price to achieve better gross
margins.
Cost of sales as a percent of sales decreased to 83% in the December 1996
quarter from 108% in the December 1995 quarter, resulting in a gross margin of
17% in the 1996 quarter, as
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<PAGE>
compared to -8% in the December 1995 quarter. The increase in margin during the
1996 quarter was a result the elimination of negative gross margins associated
with the costs of the Company's previous disk drive business. The drive business
had high fixed costs associated with maintaining manufacturing locations in
Thailand, Singapore and the U.S. In the December 1995 quarter, the Company was
operating at less than 50% of capacity and also continued to experience high
warranty costs associated with the Javelin family of hard disk drives. During
the December 1996 quarter, the Company's business consisted entirely of sub-
systems, with drives being purchased as one component of the system.
Research and development expenses were 22.3% of sales in the December 1996
quarter, as compared to 23.0% in the December 1995 quarter. The percentage
decrease is due to a substantial decrease in expense of $8.3 million, largely
offset by lower sales. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996, the
termination of the Company's funding of the costs incurred by Tulip Memory
Systems, Inc., a start-up company formed to develop substrates which are to be
used in the manufacture of computer disk drives, and a reduction in force of
engineering employees during September 1996 at the Company's Chatsworth
location. Research and development expense of $2.6 million incurred in the
December 1996 quarter was for the Company's RAIDION family of high-performance
and fault-tolerant RAID solutions, the Hammer high-performance storage products
and the VIDEON family of video server and disk recorder systems. Research and
development expense for the RAIDION and VIDEON products amounted to
approximately $3.4 million in the December 1995 quarter. The decrease of
$790,000 is largely attributable a reduction in engineering headcount at the
Company's Chatsworth, California facility.
Selling, general and administrative expenses were 32% of sales in the
December 1996 quarter, as compared to 26.5% in the December 1995 quarter. The
percentage increase is the result of lower sales, offset by a decrease in
expense of $7.2 million. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996, and offset
partially by selling, general and administrative expenses to support the Hammer
product lines.
Restructuring charges in the December 1996 quarter of $.7 million consisted
primarily of charges related to the exit costs associated with the Company's
decision to consolidate operations in Northern California, and substantially
shut-down operations at Chatsworth, California. As a result of that plan,
certain items no longer had future economic value and certain incremental costs
are estimated to be incurred. The Company accounted for such effects under
generally accepted accounting principles, in particular EITF-94-3 and other
applicable guidelines. Under the applicable accounting rules, other costs
related to the move to Northern California which are anticipated to occur in the
future will be recorded on the Company's books and records as they are actually
incurred. The Company currently estimates that such additional charges will
amount to approximately $1.0 million. Excluding restructuring charges, total
operating expenses were $6.4 million for the December 1996 quarter.
The cash flow effect of the total estimated restructuring charges of $1.7
million is currently estimated to be $1.5 million. The actual amount of the
restructuring charges will depend on future events and may be materially
different that the amount set forth above, in particular as it relates to
individual employee decisions to relocate to the Bay area, and the actual costs
of such moves. The Company has extended a limited number of relocation offers
to certain employees and has provided written relocation plans governing the
expenses the Company will reimburse. The above estimates have been based in
part on management's judgment about the number of employees who will relocate,
and statistical information about the typical cost of similar moves.
Interest expense was $174,000 in the December 1996 quarter (1.5% of sales)
as compared to $1.8 million in the December 1995 quarter (4.3% of sales). The
decrease in interest expense was the result of the reduction in debt associated
with the successful consummation of the Exchange Offer described further in Note
6 to the financial statements. As part of the required
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<PAGE>
accounting for that transaction, all interest expected to be paid over the life
of the increasing rate unsecured promissory notes was recorded as a reduction of
the gain on the exchange. As a result, accrued interest expense directly
related to those notes will not be reflected as interest expense on the
Company's Statement of Operations. Interest income was $250,000 in the December
1996 quarter as compared to $381,000 in the December 1995 quarter.
Extraordinary item of $24.4 million in the December 1996 period consisted
of the gain on the exchange of the Company's 6% Convertible Subordinated
Debentures due 2012. As a result of this transaction, $70.2 million of such
debentures were irrevocably tendered and exchanged for a package of cash, common
stock, promissory notes, and warrants to purchase common stock.
As a result of the above, loss before income taxes was $5.0 million in the
December 1996 quarter as compared to $25.3 million in the December 1995 quarter.
Loss before extraordinary item was $5.1 million in the December 1996 quarter as
compared to $25.4 million in the December quarter. Net income after
extraordinary item for the December 1996 quarter was $19.3 million compared to a
net loss of $25.4 million in the December 1995 quarter.
Nine Months Ended December 27, 1996 Compared to Nine Months Ended December 29,
- ------------------------------------------------------------------------------
1995
- ----
Net sales decreased 78.9% to $36 million in the December 1996 period, as
compared to $170.4 million in the December 1995 period. The decline in revenues
was due to the sale of the hard disk drive business by the Company as of March
29, 1996. Revenue for the December 1996 period included that of the Company's
RAIDION family of high-performance and fault-tolerant RAID solutions, the Hammer
high-performance storage products and the VIDEON family of video server systems.
Such December 1996 period revenues for the RAIDION and VIDEON products decreased
by 13.6% from those of the December 1995 period. Such decline was largely
attributable to reductions in sales of the Microdisk brand product of external
storage sub-systems. The Hammer line of products accounted for approximately
$10.2 million of revenues in the December 1996 period.
Cost of sales as a percent of sales decreased slightly to 89.8% in the
December 1996 period from 91.5% in the December 1995 period, resulting in a
gross margin of 10.2% in the 1996 period, as compared to 8.5% in the 1995
period.
Research and development expenses were 24.2% of sales in the December 1996
period, as compared to 17.1% in the December 1995 period. The percentage
increase is the result of lower sales, offset substantially by a decrease in
expense of $20.3 million. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996, and the
termination of the Company's funding of the costs incurred by Tulip Memory
Systems, Inc., and reductions in levels of engineering staffing in Chatsworth,
California in September 1996. Research and development expense in the December
1996 period consisted of expenditures incurred for the Company's RAIDION family
of high-performance and fault-tolerant RAID solutions, the Hammer high-
performance storage products and the VIDEON family of video server systems.
Research and development expense for the RAIDION and VIDEON products amounted to
approximately $8.6 million in the December 1995 period.
Selling, general and administrative expenses were 30.3% of sales in the
December 1996 period, as compared to 18.3% in the December 1995 period. The
percentage increase is the result of lower sales, offset by a decrease in
expense of $20.2 million. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996, and offset
partially by selling, general and administrative expenses to support the Hammer
product lines.
-10-
<PAGE>
Non-recurring charges in the December 1996 period of $1.4 million consisted
primarily of in-process research and development purchased from FWB that had not
yet reached technological feasibility and, therefore, were required to be
written off under generally accepted accounting principles. Restructuring
charges during the December 1996 period were $733,000 consisted primarily of
exit costs associated with the Company's decision to consolidate operations in
Northern California, and substantially shut-down operations at Chatsworth,
California. Excluding non-recurring and restructuring charges, total operating
expenses were $19.6 million for the December 1996 period.
Interest expense was $2.7 million in the December 1996 period (7.6% of
sales) as compared to $4.6 million in the December 1995 period (2.7% of sales).
The decrease in expense was primarily the result of the reduction in debt
associated with the Company's Exchange Offer. Interest income was $993,000 in
the December 1996 period, as compared to $1,172,000 in the December 1995 period.
Extraordinary item of $24.4 million in the December 1996 period consisted
of the gain on the exchange of the Company's 6% Convertible Subordinated
Debentures due 2012. As a result of this transaction, $70.2 million of such
debentures were irrevocably tendered and exchanged for a package of cash, common
stock, promissory notes, and warrants to purchase common stock.
As a result of the above, loss before income taxes was $19.8 million in the
December 1996 period, as compared to $49.1 million in the December 1995 period.
Loss before extraordinary item in the December 1996 quarter was $19.8 million,
compared to $49.2 million in the December 1995 period. Net income after
extraordinary item in the December 1996 quarter was $4.6 million, compared to a
net loss of $49.2 million in the December 1995 period.
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and short-term investments decreased to $9.8
million as of December 27, 1996 from $40.5 million as of March 29, 1996
primarily as a result of cash used in operations of $11.1 million, the
acquisition of the hardware business of FWB, and the reduction of debt. Net cash
used in operations of $11.1 million is primarily due to the Company's loss from
operations of $18.0 million offset by reductions in trade accounts receivable as
well as from Singapore Technologies Pte. Ltd.
In consideration of the sale of the hard disk drive business as of March
29, 1996, the Company received total cash consideration of approximately $54
million. $39.7 million of such cash consideration was received as of the March
29, 1996 closing, $13 million in cash consideration was received on June 6,
1996, and in November, a final payment of $1 million was offset against accounts
payable otherwise owed to Micropolis (S) Pte. Ltd.
The Company's capital expenditures in the first nine months of the 1997
fiscal year were $2.0 million as compared to $24.4 million in the like period of
1995. Capital expenditures in 1996 related primarily to the acquisition of the
hardware business of FWB. Capital expenditures in the 1995 period related
primarily to the construction of a new manufacturing facility in Singapore to
replace the current leased facility and for equipment and tooling to support new
products. The new facility was completed in 1996 and sold as part of the sale
of the hard disk drive business. Fiscal 1997 capital spending will be
substantially less than that of fiscal 1995 and will be principally for
equipment and tooling required for the Company's new products.
On November 20, 1996 the Company consummated the Exchange Offer described
further in Note 6 to the financial statements. As result of the Exchange Offer,
the Company paid $8.4 million to tendering debenture holders.
On June 28, 1996 the Company established a $4 million revolving credit
facility with Wells Fargo Bank bearing interest and secured by cash of the
Company. As of December 27, 1996, $3.6 million was outstanding under the
facility and $173,000 was available.
During October 1995, the Company completed the private placement to an
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes
were convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $6.00 per share, a premium to the market price
of the Company's Common Stock at the time of issuance. The Notes were senior to
the Debentures and were collateralized by substantially all of the assets of the
Company. During March 1996, the Company obtained the required consent of the
holder
-11-
<PAGE>
of the Notes to allow consummation of the Sale and, in consideration for such
consent, agreed to repay the Notes on July 2, 1996 and issued warrants to
purchase 1,500,000 shares of the Company's Common Stock at a price of $4 per
share. On April 5, 1996, the Company repaid $10,000,000 of the Notes, and on
July 1, 1996, the Company repaid the remaining $10,000,000 of the Notes.
The Company anticipates that cash used in operations during the fourth
fiscal quarter of 1997 will amount to $2-$4 million principally as a result of
continuing operating losses. The actual amount will depend upon the results of
the Company's efforts to reduce its losses by decreasing expenses and reducing
costs, and its plans to decrease inventories to generate cash and fund the
anticipated loss for the quarter. The Company is also working to sell assets
not anticipated to be required after the consolidation to Northern California in
the first quarter of fiscal 1998, and to raise additional financing. While the
Company believes it has sufficient financial resources to meet its short term
financial needs, should internal financial plans and objectives not be met,
including the sale of certain assets and planned reductions in inventories, the
Company will require additional financing to continue operations. While the
Company currently believes such financing may be obtainable from sources it is
currently in discussions with, there can be no assurance as to the terms on
which it would be available, if at all.
Recent Developments
- -------------------
On October 16, 1996, the Company announced a plan to relocate its corporate
headquarters and consolidate all of its manufacturing operations in Northern
California. This cost saving measure calls for the closing of the company's
current Chatsworth facility and relocation of its manufacturing operations,
engineering and corporate administration by early April 1997.
On January 28, 1997, the Company announced its earnings for the period
ended December 27, 1996 and discussed the estimated cost of the above
consolidation. The Company estimated that total restructuring charges related
to the move to Northern California will amount to $1.7 million over a three
quarter period from December 1996 to June 1997, and that the related cash flow
impact of the related restructuring charges will be $1.5 million. For further
information, please refer to management's discussion and analysis of financial
condition and results of operations.
-12-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
STREAMLOGIC CORPORATION
-----------------------
Item 1. Legal Proceedings
-----------------
On December 23, 1996 the Company filed suit in the United States District Court,
Southern District of New York seeking a declaratory judgment invalidating a
purported acceleration of the remaining $4.8 million of the company's 6%
Convertible Subordinated Debentures left outstanding after the company's
recently completed exchange offer.
In the exchange offer, StreamLogic retired approximately $70.2 million aggregate
principal amount of the $75 million of Debentures originally issued. The
consideration given by StreamLogic for Debentures tendered in the exchange offer
included consideration for the interest payment otherwise due on September 15,
1996.
United Equities Company ("United Equities"), which purports to be a continuing
debenture holder and to represent other continuing debenture holders, has sought
to have the interest and principal on the remaining $4.8 million of Debentures
declared due and payable immediately. StreamLogic believes that the trustee for
the Debentures had on deposit sufficient funds to pay the interest that had been
due on September 15 (together with interest on such interest) at the time of
their acceleration demand and that the demand was ineffective. On December 27,
1996 the trustee distributed the amount originally due on September 15 (together
with interest on such amount) to Debenture holders of record on December 26,
1996.
On January 13, 1997, United Equities answered the Company's complaint and
counterclaimed seeking a declaratory judgment that United Equities had properly
and timely invoked the acceleration provisions of the indenture governing the
Debentures.
On February 5, 1997, the Company replied to the counterclaim contained in the
answer of defendant United Equities. The Company generally denied United
Equities' allegations, asserted various affirmative defenses and requested
judgment in favor of StreamLogic. The Company intends to continue to pursue
the litigation vigorously.
Item 3. Defaults Upon Senior Securities
-------------------------------
On October 15, 1996, the Company's non-payment of the interest due on September
15, 1996 on the $75 million amount of Debentures subject to the Company's
exchange offer became an "Event of Default" under the terms of the Debentures.
The interest due on September 15, 1996 was $2,250,000. In the exchange offer,
the Company retired approximately $70.2 million in aggregate principal amount of
the Debentures. The consideration given by the Company for Debentures exchanged
in the exchange offer included consideration for the interest payment otherwise
due on September 15, 1996. The interest due on September 15 (together with
interest on such interest) on the remaining $4.8 million of Debentures was
distributed to the holders of such Debentures by the trustee on December 27,
1997. Although all interest currently due and payable on the Debentures has been
paid, a holder of Debentures is seeking to have all interest and principal on
the Debentures declared due and payable immediately. See Item 1, Legal
Proceedings.
-13-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Set forth below are the results of the Company's solicitation of the written
consent of its stockholders to approve the offer to exchange the outstanding
Debentures for a package of cash, unsecured promissory notes, common stock and
warrants.
<TABLE>
<S> <C>
For: 8,873,192
Against: 103,075
Abstain: 24,870
Broker non-votes: 0
Not Voted: 7,929,653
</TABLE>
The Proxy Statement soliciting the written consent to the Exchange Offer was
first mailed to stockholders on October 7, 1996. The termination date for
receipt of written consents was 5:00 p.m. on November 20, 1996, and the Exchange
Offer closed at midnight on such date.
Item 5. Other
-----
Following consummation of the Exchange Offer, on December 23, 1996 the Company
received a letter from The Nasdaq Stock Market, Inc. stating that the Company
had been found to be in compliance with all requirements necessary for continued
listing on the Nasdaq National Market based upon a review of the Company's 8-K
dated November 21,1996 as well as all additional information requested by the
Nasdaq staff. Therefore, the Company's common stock continues to be listed on
the Nasdaq National Market and trades under the symbol STLC.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
10.1 Letter Agreement dated as of June 14, 1996 between the
Company and Loomis Sayles & Co., L.P. (Incorporated by
reference to Exhibit (c)(1) to the Company's Issuer Tender
Offer Statement on Schedule 13E-4 filed with the
Commission on October 7, 1996.)
10.2 Employment Agreement, dated June 19, 1996, between the
Company and Eric Herzog.
10.3 Employment Agreement, dated June 24, 1996, between the
Company and Stephen Dalton.
10.4 Employment Agreement, effective as of July 1, 1996,
between the Company and J. Larry Smart.
10.5 OEM License Agreement, signed July 8, 1996 effective July
1, 1996 between the Company and FWB Software, Inc.
(Incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-3 (No. 333-
10241) dated as of November 4, 1996.)
10.6 Trademark License Agreement, signed July 8, 1996 effective
July 1, 1996 between the Company and FWB Software, Inc.
(Incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement on Form S-3 (No. 333-
10241) dated as of November 4, 1996.)
10.7 Assignment of Equipment Leases, signed July 8, 1996
effective July 1, 1996 between the Company, FWB Software,
Inc. and FWB Software, LLC (a California limited liability
company) (Incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-3 (No. 333-
10241) dated as of November 4, 1996.)
10.8 Assignment and Assumption Agreement, signed July 8, 1996
effective July 1, 1996 between the Company and FWB
Software, Inc. (Incorporated by reference to Exhibit 10.4
of the Company's Registration Statement on Form S-3 (No.
333-10241) dated as of November 4, 1996.)
10.9 Operating Agreement of FWB Software, LLC, signed July 8,
1996 effective July 1, 1996 among the StreamLogic Software
Corporation (a Delaware corporation and wholly-owned
subsidiary of the Company), FWB Software, Inc., and FWB
Software, LLC. (Incorporated by reference to Exhibit 10.5
of the Company's Registration Statement on Form S-3 (No.
333-10241) dated as of November 4, 1996.)
10.10 Company Rights Agreement, signed July 8, 1996 effective
July 1, 1996 between the Company and FWB Software, LLC.
(Incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-3 (No. 333-
10241) dated as of November 4, 1996.)
10.11 Rights Agreement, signed July 8, 1996 effective July 1,
1996 by and among StreamLogic Software Corporation, FWB
Software, Inc. and FWB Software, LLC. (Incorporated by
reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-3 (No. 333-10241) dated as of November
4, 1996.)
10.12 Letter Agreement dated September 13, 1996 between the
Company and Loomis Sayles & Co., L.P. (Incorporated by
reference to Exhibit (c)(2) to the Company's Issuer Tender
Offer Statement on Schedule 13E-4 filed with the
Commission on October 7, 1996.)
10.13 Limited Liability Company Agreement, dated as of September
12, 1996, between Sattel Communications LLC and the
Company.
10.14 Letter dated September 12, 1996 from Concentric Network
Corporation, regarding transfer of Series D Preferred
Stock.
10.15 Amendment No. 4 to Rights Agreement, dated as of September
13, 1996, to Rights Agreement dated as of May 18, 1989 (as
amended), between the Company and First Interstate Bank of
California, or its successor, as Rights Agent.
10.16 Letter Agreement dated as of October 3, 1996 between the
Company and Loomis Sayles & Co., L.P. (Incorporated by
reference to Exhibit (c)(3) to the Company's Issuer Tender
Offer Statement on Schedule 13E-4 filed with the
Commission on October 7, 1996.)
10.17 Letter of Understanding regarding Operating Agreement of
FWB Software, LLC, dated November 1, 1996. (Incorporated
by reference to Exhibit 10.8 of the Company's Registration
Statement on Form S-3 (No. 333-10241) dated as of November
4, 1996.)
10.18 Consulting Agreement, dated as of November 1, 1996,
between the Company and Chriss Street.
10.19 $1,250,000 Promissory Note, dated November 4, 1996, by the
Company to FWB Software, LLC.
10.20 First Amendment to Operating Agreement of FWB Software,
LLC, dated November 4, 1996, between the Company and FWB
Software, LLC.
10.21 First Amendment to Company Rights Agreement, dated
November 4, 1996, between the Company and FWB Software,
LLC.
10.22 Share Pledge and Security Agreement, dated November 4,
1996, between the Company and FWB Software, LLC.
10.23 Letter dated November 12, 1996, amending Employment
Agreement between the Company and Stephen Dalton dated
June 24, 1996.
10.24 Letter dated November 12, 1996, amending Employment
Agreement between the Company and Eric Herzog dated June
19, 1996.
10.25 Severance Agreement, dated as of November 21, 1996,
between the Company and Barbara V. Scherer.
10.26 Indenture, dated as of November 29, 1996, between the
Company and NorWest Bank Minnesota, as Trustee, with
respect to the Company's Increasing Rate Unsecured
Promissory Notes due November 29, 1998. (Incorporated by
reference to Appendix B of Exhibit (a)(1) to the Company's
Issuer Tender Offer Statement on Schedule 13E-4 filed with
the Commission on October 7, 1996.)
10.27 Warrant Agreement, dated as of November 29, 1996, between
the Company and Wells Fargo Bank, N.A., as Warrant Agent
(Incorporated by reference to Appendix C of Exhibit (a)(1)
to the Company's Issuer Tender Offer Statement on Schedule
13E-4 filed with the Commission on October 7, 1996.)
27 Article 5 FDS for 3rd Fiscal Quarter 10-Q
b) Reports on Form 8-K
-------------------
The Company filed one report on Form 8-K during the fiscal quarter
covered by this report, as follows:
(1) Report on Form 8-K filed on November 21, 1996, reporting under
Item 5 the successful consummation of the Exchange Offer and
setting forth certain unaudited pro forma financial statements
required by the Nasdaq Stock Market, Inc.
-14-
<PAGE>
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, thereunto duly authorized, on February 7, 1997.
STREAMLOGIC CORPORATION
By /s/ J. Larry Smart
------------------------------------
J. Larry Smart
President and Chief Executive Officer
By /s/ Barbara V. Scherer
------------------------------------
Barbara V. Scherer
Senior V.P. and Chief Financial Officer
-15-
<PAGE>
EXHIBIT INDEX
-------------
10.1 Letter Agreement dated as of June 14, 1996 between the Company
and Loomis Sayles & Co., L.P. (Incorporated by reference to
Exhibit (c)(1) to the Company's Issuer Tender Offer Statement on
Schedule 13E-4 filed with the Commission on October 7, 1996.)
10.2 Employment Agreement, dated June 19, 1996, between the Company
and Eric Herzog.
10.3 Employment Agreement, dated June 24, 1996, between the Company
and Stephen Dalton.
