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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 3, 1998
STREAMLOGIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3093858
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
COMMISSION FILE NUMBER: 0-12046
8450 CENTRAL AVENUE
NEWARK, CALIFORNIA 94560
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 608-4000
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ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
(b) (1) - (2) On June 26, 1997, StreamLogic Corporation (the "Debtor")
filed a voluntary petition in the United States Bankruptcy Court for the
Northern District of California, San Francisco Division (the "Bankruptcy
Court"), seeking protection under Chapter 11 of the United States Bankruptcy
Code. On March 3, 1998, the Bankruptcy Court issued its order (the "Confirmation
Order") confirming and approving the Debtor's First Amended Plan of
Reorganization (Dated January 15, 1998), subject to certain modifications set
forth in the Confirmation Order. The Debtor's First Amended Plan of
Reorganization (Dated January 15, 1998), as modified by the Confirmation Order,
is referred to herein as the "Modified Plan." The Modified Plan is expected to
become effective on March 31, 1998 (the "Effective Date").
(b) (3) The material features of the Modified Plan are summarized as
follows. Unless otherwise provided herein, capitalized terms shall have the
meanings ascribed to such terms in the Modified Plan filed as Exhibit 99.1
hereto.
Under the terms of the Modified Plan, the Reorganized Debtor will retain
certain core assets of its Hammer Storage Solutions(R) business (the "Hammer
Assets"), and the estate remaining on and after the Effective Date (the
"Distribution Estate") will retain and sell all other assets (the "Non-Hammer
Assets"). The Distribution Estate will receive 3,500,000 shares of common stock
of the Reorganized Debtor. The assets of the Distribution Estate, including the
Non-Hammer Assets, will be managed by a bonded Distribution Agent and sold for
the benefit of the Debtor's creditors. Current shareholders, consistent with the
priority scheme set forth in the Bankruptcy Code and the present lack of equity
in the Debtor, will receive nothing under the terms of the Modified Plan.
The Modified Plan is the product of extensive negotiations over the
course of several months among the Debtor, the Official Committee of Unsecured
Creditors (the "Committee") and Michael O. Preletz, Chief Executive Officer of
the Debtor ("Preletz"), Chapman A. Stranahan, President of the Debtor
("Stranahan"), and certain other investors affiliated with Preletz and Stranahan
(collectively, with Preletz and Stranahan, the "Preletz Group") to design a plan
which maximizes the recoveries to the Debtor's creditors and other parties in
interest and creates a sound capital structure for the reorganized entity. Under
the Modified Plan, the Reorganized Debtor will emerge from Chapter 11
proceedings recapitalized and prepared to implement a business plan.
All existing shares of common stock of the Debtor will be canceled on
the Effective Date, and the Reorganized Debtor will issue new shares of common
stock in favor of the Debtor's creditors and the Preletz Group. As described
above, the Distribution Estate will receive 3,500,000 shares. In addition, the
Preletz Group will receive 2,000,000 shares in exchange for a cash investment of
$650,000; 2,000,000 shares will be distributed directly to creditors in exchange
for cash investments of $650,000 in the aggregate, pursuant to a creditors'
rights offering; and 2,500,000 shares will be available for distribution
pursuant to stock options that may be granted to management and nonmanagement
employees.
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Thereafter, an additional 10,000,000 shares may be issued by the
Reorganized Debtor through various stock options or sales, within limitations
described in the Modified Plan. The Modified Plan designates various classes of
Claims and Interests and provides for distribution rights for each such class,
in a manner consistent with the priority system of the Bankruptcy Code. The net
proceeds of sale of all assets in the Distribution Estate, after costs and full
payment of priority expenses and claims, will be distributed on a pro-rata basis
to holders of Allowed Claims, until all funds of the Distribution Estate have
been exhausted.