10.4 Employment Agreement, effective as of July 1, 1996, between the
Company and J. Larry Smart.
10.5 OEM License Agreement, signed July 8, 1996 effective July 1, 1996
between the Company and FWB Software, Inc. (Incorporated by
reference to Exhibit 10.1 of the Company's Registration Statement
on Form S-3 (No. 333-10241) dated as of November 4, 1996.)
10.6 Trademark License Agreement, signed July 8, 1996 effective July
1, 1996 between the Company and FWB Software, Inc. (Incorporated
by reference to Exhibit 10.2 of the Company's Registration
Statement on Form S-3 (No. 333-10241) dated as of November 4,
1996.)
10.7 Assignment of Equipment Leases, signed July 8, 1996 effective
July 1, 1996 between the Company, FWB Software, Inc. and FWB
Software, LLC (a California limited liability company)
(Incorporated by reference to Exhibit 10.3 of the Company's
Registration Statement on Form S-3 (No. 333-10241) dated as of
November 4, 1996.)
10.8 Assignment and Assumption Agreement, signed July 8, 1996
effective July 1, 1996 between the Company and FWB Software, Inc.
(Incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-3 (No. 333-10241) dated as of
November 4, 1996.)
10.9 Operating Agreement of FWB Software, LLC, signed July 8, 1996
effective July 1, 1996 among the StreamLogic Software Corporation
(a Delaware corporation and wholly-owned subsidiary of the
Company), FWB Software, Inc., and FWB Software, LLC.
(Incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-3 (No. 333-10241) dated as of
November 4, 1996.)
<PAGE>
10.10 Company Rights Agreement, signed July 8, 1996 effective July 1,
1996 between the Company and FWB Software, LLC. (Incorporated by
reference to Exhibit 10.6 of the Company's Registration Statement
on Form S-3 (No. 333-10241) dated as of November 4, 1996.)
10.11 Rights Agreement, signed July 8, 1996 effective July 1, 1996 by
and among StreamLogic Software Corporation, FWB Software, Inc.
and FWB Software, LLC. (Incorporated by reference to Exhibit 10.7
of the Company's Registration Statement on Form S-3 (No. 333-
10241) dated as of November 4, 1996.)
10.12 Letter Agreement dated September 13, 1996 between the Company and
Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit
(c)(2) to the Company's Issuer Tender Offer Statement on Schedule
13E-4 filed with the Commission on October 7, 1996.)
10.13 Limited Liability Company Agreement, dated as of September 12,
1996, between Sattel Communications LLC and the Company.
10.14 Letter dated September 12, 1996 from Concentric Network
Corporation, regarding transfer of Series D Preferred
Stock.
10.15 Amendment No. 4 to Rights Agreement, dated as of September 13,
1996, to Rights Agreement dated as of May 18, 1989 (as amended),
between the Company and First Interstate Bank of California, or
its successor, as Rights Agent.
10.16 Letter Agreement dated as of October 3, 1996 between the Company
and Loomis Sayles & Co., L.P. (Incorporated by reference to
Exhibit (c)(3) to the Company's Issuer Tender Offer Statement on
Schedule 13E-4 filed with the Commission on October 7, 1996.)
10.17 Letter of Understanding regarding Operating Agreement of FWB
Software, LLC, dated November 1, 1996. (Incorporated by reference
to Exhibit 10.8 of the Company's Registration Statement on Form
S-3 (No. 333-10241) dated as of November 4, 1996.)
10.18 Consulting Agreement, dated as of November 1, 1996, between the
Company and Chriss Street.
10.19 $1,250,000 Promissory Note, dated November 4, 1996, by the
Company to FWB Software, LLC.
10.20 First Amendment to Operating Agreement of FWB Software, LLC,
dated November 4, 1996, between the Company and FWB Software,
LLC.
10.21 First Amendment to Company Rights Agreement, dated November 4,
1996, between the Company and FWB Software, LLC.
10.22 Share Pledge and Security Agreement, dated November 4, 1996,
between the Company and FWB Software, LLC.
10.23 Letter dated November 12, 1996, amending Employment Agreement
between the Company and Eric Herzog dated June 19, 1996.
10.24 Letter dated November 12, 1996, amending Employment Agreement
between the Company and Stephen Dalton dated June 24, 1996.
10.25 Severance Agreement, dated as of November 21, 1996, between the
Company and Barbara V. Scherer.
10.26 Indenture, dated as of November 29, 1996, between the Company and
NorWest Bank Minnesota, as Trustee, with respect to the Company's
Increasing Rate Unsecured Promissory Notes due November 29, 1998.
<PAGE>
(Incorporated by reference to Appendix B of Exhibit (a)(1) to the
Company's Issuer Tender Offer Statement on Schedule 13E-4 filed
with the Commission on October 7, 1996.)
10.27 Warrant Agreement, dated as of November 29, 1996, between the
Company and Wells Fargo Bank, N.A., as Warrant Agent
(Incorporated by reference to Appendix C of Exhibit (a)(1) to the
Company's Issuer Tender Offer Statement on Schedule 13E-4 filed
with the Commission on October 7, 1996.)
27 Article 5 FDS for 3rd Fiscal Quarter 10-Q
<PAGE>
EXHIBIT 10.2
[LETTERHEAD OF STREAMLOGIC CORPORATION]
June 19, 1996
Mr. Eric Herzog
2775 Calle De La Loma
Pleasanton, CA 94566
Dear Eric:
I am pleased to extend this offer of employment for the position of Vice
President, Marketing. This position will report to J. Larry Smart,
President/Chairman/CEO. The terms of the offer are as follows:
. Starting salary will be $150,000 annually.
. You will be eligible for a performance and salary review on an annual
basis by your supervisor. At that time and based upon your performance,
compensation and other benefits will be reviewed and adjusted by your
supervisor.
. You will be granted a stock option of 55,000 shares of StreamLogic
Corporation common stock. The terms and vesting schedule are described
in your Incentive Stock Option Agreement with the exception that your
vesting period will be three years. The vesting period will begin on
your first day of employment. Each year of the three year vesting
period will come due upon the anniversary of your hire date.
. You will also receive a share grant of 6,000 shares of StreamLogic
stock. The shares will be granted on the first anniversary date of your
employment with StreamLogic.
. As we agreed, if StreamLogic goes through a buyout or is acquired by
any other company in any other fashion, your stock options and grant
shares will be automatically vested in full.
. You will receive a one-time $20,000 compensatory bonus during the first
month of employment. If your employment is terminated voluntarily or
for cause within twelve months following payment of the compensatory
bonus, all monies will be due and payable no later than ninety days
from your last day of employment.
. You will eligible to participate in the StreamLogic Bonus Plan with a
maximum payout of $50,000 annually. The objectives for the Bonus Plan
will be agreed upon between you and your supervisor by July 15, 1996.
The Bonus Plan will be divided into two six month period annually from
your first day of employment, with a maximum payout of $25,000 per each
six month period. The Bonus Plan will be paid upon completion of each
six month period. Objectives for the second Bonus Plan period will be
set within two weeks of its commencement.
<PAGE>
Eric Herzog
Employment Offer
June 19, 1996
Page 2
. You will receive a car allowance of $450 per month and we will provide
you with a personal computer.
. During your first twelve months of employment with StreamLogic
Corporation, should your employment be terminated for any reason other
than cause or resignation, we will guarantee you base salary
continuation for the twenty-six week period following your termination
date. Salary continuation will be offset by any earnings from other
employment.
Your benefit package which includes medical, dental, vision coverage, long term
disability and life insurance will remain the same.
In accordance with the requirements of the Immigration Reform and Control Act of
1986, you will be required to provide verification of your identity and legal
right to work in the United States. This documentation must be presented on
your first day of employment with StreamLogic.
We are looking forward to a strong working relationship between StreamLogic and
FWB. If you have any questions, please feel free to call me at 818-701-8448.
This offer will remain open until close of work on Friday, June 21, 1996.
Sincerely,
STREAMLOGIC CORPORATION
/s/ Sue Whitfield
Sue Whitfield
Director, Human Resources
SW:ls
I have read, understand and accept the terms and conditions of this employment
offer.
/s/ Eric Herzog 6/20/96
- ----------------------------------- ------------------------------
Eric Herzog Date
<PAGE>
[LETTERHEAD OF STREAMLOGIC CORPORATION]
EXHIBIT 10.3
June 24, 1996
Steve Dalton
c/o FWB, Inc.
1555 Adams Drive
Menlo Park, CA 94025
Dear Steve:
I am pleased to extend this offer of employment for the position of Vice
President, Engineering. This position will report to J. Larry Smart,
President/Chairman/CEO. The terms of the offer are as follows:
. This offer is effective the day following the completed asset sale
between StreamLogic Corporation and FWB, Inc.
. Starting salary will be $135,000 annually.
. You will be granted a stock option of 32,000 shares of StreamLogic
Corporation common stock. The terms and vesting schedule are
described in your Incentive Stock Option Agreement.
. You will also receive a share grant of 6,500 shares of StreamLogic
stock. The shares will be granted on the first anniversary date of
your employment with StreamLogic.
. You will receive a one-time $10,000 compensatory bonus during the
first month of employment. If your employment is terminated
voluntarily or for cause within twelve months following payment of the
compensatory bonus, all monies will be due and payable no later than
ninety days from your last date of employment.
. You will be eligible to participate in the StreamLogic Bonus Plan with
a maximum payout annually of 30% of your base salary.
. As we agreed, StreamLogic will provide you with a cellular phone,
PC/MAC and ISDN home hook-up.
. During your first twelve months of employment with StreamLogic
Corporation, should your employment be terminated for any reason other
than cause or resignation, we will guarantee you base salary
continuation for the twenty-six week period following your termination
date. Salary continuation will be offset by any earnings from other
employment.
<PAGE>
Steve Dalton
Employment Offer
June 24, 1996
Page 2
Your benefit package which includes medical, dental, vision coverage, long term
disability and life insurance will remain the same.
In accordance with the requirements of the Immigration Reform and Control Act of
1986, you will be required to provide verification of your identity and legal
right to work in the United States. This documentation must be presented on your
first day of employment with StreamLogic.
We are looking forward to a strong working relationship between StreamLogic and
FWB. If you have any questions, please feel free to call me at 818-701-8448.
Sincerely,
STREAMLOGIC CORPORATION
/s/ Sue Whitfield
Sue Whitfield
Director, Human Resources
SW:ls
I have read, understand and accept the terms and conditions of this employment
offer.
/s/ Steve Dalton 6/27/96
- ---------------------- ------------------
Steve Dalton Date
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made and entered into
effective July 1, 1996 by and between StreamLogic Corporation (the "Company")
and J. Larry Smart ("Executive").
RECITALS
--------
WHEREAS, Executive has been, and continues to be, employed by the
Company as Chief Executive Officer; and
WHEREAS, Executive and the Company (then named Micropolis Corporation)
entered an Employment Agreement at the commencement of his employment as Chief
Executive Officer, effective July 10, 1995; and
WHEREAS, Executive and the Company (then also named Micropolis
Corporation) subsequently agreed to certain changes in the July 10, 1995
Employment Agreement, and entered into an Amended Employment Agreement effective
December 20, 1995; and
WHEREAS, Executive and Company mutually desire the amend the Amended
Employment Agreement further in certain respects, as set forth in this
Employment Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Title and Duties. Executive shall hold the position of Chief
----------------
Executive Officer ("CEO"), reporting directly to the Board of Directors.
Executive shall be responsible for all of the duties and services normally
performed or provided by a CEO, in accordance with the Company's bylaws and such
directives and instructions as Executive may receive from time to time from the
Company's Board of Directors.
2. Outside Business Activities Precluded. During his employment,
-------------------------------------
Executive shall devote his full energies, interest, abilities and productive
time to the performance of his duties under this Agreement and shall not,
without the prior written consent of the Company, render to others services of
any kind for compensation or engage in any other business activity that would
materially interfere with the performance of his duties under this Agreement,
except as listed in Appendix A.
3. Compensation. Executive shall be paid a base salary of $5,673 per
------------
week, in accordance with the Company's normal payroll practices and procedures.
4. Term. The effective date of this Agreement is July 1, 1996. This
----
Agreement shall be terminated immediately upon Executive's death or disability,
or for Executive's willful misconduct, willful breach of this Agreement, gross
negligence, or habitual neglect of his duties hereunder ("Cause"). The Company
may terminate this Agreement for reasons other than Cause prior to a Change of
Control with twelve (12) months' written notice to Executive; provided, however,
that
<PAGE>
Executive shall be relieved of all duties immediately upon receiving notice and
shall also be relieved of the obligations set forth in paragraph 2 of this
Agreement. Executive may terminate this Agreement at any time and for any
reason or no reason, upon thirty (30) days' written notice to the Company. The
Company's obligation to pay Executive compensation shall terminate upon the
termination of this Agreement. Executive's Involuntary Termination by the
Company without Cause in the 18-month period following a Change of Control (as
defined herein) shall be governed by paragraph 8 of this Agreement rather than
this paragraph.
5. Benefits. During the term of this Agreement, including any notice
--------
period provided for in paragraph 4, Executive shall be eligible to participate
in all of the benefits and benefit programs generally available to employees and
senior executives of the Company pursuant to the terms of the applicable
policies or plan documents. In addition, Executive shall receive a car allowance
in the amount of $1,000 per month. The Company shall use its best efforts to
obtain long-term disability coverage for Executive that will pay up to 100% of
his salary if he becomes disabled (subject to eligibility, underwriting
requirements (including a satisfactory physical exam, if required), and the
terms of the applicable policy and plan documents).
6. Incentive Stock Options. Effective July 5, 1995, Executive was
-----------------------
granted incentive stock options to purchase up to 350,000 shares of the
Company's common stock, at an exercise price equal to the stock's fair market
value as of the date such options were granted by the Company's Compensation
Committee, pursuant to the Stock Option Plan for Executive and Key Employees of
Micropolis Corporation (the "Plan"), to be vested over three (3) years in three
(3) equal installments of 116,666 1/3 shares on each of the first three (3)
anniversaries of his employment, if Executive is employed by the Company at that
time (the "Options"). Since 33 1/3% or more of the assets of the Company have
been acquired by a "third party," the Company's Board of Directors authorized
the immediate vesting of Executive's Options pursuant to Section 4.3(b) of the
Plan.
7. Cash Bonus. For calendar year 1996 and thereafter, the Company's
----------
Board of Directors shall develop a long-term cash bonus program for Executive
that will be based on 70% objective evaluation and 30% subjective evaluation of
Executive's performance. Pursuant to this program, Executive shall be eligible
for a cash bonus of up to 100% of his annual base salary based on the Board of
Director's evaluation of his performance. Executive must be employed by the
Company at the end of a calendar year to be eligible for payment of a bonus for
that year's performance.
8. Acceleration of Stock Options Upon Change of Control and Severance
------------------------------------------------------------------
Pay Upon Involuntary Termination.
- --------------------------------
(a) In the event of the consummation of any transaction
(including, without limitation, any merger or consolidation) during the
term of this Agreement, the result of which is that any person (including
any person as such term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) not affiliated with
the Company or the Executive becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of 33 1/3% or more of the voting power of the fully-diluted
common stock of the Company ("Change of Control"), all of the unexpired
stock options granted to Executive to which Executive would otherwise be
entitled will immediately vest; provided, however, that such acceleration
will not occur to the extent the options are to be assumed by the acquiring
entity. If necessary, the Compensation
2
<PAGE>
Committee of the Company's Board of Directors will take such action as may
be required pursuant to Section 4.3(b) of the Plan to effect such
acceleration.
(b) In the event that (i) the outstanding options are so assumed or
the Change in Control is effected through the acquisition of 33 1/3% or
more of the Company's outstanding voting stock pursuant to a hostile tender
offer and (ii) Executive's employment is Involuntarily Terminated (other
than for Cause) within 18 months following such assumption or acquisition,
then any unexpired options at the time held by Executive under the Plan
will immediately accelerate.
(c) Executive's Involuntary Termination is defined for purposes of
this Agreement as Executive's discharge or dismissal (other than for Cause)
or other termination of employment, whether voluntary or involuntary,
following a material reduction in Executive's compensation or level of
responsibilities, a change in Executive's job location without his consent,
or a material reduction in Executive's benefits and perquisites.
(d) In addition to the acceleration of Executive's options,
Executive may become entitled to a lump sum severance payment upon his
Involuntary Termination without Cause within 18 months after the Change in
Control. Accordingly, to the extent the spread on Executive's accelerated
options (the excess of the market price, at the time of acceleration of
the shares of common stock for which the options are accelerated, over the
aggregate exercise price payable for such shares) does not exceed 2.99
times the Executive's average W-2 wages from the Company for the five
fiscal years preceding the fiscal year in which the Change in Control
occurs, a cash severance payment will be provided to Executive. However,
the cash payment will in no event exceed the lesser of two times the sum of
Executive's annual rate of base salary in effect at the time of his
Involuntary Termination plus the bonuses earned by him for the immediately
preceding fiscal year or (ii) the amount necessary to bring the total
benefit package (acceleration plus severance) up to the "2.99 times average
W-2 wages" limitation.
(e) Notwithstanding anything in the foregoing to the contrary, if any
of the payments provided for in this Agreement, together with any other
notice or payments which the Executive have the right to receive from the
Company, would constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Internal Revenue Code), the payments pursuant to this
Agreement shall be reduced (reducing first the payments under paragraph
8(d)) to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code; provided, however, that the determination as to whether any
reduction in the payments under this Agreement pursuant to this proviso is
necessary shall be made by the Company in good faith, and such
determination shall be conclusive and binding on the Executive with respect
to its treatment of the payment for tax reporting purposes.
9. Reimbursement of Expenses. The Company shall reimburse Executive
-------------------------
for actual and reasonable business expenses incurred in connection with
performance of his duties, subject to the Company's policies and procedures.
The Company shall provide a San Jose office set-up for Executive and shall pay
for reasonable, business travel incurred to perform Executive's business duties.
10. Arbitration of Disputes. The Company and Executive agree that any
-----------------------
and all disputes concerning this Agreement or his employment by the Company
shall be submitted to final and
3
<PAGE>
binding arbitration to be conducted according to the Commercial Arbitration
Procedures of the American Arbitration Association. Such arbitration may be
compelled and enforced according to the California Arbitration Act, C.C.P.
(S)1280, et seq. If any party to this Agreement brings an action to enforce or
declare his/its rights hereunder, the prevailing party shall be entitled to
recover his/its costs and expenses, including reasonable attorneys' fees,
incurred in connection with such action.
11. Ancillary Agreements. Executive shall sign and comply with the
--------------------
Company's standard form Assignment of Inventions and Confidential Information
Agreement and any other agreements generally applicable to the Company's
employees.
12. Competitive Activities. During the term of this Agreement
----------------------
(including any notice period provided for in paragraph 4), Executive shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of the
Company, nor shall he, for himself or for any other person or entity, call on,
solicit, entice or make known to any other organization or firm the names of
customers or employees of the Company for the purposes of competing with the
Company, or otherwise interfere with the Company's operations.
13. Confidentiality and Non-Disclosure of Proprietary Information.
-------------------------------------------------------------
Executive acknowledges that the Company holds as confidential certain
information and knowledge respecting the intimate and confidential affairs of
the Company in the various phases of its business, including, but not limited
to, trade secrets, marketing plans, forecasts, and customer lists ("Proprietary
Information"). Executive agrees as follows:
a. All Proprietary Information shall be the sole property of
the Company and its assigns at all times. Both during the term of this
Agreement and after its termination, Executive agrees that he will keep all
Proprietary Information in confidence and will not use or disclose any
Proprietary Information or anything related to it without the prior written
consent of the Company, except as required in the ordinary course of
performing his duties as Executive.
b. Upon the termination of this Agreement, or at the Company's
written request at any time, Executive agrees to return all written
Proprietary Information to the Company, including all copies and photocopies
of such documents.
14. General Provisions.
------------------
14.1 Notices. Any notice, request, demand, or other
-------
communication required or permitted hereunder shall be deemed to properly given
when personally served in writing, when deposited in the United States mail,
postage pre-paid, or when communicated to a public telegraph company for
transmittal, addressed to the Company or Executive at his or its last known
address. Each party may change his or its address by written notice in
accordance with this paragraph.
14.2 Applicable Law. This Agreement is made and is to be
--------------
governed by and construed under the laws of the State of California.
4
<PAGE>
14.3 Captions and Paragraph Headings. Captions and
-------------------------------
paragraph headings as used herein are for convenience only and are not part of
this Agreement and shall not be used in construing it.
14.4 Severability. The provisions of this Agreement are
------------
severable. If any provisions of this Agreement shall be held to be invalid or
otherwise unenforceable, in whole or in part, the remainder of the provisions
or enforceable parts hereof shall not be affected thereby and shall be enforced
to the fullest extent permitted by law.
14.5 Benefit of Agreement. This Agreement shall inure to
--------------------
the benefit of and be binding upon the parties hereto and their respective
executors, administrators, successors and assigns; provided, however, that
Executive may not assign any of his rights or duties hereunder except upon the
prior written consent of the Board of Directors of the Company.
14.6 Entire Agreement. This Agreement contains the entire
----------------
agreement of the parties, and except as expressly stated herein supersedes any
and all other agreements, whether oral or in writing, between the parties
hereto with respect to the employment of the Executive by the Company. Each
party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing signed by the Chairman of the
Board on the one hand and by Executive on the other. If Executive becomes
Chairman of the Board, any modifications or amendments to this Agreement must be
by an agreement ratified by a majority of the Board of Directors or signed by
the Chairman of the Compensation Committee.
STREAMLOGIC CORPORATION
/s/ J. Larry Smart By: /s/ Chriss W. Street
- ------------------------ ----------------------------
J. Larry Smart Chriss W. Street
Dated: August 28, 1996
Director
----------------------------
Title
Dated: August 28, 1996
5
<PAGE>
EXHIBIT 10.13
================================================================================
LIMITED LIABILITY COMPANY
AGREEMENT
OF
SATLOGIC LLC
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF SEPTEMBER 12, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE 1.............................................................. 1
- ---------
ORGANIZATIONAL MATTERS................................................. 1
1.1 FORMATION............................................... 1
1.2 NAME.................................................... 1
1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS... 1
1.4 BUSINESS PURPOSE........................................ 1
1.5 CERTIFICATE OF FORMATION; FILINGS....................... 1
1.6 FICTITIOUS BUSINESS NAME STATEMENTS..................... 2
1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS................. 2
1.8 TERM.................................................... 2
ARTICLE 2.............................................................. 2
- ---------
DEFINITIONS............................................................ 2
2.1 "ACT"................................................... 2
2.2 "ADDITIONAL MEMBERS".................................... 2
2.3 "ADJUSTED CAPITAL ACCOUNT DEFICIT"...................... 2
2.4 "AFFILIATE"............................................. 2
2.5 "AGREEMENT"............................................. 3
2.6 "ASSIGNEE............................................... 3
2.7 "CAPITAL ACCOUNT"....................................... 3
2.8 "CAPITAL CONTRIBUTIONS"................................. 3
2.9 "CASH AVAILABLE FOR DISTRIBUTION"....................... 4
2.10 "CERTIFICATE"........................................... 4
2.11 "CODE".................................................. 4
2.12 "COMPANY"............................................... 4
2.13 "COMPANY ASSETS......................................... 4
2.14 "COMPANY MINIMUM GAIN".................................. 4
2.15 "DEPRECIATION".......................................... 4
2.16 "ECONOMIC INTEREST"..................................... 4
2.17 "ENCUMBRANCE"........................................... 4
2.18 "GROSS ASSET VALUE"..................................... 4
2.19 "IMMEDIATE FAMILY"...................................... 5
2.20 "INCAPACITY"............................................ 6
2.21 "INDEMNITEE"............................................ 6
2.22 "LIQUIDATOR"............................................ 6
2.23 "MAJORITY IN INTEREST".................................. 6
2.24 "MAJORITY OF REMAINING MEMBERS"......................... 6
2.25 "MANAGING MEMBERS"...................................... 6
2.26 "MEMBER MINIMUM GAIN"................................... 6
2.27 "MEMBER NONRECOURSE DEBT"............................... 6
2.28 "MEMBER NONRECOURSE DEDUCTIONS"......................... 6
2.29 "MEMBERS"............................................... 6
2.30 "MEMBERSHIP INTEREST" or "INTEREST"..................... 6
2.31 "MINIMUM CAPITAL ACCOUNT BALANCE"....................... 6
2.32 "NET PROFITS" or "NET LOSSES"........................... 6
2.33 "NONRECOURSE DEDUCTIONS"................................ 7
2.34 "NONRECOURSE LIABILITY"................................. 7
2.35 "OPERATING CASH EXPENSES"............................... 7
2.36 "PERCENTAGE INTEREST"................................... 8
2.37 "PERSON"................................................ 8
2.38 "RECOURSE LIABILITY".................................... 8
2.39 "REGULATIONS"........................................... 8
i
<PAGE>
PAGE
----
2.40 "REGULATORY ALLOCATIONS"................................ 8
2.41 "REQUIRED NOTICE"....................................... 8
2.42 "RESERVES".............................................. 8
2.43 "RESPONSIBLE PARTY"..................................... 8
2.44 "SUBSTITUTE MEMBER"..................................... 8
2.45 "TERMINATING CAPITAL TRANSACTION"....................... 8
2.46 "TERMINATION PAYMENT"................................... 8
2.47 "TRANSFER".............................................. 8
ARTICLE 3.............................................................. 9
- ---------
CAPITAL; CAPITAL ACCOUNTS AND MEMBERS.................................. 9
3.1 CAPITAL COMMITMENTS OF MEMBERS.......................... 9
3.2 CAPITAL CONTRIBUTIONS BY MEMBERS........................ 9
3.3 FAILURE TO CONTRIBUTE................................... 10
3.4 CAPITAL ACCOUNTS........................................ 12
3.5 ADDITIONAL MEMBERS...................................... 12
3.6 MEMBER CAPITAL.......................................... 12
3.7 MEMBER LOANS............................................ 12
3.8 LIABILITY OF MEMBERS.................................... 12
ARTICLE 4.............................................................. 13
- ---------
DISTRIBUTIONS.......................................................... 13
4.1 DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION........ 13
4.2 DISTRIBUTIONS UPON LIQUIDATION.......................... 13
4.3 WITHHOLDING............................................. 13
4.4 DISTRIBUTIONS IN KIND................................... 14
4.5 LIMITATIONS ON DISTRIBUTIONS............................ 14
ARTICLE 5.............................................................. 14
- ---------
ALLOCATIONS OF NET PROFITS AND NET LOSSES.............................. 14
5.1 GENERAL ALLOCATION OF NET PROFITS AND LOSSES............ 14
5.2 REGULATORY ALLOCATIONS.................................. 14
5.3 TAX ALLOCATIONS......................................... 16
5.4 OTHER PROVISIONS........................................ 16
ARTICLE 6.............................................................. 17
- ---------
OPERATIONS AND INDEMNIFICATION......................................... 17
6.1 MANAGEMENT.............................................. 17
6.2 LIMITATIONS ON AUTHORITY OF MANAGING MEMBERS............ 19
6.3 RELIANCE BY THIRD PARTIES............................... 20
6.4 COMPENSATION OF MANAGING MEMBERS........................ 20
6.5 RECORDS AND REPORTS..................................... 20
6.6 INDEMNIFICATION AND LIABILITY OF THE MANAGING MEMBER.... 21
6.7 REMOVAL AND WITHDRAWAL OF MANAGING MEMBER............... 22
6.8 OTHER ACTIVITIES........................................ 22
ARTICLE 7.............................................................. 23
- ---------
INTERESTS AND TRANSFERS OF INTERESTS................................... 23
7.1 TRANSFERS AND ENCUMBRANCES.............................. 23
7.2 FURTHER RESTRICTIONS.................................... 23
7.3 RIGHTS OF ASSIGNEES..................................... 24
ii
<PAGE>
PAGE
----
7.4 ADMISSIONS, WITHDRAWALS AND REMOVALS.................... 24
7.5 PAYMENT UPON WITHDRAWAL OR REMOVAL OF MEMBER............ 24
7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS............ 24
7.7 WITHDRAWAL OF MEMBERS................................... 25
7.8 CONVERSION OF MEMBERSHIP INTEREST....................... 25
7.9 COMPLIANCE WITH IRS SAFE HARBOR......................... 25
ARTICLE 8.............................................................. 26
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS................... 26
-------------------------------------------------
8.1 REPRESENTATIONS OF EACH MEMBER.......................... 26
8.1.1 STATUS......................................... 26
8.1.2 AUTHORITY...................................... 26
8.1.3 NO BREACH OR DEFAULT........................... 26
8.1.4 NO GOVERNMENTAL CONSENTS....................... 26
8.1.5 USE OF MEMBER'S NAME........................... 26
8.1.6 ACCURACY OF INFORMATION........................ 26
8.2 INVESTMENT REPRESENTATIONS.............................. 27
ARTICLE 9.............................................................. 28
- ---------
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY............... 28
9.1 LIMITATIONS............................................. 28
9.2 EXCLUSIVE CAUSES........................................ 28
9.3 EFFECT OF DISSOLUTION................................... 29
9.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION................ 29
9.5 LIQUIDATION............................................. 29
ARTICLE 10............................................................. 29
- ----------
MISCELLANEOUS.......................................................... 29
10.1 APPOINTMENT OF MANAGING MEMBERS AS ATTORNEY-IN-FACT..... 29
10.2 AMENDMENTS.............................................. 30
10.3 ACCOUNTING AND FISCAL YEAR.............................. 31
10.4 MEETINGS................................................ 31
10.5 ENTIRE AGREEMENT........................................ 31
10.6 FURTHER ASSURANCES...................................... 31
10.7 NOTICES................................................. 31
10.8 TAX MATTERS............................................. 32
10.9 GOVERNING LAW........................................... 32
10.10 CONSTRUCTION............................................ 32
10.11 CAPTIONS - PRONOUNS..................................... 32
10.12 BINDING EFFECT.......................................... 32
10.13 SEVERABILITY............................................ 32
10.14 CONFIDENTIALITY......................................... 32
10.15 COUNTERPARTS............................................ 33
iii
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
SATLOGIC LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "AGREEMENT") is made and
entered into as of the 12th day of September, 1996, by and between Sattel
Communications LLC, a California limited liability company ("SATTEL") and
StreamLogic Corporation, a Delaware corporation ("STREAMLOGIC") (each, a
"MEMBER" and, together, the "MEMBERS), for the purpose of forming SatLogic LLC
(the "COMPANY") a limited liability company organized under the Delaware Limited
Liability Company Act (the "ACT").
ARTICLE 1
---------
ORGANIZATIONAL MATTERS
----------------------
1.1 FORMATION. The Members hereby form the Company under the Act for the
purposes and upon the terms and conditions hereinafter set forth. The rights
and liabilities of the Members of the Company shall be as provided in the Act,
except as otherwise expressly provided herein. In the event of any
inconsistency between any terms and conditions contained in this Agreement and
any non-mandatory provisions of the Act, the terms and conditions contained in
this Agreement shall govern.
1.2 NAME. The name of the Company shall be SatLogic LLC. The Company
may also conduct business at the same time under one or more fictitious names if
the Managing Members determine that such is in the best interests of the
Company. The Managing Members may change the name of the Company, from time to
time, in accordance with applicable law.
1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS. The principal
place of business of the Company is located at 26025 Mureau Road, Calabasas,
California 91302, or such other place within or outside the State of Delaware as
the Managing Members may from time to time designate. The Company may maintain
offices and places of business at such other place or places within or outside
the State of Delaware as the Managing Members deem advisable.
1.4 BUSINESS PURPOSE. The purpose of the Company shall be the
implementation and exploitation, directly or indirectly, of a wholesale business
created to sell or resell network services elements to other value added network
service providers such as Internet service providers as well as other
transactions. The Company may engage in such additional businesses as are
agreed upon in writing by the Managing Members, provided that the restrictions
contained in Paragraph 6.8(b) shall only apply to such additional businesses if
---------
agreed upon by the Managing Members.
1.5 CERTIFICATE OF FORMATION; FILINGS. The Managing Members shall cause
to be executed and filed a Certificate of Formation (the "CERTIFICATE") in the
Office of the Delaware Secretary of State as required by the Act. The Managing
Members may execute and file any duly authorized amendments to the Certificate
from time to time in a form prescribed by the Act. The Managing Members shall
also cause to be made, on behalf of the Company, such additional filings and
recordings as the Managing Members shall deem necessary or advisable.
<PAGE>
1.6 FICTITIOUS BUSINESS NAME STATEMENTS. Following the execution of this
Agreement, fictitious business name statements shall be filed and published when
and if the Managing Members determine it necessary. Any such statement shall be
renewed as required by applicable law.
1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS. The Company shall
continuously maintain a registered office and a designated and duly qualified
agent for service of process on the Company in the State of Delaware.
1.8 TERM. The Company shall commence on the date that the Certificate is
filed with the Office of the Delaware Secretary of State, and shall continue
until terminated pursuant to this Agreement.
ARTICLE 2
---------
DEFINITIONS
-----------
Capitalized words and phrases used and not otherwise defined elsewhere in
this Agreement shall have the following meanings:
2.1 "ACT" is defined in the Preamble.
2.2 "ADDITIONAL MEMBERS" means those Persons admitted to the Company
pursuant to Paragraph 3.4 of the Agreement.
---------
2.3 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
2.3.1 Add to such Capital Account the following items:
(a) The amount, if any, that such Member is obligated to contribute
to the Company upon liquidation of such Member's Interest; and
(b) The amount that such Member is obligated to restore or is deemed
to be obligated to restore pursuant to Regulations Section 1.704-
1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
2.3.2 Subtract from such Capital Account such Member's share of the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
2.4 "AFFILIATE" means, with reference to a specified Person: (a) a Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person, (b) any
Person that is an officer, partner or trustee of, or serves in a similar
capacity with respect to, the specified Person, or for which the specified
Person is an officer, partner or trustee, or serves in a similar capacity, or
(c) any member of the Immediate Family of the specified Person.
2
<PAGE>
2.5 "AGREEMENT" is defined in the Preamble.
2.6 "ASSIGNEE" means any Person (a) to whom a Member (or assignee
thereof) Transfers all or any part of its interest in the Company, and (b) which
has not been admitted to the Company as a Substitute Member pursuant to
Paragraph 7.6 of this Agreement.
- ---------
2.7 "CAPITAL ACCOUNT" means the Capital Account maintained for each
Member on the Company's books and records in accordance with the following
provisions:
2.7.1 To each Member's Capital Account there shall be added (a) such
Member's Capital Contributions, (b) such Member's allocable share of Net
Profits and any items in the nature of income or gain that are specially
allocated to such Member pursuant to Article 5 hereof or other provisions of
-------
this Agreement, and (c) the amount of any Company liabilities assumed by such
Member or which are secured by any property distributed to such Member.
2.7.2 From each Member's Capital Account there shall be subtracted (a)
the amount of (i) cash and (ii) the Gross Asset Value of any Company Assets
(other than cash) distributed to such Member (other than any payment of
principal and/or interest to such Member pursuant to the terms of a loan made
by the Member to the Company) pursuant to any provision of this Agreement, (b)
such Member's allocable share of Net Losses and any other items in the nature
of expenses or losses that are specially allocated to such Member pursuant to
Article 5 or other provisions of this Agreement, and (c) liabilities of such
-------
Member assumed by the Company or which are secured by any property contributed
by such Member to the Company.
2.7.3 In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest.
2.7.4 In determining the amount of any liability for purposes of
Paragraphs 2.7.1 and 2.7.2 hereof, there shall be taken into account Code
----------
Section 752(c) and any other applicable provisions of the Code and
Regulations.
2.7.5 The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and
applied in a manner consistent with such Regulations. In the event that the
Managing Members shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any additions or subtractions thereto, are
computed in order to comply with such Regulations, the Managing Members may
make such modification, provided that it is not likely to have a material
effect on the amounts distributable to any Member pursuant to Article 9 hereof
-------
upon the dissolution of the Company. The Managing Members shall also make (a)
any adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (b) any
appropriate modifications in the event that unanticipated events might
otherwise cause this Agreement not to comply with Regulations Sections 1.704-
1(b) and 1.704-2.
2.8 "CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total
amount of money and the initial Gross Asset Value of property (other than money)
contributed to the capital of the
3
<PAGE>
Company by such Member, whether as an initial Capital Contribution or as an
additional Capital Contribution.
2.9 "CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any fiscal
year, all Company cash receipts (excluding the proceeds from any Terminating
Cash Transaction), after deducting payments for Operating Cash Expenses,
payments required to be made in connection with any loan to the Company or any
other loan secured by a lien on any Company Assets, capital expenditures and any
other amounts set aside for the restoration, increase or creation of reasonable
Reserves.
2.10 "CERTIFICATE" means the Certificate of Formation of the Company filed
under the Act in the Office of the Delaware Secretary of State for the purpose
of forming the Company as a Delaware limited liability company, and any duly
authorized, executed and filed amendments or restatements thereof.
2.11 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law).
2.12 "COMPANY" is defined in the Preamble.
2.13 "COMPANY ASSETS" means all direct and indirect interests in real and
personal property owned by the Company from time to time, and shall include both
tangible and intangible property (including cash).
2.14 "COMPANY MINIMUM GAIN" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum
gain."
2.15 "DEPRECIATION" means, for each fiscal year or other period, an amount
equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the Managing
Members.
2.16 "ECONOMIC INTEREST" means a Person's right to share in the Net
Profits, Net Losses, or similar items of, and to receive distributions from, the
Company, but does not include any other rights of a Member including, without
limitation, the right to vote or to participate in the management of the
Company, or, except as specifically provided in this Agreement or required under
the Act, any right to information concerning the business and affairs of the
Company.
2.17 "ENCUMBRANCE" means a pledge, alienation, mortgage, hypothecation,
encumbrance or similar collateral assignment by any other means, whether for
value or no value and whether voluntary or involuntary (including, without
limitation, by operation of law or by judgment, levy, attachment, garnishment,
bankruptcy or other legal or equitable proceedings).
2.18 "GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
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2.18.1 The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as
determined by the Managing Members and the contributing Member.
2.18.2 The Gross Asset Values of all Company Assets immediately prior to
the occurrence of any event described in subsection (a), subsection (b),
subsection (c) or subsection (d) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the Managing Members
using such reasonable method of valuation as they may adopt, as of the
following times:
(a) the acquisition of an additional interest in the Company (other
than in connection with the execution of this Agreement) by a new or
existing Member in exchange for more than a de minimis Capital
Contribution, if the Managing Members reasonably determine that such
adjustment is necessary or appropriate to reflect the relative Economic
Interests of the Members in the Company;
(b) the distribution by the Company to a Member of more than a de
minimis amount of Company Assets as consideration for an interest in the
Company, if the Managing Members reasonably determine that such adjustment
is necessary or appropriate to reflect the relative Economic Interests of
the Members in the Company;
(c) the liquidation of the Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g); and
(d) at such other times as the Managing Members shall reasonably
determine necessary or advisable in order to comply with Regulations
Sections 1.704-1(b) and 1.704-2.
2.18.3 The Gross Asset Value of any Company Asset distributed to a Member
shall be the gross fair market value of such asset on the date of distribution
as determined by the Managing Members.
2.18.4 The Gross Asset Values of Company Assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this Paragraph 2.18.4 to
---------
the extent that the Managing Members reasonably determine that an adjustment
pursuant to Paragraph 2.18.2 above is necessary or appropriate in connection
---------
with a transaction that would otherwise result in an adjustment pursuant to
this Paragraph 2.18.4.
---------
2.18.5 If the Gross Asset Value of a Company Asset has been determined or
adjusted pursuant to Paragraph 2.18.1, Paragraph 2.18.2 or Paragraph 2.18.4
--------- --------- ---------
hereof, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such Company Asset for
purposes of computing Net Profits and Net Losses.
2.19 "IMMEDIATE FAMILY" means, and is limited to, an individual Member's
current spouse, parents, parents-in-law, grandparents, children, siblings, and
grandchildren, or a trust or estate, all of the beneficiaries of which consist
of such Member or members of such Member's Immediate Family.
5
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2.20 "INCAPACITY" means the entry of an order of incompetence or of
insanity, or the death, dissolution, bankruptcy (as defined in the Act) or
termination (other than by merger or consolidation) of any Person.
2.21 "INDEMNITEE" is defined in Paragraph 6.6.1.
---------
2.22 "LIQUIDATOR" is defined in Paragraph 9.5.1.
---------
2.23 "MAJORITY IN INTEREST" means Members (including the Managing Members)
holding, in the aggregate, a majority of the Percentage Interests held by all
Members of the Company.
2.24 "MAJORITY OF REMAINING MEMBERS" means Members owning (a) a majority
of the profits interests in the Company held by all Member, determined and
allocated based on any reasonable estimate of profits from the relevant date to
the projected termination of the Company and taking into account present and
future allocations of profits under the Agreement as it is in effect on the
relevant date, and (b) a majority of the capital interests in the Company,
determined as of the relevant date under this Agreement, owned by all the
Members.
2.25 "MANAGING MEMBERS" shall mean Sattel Communications LLC and
StreamLogic Corporation, and shall include any additional or successor Managing
Members as may be appointed pursuant to Paragraph 6.7.1 or 6.1.3.
---------
2.26 "MEMBER MINIMUM GAIN" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Regulations Section 1.704-2(i) with respect to "partner minimum
gain."
2.27 "MEMBER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."
2.28 "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i) for the phrase "partner nonrecourse deductions."
2.29 "MEMBERS" means the Persons owning Membership Interests, including
the Managing Members and any Substitute or Additional Members, with each Member
being referred to, individually, as a "MEMBER."
2.30 "MEMBERSHIP INTEREST" or "INTEREST" means the entire ownership
interest of a Member in the Company at any particular time, including without
limitation, the Member's Economic Interest, any and all rights to vote and
otherwise participate in the Company's affairs, and the rights to any and all
benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all of the terms and
provisions of this Agreement.
2.31 "MINIMUM CAPITAL ACCOUNT BALANCE" is defined in Paragraph 3.2.4.
---------
2.32 "NET PROFITS" or "NET LOSSES" means, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such year or
period determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
6
<PAGE>
2.32.1 Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Profits or Net Losses
pursuant to this Paragraph 2.32 shall be added to such taxable income or loss;
---------
2.32.2 Any expenditure of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Profits or Net Losses pursuant to this Paragraph 2.32, shall
---------
be subtracted from such taxable income or loss;
2.32.3 Gain or loss resulting from any disposition of Company Assets where
such gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Company Assets disposed
of, notwithstanding that the adjusted tax basis of such Company Assets differs
from its Gross Asset Value;
2.32.4 In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year;
2.32.5 To the extent an adjustment to the adjusted tax basis of any asset
included in Company Assets pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's Interest, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for the purposes of
computing Net Profits and Net Losses;
2.32.6 If the Gross Asset Value of any Company Asset is adjusted in
accordance with Paragraph 2.18.2 or Paragraph 2.18.3 of this Agreement, the
--------- ---------
amount of such adjustment shall be taken into account in the taxable year of
such adjustment as gain or loss from the disposition of such asset for purposes
of computing Net Profits or Net Losses; and
2.32.7 Notwithstanding any other provision of this Paragraph 2.32,
---------
any items that are specially allocated pursuant to Paragraph 5.2 or Paragraph
--------- ---------
5.4.2 hereof shall not be taken into account in computing Net Profits or Net
Losses.
2.33 "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Sections 1.704-2(b)(1) and 1.704-2(c).
2.34 "NONRECOURSE LIABILITY" has the meaning set forth in Regulations
Sections 1.704-2(b)(3) and 1.752-1(a)(2).
2.35 "OPERATING CASH EXPENSES" means, with respect to any fiscal period,
the amount of cash disbursed in the ordinary course of business during the
period, including without limitation, all cash expenses, such as advertising,
promotion, property management, insurance premiums, taxes, utilities, repair,
maintenance, legal, accounting, bookkeeping, computing, equipment use, travel on
Company business, telephone expenses and salaries, and direct expenses of
Company employees (if any) and agents while engaged in Company business.