(b)(4) As of March 3, 1998, approximately 33,543,544 shares of common
stock of the Debtor were issued and outstanding. On and after the Effective
Date, the Reorganized Debtor shall be authorized to issue up to 20,000,000
shares of common stock (the "Reorganized Shares"), provided that, of such
amount: (a) 5,000,000 shares may be issued at any time at the discretion of the
Reorganized Debtor's board of directors in its business judgment, in return for
new capital investments by the Preletz Group or by one or more third parties, at
a per-share price that is not less than the greater of (i) $1.00 or (ii) current
market value as of the date of issuance, to the extent that such market value
can be reasonably ascertained; and (b) the other 15,000,000 shares may be issued
only upon the following terms:
(i) DISTRIBUTION ESTATE'S SHARES. On the Effective Date, the
Reorganized Debtor shall issue 3,500,000 Reorganized
Shares to the Distribution Estate, in exchange for, among
other things, the revesting of the Hammer Assets in the
Reorganized Debtor.
(ii) PARTICIPATING CREDITORS' SHARES. On the Effective Date,
the Reorganized Debtor shall issue 2,000,000 Reorganized
Shares to Participating Creditors, in exchange for their
aggregate contribution of cash of $650,000.00, pursuant to
Section 8.2 of the Modified Plan.
(iii) PRELETZ GROUP SHARES. On the Effective Date, the
Reorganized Debtor shall issue 2,000,000 Reorganized
Shares to the Preletz Group, or its nominees, in exchange
for its contribution of cash of $650,000.00, pursuant to
the provisions of Section 7.4.3 of the Modified Plan.
(iv) STOCK OPTION SHARES. At any time on and after the
Effective Date, the Reorganized Debtor, at its
management's discretion, may issue up to 2,500,000
Reorganized Shares pursuant to "Employee Stock Options,"
pursuant to the terms and conditions of the Modified Plan.
(v) ADDITIONAL SHARES. In addition to the foregoing, the
Reorganized Debtor may issue up to an additional 5,000,000
Reorganized Shares at any time, at the discretion of the
Reorganized Debtor's management in its business judgment,
pursuant to the terms and conditions of the Modified Plan.
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(b)(5) For information as to the assets and liabilities of the Debtor,
reference is made to the Monthly Operating Report for the Month of January 1998
(as filed with the United States Bankruptcy Court for the Northern District of
California, San Francisco Division), filed with the Securities and Exchange
Commission on February 26, 1998 under cover of Current Report on Form 8-K, which
is incorporated by reference herein.
ITEM 5. OTHER EVENTS.
See Press Release dated March 4, 1998 attached as Exhibit 99.5.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits
99.1 Debtor's First Amended Plan of Reorganization (Dated January 15, 1998).
99.2 Debtor's First Amended Disclosure Statement (Dated January 15, 1998)
(Without exhibits -- exhibits will be furnished upon request to the
Company.)
99.3 Order Confirming Debtor's Plan of Reorganization.
99.4 Findings of Fact and Conclusions of Law Regarding Plan of
Reorganization.
99.5 Press Release dated March 4, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
STREAMLOGIC CORPORATION
(Registrant)
Date: March 17, 1998 By /s/ Chapman A. Stranahan
-------------------------
Chapman A. Stranahan
President
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Exhibit Index
99.1 Debtor's First Amended Plan of Reorganization (Dated January 15, 1998).
99.2 Debtor's First Amended Disclosure Statement (Dated January 15, 1998)
(Without exhibits -- exhibits will be furnished upon request to the
Company.).
99.3 Order Confirming Debtor's Plan of Reorganization.
99.4 Findings of Fact and Conclusions of Law Regarding Plan of
Reorganization.