Operating Cash Expenses shall include fees paid by the Company to the Managing
Members or any Affiliate thereof permitted by this Agreement, and the actual
cost of goods, materials and administrative services used for or by the Company,
whether incurred by the Managing Members, any Affiliate thereof or any non-
Affiliate in performing functions set forth in this
7
<PAGE>
Agreement reasonably requiring the use of such goods, materials or
administrative services. Operating Cash Expenses shall not include expenditures
paid from Reserves.
2.36 "PERCENTAGE INTEREST" means, with respect to each Member, the
percentage set forth opposite such Member's name on Exhibit "A", attached hereto
-----------
as it may be modified or supplemented from time to time.
2.37 "PERSON" means and includes an individual, a corporation, a
partnership, a limited liability company, a trust, an unincorporated
organization, a government or any department or agency thereof, or any entity
similar to any of the foregoing.
2.38 "RECOURSE LIABILITY" has the meaning set forth in Regulations Section
1.752-1(a)(1).
2.39 "REGULATIONS" means proposed, temporary and final Treasury
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding Treasury
Regulations).
2.40 "REGULATORY ALLOCATIONS" is defined in Paragraph 5.2.9.
---------
2.41 "REQUIRED NOTICE" is defined in Paragraph 3.2.3(b).
---------
2.42 "RESERVES" means funds set aside or amounts allocated to reserves
that shall be maintained in amounts deemed sufficient by the Managing Members
for working capital, to pay taxes, insurance, debt service, and other costs or
expenses incident to the conduct of business by the Company as contemplated
hereunder.
2.43 "RESPONSIBLE PARTY" is defined in Paragraph 6.6.6.
---------
2.44 "SUBSTITUTE MEMBER" means any Person (a) to whom a Member (or
assignee thereof) Transfers all or any part of its interest in the Company, and
(b) which has been admitted to the Company as a Substitute Member pursuant to
Paragraph 7.6 of this Agreement.
- ---------
2.45 "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition
of all or substantially all of the assets of the Company or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Company.
2.46 "TERMINATION PAYMENT" is defined in Paragraph 7.5.
---------
2.47 "TRANSFER" means, with respect to any interest in the Company, a
sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest,
hypothecation or other transfer or disposition by any other means (other than an
Encumbrance), whether for value or no value and whether voluntary or involuntary
(including, without limitation, by realization upon any Encumbrance or by
operation of law or by judgment, levy, attachment, garnishment, bankruptcy or
other legal or equitable proceedings), or an agreement to do any of the
foregoing. The term "Transferred" shall have a correlative meaning.
8
<PAGE>
ARTICLE 3
---------
CAPITAL; CAPITAL ACCOUNTS AND MEMBERS
-------------------------------------
3.1 CAPITAL COMMITMENTS OF MEMBERS. Each Member, in exchange for its
initial Membership Interest, shall make a capital commitment (each, a "CAPITAL
COMMITMENT") in the amount specified opposite such Member's name under the
heading "CAPITAL COMMITMENT" in the Schedule of Members attached hereto as
Exhibit "A". Exhibit "A" shall also reflect the names, addresses, initial
- ----------- -----------
Capital Contributions and Percentage Interests of the Members.
3.2 CAPITAL CONTRIBUTIONS BY MEMBERS.
3.2.1 Except as provided in Paragraphs 3.2.2, 3.2.3 and 3.2.4, no
----------
Member shall be permitted or required to make any additional Capital
Contributions to the Company.
3.2.2 Within ten (10) business days of the Agreement Date, Sattel
shall make an initial Capital Contribution of $500,000 in cash (the "INITIAL
CASH CONTRIBUTION") and StreamLogic shall make an initial Capital Contribution
of $1,000,000 in the form of a promissory note in favor of the Company (the
"NOTE"). The Note shall be secured by a pledge of 735,294 shares of Series D
Preferred Stock of Concentric Network Corporation pursuant to a Pledge
Agreement to be entered into between StreamLogic and the Company and shall be
on such terms as are mutually agreed upon by the parties thereto. The Note
shall bear interest annually in arrears at a rate equal to one percent (1%)
per annum plus the prime rate listed from time to time in The Wall Street
---- ---------------
Journal (which listing appears as of the date hereof under the caption "Money
-------
Rates") or, if such listing is no longer published, then the reference rate
offered at such time by the Bank of America NT&SA.
3.2.3 As and when the Managing Members, in their sole discretion,
determine is appropriate, the Managing Members shall pay expenses or
obligations of the Company, or establish adequate Reserves therefor, as
follows:
(a) It shall first apply the Initial Cash Contribution;
(b) Thereafter, if from time to time the Company requires
additional capital, as determined by the Managing Members,
then the Managing Members may provide written notice thereof
to each Member (the "REQUIRED NOTICE"). Each Member
(including the Managing Members) shall thereafter be
required to make additional Capital Contributions as
follows:
(i) each Member shall make additional Capital Contributions
in cash (or such other property as the Managing Members
shall agree upon) on a pro rata basis in accordance
with their respective Percentage Interests until Sattel
has made additional Capital Contributions pursuant to
this Paragraph 3.2.3(b)(i) in the aggregate amount of
---------
$500,000;
(ii) thereafter, StreamLogic shall exclusively make such
additional Capital Contributions in an aggregate amount
equal to all accrued and unpaid interest and the
remaining outstanding principal amount of the Note
(after giving effect to the Capital
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<PAGE>
Contributions made by StreamLogic pursuant to Paragraph
---------
3.2.3(b)(i)); and
(iii) thereafter, each Member shall be required to make
additional Capital Contributions on a pro rata basis in
accordance with their respective Percentage Interests;
provided that no Member shall be required to make
additional Capital Contributions pursuant to this
Paragraph 3.2.3 in excess of the then-current amount of
---------
its unused Capital Commitment.
Any and all additional Capital Contributions by StreamLogic made pursuant to
this Paragraph 3.2.3(b) shall reduce StreamLogic's obligations under the Note
---------
(being applied first to accrued and unpaid interest and thereafter to the then
outstanding principal amount) in an amount equal to such additional Capital
Contributions.
3.2.4 The Managing Members shall at all times maintain, in the
aggregate, a minimum positive Capital Account balance equal to the lesser of
(a) one percent (1%) of total positive Capital Account balances for all
Members or (b) Five Hundred Thousand Dollars ($500,000) (in either case, the
"MINIMUM CAPITAL ACCOUNT BALANCE"). Upon the making of any Capital
Contribution to the Company by any Member, the Managing Members shall
immediately make additional Capital Contributions, pro rata in accordance with
their respective Percentage Interests, in an amount at least equal, in the
aggregate, to 1.01 percent of such Member's Capital Contributions or such
lesser amount as may be necessary to cause the positive balances in the
Managing Members' Capital Accounts to equal or exceed, in the aggregate, the
Minimum Capital Account Balance. Notwithstanding the foregoing, the provisions
of this Paragraph 3.2.3 shall cease to apply upon a written determination by
---------
the Managing Members, based on the issuance of new final Regulations pursuant
to Section 7701 of the Code or other changes in federal tax law and
corresponding changes in applicable state tax laws or regulations (to the
extent that such changes do not automatically follow the changes in federal
tax law), to the effect that such provisions are no longer necessary to cause
the Company to be treated as a partnership for federal and applicable state
income tax purposes.
3.3 FAILURE TO CONTRIBUTE.
3.3.1 If any Member fails to contribute timely all or any portion of
any Capital Contribution required to be made by such Member pursuant to this
Agreement and such failure continues for a period of five (5) Business Days
after receipt by such Member (such Member being hereinafter referred to as a
"DELINQUENT MEMBER") of notice from the Managing Members specifying such
failure (such failure being hereinafter referred to as a "DEFAULT"), then the
Managing Members (or, in the event a Managing Member is the Delinquent Member,
the other Managing Member or, in the event both Managing Members are the
Delinquent Members, a Majority in Interest of the other Members) may, at their
option, take one or more of the following actions:
(a) Take such action (including, without limitation, the filing
of a suit) as they deem appropriate to obtain payment by the
Delinquent Member of that portion of its Capital
Contribution which is in default, together with interest
thereon at the rate of interest equal to five percent (5%)
per annum plus the prime rate listed from time to time in
----
The Wall Street Journal (which listing appears as of the
-----------------------
date hereof under the caption "Money Rates") or, if such
listing is no longer published, then the reference rate
offered at such time by the Bank of America NT&SA,
10
<PAGE>
measured from the date that such Capital Contribution was
due until the date that such Capital Contribution, together
with any costs and expenses incurred by the Company as a
result of the Default, and together with all interest
accrued thereon, is paid to the Company. Until all such
amounts have been paid, all distributions that would
otherwise be made to such Delinquent Member shall be
withheld in partial satisfaction of such obligations and
shall be first applied to any costs and expenses incurred by
the Company as a result of the Default, then to interest
earned and unpaid, and then to principal;
(b) Advance on a pro rata basis based upon the relative
Percentage Interests of the participating Members, that
portion of such contribution which is in default, on the
following terms: (A) the sums thus advanced shall be deemed
to be demand recourse loans from the Members participating
therein to the Delinquent Member and a Capital Contribution
of such sums to the Company by the Delinquent Member; (B)
such loans shall bear interest at the rate of interest equal
to five percent (5%) per annum plus the prime rate listed
----
from time to time in The Wall Street Journal (which listing
-----------------------
appears as of the date hereof under the caption "Money
Rates") or, if such listing is no longer published, then the
reference rate offered at such time by the Bank of America
NT&SA, measured from the date that the advance was made
until the date that such advance, together with any costs
and expenses incurred by the Company as a result of the
Default, and together with all interest accrued thereon, is
repaid to the Members; (C) unless otherwise paid, the
repayment of these loans shall be made from any and all
distributions of the Company otherwise to be made to the
Delinquent Member, with the full amount of such loan (plus
all accrued interest thereon) to be refunded in full before
any distribution is made to the Delinquent Member during the
term of the Company or upon dissolution; and (D) all such
repayments shall be first applied to any costs and expenses
incurred by the Company as a result of the Default, then to
interest earned and unpaid, and then to principal;
(c) Unless the Delinquent Member shall have theretofore cured
its failure to make the required Capital Contribution (and
reimbursed the Company for all costs and expenses incurred
as a result of such Default), sell the Delinquent Member's
interest in the Company to the other Members wishing to
participate (other than the Delinquent Member) on a pro rata
basis based upon the relative Percentage Interests of the
other participating Members or to any other Person, to the
extent the Members fail to purchase their pro rata share,
without further notice to the Delinquent Member on the terms
and for such consideration as the contributing Member(s) may
determine in its sole and absolute discretion. Proceeds
from any such sale shall be retained by the Company or the
Members (as the case may be) to the extent of the amount,
including interest, costs and expenses (including, without
limitation, any and all costs and expenses incurred as a
result of the Default), then owing to the Company or the
Members (as the case may
11
<PAGE>
be) (the Delinquent Member remaining liable for any
deficiency); any excess shall be paid to the Delinquent
Member; and/or
(d) Exercise such other rights and remedies to which the
contributing Member(s) or the Company may be entitled at law
or in equity or by statute.
3.3.2 No right, power or remedy conferred pursuant to this Paragraph
---------
3.3 shall be exclusive, and each such right, power or remedy
shall be cumulative and in addition to every other right,
power or remedy whether conferred in this Paragraph 3.3 or
---------
now or hereafter available at law or in equity or by statute
or otherwise.
3.4 CAPITAL ACCOUNTS. A Capital Account shall be established and
maintained for each Member in accordance with the terms of this Agreement.
3.5 ADDITIONAL MEMBERS. Following formation of the Company, the Managing
Members are hereby authorized to issue interests in the Company directly from
the Company, and to admit one or more recipients of such interests as additional
Members ("ADDITIONAL MEMBERS") from time to time, on such terms and conditions
and for such Capital Contributions, if any, as the Managing Members may
determine. No action or consent by any Member other than the Managing Members
shall be required in connection with the admission of an Additional Member. As
a condition to being admitted to the Company, each Additional Member shall
execute an agreement to be bound by the terms and conditions of this Agreement.
It is anticipated that certain employees and/or officers will be offered the
opportunity to become Additional Members, on such terms and subject to such
conditions as the Managing Members shall determine.
3.6 MEMBER CAPITAL. Except as otherwise provided in this Agreement or
with the prior written consent of the Managing Members: (a) no Member shall
demand or be entitled to receive a return of or interest on its Capital
Contributions or Capital Account, (b) no Member shall withdraw any portion of
its Capital Contributions or receive any distributions from the Company as a
return of capital on account of such Capital Contributions, and (c) the Company
shall not redeem or repurchase the Interest of any Member.
3.7 MEMBER LOANS. No Member shall be required or permitted to make any
loans or otherwise lend any funds to the Company, except with the consent of the
Managing Members. Notwithstanding the foregoing, the Managing Members shall be
permitted (but not required) to make loans to the Company to the extent the
Managing Members reasonably determine that such loans are necessary or advisable
for the business of the Company, provided that the terms of such loans are no
less favorable to the Company as may be available from independent third
parties, taking into account, inter alia, the amount to be borrowed, the
unsecured nature of any such borrowing and the creditworthiness of the Company.
No loans made by any Member to the Company shall have any effect on such
Member's Percentage Interest, such loans representing a debt of the Company
payable or collectible solely from the assets of the Company in accordance with
the terms and conditions upon which such loans were made.
3.8 LIABILITY OF MEMBERS. Except as otherwise required by any non-
waivable provision of the Act or other applicable law: (a) no Member shall be
personally liable in any manner whatsoever for any debt, liability or other
obligation of the Company, whether such debt, liability or other obligation
arises in contract, tort, or otherwise; and (b) no Member shall in any event
have any liability whatsoever
12
<PAGE>
in excess of (i) the amount of its Capital Contributions, (ii) its share of any
assets and undistributed profits of the Company, (iii) the amount of any
unconditional obligation of such Member to make additional Capital Contributions
to the Company pursuant to this Agreement, and (iv) the amount of any wrongful
distribution to such Member, if, and only to the extent, such Member has actual
knowledge (at the time of the distribution) that such distribution is made in
violation of Section 18-607 of the Act.
ARTICLE 4
---------
DISTRIBUTIONS
-------------
4.1 DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION.
4.1.1 Except as otherwise provided in Article 9, Cash Available for
-------
Distribution shall be distributed to the Members only at such times as may be
determined in the sole discretion of the Managing Members.
4.1.2 Subject to Article 9 hereof, all distributions of Cash
-------
Available for Distribution shall be distributed to the Members pro rata in
accordance with their respective Percentage Interests.
4.2 DISTRIBUTIONS UPON LIQUIDATION. Distributions made in conjunction
with the final liquidation of the Company, including, without limitation, the
net proceeds of a Terminating Capital Transaction, shall be applied or
distributed as provided in Article 9 hereof.
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4.3 WITHHOLDING. The Company may withhold distributions or portions
thereof if it is required to do so by any applicable rule, regulation, or law,
and each Member hereby authorizes the Company to withhold from or pay on behalf
of or with respect to such Member any amount of federal, state, local or foreign
taxes that the Managing Members determine that the Company is required to
withhold or pay with respect to any amount distributable or allocable to such
Member pursuant to this Agreement. Any amount paid on behalf of or with respect
to a Member pursuant to this Paragraph 4.3 shall constitute a loan by the
---------
Company to such Member, which loan shall be repaid by such Member within fifteen
(15) days after notice from the Company that such payment must be made unless:
(i) the Company withholds such payment from a distribution which would otherwise
be made to the Member or (ii) the Managing Members determine in their sole and
absolute discretion that such payment may be satisfied out of Cash Available For
Distribution which would, but for such payment, be distributed to the Member.
Any amounts withheld pursuant to this Paragraph 4.3 shall be treated as having
---------
been distributed to such Member. Each Member hereby unconditionally and
irrevocably grants to the Company a security interest in such Member's Interest
in the Company to secure such Member's obligation to pay to the Company any
amounts required to be paid pursuant to this Paragraph 4.3. In the event that a
---------
Member fails to pay any amounts owed to the Company pursuant to this Paragraph
---------
4.3 when due, the remaining Members may, in their respective sole and absolute
discretion, elect to make the payment to the Company on behalf of such
defaulting Member, and in such event shall be deemed to have loaned such amount
to such defaulting Member and shall succeed to all rights and remedies of the
Company as against such defaulting Member (including, without limitation, the
right to receive distributions). Any amounts payable by a Member hereunder
shall bear interest equal to five percent (5%) per annum plus the prime rate
----
listed from time to time in The Wall Street Journal (which listing appears as of
-----------------------
the date hereof under the caption "Money Rates") or, if such listing is no
longer published, then the reference rate offered at such time by the Bank of
America NT&SA, from the date such amount is due (i.e., 15 days after demand)
until such amount is paid in full. Each Member shall take such actions as the
Company shall request in order to perfect or enforce the security interest
created hereunder.
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A Member's obligations hereunder shall survive the dissolution, liquidation, or
winding up of the Company.
4.4 DISTRIBUTIONS IN KIND. No right is given to any Member to demand or
receive property other than cash as provided in this Agreement. The Managing
Members may determine in their sole and absolute discretion to make a
distribution in kind of Company Assets to the Members, and such Company Assets
shall be distributed in such a fashion as to ensure that the fair market value
thereof is distributed and allocated in accordance with this Article 4 and
-------
Articles 5 and 9 hereof; provided, however, that no Member may be compelled to
- --------
accept a distribution consisting, in whole or in part, of any Company Assets in
kind unless the ratio that the fair market value of such distribution in kind
bears to such Member's total distribution does not exceed the ratio that the
fair market value of similar distributions in kind bear to the total
distributions of other Members receiving distributions concurrently therewith
(if any), except upon a dissolution and winding up of the Company.
------
4.5 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding any provision to the
contrary contained in this Agreement, neither the Company nor the Managing
Members acting on behalf of the Company, shall knowingly make a distribution to
any Member or the holder of any Economic Interest on account of its Membership
Interest or Economic Interest in the Company (as applicable) in violation of
Section 18-607 of the Act.
ARTICLE 5
---------
ALLOCATIONS OF NET PROFITS AND NET LOSSES
-----------------------------------------
5.1 GENERAL ALLOCATION OF NET PROFITS AND LOSSES.
5.1.1 Net Profits and Net Losses shall be determined and allocated
with respect to each fiscal year of the Company as of the end of such fiscal
year. Subject to the other provisions of this Agreement, an allocation to a
Member of a share of Net Profits or Net Losses shall be treated as an
allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Profits or Net Losses.
5.1.2 Subject to the other provisions of this Article 5, Net
-------
Profits, Net Losses and any other items of income, gain, loss and deduction
for any fiscal year shall be allocated, for purposes of adjusting the Capital
Accounts of the Members, in proportion to the Members' respective Percentage
Interests.
5.2 REGULATORY ALLOCATIONS. Notwithstanding the foregoing provisions of
this Article 5, the following special allocations shall be made in the following
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order of priority:
5.2.1 If there is a net decrease in Company Minimum Gain during a
Company taxable year, then each Member shall be allocated items of Company
income and gain for such taxable year (and, if necessary, for subsequent
years) in an amount equal to such Member's share of the net decrease in
Company Minimum Gain, determined in accordance with Regulations Section 1.704-
2(g)(2). This Paragraph 5.2.1 is intended to comply with the minimum gain
---------
chargeback requirement of Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
5.2.2 If there is a net decrease in Member Minimum Gain attributable
to a Member Nonrecourse Debt during any Company taxable year, each Member who
has a share of the Member Minimum Gain attributable to such Member Nonrecourse
Debt, determined in
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accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of Company income and gain for such taxable year (and, if
necessary, subsequent years) in an amount equal to such Member's share of the
net decrease in Member Minimum Gain attributable to such Member Nonrecourse
Debt, determined in a manner consistent with the provisions of Regulations
Section 1.704-2(g)(2). This Paragraph 5.2.2 is intended to comply with the
---------
partner nonrecourse debt minimum gain chargeback requirement of Regulations
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
5.2.3 If any Member unexpectedly receives an adjustment, allocation,
or distribution of the type contemplated by Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated to
all such Members (in proportion to the amounts of their respective Adjusted
Capital Account Deficits) in an amount and manner sufficient to eliminate the
Adjusted Capital Account Deficit of such Member as quickly as possible. It is
intended that this Paragraph 5.2.3 qualify and be construed as a "qualified
---------
income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d).
5.2.4 If the allocation of Net Loss to a Member as provided in
Paragraph 5.1 hereof would create or increase an Adjusted Capital Account
---------
Deficit, there shall be allocated to such Member only that amount of Net Loss
as will not create or increase an Adjusted Capital Account Deficit. The Net
Loss that would, absent the application of the preceding sentence, otherwise
be allocated to such Member shall be allocated to the other Members in
accordance with their relative Percentage Interests, subject to the
limitations of this Paragraph 5.2.4.
---------
5.2.5 To the extent that an adjustment to the adjusted tax basis of
any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of its Interest in the Company, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to
the Members in accordance with their interests in the Company in the event
that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to
whom such distribution was made in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
5.2.6 The Nonrecourse Deductions for each taxable year of the Company
shall be allocated to the Members in proportion to their Percentage Interests.
5.2.7 The Member Nonrecourse Deductions shall be allocated each year
to the Member that bears the economic risk of loss (within the meaning of
Regulations Section 1.752-2) for the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable.
5.2.8 The allocations set forth in Paragraphs 5.2.1, 5.2.2, 5.2.3,
----------
5.2.4, 5.2.5, 5.2.6 and 5.2.7 hereof (the "REGULATORY ALLOCATIONS") are
intended to comply with certain requirements of Regulations Sections 1.704-
1(b) and 1.704-2(i). Notwithstanding the provisions of Paragraph 5.1.2, the
---------
Regulatory Allocations shall be taken into account in allocating other items
of income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Regulatory
Allocations to each Member shall be equal to the net amount that would have
been allocated to each such Member if the Regulatory Allocations had not
occurred.
15
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5.3 TAX ALLOCATIONS.
5.3.1 Except as provided in Paragraph 5.3.2 hereof, for income tax
---------
purposes under the Code and the Regulations, each Company item of income, gain,
loss and deduction shall be allocated between the Members as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to this
Article 5.
- -------
5.3.2 Tax items with respect to Company Assets that are contributed
to the Company with a Gross Asset Value that varies from its basis in the
hands of the contributing Member immediately preceding the date of
contribution shall be allocated between the Members for income tax purposes
pursuant to Regulations promulgated under Code Section 704(c) so as to take
into account such variation. The Company shall account for such variation
under any method approved under Code Section 704(c) and the applicable
Regulations as chosen by the Managing Members, including, without limitation,
the "traditional method" as described in Regulations Section 1.704-3(b). If
the Gross Asset Value of any Company Asset is adjusted pursuant to Paragraph
---------
2.18, subsequent allocations of income, gain, loss and deduction with respect
to such Company Asset shall take account of any variation between the adjusted
basis of such Company Asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the
Regulations promulgated thereunder under any method approved under Code
Section 704(c) and the applicable Regulations as chosen by the Managing
Members. Allocations pursuant to this Paragraph 5.3.2 are solely for purposes
---------
of federal, state and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Net
Profits, Net Losses and any other items or distributions pursuant to any
provision of this Agreement.
5.4 OTHER PROVISIONS.
5.4.1 For any fiscal year during which any part of a Membership
Interest or Economic Interest is transferred between the Members or to another
Person, the portion of the Net Profits, Net Losses and other items of income,
gain, loss, deduction and credit that are allocable with respect to such part of
a Membership Interest or Economic Interest shall be apportioned between the
transferor and the transferee under any method allowed pursuant to Section 706
of the Code and the applicable Regulations as determined by the Managing
Members.
5.4.2 Notwithstanding the foregoing provisions of Article 5 (other
-------
than Paragraph 5.2), each Managing Member's interest in each item of Company
---------
income, gain, loss, deduction or credit shall equal at least one percent (1%) of
each of those items at all times during the existence of the Company.
5.4.3 In the event that the Code or any Regulations require
allocations of items of income, gain, loss, deduction or credit different from
those set forth in this Article 5, the Managing Members are hereby authorized to
-------
make new allocations in reliance on the Code and such Regulations, and no such
new allocation shall give rise to any claim or cause of action by any Member.
5.4.4 For purposes of determining a Member's proportional share of
the Company's "excess nonrecourse liabilities" within the meaning of Regulations
Section 1.752-3(a)(3), each Member's interest in Net Profits shall be such
Member's Percentage Interest.
5.4.5 The Members acknowledge and are aware of the income tax
consequences of the allocations made by this Article 5 and hereby agree to be
-------
bound by the provisions of this Article
-------
16
<PAGE>
5 in reporting their shares of Net Profits, Net Losses and other items of
income, gain, loss, deduction and credit for federal, state and local income tax
purposes.
ARTICLE 6
---------
OPERATIONS AND INDEMNIFICATION
------------------------------
6.1 MANAGEMENT.
6.1.1 Except as otherwise expressly provided in this Agreement, the
Managing Members shall have sole and complete charge and management of all the
affairs and business of the Company, in all respects and in all matters. The
Managing Members shall be agents of the Company's business, and the actions of
the Managing Members taken in such capacity and in accordance with this
Agreement shall bind the Company. Each Managing Member shall at all times be
a Member of the Company. Except as otherwise expressly provided in this
Agreement, the Members other than the Managing Members shall not participate
in the control of the Company, and shall have no right, power or authority to
act for or on behalf of, or otherwise bind, the Company. Unless otherwise
provided herein, all decisions and actions that may be made or taken by the
Managing Members shall be so made or taken, if at all, by unanimous consent.
Except as expressly provided in this Agreement or required by any non-waivable
provisions of applicable law, Members other than the Managing Members shall
have no right to vote on or consent to any other matter, act, decision, or
document involving the Company or its business.
6.1.2 The Managing Members shall have full, exclusive and complete
discretion to manage and control the business and affairs of the Company, to
make all decisions affecting the business and affairs of the Company, to take
all such actions as they deem necessary or appropriate to accomplish the
purposes and direct the affairs of the Company and to delegate in writing any
of the foregoing powers to any other Person mutually satisfactory to the
Managing Members. The Managing Members shall have the sole power and
authority to bind the Company, except and to the extent that such power is
expressly delegated in writing to any other Person by the Managing Members,
and such delegation shall not cause the Managing Members to cease to be a
Member or the Managing Members of the Company.
6.1.3 The Managing Members shall also have the exclusive right,
power and authority, in the management of the business and affairs of the
Company, to do or cause to be done any and all acts, at the expense of the
Company, deemed by the Managing Members to be necessary or appropriate to
effectuate the business of the Company. Without limiting the generality of
the foregoing, the Managing Members shall have full and complete power and
authority, without the approval of any other Member:
(a) to acquire by purchase, lease, contribution or otherwise,
and/or to otherwise own, hold, operate, maintain, finance,
improve, lease, sell, convey, mortgage, transfer or dispose
of any property or other assets (real or personal, tangible
or intangible) that the Managing Members deem necessary or
advisable;
(b) to negotiate, enter into, perform, modify, extend,
terminate, amend, waive, renegotiate and/or carry out any
contracts and agreements of any kind and nature, including,
without limitation, contracts and agreements
17
<PAGE>
with any Member or Affiliate thereof, or any other agent of
the Company, as the Managing Members deem necessary or
advisable;
(c) to lend money, to invest and reinvest its funds, and to take
and hold real and/or personal property for the payment of
funds so loaned or invested;
(d) to sue and be sued, complain and defend, and participate in
administrative, judicial and other proceedings, in the name
of, and behalf of, the Company;
(e) to pay, collect, compromise, arbitrate or otherwise adjust
or settle any and all claims or demands of or against the
Company, in such amounts and upon such terms and conditions
as the Managing Members shall reasonably determine;
(f) to, from time to time, employ, engage, hire or otherwise
secure the services of such Persons, including any Member or
Assignee, or any Persons related thereto or Affiliates
thereof, as the Managing Members may deem necessary or
advisable for the proper execution of their respective
duties as Managing Member hereunder, including the hiring of
a management team with the written consent of the Managing
Members and to delegate to such Persons such power and
authority as the Managing Members deem appropriate; provided
such services are within the scope of the foregoing
authority granted to the Managing Members hereunder, with
such employment to be for such compensation and upon such
terms and conditions as the Managing Members shall
determine;
(g) to, from time to time, appoint such officers and agents of
the Company (including, without limitation, a President,
Chief Executive Officer and/or additional Managing Members)
as the Managing Members deem necessary or advisable, define
and modify, from time to time, such officers' and agents'
duties, and fix and adjust, as appropriate, such officers'
and agents' compensation;
(h) to cause the Company to indemnify any Person in accordance
with, and to the fullest extent permitted by, applicable
law, and to obtain, for or on behalf of the Company, any and
all types of insurance deemed necessary or advisable by the
Managing Members;
(i) to borrow money and issue evidences of indebtedness
necessary, convenient or incidental to the business of the
Company, and secure the same by mortgage, pledge or other
lien on any Company Assets or other assets of the Company;
(j) to prepare, execute, file, record, publish and deliver any
and all instruments, documents or statements necessary or
convenient to effectuate any and all actions that the
Managing Members are authorized to take on behalf of the
Company;
18
<PAGE>
(k) to merge the Company with, or consolidate the Company with
or into, any other corporation, partnership, limited
liability company or other Person (whether domestic or
foreign);
(l) to deal with, or otherwise engage in business with, or
provide services to and receive compensation therefor from,
any Person who has provided or may in the future provide
services to, lend money to, sell property to, or purchase
property from the Company, the Members or any Affiliate of
the Members; and
(m) to establish and maintain Reserves for such purposes and in
such amounts as the Managing Members deem appropriate from
time to time.
6.1.4 The Managing Members shall prepare and submit to the Members
an annual business plan, to be adopted within thirty (30) days prior to the
beginning of each fiscal year, to contain, inter alia, sources and uses of
capital, estimated revenues and expenditures and business goals and
strategies. The annual business plan for the remainder of the current fiscal
year and for the following fiscal year shall be agreed upon by the Managing
Members within ninety (90) days following the execution of this Agreement.
6.1.5 Except as otherwise expressly provided in this Agreement or
required by any non-waivable provision of the Act or other applicable law, no
Member other than the Managing Members shall (a) have any right to vote on or
consent to any other matter, act, decision or document involving the Company
or its business, or (b) take part in the day-to-day management, or the
operation or control, of the business and affairs of the Company. Except to
the extent expressly delegated by the Managing Members, no other Member or
Person other than the Managing Members shall be an agent for the Company or
have any right, power or authority to transact any business in the name of the
Company or to act for or on behalf of or to bind the Company.
6.1.6 Only the Managing Members may commence a voluntary case on
behalf of, or an involuntary case against, the Company under a chapter of
Title 11 U.S.C. by the filing of a "petition" (as defined in 11 U.S.C.
101(42)) with the United States Bankruptcy Court. Any such petition filed by
any other Member shall be deemed an unauthorized and bad faith filing and all
parties to this Agreement shall use their best efforts to cause such petition
to be dismissed.
6.2 LIMITATIONS ON AUTHORITY OF MANAGING MEMBERS.
6.2.1 Notwithstanding any contrary provision of this Agreement,
without the written consent of a Majority in Interest, the Managing Members
shall not have the authority to:
(a) Dissolve the Company; or
(b) Approve any Terminating Capital Transaction.
6.2.2 Notwithstanding any contrary provision of this Agreement,
without the written consent of all Members, the Managing Members shall not
have the authority to:
(a) Do any act in contravention of this Agreement; or
19
<PAGE>
(b) Knowingly perform any act that would subject any Member to
liability for the debts, liabilities or obligations of the
Company.
6.3 RELIANCE BY THIRD PARTIES. Any Person dealing with the Company or
the Managing Members may rely upon a certificate signed by the Managing Members
as to:
(a) the identity of the Managing Members or any other Member of
the Company;
(b) the existence or non-existence of any fact or facts which
constitute a condition precedent to acts by the Managing
Members or in any other manner germane to the affairs of the
Company;
(c) the Persons who are authorized to execute and deliver any
instrument or document for or on behalf of the Company; or
(d) any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
6.4 COMPENSATION OF MANAGING MEMBERS.
6.4.1 The Managing Members may receive fees for their services in
administering the Company only with the consent of a Majority in Interest.
6.4.2 The Managing Members shall be entitled to reimbursement on a
monthly basis from the Company for all out-of-pocket costs and expenses
incurred by them, in their reasonable discretion, for or on behalf of the
Company.
6.5 RECORDS AND REPORTS.
6.5.1 The Managing Members shall cause to be kept, at the principal
place of business of the Company, or at such other location as the Managing
Members shall reasonably deem appropriate, full and proper ledgers, other
books of account, and records of all receipts and disbursements, other
financial activities, and the internal affairs of the Company for at least the
current and past four fiscal years.
6.5.2 The Managing Members shall also cause to be sent to each
Member of the Company, the following:
(a) within ninety (90) days following the end of each fiscal
year of the Company, a report that shall include all
necessary information required by the Members for
preparation of its federal, state and local income or
franchise tax or information returns, including each
Member's pro rata share of Net Profits, Net Losses and any
other items of income, gain, loss and deduction for such
fiscal year; and
(b) a copy of the Company's federal, state and local income tax
or information returns for each fiscal year, concurrent with
the filing of such returns.
20
<PAGE>
6.5.3 Members (personally or through an authorized representative)
may, for purposes reasonably related to their Interests, examine and copy (at
their own cost and expense) the books and records of the Company at all
reasonable business hours.
6.6 INDEMNIFICATION AND LIABILITY OF THE MANAGING MEMBERS.
6.6.1 The Company shall indemnify and hold harmless the Managing
Members, their respective Affiliates and subsidiaries, and all officers,
directors, employees, and agents of any of the foregoing (individually, an
"INDEMNITEE") to the full extent permitted by law from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements),
judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which the Indemnitee may be involved, or
threatened to be involved as a party or otherwise, relating to the performance
or nonperformance of any act concerning the activities of the Company, if (i)
the Indemnitee acted in good faith and in a manner it believed to be in, or
not contrary to, the best interests of the Company, and (ii) the Indemnitee's
conduct did not constitute gross negligence or willful misconduct. The
termination of an action, suit or proceeding by judgment, order, settlement,
or upon a plea of nolo contendere or its equivalent, shall not, in and of
itself, create a presumption or otherwise constitute evidence that the
Indemnitee acted in a manner contrary to that specified in clauses (i) or (ii)
above.
6.6.2 Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Paragraph 6.6 shall be
---------
advanced by the Company prior to the final disposition of such claim, demand,
action, suit, or proceeding upon receipt by the Company of a written
commitment by or on behalf of the Indemnitee to repay such amount if it shall
be determined that such Indemnitee is not entitled to be indemnified as
authorized in this Paragraph 6.6.
---------
6.6.3 Any indemnification provided hereunder shall be satisfied
solely out of the assets of the Company, as an expense of the Company. No
Member shall be subject to personal liability by reason of these
indemnification provisions.
6.6.4 The provisions of this Paragraph 6.6 are for the benefit of
---------
the Indemnitees and shall not be deemed to create any rights for the benefit
of any other Person.
6.6.5 Neither the Managing Members nor any of their respective
subsidiaries or Affiliates nor the officers, directors, employees or agents of
any of the foregoing shall be liable to the Company or to a Member for any
losses sustained or liabilities incurred as a result of any act or omission of
the Managing Members or any such other Person if (i) the act or failure to act
of such Managing Member(s) or such other Person was in good faith and in a
manner it believed to be in, or not contrary to, the best interests of the
Company, and (ii) the conduct of such Managing Member(s) or such other Person
did not constitute gross negligence or willful misconduct.
6.6.6 To the extent that either of the Managing Members, or any
Affiliate or subsidiary thereof, or any officer, director, employee or agent
of any of the foregoing (each, a "RESPONSIBLE PARTY") has, at law or in
equity, duties (including, without limitation, fiduciary duties) to the
Company, any Member or other Person bound by the terms of this Agreement, such
Responsible Parties acting in accordance with this Agreement shall not be
liable to the Company, any Member, or any such other Person for its good faith
reliance on the provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties of a Responsible Party
21
<PAGE>
otherwise existing at law or in equity, are agreed by all parties hereto to
replace such other duties to the greatest extent permitted under applicable
law.
6.6.7 Whenever a Responsible Party is required or permitted to make
a decision, take or approve an action, or omit to do any of the foregoing:
(a) in its discretion, under a similar grant of authority or latitude, or
without an express standard of behavior (including, without limitation,
standards such as "reasonable" or "good faith"), then such Responsible Party
shall be entitled to consider only such interests and factors, including its
own, as it desires, and shall have no duty or obligation to consider any other
interests or factors whatsoever, or (b) with an express standard of behavior
(including, without limitation, standards such as "reasonable" or "good
faith"), then such Responsible Party shall comply with such express standard
but shall not be subject to any other, different or additional standard
imposed by this Agreement or otherwise applicable law.
6.7 REMOVAL AND WITHDRAWAL OF MANAGING MEMBERS.
6.7.1 No Managing Member may be removed as the Managing Member at
any time except for actions which constitute gross negligence or willful
misconduct, upon the unanimous vote of the other Members. Upon (a) the
removal of a Managing Member pursuant to this Paragraph 6.7.1, (b) the
---------
withdrawal of a Managing Member as Managing Member or (c) the occurrence of
any event which would terminate the continued existence of a Managing Member
as a Member (including, without limitation, the Incapacity of the Managing
Member) (if the business of the Company is continued pursuant to Paragraph
---------
9.2(c)), the Company shall be managed by the other Managing Member and, if
there is no such other Managing Member, by the Members, with all actions
requiring the affirmative vote of a Majority in Interest (except to the extent
a greater percentage is required under this Agreement or any non-waivable
provision of the Act), unless and until a Majority in Interest of the Members
elect a new Managing Member. Upon removal (pursuant to this Paragraph 6.7.1)
---------
or withdrawal (pursuant to Paragraph 6.7.2), such Managing Member shall remain
---------
a Member with all the rights of a Member (including, without limitation, its
Economic Interest) to which it previously was entitled (other than rights to
which it was entitled solely in its capacity as a Managing Member).
6.7.2 A Managing Member may withdraw as Managing Member at any time
without the prior consent of any other Member by providing the Members written
notice thereof.
6.8 OTHER ACTIVITIES.
(a) Subject to Paragraph 6.8(b), the Members (including the
---------
Managing Members) may engage or invest in, and devote their time to, any
other business venture or activity of any nature and description
(independently or with others). Neither the Company nor any other Member
shall have any right by virtue of this Agreement or the relationship
created hereby in or to such other venture or activity of any Member (or
to the income or proceeds derived therefrom), and the pursuit thereof
shall not be deemed wrongful or improper. Notwithstanding the foregoing,
the Managing Members shall devote such time to the Company as they deem
reasonably necessary for the proper performance of their obligations and
duties hereunder.
(b) No Member shall engage or invest in, or devote their time to,
any business activity or venture that is deemed by the Managing Members to
be competitive with the Company and/or seek to provide service or products
which are substantially the same as those being offered by the Company.
22
<PAGE>
ARTICLE 7
---------
INTERESTS AND TRANSFERS OF INTERESTS
------------------------------------
7.1 TRANSFERS AND ENCUMBRANCES.
(a) Subject to Paragraph 7.8, no Member or Assignee may Transfer all
---------
or any portion of its Interest (or beneficial interest therein) to any other
Person without the prior written consent of the Managing Members, which
consent may be given or withheld in the Managing Members' sole and absolute
discretion, provided that any Member may Transfer all or any portion of its
Interest without the consent of any other Member to any Affiliate thereof so
long as (a) such Affiliate remains an affiliate of the transferring Member,
and (b) the admission of such Affiliate as a Substitute Member remains subject
to the provisions of Paragraph 7.6. Any purported Transfer which is not in
---------
accordance with this Agreement shall be null and void. Unless and until the
Person receiving an Interest Transferred pursuant to, and in accordance with,
this Paragraph 7.1 is admitted as a Substitute Member pursuant to Paragraph
--------- ---------
7.6, such Person shall be an Assignee only, and shall have only such rights as
are provided for in Paragraph 7.3.
---------
(b) No Member or Assignee may create an Encumbrance with respect to
all or any portion of its Interest (or any beneficial interest therein) unless
the Managing Members consent in writing thereto, which consent may be given or
withheld, or made subject to such conditions as are determined by the Managing
Members, in their sole and absolute discretion. Any purported Encumbrance
which is not in accordance with this Agreement shall be null and void.
7.2 FURTHER RESTRICTIONS. Notwithstanding any contrary provision in this
Agreement, any otherwise permitted Transfer shall be null and void if:
(a) such Transfer would cause a termination of the Company for
federal or state, if applicable, income tax purposes;
(b) such Transfer would, in the opinion of counsel to the Company,
cause the Company to cease to be classified as a partnership for federal or
state income tax purposes;
(c) such Transfer requires the registration of such Transferred
Interest pursuant to any applicable federal or state securities laws;
(d) such Transfer causes the Company to become a "Publicly Traded
Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the
Code;
(e) such Transfer subjects the Company to regulation under the
Investment Company Act of 1940, the Investment Advisers Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended;
(f) such Transfer results in a violation of applicable laws;
(g) such Transfer is made to any Person who lacks the legal right,
power or capacity to own such Interest; or
23
<PAGE>
(h) the Company does not receive written instruments (including,
without limitation, copies of any instruments of Transfer and such Assignee's
consent to be bound by this Agreement as an Assignee) that are in a form
satisfactory to the Managing Members (as determined in the Managing Members'
sole and absolute discretion).
7.3 RIGHTS OF ASSIGNEES. Until such time, if any, as a transferee of any
permitted Transfer pursuant to this Article 7 is admitted to the Company as a
-------
Substitute Member pursuant to Paragraph 7.6: (i) such transferee shall be an
---------
Assignee only, and only shall receive, to the extent Transferred, the
distributions and allocations of income, gain, loss, deduction, credit, or
similar item to which the Member which Transferred its Interest would be
entitled, and (ii) such Assignee shall not be entitled or enabled to exercise
any other rights or powers of a Member, such other rights remaining with the
transferring Member. In such a case, the transferring Member shall remain a
Member even if he has transferred his entire Economic Interest in the Company to
one or more Assignees. In the event any Assignee desires to make a further
assignment of any Economic Interest in the Company, such Assignee shall be
subject to all of the provisions of this Agreement to the same extent and in the
same manner as any Member desiring to make such an assignment.
7.4 ADMISSIONS, WITHDRAWALS AND REMOVALS. No Person shall be admitted to
the Company as a Member except in accordance with Paragraph 3.4 (in the case of
---------
Persons obtaining an interest in the Company directly from the Company) or
Paragraph 7.6 (in the case of transferees of a permitted Transfer of an interest
- ---------
in the Company from another Person). Except as otherwise specifically set forth
in Paragraph 7.7, no Member, including the Managing Member, shall be entitled to
---------
retire or withdraw from being a Member of the Company without the written
consent of a Majority in Interest, which consents may be given or withheld in
each Member's sole and absolute discretion. Except as otherwise provided in
Paragraph 9.2(c), no admission, withdrawal or removal of a Member shall cause
- ---------
the dissolution of the Company. Any purported admission, withdrawal or removal
which is not in accordance with this Agreement shall be null and void.
7.5 PAYMENT UPON WITHDRAWAL OR REMOVAL OF MEMBER. If any Member
withdraws from the Company with the consent of a Majority in Interest of the
remaining Members (other than pursuant to Paragraph 7.7), then such Member
---------
automatically shall receive from the Company a payment equal to the Member's
Capital Account balance as adjusted as of the effective date of the written
election of withdrawal (the "TERMINATION PAYMENT"). The Termination Payment
shall be paid on the effective date of the removal or written election of
withdrawal. If any Member attempts to withdraw from the Company (other than
pursuant to Paragraph 7.7) without the consent of a Majority in Interest of the
---------
remaining Members, then, notwithstanding the last sentence of Paragraph 7.4, the
---------
Managing Members may, in their sole and absolute discretion, permit such
withdrawal (without waiving, in any manner, any other rights available to it or
the Company at law or in equity and in addition to, and not in lieu of, any
other remedies to which it or the Company may be entitled), provided that such
withdrawing Member shall not be entitled to any Termination Payment or any other
compensation whatsoever in consideration for its terminated Membership Interest.