99.5 Press Release dated March 4, 1998.
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EXHIBIT 99.1
DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION
(Dated January 15, 1998)
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FILED
JAN 15, 1998
KEENAN G. CASADY, CLERK
UNITED STATES BANKRUPTCY COURT
SAN FRANCISCO, CA
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #66849
KATHERINE D. RAY, ESQ. #121002
KENNETH G. DEJARNETTE, ESQ. #168074
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Counsel for Debtor-In-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Under Chapter 11
a Delaware corporation, )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax Id. No. 95-3093858 )
_____________________________)
DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION
(Dated January 15, 1998)
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TABLE OF CONTENTS
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ARTICLE I
DEFINITION AND CONSTRUCTION OF TERMS........................................1
1.1. Definitions.....................................................1
1.2. Other Terms.....................................................1
1.3. Construction of Certain Terms...................................1
1.4. Plan Controls...................................................2
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT..........................2
2.1. Classification..................................................2
2.1.1. Class A (Priority Claims)............................3
2.1.2. Class B (Secured Claims).............................3
2.1.3. Class C (Convenience Claims).........................3
2.1.4. Class D (General Unsecured Claims)...................3
2.1.5. Class E (Interests)..................................3
2.2. Impairment......................................................3
ARTICLE III
TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS..................................3
3.1. Generally.......................................................3
3.2. Administrative Bar Date.........................................4
3.3. Penalties and Interest..........................................5
3.4. Payment.........................................................5
3.4.1. Generally............................................5
3.4.2. Certain Ordinary Course Expenses.....................6
ARTICLE IV
TREATMENT OF UNIMPAIRED CLASSES.............................................6
4.1. Class A (Priority Claims).......................................6
4.2. Class B (Secured Claims)........................................7
4.2.1. Reinstatement........................................8
4.2.2. Full Satisfaction....................................8
4.2.3. Abandonment, Foreclosure and Deficiency..............9
ARTICLE V
TREATMENT OF IMPAIRED CLASSES...............................................9
5.1. Class C (Convenience Claims)....................................10
5.1.1. Opt-Out Election.....................................10
5.1.2. Opt-In Election......................................10
5.2. Class D (General Unsecured Claims)..............................10
5.2.1. Cash Distributions...................................11
5.2.1.1. Payments Commenced........................11
5.2.1.2. Payments Ceased...........................11
5.2.2. Pro-Rata Calculations................................11
5.2.3. Pari Passu Treatment.................................12
5.2.4. Stock Distribution...................................13
5.2.4.1. Pro Rata..................................13
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5.2.4.2. Value.....................................13
5.2.4.3. Fractional and Remainder
Shares....................................13
5.2.5. Subordination........................................14
5.2.6. Provisions Affecting Public Debt
Securities...........................................14
5.2.6.1. Record Date...............................15
5.2.6.2. Manner of Distributions;
Surrender of Public Debt
Securities................................15
5.2.6.3. Compensation of Indenture
Trustees..................................17
5.2.6.3.1. From Estate....................17
5.2.6.3.2. From Distribution..............18
5.2.6.4. Unclaimed Distributions...................19
5.3. Class E (Interests).............................................19
5.3.1. No Distributions.....................................19
5.3.2. Cancellation.........................................19
ARTICLE VI
EXECUTORY CONTRACTS.........................................................20
6.1. Generally.......................................................20
6.2. Assumption and Rejection........................................20
6.2.1. Schedule.............................................20
6.2.2. Rejection............................................20
6.2.3. Assumption...........................................21
6.3. Cure Amounts....................................................21
6.4. Payment of Cure.................................................22
6.4.1. Payment by Reorganized Debtor........................22
6.4.2. Payment by Distribution Agent........................22
6.4.3. Timing of Payment....................................22
6.5. Approval of Assumption or Rejection.............................23
6.6. Bar Date for Rejection Claims...................................23
ARTICLE VII
MEANS FOR EXECUTION OF THE PLAN.............................................24
7.1. Plan Effectiveness..............................................24
7.2. Vesting of Estate Property......................................24
7.2.1. Vesting in Reorganized Debtor........................24
7.2.2. Vesting in Distribution Estate.......................25
7.2.3. Preletz Group Withdrawal.............................25
7.3. Hammer and Non-Hammer Assets....................................26
7.3.1. Hammer Assets........................................26
7.3.2. Non-Hammer Assets....................................28
7.4. Effective Date Actions..........................................29
7.4.1. Revesting of Hammer Assets...........................30
7.4.2. Retention of Non-Hammer Assets.......................30
7.4.3. Preletz Group Contribution...........................30
7.4.4. Participating Creditors' Contribution................31
7.4.5. Cancellation and Issuance of Stock...................31
7.4.6. Modification of Articles and By-Laws.................31
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7.4.7. Payments by Reorganized Debtor.....................31