7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS.
7.6.1 An Assignee shall become a Substitute Member only if and when
each of the following conditions are satisfied:
(a) the assignor of the Interest transferred sends written notice to
the Managing Members requesting the admission of the Assignee as a Substitute
Member and setting forth the name
24
<PAGE>
and address of the Assignee, the Percentage Interest transferred, and the
effective date of the Transfer;
(b) the Managing Members (or, if at any time no Managing Member
exists, a Majority in Interest of non-transferring the Members) consent in
writing to such admission, which consent may be given or withheld in the
Managing Members' (or such other non-transferring Members') sole and absolute
discretion; and
(c) the Managing Members receive from the Assignee (i) such
information concerning the Assignee's financial capacities and investment
experience as may reasonably be requested by the Managing Members, and (ii)
written instruments (including, without limitation, copies of any instruments
of Transfer and such Assignee's consent to be bound by this Agreement as a
Substitute Member) that are in a form satisfactory to the Managing Members (as
determined in the Managing Members' sole and absolute discretion).
7.6.2 Upon the admission of any Substitute Member, Exhibit "A" shall
-------
be amended to reflect the name, address and Percentage Interest of such
Substitute Member and to eliminate or adjust, if necessary, the name, address
and Percentage Interest of the predecessor of such Substitute Member.
7.7 WITHDRAWAL OF MEMBERS. If a Member has transferred all of its
Membership Interest to one or more Assignees, then such Member shall withdraw
from the Company if and when all such Assignees have been admitted as Substitute
Members in accordance with this Agreement.
7.8 CONVERSION OF MEMBERSHIP INTEREST. Upon the Incapacity of a Member
(and the subsequent continuation of the business of the Company pursuant to
Paragraph 9.2(c) if such Incapacity relates to any Managing Member), such
- ---------
Incapacitated Member's Membership Interest shall automatically be converted to
an Economic Interest only, and such Incapacitated Member (or its executor,
administrator, trustee or receiver, as applicable) shall thereafter be deemed an
Assignee for all purposes hereunder, with the same Economic Interest as was held
by such Incapacitated Member prior to its Incapacity, but without any other
rights of a Member unless the holder of such Economic Interest is admitted as a
Substitute Member pursuant to Paragraph 7.6.
---------
7.9 COMPLIANCE WITH IRS SAFE HARBOR. The Managing Members shall monitor
the Transfers of Interests in the Company to determine (i) if such Interests are
being traded on an "established securities market" or a "secondary market (or
the substantial equivalent thereof)" within the meaning of section 7704 of the
Code, and (ii) whether additional Transfers of Interests would result in the
Company being unable to qualify for at least one of the "safe harbors" set forth
in Regulations Section 1.7704-1 (or such other guidance subsequently published
by the IRS setting forth safe harbors under which Interests will not be treated
as "readily tradable on a secondary market (or the substantial equivalent
thereof)" within the meaning of section 7704 of the Code) (the "SAFE HARBORS").
The Managing Members shall take all steps reasonably necessary or appropriate to
prevent any trading of Interests or any recognition by the Company of Transfers
made on such markets and, except as otherwise provided herein, to ensure that at
least one of the Safe Harbors is met.
25
<PAGE>
ARTICLE 8
---------
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
-------------------------------------------------
8.1 REPRESENTATIONS OF EACH MEMBER. Each of the Members hereby makes the
following representation and warranties to, and agreements with, the other
Members and the Company as of the Agreement Date:
8.1.1 STATUS. Such Member is duly incorporated, organized or formed
(in the event such Partner is not a corporation), validly existing and in good
standing under the laws of its state or country of incorporation, organization
or formation (as the case may be). Such Member has full power and authority
to own its property and to carry on its business as now conducted.
8.1.2 AUTHORITY. Such Member has full power and authority to
execute and deliver this Agreement and to carry out its obligations hereunder
in accordance with the terms and provisions hereof. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite action,
corporate or otherwise, on the part of such Member. This Agreement
constitutes the valid and legally binding obligation of such Member,
enforceable against it in accordance with its terms, except as enforceability
may be affected by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally;
(ii) the limitation of certain remedies by certain equitable principles of
general applicability; and (iii) the fact that the rights to indemnification
hereunder may be limited by federal or state securities laws.
8.1.3 NO BREACH OR DEFAULT. The execution, delivery and performance
by such Member of this Agreement and the transactions contemplated hereby will
not constitute a material breach of any term or provision of, or a material
default under (i) any outstanding indenture, mortgage, loan agreement or other
similar contract or agreement to which such Member or any of its Affiliates is
a party or by which it or any of its Affiliates or its or their property is
bound; (ii) its certificate or articles of incorporation or bylaws or other
constituent documents; (iii) any applicable law, rule or regulation; or (iv)
any order, writ, judgment or decree having applicability to it.
8.1.4 NO GOVERNMENTAL CONSENTS. All material consents, licenses,
approvals and authorizations, if any, and all filings and registrations,
required from any governmental body, authority, bureau or agency for or on the
part of any such Member or any of its Affiliates in connection with its
execution and delivery of this Agreement and its contributions to the capital
of the Company have been obtained prior to the Agreement Date.
8.1.5 USE OF MEMBER'S NAME. With respect to any matters relating to
the Company, such Member shall not use the name of any other Member in a press
release or in any other written communication to the general public, except as
may be required by law, without the prior written consent of such other
Member.
8.1.6 ACCURACY OF INFORMATION. Such Member shall furnish to the
Managing Members all information regarding itself or its Affiliates reasonably
requested by the Managing Members which is or may be required for inclusion in
any documents required to be prepared or filed in connection with the business
of the Company, and all such information when supplied to the Company and
thereafter will be true and correct in all material respects and will not omit
to state any material fact necessary to be stated therein in order that such
information shall not be misleading.
26
<PAGE>
8.2 INVESTMENT REPRESENTATIONS.
8.2.1 Each Member represents and warrants that it is acquiring its
Membership Interest solely for investment, for its account and not with a view
to, or for resale in connection with, the distribution or other disposition
thereof, except for such distributions and dispositions which are (A)
explicitly permitted or contemplated under the terms of this Agreement as well
as (B) effected in compliance with the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the rules and regulations of the Securities and Exchange
Commission promulgated thereunder and all applicable state securities and
"blue sky" laws.
8.2.2 Each Member understands that the purchase of Membership
Interests is a speculative investment which involves a high degree of risk of
loss of its investment therein, there are substantial restrictions on the
transferability of the Membership Interests under the provisions of this
Agreement and the Securities Act, and there will never be a public market for
the Membership Interests and, accordingly, it may not be possible to liquidate
its investment in the Fund in case of emergency or otherwise.
8.2.3 All information which each Member has provided to the Managing
Members and their Affiliates and representatives, if any, concerning itself
and its financial position is true, complete and correct in all material
respects as of the date of this Agreement and, if there should be any material
change in such information prior to the date such Member's initial Capital
Contribution or any additional Capital Contributions are made it will
immediately furnish such revised or corrected information to the Managing
Members or their Affiliates or representatives.
8.2.4 Each Member's financial situation is such that it can afford
to bear the economic risk of holding the Membership Interests for an
indefinite period of time and suffer a complete loss of its investment in the
Company.
8.2.5 Each Member's knowledge and experience in financial and
business matters are such that it is capable of evaluating the merits and
risks of its purchase of the Membership Interests or it has been advised by a
representative possessing such knowledge and experience.
8.2.6 Each Member and its representatives as it deems necessary,
including its professional, tax and other advisors, have reviewed the purchase
of the Membership Interests and such Member understands and has taken
cognizance of (or has been advised by its representatives as to) all the risk
factors related to the purchase of the Membership Interests.
8.2.7 In making its decision to purchase its Membership Interest,
each Member has relied upon independent investigations made by it and, to the
extent believed by it to be appropriate, its representatives.
8.2.8 Each Member and its representatives and advisors, if any, have
been afforded the opportunity to examine all documents related to and, if
applicable, executed in connection with, the transactions contemplated hereby,
which such Member or its representatives or advisors, if any, desire to
examine.
8.2.9 The Managing Members, their Affiliates or representatives
have provided each Member with the opportunity to ask questions of, and to
receive answers from, the Managing Members, their Affiliates, and their
representatives concerning the terms and conditions of the
27
<PAGE>
purchase of the Membership Interest. No representations or warranties have
been made to such Member or its representatives concerning the Membership
Interests or the Company, their prospects or other matters except as set forth
in this Agreement.
8.2.10 Each Member is an "accredited investor" as defined in Rule
501(a) under the Securities Act.
8.2.11 As of the date as of which each Member executes this
Agreement and for so long as it holds a Membership Interest thereafter, that
(A) it is not an "investment company" registered under the Investment Company
Act; (B) it is not an entity which would be defined as an "investment company"
under Section 3(a) of the Investment Company Act but for the exception
provided from that definition by Section 3(c)(1) of the Investment Company
Act; (C) it is not a business development company, as defined in Section
202(a)(22) of the Investment Advisers Act, as amended; (D) it was not formed
for the specific purpose of making an investment in the Fund; and (E) it is an
involuntary, noncontributory pension plan and constitutes one beneficial owner
of the Membership Interest being purchased by it for purposes of the
Investment Company Act.
ARTICLE 9
---------
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
--------------------------------------------------------
9.1 LIMITATIONS. The Company may be dissolved, liquidated, and
terminated only pursuant to the provisions of this Article 9, and the parties
-------
hereto do hereby irrevocably waive any and all other rights they may have to
cause a dissolution of the Company or a sale or partition of any or all of the
Company Assets.
9.2 EXCLUSIVE CAUSES. Notwithstanding the Act, the following and only
the following events shall cause the Company to be dissolved, liquidated, and
terminated:
(a) By the election of the Managing Members and the written consent of a
Majority in Interest;
(b) The occurrence of a Terminating Capital Transaction;
(c) The Incapacity of any Managing Members (or, if no Managing Member
exists, of any Member), unless a Majority of Remaining Members votes to
continue the Company within ninety (90) days following the occurrence of any
such Incapacity, provided that, the provisions of this Section 9.2(c) shall
cease to apply upon a written determination by the Members, based on the
issuance of new final Regulations pursuant to Section 7701 of the Code or
other changes in federal tax law and corresponding changes in applicable state
tax laws or regulations (to the extent that such changes do not automatically
follow the changes in federal tax law), to the effect that such provisions are
no longer necessary to cause the Company to be treated as a partnership for
federal and applicable state income tax purposes; or
(d) Judicial dissolution.
Any dissolution of the Company other than as provided in this Paragraph 9.2
---------
shall be a dissolution in contravention of this Agreement.
28
<PAGE>
9.3 EFFECT OF DISSOLUTION. The dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the dissolution,
but the Company shall not terminate until it has been wound up and its assets
have been distributed as provided in Paragraph 9.5 of this Agreement.
---------
Notwithstanding the dissolution of the Company, prior to the termination of the
Company, the business of the Company and the affairs of the Members, as such,
shall continue to be governed by this Agreement.
9.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall look
solely to the assets of the Company for all distributions with respect to the
Company, its Capital Contribution thereto, its Capital Account and its share of
Net Profits or Net Losses, and shall have no recourse therefor (upon dissolution
or otherwise) against any other Member. Accordingly, if any Member has a
deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which the liquidation occurs), then such Member shall have no
obligation to make any Capital Contribution with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any other
person for any purpose whatsoever.
9.5 LIQUIDATION.
9.5.1 Upon dissolution of the Company, the Managing Members shall
act as the "Liquidator" of the Company, provided, however, that, in the event
of a dissolution of the Company pursuant to Paragraph 9.2(c), a Person
---------
designated by a Majority in Interest of the remaining Members shall act as
Liquidator. The Liquidator shall liquidate the assets of the Company, and
after allocating (pursuant to Article 5 of this Agreement) all income, gain,
-------
loss and deductions resulting therefrom, shall apply and distribute the
proceeds thereof as follows:
(a) First, to the payment of the obligations of the Company, to the
expenses of liquidation, and to the setting up of any Reserves for
contingencies which the Managing Members may consider necessary.
(b) Thereafter, to the Members in proportion to the positive
balances in the Members' respective Capital Accounts, determined after taking
into account all Capital Account adjustments for the Company taxable year
during which such liquidation occurs (other than those made as a result of the
distributions set forth in this Paragraph 9.5.1(b) of this Agreement), by the
---------
end of the taxable year in which such liquidation occurs or, if later, within
90 days after the date of the liquidation.
9.5.2 Notwithstanding Paragraph 9.5.1 of this Agreement, in the
---------
event that the Managing Members determine that an immediate sale of all or any
portion of the Company Assets would cause undue loss to the Members, the
Managing Members, in order to avoid such loss to the extent not then
prohibited by the Act, may either defer liquidation of and withhold from
distribution for a reasonable time any Company Assets except those necessary
to satisfy the Company's debts and obligations, or distribute the Company
Assets to the Members in kind.
ARTICLE 10
----------
MISCELLANEOUS
-------------
10.1 APPOINTMENT OF MANAGING MEMBERS AS ATTORNEY-IN-FACT.
10.1.1 Each Member, including each Additional Member and Substitute
Member, by its execution of this Agreement, irrevocably constitutes and
appoints the Managing Members as its true and lawful attorney-in-fact with
full power and authority in its name, place and stead to
29
<PAGE>
execute, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to carry out
the provisions of this Agreement, including but not limited to:
(a) All certificates and other instruments (including
counterparts of this Agreement), and all amendments thereto, which
the Managing Members deem appropriate to form, qualify, continue or
otherwise operate the Company as a limited liability company (or
other entity in which the Members will have limited liability
comparable to that provided in the Act), in the jurisdictions in
which the Company may conduct business or in which such formation,
qualification or continuation is, in the opinion of the Managing
Members, necessary or desirable to protect the limited liability of
the Members.
(b) All amendments to this Agreement adopted in accordance with
the terms hereof, and all instruments which the Managing Members deem
appropriate to reflect a change or modification of the Company in
accordance with the terms of this Agreement.
(c) All conveyances of Company Assets, and other instruments
which the Managing Members reasonably deem necessary in order to
complete a dissolution and termination of the Company pursuant to
this Agreement.
10.1.2 The appointment by all Members of the Managing Members as
attorney-in-fact shall be deemed to be a power coupled with an interest, in
recognition of the fact that each of the Members under this Agreement will be
relying upon the power of the Managing Members to act as contemplated by this
Agreement in any filing and other action by it on behalf of the Company, shall
survive the Incapacity of any Person hereby giving such power, and the
transfer or assignment of all or any portion of the Interest of such Person in
the Company, and shall not be affected by the subsequent Incapacity of the
principal; provided, however, that in the event of the assignment by a Member
of all of its Interest in the Company, the foregoing power of attorney of an
assignor Member shall survive such assignment only until such time as the
Assignee shall have been admitted to the Company as a Substitute Member and
all required documents and instruments shall have been duly executed, filed
and recorded to effect such substitution.
10.2 AMENDMENTS.
10.2.1 Each Additional Member and Substitute Member shall become a
signatory hereto by signing such number of counterpart signature pages to this
Agreement, a power of attorney to the Managing Members, and such other
instruments, in such manner, as the Managing Members shall determine. By so
signing, each Additional Member and Substitute Member, as the case may be,
shall be deemed to have adopted and to have agreed to be bound by all of the
provisions of this Agreement.
10.2.2 In addition to amendments specifically authorized herein, any
and all amendments to this Agreement may be made from time to time by the
Managing Members without the consent of any other Member; except that, without
the consent of the Members to be adversely affected, this Agreement may not be
amended so as to (a) modify the limited liability of a Member
30
<PAGE>
or (c) adversely affect the interest of a Member in Net Profits, Net Losses or
Cash Available for Distribution (other than to reflect the admission of an
Additional Member).
10.2.3 In addition to other amendments authorized herein, amendments
may be made to this Agreement from time to time by the Managing Members,
without the consent of any other Member: (a) to cure any ambiguity, to correct
or supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Agreement that are not inconsistent with the
provisions of this Agreement; (b) to delete or add any provision of this
Agreement required to be so deleted or added by any federal or state official,
which addition or deletion is deemed by such official to be for the benefit or
protection of all of the Members; and (c) to take such actions as may be
necessary (if any) to insure that the Company will be treated as a partnership
for federal income tax purposes.
10.2.4 In making any amendments, there shall be prepared and filed
by, or for, the Managing Members such documents and certificates as may be
required under the Act and under the laws of any other jurisdiction applicable
to the Company.
10.3 ACCOUNTING AND FISCAL YEAR. Subject to Code Section 448, the books
of the Company shall be kept on such method of accounting for tax and financial
reporting purposes as may be determined by the Managing Members. The fiscal
year of the Company shall end on December 31 of each year, or on such other date
permitted under the Code as the Managing Members shall determine.
10.4 MEETINGS. At any time, and from time to time, the Managing Members
may, but shall not be required to, call meetings of the Members. Written notice
of any such meeting shall be given to all Members not less than two (2) nor more
than forty-five (45) days prior to the date of such meeting. Each meeting of
the Members shall be conducted by the Managing Members or any designee thereof.
Each Member may authorize any other Person (whether or not such other Person is
a Member) to act for it or on its behalf on all matters in which the Member is
entitled to participate. Each proxy must be signed by the Member or such
Member's attorney-in-fact. All other provisions governing, or otherwise
relating to, the holding of meetings of the Members, shall from time to time be
established in the sole discretion of the Managing Members.
10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and fully
supersedes any and all prior or contemporaneous agreements or understandings
between the parties hereto pertaining to the subject matter hereof.
10.6 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors, and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish, and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or reasonably necessary to effectively carry
out the purposes of this Agreement.
10.7 NOTICES. Any notice, consent, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be in
writing and shall be (a) delivered personally to the Person or to an officer of
the Person to whom the same is directed, or (b) sent by facsimile or registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows: if to the Company, to the Company at the address set forth in
Paragraph 1.3 hereof, or to such other address as the Company may from time to
- ---------
time specify by notice to the Members; if to a Member, to such Member at the
address set forth in Exhibit "A", or to such other address as such Member may
-----------
from
31
<PAGE>
time to time specify by notice to the Company. Any such notice shall be deemed
to be delivered, given and received for all purposes as of: (i) the date so
delivered, if delivered personally, (ii) upon receipt, if sent by facsimile, or
(iii) on the date of receipt or refusal indicated on the return receipt, if sent
by registered or certified mail, return receipt requested, postage and charges
prepaid and properly addressed.
10.8 TAX MATTERS.
10.8.1 Sattel shall be designated and shall operate as "Tax Matters
Partner" (as defined in Code Section 6231), to oversee or handle matters
relating to the taxation of the Company.
10.8.2 The Member designated as "Tax Matters Partner" may make all
elections for federal income and all other tax purposes (including, without
limitation, pursuant to Section 754 of the Code).
10.8.3 Income tax returns of the Company shall be prepared by such
certified public accountant(s) as the Managing Member shall retain at the
expense of the Company.
10.9 GOVERNING LAW. This Agreement, including its existence, validity,
construction, and operating effect, and the rights of each of the parties
hereto, shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to otherwise governing principles of conflicts
of law.
10.10 CONSTRUCTION. This Agreement shall be construed as if all parties
prepared this Agreement.
10.11 CAPTIONS - PRONOUNS. Any titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as appropriate.
10.12 BINDING EFFECT. Except as otherwise expressly provided herein,
this Agreement shall be binding on and inure to the benefit of the Members,
their heirs, executors, administrators, successors and all other Persons
hereafter holding, having or receiving an interest in the Company, whether as
Assignees, Substitute Members or otherwise.
10.13 SEVERABILITY. In the event that any provision of this Agreement as
applied to any party or to any circumstance, shall be adjudged by a court to be
void, unenforceable or inoperative as a matter of law, then the same shall in no
way affect any other provision in this Agreement, the application of such
provision in any other circumstance or with respect to any other party, or the
validity or enforceability of the Agreement as a whole.
10.14 CONFIDENTIALITY. Each Party hereto agrees that the provisions of
this Agreement, all understandings, agreements and other arrangements between
and among the parties, and all other non-public information received from or
otherwise relating to, the Company shall be confidential, and shall not be
disclosed or otherwise released to any other Person (other than another party
hereto), without the written consent of the Managing Members. The obligations
of the parties hereunder shall not apply to the extent that the disclosure of
information otherwise determined to be confidential is required by applicable
law, provided that, prior to disclosing such confidential information, a party
shall notify the Company thereof, which notice shall include the basis upon
which such party believes the information is required to be disclosed.
32
<PAGE>
10.15 COUNTERPARTS. This Agreement may be executed in any number of
multiple counterparts, each of which shall be deemed to be an original copy and
all of which shall constitute one agreement, binding on all parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Limited Liability
Company Agreement of SatLogic LLC as of the day and year first above written.