7.4.8. Payments by Distribution Agent.....................31
7.4.9. Other Releases of Liens and Instruments............32
7.4.10. Distribution Estate Accounts.......................32
7.4.11. Other Documents....................................32
7.5. Other Actions.................................................33
7.6. Preservation and Vesting of Causes of Action..................33
7.6.1. Vesting in Reorganized Debtor......................33
7.6.2. Vesting in Distribution Estate.....................33
7.7. Distribution Agent............................................34
7.7.1. Selection..........................................34
7.7.2. Responsibility and Fidelity........................34
7.7.3. Tenure and Replacement.............................35
7.8. Distribution Estate...........................................35
7.8.1. Accounts...........................................35
7.8.2. Distribution Agent's Duty..........................35
7.8.3. Administration.....................................36
7.8.3.1. Smaller Sales...........................36
7.8.3.2. Other Dispositions......................37
7.8.4. Deposits...........................................37
7.8.5. Disbursements......................................37
7.8.6. Periodic Distributions.............................38
7.8.7. [INTENTIONALLY OMITTED]............................38
7.8.8. Unclaimed Payments to Claimants....................38
7.9. Committee.....................................................39
7.9.1. Membership.........................................39
7.9.2. Retention of Professionals.........................39
7.10. Postconfirmation Fees and Expenses............................40
7.10.1. Court Approval.....................................40
7.10.2. Payment of Fees....................................41
7.10.3. Reporting to the United States Trustee.............41
7.11. Objections to Claims..........................................42
7.12. Term of Injunctions and Stays.................................42
ARTICLE VIII
CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR.......................42
8.1. Capitalization of Reorganized Debtor..........................42
8.1.1. Estate's Shares....................................43
8.1.2. Participating Creditors' Shares....................43
8.1.3. Preletz Group Shares...............................43
8.1.4. Stock Option Shares................................43
8.1.4.1. Employee Stock Options..................44
8.1.4.2. To Management...........................44
8.1.4.3. To Others...............................44
8.1.5. Additional Shares..................................44
8.1.5.1. New Capital.............................45
8.1.5.2. Preletz Group Options...................45
8.1.5.3. Additional Employee Options.............46
8.2. Creditors' Rights Offering....................................46
8.2.1. Subscription Rights................................46
8.2.2. Interim Claim......................................47
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8.2.3. Subscription Exercise................................47
8.2.4. Standby Commitment...................................48
8.2.5. Notification and Deposit.............................48
8.2.6. Segregated Account...................................49
8.2.7. Determinations by Committee..........................49
8.2.8. Untimely Contributions...............................50
8.2.9. Distributions........................................50
8.2.10. Special Considerations...............................50
8.3. Corporate Governance of Reorganized Debtor......................50
8.3.1. Operational Control..................................51
8.3.2. Board of Directors...................................51
8.3.3. Formalized Provisions................................51
8.3.4. Extraordinary Actions................................51
8.3.5. Relocation and Rent..................................52
8.3.6. Free Services........................................52
8.3.7. Public Market........................................53
8.3.8. Prohibition..........................................53
ARTICLE IX
ASSUMPTION, DISCHARGE AND EXCULPATION.......................................53
9.1. Reorganized Debtor's Assumption of Liabilities..................53
9.2. Discharge.......................................................54
9.3. Exculpation of Certain Persons..................................55
9.4. Immunity........................................................56
ARTICLE X
RETENTION OF JURISDICTION...................................................57
10.1. Generally.......................................................57
ARTICLE XI
MISCELLANEOUS PROVISIONS....................................................58
11.1. Exemption from Transfer Taxes...................................58
11.2. Section 1145(a) Exemption from Registration.....................59
11.3. Binding Effect..................................................59
11.4. Ratification....................................................60
11.5. Notices.........................................................60
11.6. Governing Law...................................................62
11.7. Headings........................................................62
11.8. Exhibits........................................................63
11.9. Closing Case....................................................63
11.10. Expenses........................................................63
11.11. Modification and Enforcement....................................64
11.11.1. Modification.........................................64
11.11.2. Enforcement..........................................64
EXHIBITS TO PLAN OF REORGANIZATION
EXHIBIT "A" SCHEDULE OF DEFINITIONS..................................A-1
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STREAMLOGIC CORPORATION, a Delaware corporation formerly known as
Micropolis Corporation and the debtor-in-possession herein (the "Debtor"),
hereby proposes this Debtor's First Amended Plan Of Reorganization (Dated
January 15, 1998) (as it may be altered, amended or modified from time to time,
the "Plan") in the within chapter 11 case, for the reorganization of the
Debtor's financial affairs, pursuant to the provisions of Section 1121(a) of
title 11 of the United States Code:
ARTICLE I
DEFINITION AND CONSTRUCTION OF TERMS
1.1. Definitions. As used herein, capitalized terms shall
have the meanings set forth in the schedule of definitions attached
hereto and incorporated herein as EXHIBIT "A."
1.2. Other Terms. Any term used in the Plan that is not defined
herein or in Exhibit "A" shall have the meaning ascribed to that term, if any,
in the Bankruptcy Code. A term used in this Plan and not defined herein or in
the Bankruptcy Code, but which is defined in the Bankruptcy Rules, shall have
the meaning assigned to the term in the Bankruptcy Rules.
1.3. Construction of Certain Terms. In addition to the
foregoing, the following shall apply:
A. The words "herein," "hereof," "hereto," "hereunder," and
others of similar import refer to the Plan as a whole and not to any
particular section, subsection, or clause contained in the Plan.
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B. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall
include the singular and the plural and pronouns stated in the
masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
1.4. Plan Controls. To the extent of any inconsistencies
between the Plan and the Disclosure Statement, the provisions of this Plan shall
control and prevail.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT
2.1. Classification. The following is a designation of the Classes of
Claims and Interests in the Plan. Administrative Expense Claims and Priority Tax
Claims (that is, the Nonclassified Priority Claims) have not been classified and
are excluded from the following Classes, in accordance with the provisions of
Section 1123(a)(1) of the Bankruptcy Code. The treatment accorded Administrative
Expense Claims and Priority Tax Claims is set forth in Article III herein.
Consistent with the provisions of Section 1122 of the Bankruptcy Code, a Claim
or Interest shall be deemed classified by the Plan in a particular Class only to
the extent that the Claim or Interest qualifies within the description of that
Class, and shall be deemed classified in a different Class to the extent that
the Claim or Interest qualifies within the description of that different Class.
A Claim or Interest is in a particular Class only to the extent that the Claim
or Interest is
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an Allowed Claim or Allowed Interest in that Class, as the case may be.
2.1.1. Class A (Priority Claims) consists of all Priority
Claims, if any, other than Nonclassified Priority Claims.
2.1.2. Class B (Secured Claims) consists of all Secured
Claims, if any, each of which shall be within a separate subclass,
Subclasses B1, B2, B3 and so forth (with each subclass to be deemed a
separate class for all purposes under applicable provisions of the
Bankruptcy Code).
2.1.3. Class C (Convenience Claims) consists of all
Convenience Claims.
2.1.4. Class D (General Unsecured Claims) consists of all
Unsecured Claims (including Claims arising from guarantee obligations
and Claims arising from the rejection of executory contracts) other
than Nonclassified Priority Claims and any Claims within Classes A,
C, E or F herein.
2.1.5. Class E (Interests) consists of all Interests,
including Rescission Claims.
2.2. Impairment. Under the terms of the Plan, Allowed Claims
within Classes A and B will not be impaired. Allowed Claims and Interests within
Classes C, D and E will be impaired.
ARTICLE III
TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS
3.1. Generally. Subject to the provisions of all other
sections of this Article III, each holder of an Allowed
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Nonclassified Priority Claim shall receive on account of such Claim, Cash equal
to the allowed amount of such Claim, unless the Distribution Agent or the
Reorganized Debtor (whichever party is the obligor as set forth in Section 3.4
hereinbelow) and such holder shall have agreed upon other treatment of such
Claim.
3.2. Administrative Bar Date. No Administrative Expense Claim,
including without limitation Professional Fees, arising on or before the
Effective Date, other than