MANAGING MEMBER
/s/ Jim Fiedler
_____________________________
Sattel Communications LLC
MANAGING MEMBER
/s/ J. Larry Smart
_____________________________
StreamLogic Corporation
33
<PAGE>
EXHIBIT "A"
MEMBERS, CAPITAL COMMITMENTS, CAPITAL CONTRIBUTIONS,
AND PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
===================================================================================================
NAME AND ADDRESS OF INITIAL CAPITAL
MEMBERS CAPITAL COMMITMENT CONTRIBUTION PERCENTAGE INTEREST
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sattel Communications 50%
LLC $2,000,000 $500,000
26025 Mureau Road
Calabasas, CA 91302
c/o James J. Fiedler
- ---------------------------------------------------------------------------------------------------
StreamLogic 1 year promissory note in
Corporation $2,000,000 aggregate principal amount 50%
21329 Nordhoff Street of $1,000,000 to be
Chatsworth, CA 91311 secured by a pledge of
c/o J. Larry Smart 735,294 shares of Series D
Preferred Stock of
Concentric Network
Corporation
===================================================================================================
</TABLE>
34
<PAGE>
EXHIBIT 10.14
[LETTERHEAD OF CONCENTRIC NETWORK CORPORATION]
September 12, 1996
StreamLogic Corporation
21329 Nordhoff Street
Chatsworth, CA 91311
Re: Transfer of Series D Preferred Stock
------------------------------------
Ladies and Gentlemen:
In accordance with Section 8.7 of that certain Series D Preferred Stock Purchase
Agreement, dated as of August 21, 1996, among Concentric Network Corporation
("Concentric"), Sattel Communications LLC ("Sattel") and other parties listed on
Schedule A thereto (the "Purchase Agreement"), Concentric hereby consents to the
assignment by Sattel to StreamLogic Corporation ("StreamLogic") of all of
Sattel's rights, title and interest under and in the Purchase Agreement and that
certain Amended and Restated Registration Rights Agreement, dated as of August
21, 1996, among Concentric, Sattel and the other parties listed on the signature
pages and Schedules I, II, and III thereto (the "Registration Rights
Agreement"), in each case with respect to 1,838,235 shares (the "Shares") of
Concentric Series D Preferred Stock sold by Sattel to StreamLogic. Concentric
acknowledges and agrees that StreamLogic shall be entitled to all of the rights
and benefits granted to the Purchasers (as defined in the Purchase Agreement)
and to the Series D Holders (as defined in the Registration Rights Agreement)
with respect to the Shares and shall be treated as an original holder of Series
D Preferred Stock for all purposes under the Purchase Agreement and the
Registration Rights Agreement.
By: /s/ Michael F. Anthofer
-------------------------
Michael F. Anthofer
Vice President and CFO
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 4
TO RIGHTS AGREEMENT
AMENDMENT NO. 4 (this "Amendment"), dated as of September 13, 1996, to the
Rights Agreement, dated as of May 18, 1989, as amended to the date hereof (the
"Rights Agreement"), between StreamLogic Corporation, a Delaware corporation
(the "Company"), and First Interstate Bank of California or its successor, as
rights agent (the "Rights Agent").
RECITALS
WHEREAS, at a meeting of the Board of Directors of the Company (the
"Board") held on September 13, 1996, the Board considered whether, and on what
terms, the Company would: (a) enter into an amendment to that certain letter
agreement, between the Company and Loomis Sayles & Company, L.P. ("Loomis
Sayles") pursuant to which Loomis Sayles' would agree to advise its clients to
tender to the Company any and all of their 6% Convertible Subordinated
Debentures due 2012 (the "6% Debentures"); and (b) make an offer to exchange any
and all of its 6% Debentures for such consideration (including, without
limitation, any combination of cash, promissory notes, Common Shares (as such
term is defined in the Rights Agreement) and warrants to purchase Common Shares)
as may be determined by the Board, which offer to exchange would conform to the
terms and conditions contained in the Tender Agreement (as defined below);
WHEREAS, Loomis Sayles has indicated that, as a precondition to its
entering an amended Tender Agreement, the Company must agree to take all action
necessary to ensure that neither Loomis Sayles nor any institutional client of
Loomis Sayles will be deemed to be an "Acquiring Person" under the Rights
Agreement solely by virtue of holding or acquiring any Common Shares (whether
issued directly or upon the exercise of warrants) or warrants issued pursuant to
the offer to exchange;
WHEREAS, the Board has considered the manner in which the Rights Agreement
would operate in the event the Company were to proceed with the offer to
exchange;
1
<PAGE>
WHEREAS, the Board has: (a) determined that it is in the best interests of
the Company and its stockholders to amend the Rights Agreement to ensure that
none of Loomis Sayles, any institutional client of Loomis Sayles or any other
Person acting with respect to a Tender Agreement will be deemed to be an
Acquiring Person solely because Loomis Sayles, such institutional client or such
other Person, as applicable, shall have acquired, or be holding, Common Shares
or warrants issued to Loomis Sayles, such institutional client or such other
Person, as applicable, pursuant to an offer to exchange; and (b) authorized such
an amendment;
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement, as authorized by Section 26 of the Rights Agreement, by altering,
adding and deleting the provisions set forth herein in the manner set forth
below; and
WHEREAS, the parties have complied with or satisfied all conditions
necessary to the amendment of the Rights Agreement;
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. All terms used herein as defined terms which are
-----------
not defined in this Amendment shall have the meanings ascribed to them in the
Rights Agreement.
SECTION 2. Amendment to Rights Plan. Section 1(a) of the Rights Agreement
------------------------
shall be deleted in its entirety and replaced by a new Section 1(a), which shall
read as follows:
(a)(i) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be
the Beneficial Owner (as such term is hereinafter defined) of 20% or more
of the Common Shares of the Company then outstanding but shall not include
the Company, any Subsidiary of the Company or any employee benefit plan of
the Company or of any Subsidiary of the Company or any entity holding
shares of capital stock of the Company for or pursuant to the terms of any
such plan, in its capacity as an agent or trustee for any such plan.
(ii) Notwithstanding anything to the contrary in the foregoing, for
purposes of this Agreement and the definition of Acquiring Person, no
Person shall be deemed to be the Beneficial Owner of, or to beneficially
own, securities which
2
<PAGE>
such Person or any of such Person's Affiliates or Associates may acquire,
does or do acquire, or may be deemed to have the right to acquire as or
pursuant to (A) any Lindner Note Agreement (as defined below), (B) any
Lindner Convertible Notes (as defined below), (C) any Common Shares issued
or issuable on conversion of any Lindner Convertible Notes, (D) any Lindner
Warrant Agreement (as defined below), (E) any Lindner Warrants (as defined
below), or (F) any Common Shares issued or issuable on exercise of any
Lindner Warrants. "Lindner Note Agreement" shall mean any agreement
approved by resolution of the Board entered into after the date of
Amendment No. 1 to this Agreement between the Company and Lindner Dividend
Fund, A Series of Lindner Investments, a Massachusetts business trust,
relating to the issuance of a newly created series of Lindner Convertible
Notes. "Lindner Convertible Notes" shall mean any debt securities
convertible into Common Shares which are issued by the Company after the
date of Amendment No. 1 to this Agreement pursuant to any Lindner Note
Agreement. "Lindner Warrant Agreement" shall mean any agreement approved by
resolution of the Board that is entered into after the date of Amendment
No. 2 to this Agreement between the Company and Lindner Dividend Fund, A
Series of Lindner Investments, a Massachusetts business trust, and that
relates to the issuance of Lindner Warrants. "Lindner Warrants" shall mean
any common stock purchase warrants for Common Shares which are issued by
the Company after the date of Amendment No. 2 to this Agreement pursuant to
any Lindner Warrant Agreement.
(iii) Also notwithstanding anything to the contrary in the foregoing,
neither Loomis Sayles nor any other Person shall be deemed to be the
Beneficial Owner of, or to beneficially own, securities which such Person
or any of such Person's Affiliates or Associates may acquire, does or do
acquire, or may be deemed to have a right to acquire, as or pursuant to or
in connection with any Tender Agreement (as defined below) or the issuance
of securities pursuant to the consummation of any Offer to Exchange (as
defined below), including without limitation the later issuance of any
Common Shares in connection with the exercise of any warrants or other
securities that were a part of any such issuance. "Offer to Exchange" shall
mean any offer by the Company to exchange any or all of the Company's
outstanding 6% Convertible Subordinated Debentures due 2012 ("6%
Debentures") for such consideration as is approved by the Board (including,
without limitation, one of or any combination of cash, promissory notes,
Common Shares and warrants to purchase Common Shares. "Tender Agreement"
shall mean any agreement approved by resolution of the Board between the
Company and any Person, including, without limitation, Loomis Sayles &
Company, L.P. ("Loomis Sayles"), that specifies the terms under which such
Person will tender any and all of its 6% Debentures to the Company or will
advise its clients to tender any and all of their 6% Debentures to the
Company.
SECTION 3. Miscellaneous. This Amendment may be executed in one or more
-------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall
3
<PAGE>
constitute one and the same agreement. This Amendment shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware.
(signature page follows)
4
<PAGE>
IN WITNESS WHEREOF, the Company and the Rights Agent have caused this
Amendment to be executed as of the date and year first above written.
THE COMPANY
-----------
STREAMLOGIC CORPORATION
Attest:
By: /s/ Carmela LaMalfa By: /s/ Vivien Avella
-------------------------- -------------------------
Name: Carmela LaMalfa Name: Vivien Avella
Its: Its: Treasurer
THE RIGHTS AGENT
----------------
FIRST INTERSTATE BANK OF CALIFORNIA
(or its successor)
Attest:
By: /s/ Sharon Knepper By: /s/ Ronald Lug
-------------------------- -------------------------
Name: Sharon Knepper Name: Ronald Lug
Its: Assistant Vice President Its: Vice President
ChaseMellon Shareholder Services
as successor
5
<PAGE>
EXHIBIT 10.18
CONSULTING AGREEMENT
--------------------
Agreement made as of the First day of November, 1996 by and between CHRISS
STREET & COMPANY, a California corporation maintaining its principal offices at
1111 Bayside Drive, Corona del Mar, California 92625 (hereinafter referred to as
"Consultant") and STREAMLOGIC CORPORATION, a Delaware corporation maintaining
its principal offices at 21329 Nordhoff Street, Chatsworth, California 91311
(hereinafter referred to as "STREAMLOGIC CORPORATION").
WITNESSETH:
----------
WHEREAS, STREAMLOGIC CORPORATION develops and markets leading-edge video
delivery, digital media storage, and networking RAID and data management
solutions; and
WHEREAS, STREAMLOGIC CORPORATION is desirous of obtaining business and
financial advisory services; and
WHEREAS, Consultant is engaged in the business of providing and rendering
business and financial advisory services, has knowledge, expertise and personnel
to render the requisite services to STREAMLOGIC CORPORATION.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, it is agreed as follows:
1. Duties of Consultant. Consultant shall, at the request of STREAMLOGIC
--------------------
CORPORATION, upon reasonable notice, render the following services to
STREAMLOGIC CORPORATION.
(a) Consulting Services. Consultant will provide such financial consulting
-------------------
services and advice pertaining to STREAMLOGIC CORPORATION's business affairs as
STREAMLOGIC CORPORATION may from time to time reasonably request. Without
limiting the generality of the foregoing, Consultant will assist STREAMLOGIC
CORPORATION in developing, studying and evaluating, corporate restructuring and
repositioning proposals and assist in negotiations and discussions pertaining
thereto.
2. Compensation. For the services to be rendered and performed by Consultant
------------
during the term hereof, STREAMLOGIC CORPORATION shall pay to Consultant the sum
of $150,000.00 for investment banking services. Payment shall be made in two
installments; $75,000 payable on signing and the remaining $75,000 payable on
January 15, 1997. STREAMLOGIC CORPORATION shall also reimburse Consultant for
all reasonable and necessary out-of-pocket expenses incurred in the performance
of its duties for STREAMLOGIC CORPORATION upon presentation of statements
setting forth in
1
<PAGE>
reasonable detail the amount of such expenses. Consultant shall not incur any
expense for any single item in excess of $500.00 except upon the prior approval
of a representative of STREAMLOGIC CORPORATION.
3. Available Time. Consultant shall make available such time as it, in its
--------------
sole discretion, shall deem appropriate for the performance of its obligation
under this Agreement.
4. Relationship. Nothing herein shall constitute Consultant as an employee or
------------
agent of STREAMLOGIC CORPORATION, except to such extent as might hereinafter be
agreed upon for a particular purpose. Except as might hereinafter be expressly
agreed, Consultant shall not have the authority to obligate or commit
STREAMLOGIC CORPORATION in any manner whatsoever.
5. Confidentiality of STREAMLOGIC CORPORATION Business Information. Consultant
---------------------------------------------------------------
acknowledges that in the course of the performance of its duties and as a
necessary incident thereof, STREAMLOGIC CORPORATION may make available or impart
to Consultant or Consultant's agents, servants or employees certain financial
and business information concerning the business, affairs, plans and programs of
STREAMLOGIC CORPORATION (the "Proprietary Information"). Consultant
acknowledges that the Proprietary Information would not otherwise be made
available to it but for its relationship to STREAMLOGIC CORPORATION and that
such Proprietary Information would not otherwise be publicly available or
obtainable. Consultant agrees that neither it nor its officers, employees or
agents will, during the term of this Agreement or at any time thereafter,
disclose or divulge or use, directly or indirectly, for its own benefit, any of
the Proprietary Information. Consultant further agrees that it will not use any
of the Proprietary Information in connection with the purchase or sale of any
securities of STREAMLOGIC CORPORATION. The provisions of the is Paragraph 5
shall survive the termination of this Agreement.
6. Indemnification by STREAMLOGIC CORPORATION as to Information Provided to
------------------------------------------------------------------------
Consultant. STREAMLOGIC CORPORATION acknowledges that Consultant, in the
- ----------
performance of its duties, will be required to rely upon the accuracy and
completeness of information supplied to it by STREAMLOGIC CORPORATION's
officers, directors, agents and/or employees. STREAMLOGIC CORPORATION therefore
agrees to indemnify, hold harmless and defend Consultant, its officers, agents
and/or employees from any proceeding or suit which arises out of or is due to
the inaccuracy or incompleteness of any material or information supplied by
STREAMLOGIC CORPORATION to Consultant.
7. Term and Termination. This agreement shall be for one hundred fifty (150)
--------------------
day period commencing November 1, 1996 and terminating March 31, 1997.
2
<PAGE>
8. Notices. Any notice to be given by either party to the other hereunder
-------
shall be sufficient if in writing and sent by registered or certified mail,
return receipt requested, addressed to such party at the address specified on
the first page of this Agreement or such other address as either party may have
given to the other in writing.
9. Entire Agreement. The within agreement contains the entire agreement and
----------------
understanding between the parties and supersedes all prior negotiations,
agreements and discussions concerning the subject matter hereof.
10. Modification and Waiver. This Agreement may not be altered or modified
-----------------------
except by writing signed by each of the respective parties hereof. No breach or
violation of this Agreement shall be waived except in writing executed by the
party granting such waiver.
11. Law To Govern. This Agreement has been negotiated and executed in the State
-------------
of California and shall be governed by the laws of the State of California.
12. Non-Assignment. This Agreement shall not be assigned by either party hereto
--------------
except upon the prior written consent of the other.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first written above.
CHRISS STREET & COMPANY
By /s/ Chriss W. Street
-----------------------
Chriss W. Street
President
STREAMLOGIC CORPORATION
By /s/ J. Larry Smart
-----------------------
J. Larry Smart
President
3
<PAGE>
EXHIBIT 10.19
PROMISSORY NOTE ("Note")
$1,250,000 November 4, 1996
For value received StreamLogic Software Corporation, a Delaware
corporation ("Payor"), promises to pay to FWB Software, LLC, or order,
("Holder") the principal sum of One Million Two Hundred Fifty Thousand Dollars
($1,250,000) with interest on the outstanding principal amount at a rate equal
to 10.25% per annum, compounded daily, in accordance with terms of this Note.
All payments of interest and principal shall be in lawful money of the United
States of America.
1. This Note is secured by a Security Agreement by and between Payor and
Holder dated November 4, 1996.
2. The outstanding principal balance of this Note shall be due and
payable in eight quarterly installments of One Hundred Fifty-Six Thousand Two
Hundred Fifty Dollars ($156,250), with the first payment of principal due on
February 1, 1996, and the subsequent seven (7) payments due on the first day of
each third month thereafter (each, a "Payment Date"). All unpaid interest on
this Note accrued as of a Payment Date shall be due and payable on such Payment
Date.
3. If a default occurs in any payment under this Note or in the
performance of any of the agreements in the Security Agreement securing this
Note, the entire principal sum and accrued interest will at once become due and
payable, without notice, at the option of the Holder. Any amount due and payable
hereunder that is not received by Holder when due shall accrue interest
thereafter at a rate of 14.25% per annum, compounded daily.
4. Payor shall have the right to prepay all or any portion of the unpaid
principal balance of this Note, together with accrued interest thereon, on all
or any portion of the accrued interest on this Note at any time without any
prepayment charge.
5. In the event of any default hereunder, Payor shall pay all reasonable
attorneys' fees and court costs incurred by Holder in enforcing and collecting
this Note.
6. Payor hereby waives demand, notice, presentment, protest and notice of
dishonor.
7. The terms of this Note shall be construed in accordance with the laws
of the State of California, without regard to the conflict of laws provisions
thereof.
1
<PAGE>
8. Notwithstanding any other term or provision of this Note, the rate of
interest payable with respect to this Note shall not exceed the maximum
permissible rate under applicable law, and any payments in excess of such rate
shall be deemed to be prepayments of principal and not payments of interest.
STREAMLOGIC SOFTWARE CORPORATION
By /s/ J. Larry Smart
------------------------------
Its:
----------------------------
StreamLogic Corporation, a Delaware corporation, hereby guarantees timely
payment by Payor in full of all principal and interest under this Note.
STREAMLOGIC CORPORATION
By /s/ J. Larry Smart
------------------------------
Its:
----------------------------
<PAGE>
EXHIBIT 10.20
FIRST AMENDMENT
TO
OPERATING AGREEMENT
OF
FWB SOFTWARE, LLC
This First Amendment to Operating Agreement of FWB Software, LLC ("First
Amendment") is entered into as of November 4, 1996, by and between STREAMLOGIC
SOFTWARE CORPORATION, a Delaware corporation ("Sub") and FWB SOFTWARE, INC., a
California corporation ("FWB").
RECITALS
--------
Sub and FWB previously formed FWB Software, LLC, a California limited
liability company (the "Company") pursuant to that certain Operating Agreement
dated as of July 1, 1996 (the "Original Agreement"). Capitalized terms used in
this First Amendment and not otherwise defined shall have the meanings set forth
in the Original Agreement.
Sub and FWB desire to amend the Original Agreement to reflect a change in
Sub's obligation to contribute to the capital of the Company and a change in the
number of Shares to be issued to Sub.
Therefore, Sub and FWB agree to amend the Original Agreement as follows:
1. Sub Contribution.
Section 2.1(b) of the Original Agreement is amended to read in its entirety
as follows:
(b) Sub Contribution. At the Closing, Sub shall transfer, assign and
deliver to the Company One Million Two Hundred Fifty-Six Thousand One Hundred
Twenty-Three (1,256,123) shares of the common stock (the "Common Stock") of
StreamLogic Corporation ("StreamLogic"). On November 4, 1996, Sub shall
transfer, assign and deliver to the Company One Million Three Hundred Eighty
Thousand (1,380,000) additional shares of Common Stock of StreamLogic. Also on
November 4, 1996, Sub shall deliver to the Company Five Hundred Thousand Dollars
($500,000) in cash by wire transfer and shall deliver to the Company Sub's
promissory note in the principal amount of One Million Two Hundred Fifty
Thousand Dollars ($1,250,000), in the form attached to this First Amendment as
Exhibit A (the "Promissory Note"). Sub's obligations under the Promissory Note
shall be secured by the pledge of Sub's Shares, in the form of the security
agreement attached to this First Amendment as Exhibit B. The Members agree that
the net fair market value of Sub's contribution to the Company and the number of
Shares issued in exchange therefor shall be as set forth in an amended Exhibit B
to the Original Agreement, in the form attached to this First Amendment as
Exhibit C.
<PAGE>
2. Effect on Original Agreement.
Except as expressly amended by this First Amendment, the Original
Agreement shall remain in full force and effect. In the event of a conflict
between the Original Agreement and this First Amendment, this First Amendment
shall be controlling.
The Members have executed this First Amendment as of the date set forth
above.
STREAMLOGIC SOFTWARE CORPORATION,
a Delaware corporation
By /s/ J. Larry Smart
-------------------------------------
J. Larry Smart
Title:
------------------
FWB SOFTWARE, INC., a California corporation
By /s/ Norman Fong
-------------------------------------
Norman Fong, President
<PAGE>
EXHIBIT C
---------
AMENDED EXHIBIT B
-----------------
CAPITAL CONTRIBUTIONS AND SHARE OWNERSHIP
-----------------------------------------
<TABLE>
<CAPTION>
Member's Value of
Name and Address Capital Contributions Number of Shares
---------------- --------------------- ----------------
<S> <C> <C>
FWB Software, Inc. $63,068,183 9,250,000
185 Constitution Drive
Suite A
Menlo Park, California 94025
Stream Logic Software $ 5,113,636 750,000
Corporation
21329 Nordhoff Street
Chatsworth, California 91311
</TABLE>
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT
TO
COMPANY RIGHTS AGREEMENT
This First Amendment to Company Rights Agreement ("First Amendment") is
entered into as of November 4, 1996, by and between STREAMLOGIC CORPORATION, a
Delaware corporation ("StreamLogic") and FWB SOFTWARE, LLC., a California
limited liability company ("FWB").
RECITALS
--------
StreamLogic and FWB are parties to that certain Company Rights Agreement
dated as of July 1, 1996 (the "Company Rights Agreement"). Capitalized terms
used in this First Amendment and not otherwise defined shall have the meanings
set forth in the Company Rights Agreement.
Therefore, StreamLogic and FWB agree to amend the Company Rights Agreement
as follows:
1. Lock-Up Provisions.
Section 2.2(a) of the Company Rights Agreement is hereby deleted.
2. S-3 Registration.
StreamLogic shall on or before November 4, 1996 at its expense amend its
pending S-3 registration statement ("Registration Statement") for the shares of
Common Stock of StreamLogic previously delivered to FWB under the Operating
Agreement, dated as of July 1, 1996, between StreamLogic Software Corporation
and FWB Software, Inc. ("Operating Agreement") to include the additional shares
of Common Stock of StreamLogic to be delivered to FWB under Amendment No. 1 to
the Operating Agreement dated as of November 4, 1996. StreamLogic shall use its
best efforts to expedite and obtain effectiveness of the Registration Statement,
as amended, under the Securities Act as soon as possible.
3. Effect on Original Agreement.
Except as expressly amended by this First Amendment, the Company Rights
Agreement shall remain in full force and effect. In the event of a conflict
between the Company Rights Agreement and this First Amendment, this First
Amendment shall be controlling.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
set forth above.
STREAMLOGIC CORPORATION, a Delaware
corporation
By /s/ J. Larry Smart
----------------------------
J. Larry Smart
Chief Executive Officer
FWB SOFTWARE, LLC, a California limited
liability company
By /s/ Norman Fong
----------------------------
Norman Fong, President
<PAGE>
EXHIBIT 10.22
SHARE PLEDGE AND SECURITY AGREEMENT
THIS SHARE PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated as of
November 4, 1996 is made by and between StreamLogic Software Corporation, a
Delaware corporation ("Pledgor") and FWB Software, LLC, a California limited
liability company ("Secured Party").
R E C I T A L S
A. Pledgor is the owner of 750,000 membership shares (the "Pledged
Shares") of FWB Software, LLC (the "Shares"), as evidenced by certificate
numbers ____________.
B. As security for the "Obligations" described in Section 2 below, Pledgor
has agreed to make the pledge contemplated by this Agreement.
IT IS AGREED:
1. Pledge. Pledgor hereby pledges and delivers to Secured Party, and
grants to Secured Party a security interest in, all of the following (the
"Pledged Collateral"):
(a) The Pledged Shares and the certificate representing the Pledged Shares,
and all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares; and
(b) All additional Shares or other securities of Secured Party from time to
time acquired by Pledgor in connection with any Share split, Share dividend or
other distribution or exchange in respect of any Shares pledged hereunder, and
the certificates representing such additional shares or other securities, and
all dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares.
The inclusion of proceeds in this Agreement does not authorize Pledgor to sell,
dispose of or otherwise use the Pledged Collateral in any manner not
specifically authorized hereby.
2. Security for Obligations. This Agreement secures the payment and
performance of (i) all indebtedness evidenced by, and all liabilities and
obligations of Pledgor to Secured Party under, that certain Promissory Note
executed by Pledgor dated November 4, 1996 in favor of Secured Party (the
"Note"), and all modifications, renewals, extensions and rearrangements thereof
and substitutions and replacements therefor, and (ii) all indebtedness,
liabilities and obligations of Pledgor now or hereafter existing under this
Agreement (all of the foregoing collectively the "Obligations").
3. Delivery of Pledged Collateral. All certificates representing the
Pledged Collateral, accompanied by instruments of transfer or assignment duly
executed in blank by Pledgor, have been delivered to and held by or on behalf of
Secured Party pursuant hereto, all in
<PAGE>
form and substance satisfactory to Secured Party. Upon the occurrence and during
the continuation of an event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default (as defined in Section 7
hereof). Secured Party shall have the right, in its discretion and without
notice to Pledgor, to transfer to or to register in its name or the name of a
nominee any or all of the Pledged Collateral, subject only to the revocable
rights specified in Section 5(a) hereof. In addition, Secured Party shall have
the right at any time to exchange certificates representing the Pledged
Collateral in its possession for certificates of smaller or larger
denominations.
4. Representations and Warranties. Pledgor represents and warrants as
follows:
(a) Pledgor is a corporation organized and in good standing under the laws
of the State of Delaware and has full power and authority to enter into and
perform all of its obligations under this Agreement.
(b) The execution, delivery and performance by Pledgor of this Agreement do
not violate any provision of any statute, law, rule, regulation, judgment, order
or decree binding upon Pledgor and will not conflict with, or constitute a
breach or default under, any indenture, loan agreement, contract or other
agreement or instrument to which Pledgor is a party or by which Pledgor or any
of its property is bound.
(c) No authorization, consent or approval or other action by, and no notice
to or other filing with, any governmental authority or regulatory body is
required either (i) for the execution and delivery by Pledgor of this Agreement,
the pledge by Pledgor of the Pledged Collateral pursuant hereto or the
performance by Pledgor of any of its obligations hereunder, or (ii) for the
exercise by Secured Party of the voting or other rights provided for in this
Agreement or the remedies in respect of the Pledged Collateral pursuant hereto
(except as may be required in connection with such disposition by laws affecting
the offering and sale of securities generally).
(d) Pledgor is, and in the case of any Pledged Collateral other than the
Pledged Shares will be, the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, security interest, option, charge or encumbrance,
except for the security interest created by this Agreement.
(e) The pledge of the Pledged Shares creates a valid and perfected first
priority security interest in the Pledged Collateral, securing payment of the
Obligations.
5. Voting Rights; Dividends, Etc.
(a) So long as no Event of Default or event which, with the giving of
notice or the lapse of time, or both, would become an Event of Default shall
have occurred:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof for
any purpose
<PAGE>
not inconsistent with the terms of this Agreement or any document, agreement or
instrument entered into in connection with the Note.
(ii) Pledgor shall be entitled to receive and retain any and all cash
dividends paid in respect of the Pledged Collateral; provided, however, that all
other dividends and Shares, property or otherwise, including dividends
representing Shares or liquidating dividends, or a distribution or return of
capital upon or in respect of the Pledged Collateral, or any part thereof, or
resulting from a split-up, revision or reclassification of the Pledged Shares or
any part thereof, or received in exchange for the Pledged Shares or any part
thereof as a result of a merger, consolidation or otherwise, shall be paid,
delivered and transferred directly to Secured Party immediately upon receipt
thereof by Pledgor, or, if received by Secured Party, shall be retained by
Secured Party as part of the Pledged Shares.
(b) Upon the occurrence and during the continuation of an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default:
(i) All rights of Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 5(a)(i) shall cease, and all such rights shall thereupon become vested
in Secured Party, who shall thereupon have the sole right to exercise such
voting and other consensual rights.
(ii) Secured Party shall be entitled to receive and retain any and
all cash dividends paid in respect of the Pledged Collateral.
(iii) All dividends and other distributions which are received by
Pledgor contrary to the provisions of this Agreement shall be received in trust
for the benefit of Secured Party, shall be segregated from other funds of
Pledgor and shall be forthwith paid over to Secured Party as payment in respect
of the Obligations (with any necessary endorsements).
6. Transfers and Other Liens; Additional Shares.
(a) Pledgor agrees that it will not (i) sell or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, or (ii) create
or permit to exist any lien, security interest or other charge or encumbrance
upon or with respect to any of the Pledged Collateral, except for the security
interest created by this Agreement or except as set forth below.
(b) Pledgor agrees that it will pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional Shares or
other securities it may acquire in connection with any Share split, Share
dividend or other distribution or exchange in respect of any Shares or other
securities pledged hereunder.
7. Events of Default. Pledgor shall be in default under this Agreement
upon the happening of any of the following events (each an "Event of Default"):
<PAGE>
(a) Pledgor fails to pay or perform when due any of the Obligations;
(b) Any representation or warranty made by Pledgor in connection with this
Agreement proves to be false in any material respect when made;
(c) Pledgor makes an assignment for the benefit of creditors, admits in
writing its inability to pay its debts as they mature, applies to any court for
the appointment of a trustee or receiver of any substantial part of its
properties, or commences any voluntary proceedings under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or other similar law of any jurisdiction; or
(d) Any such application or any such proceedings described in (c) above
are filed or commenced against Pledgor and Pledgor indicates its approval,
consent of acquiescence thereto, or an order is entered adjudicating Pledgor or
any such endorser, guarantor or surety bankrupt or insolvent and such order
remains in effect for thirty (30) days.
8. Rights and Remedies Upon Default. If any Event of Default shall have
occurred:
(a) Secured Party shall have, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party on default under the Uniform Commercial Code (the "Code") in
effect in the State of California at that time, and Secured Party may also,
without notice except as specified below, sell the Pledged Collateral or any
part thereof in one or more private sales, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other terms
as Secured Party may deem commercially reasonable. Secured Party is authorized
at any such sale, if Secured Party deems it advisable, to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account and not with a view to the
distribution or sale of any such Pledged Collateral. Each purchaser at any such
sale shall hold the Pledged Collateral acquired at such sale absolutely free
from any claim or right of any kind, including any equity or right of redemption
of Pledgor, and Pledgor hereby expressly waives all rights of redemption, stay
or appraisement which it has or may have under any rule, law or statute now or
hereafter existing. Pledgor agrees that, to the extent notice of sale shall be
required by law, at least five (5) days' notice to Pledgor of the time after
which any private sale is to be made shall constitute reasonable notification.
Secured Party shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Secured Party may adjourn any
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, by made at the time and
place to which it was so adjourned. Secured Party may, instead of exercising the
powers of sale provided for herein and under the Code, proceed by a suit or
suits, at law or in equity, to foreclose the pledge of this Agreement and sell
the Pledged Collateral, or any portion thereof, under a judgment or decree of
any court or courts of competent jurisdiction.
(b) Any cash held by Secured Party as Pledged Collateral and all cash
proceeds received by Secured Party in respect of any sale of, collection from or
other realization upon all or any part of the Pledged Collateral may, in the
discretion of Secured Party, be held by
<PAGE>
Secured Party as collateral for, and/or then or at any time thereafter applied
in whole or in part by Secured Party against, the Obligations in such order as
Secured Party shall elect. Any surplus of such cash or cash proceeds held by
Secured Party and remaining after payment in full of the Obligations shall be
paid over to Pledgor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) All rights and remedies of Secured Party expressed herein are in
addition to all other rights and remedies possessed by Secured Party in any
other agreement or instrument entered into in connection with or relating to the
Obligation or by law.
(d) Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall, to the extent permitted by law, be deemed to have been made
in a commercially reasonable manner.
(e) Pledgor further agrees that a breach of any of the covenants
contained in this Section will cause irreparable injury to Secured Party, and
that Secured Party has no adequate remedy at law in respect of any such breach
and, as a consequence, Pledgor agrees that each and every covenant contained in
this Section shall be specifically enforceable against Pledgor, and Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred.
9. Continuing Pledge. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall (i) remain in full force and effect
until payment in full of the Obligations, (ii) be binding upon Pledgor and its
successors and assigns, and (iii) inure to the benefit of Secured Party and
its successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), Secured Party may assign or otherwise transfer any of
its rights under this Agreement to any other person, and such person shall
thereupon become vested with all the benefits in respect thereof granted to
Secured Party herein or otherwise, provided that such members shall continue to
remain liable for and shall not be released from any obligations of such members
under this Agreement. Upon payment in full of the Obligations, Pledgor shall be
entitled to the return, at Pledgor's expense, of such of the Pledged Collateral
as shall not have been sold or otherwise applied pursuant to the terms hereof.
10. Further Assurances. Pledgor agrees that it will, at its own
expense, promptly execute, acknowledge and deliver all such documents and
instruments, and take all such actions, as the Secured Party may from time to
time request in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Secured Party to exercise and
enforce its rights and remedies hereunder and otherwise to effectuate the
purposes of this Agreement and carry out the terms hereof.
11. Waivers; Remedies Cumulative. No failure on the part of Secured
Party to exercise, and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right or remedy hereunder by Secured
<PAGE>
Party preclude any other or further exercise thereof or the exercise of any
other right or remedy. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
12. Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be delivered by hand or mailed by
first class mail, registered or certified, return receipt requested, postage
prepaid, and properly addressed, to the party at the addresses set forth below.
(a) If to Pledgor:
(b) If to Secured Party at:
FWB Software, Inc.
185 Constitution Avenue
Suite A
Menlo Park, CA
Attention: Norman Fong
All such notices, requests, demands and other communications shall be effective
only upon receipt. Any party may change its address for notice given in
accordance with this Section 12.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and to be performed in the State of California, except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of California. Whenever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. This Agreement shall be given a fair and reasonable construction in
accordance with the intention of the parties and without regard to, or aid of,
Section 1654 of the California Civil Code.
14. Miscellaneous. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated, except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought. The captions in this Agreement have been inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Share Pledge and
Security Agreement as of the date first above written.
PLEDGOR: SECURED PARTY
StreamLogic Software Corporation FWB Software, LLC
By: /s/ J. Larry Smart By: /s/ Norman Fong
----------------------------- -------------------------------
J. Larry Smart Norman Fong, President
Title:
--------------------------
<PAGE>
EXHIBIT 10.23
[LETTERHEAD OF STREAMLOGIC CORPORATION]
November 12, 1996
Mr. Eric Herzog
2775 Calle De La Loma
Pleasanton, CA 94566
Dear Eric:
Congratulations! I am pleased to confirm your promotion to the position of Sr.
Vice President, Marketing. The terms of your promotion will be as follows:
. Annual salary of $165,000 effective November 12, 1996.
. Change from the 20,000 shares granted on October 18, 1996 to 45,000
shares effective the same date. The terms and vesting schedule are
described in your Incentive Stock Option Agreement enclosed.
Eric, thank you for your continued contributions to making StreamLogic
successful.
Sincerely,
/s/ J. Larry Smart
J. Larry Smart, CEO
cc: Sue Whitfield
<PAGE>
EXHIBIT 10.24
[LETTERHEAD OF STREAMLOGIC CORPORATION]
November 12, 1996
Mr. Steve Dalton
570 Kelly Way
Palo Alto, CA 94306
Dear Steve:
Congratulations! I am pleased to confirm your promotion to the position of Sr.
Vice President, Engineering. The terms of your promotion will be as follows:
. Annual salary of $165,000 retroactive to September 1, 1996.
. Change from the 43,000 shares granted on October 18, 1996 to 68,000
shares effective the same date. The terms and vesting schedule are
described in your Incentive Stock Option Agreement enclosed.
. You will be eligible to participate in the StreamLogic Bonus Plan with
a maximum payout of $50,000 annually. We will work together to
establish the objectives for the Bonus Plan. The Bonus Plan will be
divided into two six month periods annually from your first day of
employment, with a maximum payout of $25,000 per each six month
period. The Bonus Plan will be paid upon completion of each six month
period. Objectives for the second Bonus Plan period will be set within
two weeks of its commencement.
Steve, thank you for your continuing contributions to making StreamLogic
successful.
Sincerely,
/s/ J. Larry Smart
J. Larry Smart, CEO
cc: Sue Whitfield
<PAGE>
EXHIBIT 10.25
StreamLogic Corporation
Severance Agreement with Barbara V. Scherer
This Severance Agreement ("Agreement") is made as of November 21, 1996
(the "Effective Date"), by and between StreamLogic Corporation, a Delaware
corporation ("Streamlogic") and Barbara V. Scherer, ("Executive").
WHEREAS, StreamLogic desires to retain the services of Executive and
Executive desires to be employed by StreamLogic;
WHEREAS, StreamLogic desires to provide an incentive to Executive to
provide an orderly transition should Executive decide to resign from
StreamLogic;
WHEREAS, the Company has announced its plans to consolidate operations
into the Bay Area and Executive has informed Company that the Relocation Plan
offered to Executive would not be sufficient to cover all of the costs,
expenses, and lost income to Executive incident to such a Relocation on a
personal basis;
WHEREAS, StreamLogic and Executive have agreed to negotiate in good
faith exceptions to the Relocation Plan for the purpose of mitigating the
personal costs and hardships involved with Executive's relocation, but to date
no such negotiations have occurred and there can be no assurance that the result
of such negotiations would be satisfactory to either Executive or StreamLogic;
WHEREAS, StreamLogic has limited cash resources, is losing money from
operations, and cannot reliably predict a certain return to profitability nor
can it provide reasonable assurances that it will obtain significant additional
sources of cash should losses from operations require such additional cash
resources;
WHEREAS, circumstances may arise which would make it advisable and/or
necessary for StreamLogic to ask Executive to resign;
WHEREAS, StreamLogic and Executive desire to provide for certain
rights and obligations with respect to Executive's termination of Employment, in
the event such termination of Employment should occur on or before the
eighteenth month following the Effective Date of this Agreement.
NOW THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, StreamLogic and
Executive hereby agree as follows:
1. Definitions.
-----------
(a) Cause. "Cause" shall mean:
-----
(1) Executive's conviction of a crime involving moral
turpitude;
<PAGE>
(2) A willful act by Executive that constitutes misconduct and
is materially injurious to StreamLogic; and
(3) The commission of any act by Executive which results in
the termination of Executive's employment in accordance with the "Work
Performance and Conduct" section of the StreamLogic Employee Handbook.
(4) The willful failure by Executive to provide an Orderly
Transition of her duties and responsibilities as set forth in Paragraph 3 of
this Agreement.
2. Severance Payments upon Certain Termination.
-------------------------------------------
(a) Severance Payments. Executive's employment with StreamLogic
------------------
is not for any specified term and may be terminated by Executive or by
StreamLogic at any time for any reason, with or without Cause; provided,
however, that if, on or prior to the eighteenth month following the Effective
Date, StreamLogic shall terminate Executive's employment other than for Cause,
or if Executive shall resign from her position for any reason, in lieu of any
other severance benefits payable to Executive, Executive shall be entitled to a
lump sum amount equal to 52 weeks ($3,808 per week, as may be increased from
time to time by StreamLogic (the "Base Salary Amount"). The total amount of
severance, for example if there has been no Base Salary Adjustment, would be
$198,016. Such amount is payable to Executive upon Executive's last day of
employment with the Company.
(b) No Repayment of Certain Relocation Expenses. Executive
-------------------------------------------
will begin the process of relocating to the Bay Area as it is her current
intention to relocate with the Company. However, in the event Executive
voluntarily resigns from the Company, Executive shall not be obligated to repay
to the Company the cost of house hunting trips or other miscellaneous expenses,
not to exceed $5,000, incurred in the good faith effort to relocate to the Bay
Area.
3. Orderly Transition. Executive has the affirmative obligation to
------------------
assist in providing an orderly transition of her duties and responsibilities in
the event that either she voluntarily resigns, or resigns at the request of
StreamLogic. An orderly transition shall include the provision of at least 30
days notice to StreamLogic by Executive of resignation prior to last day of
employment with StreamLogic, pro-active recruiting efforts to identify potential
candidates for both the CFO and the VP, Operations responsibilities for the
purpose of advancing the search in the event Executive's employment with
StreamLogic is terminated, and training a Controller or other senior financial
staff in various elements of Executive's responsibilities in order to effect an
orderly transition.
4. Stock Option Vesting. In recognition of Executive's long and
--------------------
valuable service to the Company, and as additional compensation for the duties
and responsibilities being carried out by Executive, the Company hereby agrees
to vest Executive's remaining unvested stock option grants outstanding as of the
Effective Date. Future grants, if any, will be issued under the terms and
conditions then in practice by the Company.
<PAGE>
5. Establishment of Grantor Trust. Executive has the right at any
------------------------------
time to have the Company establish a grantor trust, such that the funds for the
entire amount of the severance would be deposited into the trust. The Company
has the obligation to carry out Executive's demand, should it be made, without
further question, as fast as practicable. Executive is not now making a request
for such a trust, in the interest of minimizing workload and expense, and in the
interest of keeping this agreement as confidential as the Company wishes it to
be.
6. Notices. Any notice, request, claim, demand, document and other
-------
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by telex,
telecopy, or certified or registered mail, postage prepaid, or other similar
means of communication, as follows:
(a) If to StreamLogic, addressed to its principal executive
offices to the attention of its Director - Human Resources;
(b) If to Executive, to her at the address set forth below under
her signature;
or to any such other address as either party shall have specified by notice in
writing to the other.
7. Entire Agreement. This Agreement constitutes the complete and
----------------
entire agreement between Executive and StreamLogic regarding any and all aspects
of their employment relationship and supersedes any and all prior written or
oral agreements, understandings or commitments. Executive understands that no
representative of StreamLogic has been authorized to enter into any agreement,
understanding or commitment with Executive which is inconsistent in any way with
the terms of this Agreement.
8. Governing Law. The validity, interpretation, enforceability, and
-------------
performance of this Agreement shall be governed by and construed in accordance
with the law of the State of California.
9. Arbitration. Any controversy between Executive and StreamLogic or
-----------
any employee, director or stockholder of StreamLogic, involving the construction
or application of any of the terms, provisions or conditions of this Agreement
or otherwise arising out of or related to this Agreement, shall be settled by
arbitration in accordance with the then current commercial arbitration rules of
the American Arbitration Association, and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. The
location of the arbitration shall be Los Angeles, California.
10. Amendment. All terms set forth in this Agreement may not be
---------
modified in any way except by a written agreement signed by Executive and by an
authorized representative of StreamLogic which expressly states the intention of
the parties to modify the terms of this Agreement.
<PAGE>
11. Severability. If any provision of this Agreement, or the
------------
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect.
12. Successors. StreamLogic will require any successor (whether
----------
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets of StreamLogic to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that
StreamLogic would be required to perform it if no such succession had taken
place. Effective upon such assumption, StreamLogic shall have no further
obligation or liability under or with respect to this Agreement. As used in this
Agreement, "StreamLogic" shall mean StreamLogic as herein being defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 10 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
13. Termination. This Agreement shall terminate in full upon
-----------
the earliest to occur of (i) a termination of Executive's employment with
StreamLogic that would not entitle Executive to a payment pursuant to Section
2(a), or (ii) the eighteenth month following the Effective Date.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
StreamLogic: StreamLogic Corporation
a Delaware corporation
by: /s/ J. Larry Smart
-----------------------------
J. Larry Smart
Its: Chairman, CEO and President
---------------------------
Executive: /s/ Barbara V. Scherer
--------------------------------
Barbara V. Scherer
cc: Director, Human Resources
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STREAMLOGIC
CORPORATION AS OF AND FOR THE THREE-MONTH PERIOD ENDED DECEMBER 27, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> DEC-27-1996
<CASH> 9,783
<SECURITIES> 0
<RECEIVABLES> 6,754
<ALLOWANCES> 3,687
<INVENTORY> 13,697
<CURRENT-ASSETS> 32,384
<PP&E> 6,258
<DEPRECIATION> 21,686
<TOTAL-ASSETS> 49,789
<CURRENT-LIABILITIES> 25,585
<BONDS> 4,789
0
0
<COMMON> 33,523
<OTHER-SE> 9,113
<TOTAL-LIABILITY-AND-EQUITY> 49,789
<SALES> 11,844
<TOTAL-REVENUES> 11,844
<CGS> 9,827
<TOTAL-COSTS> 9,827
<OTHER-EXPENSES> 7,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> (5,045)
<INCOME-TAX> 50
<INCOME-CONTINUING> (5,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 24,448
<CHANGES> 0
<NET-INCOME> 19,353
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
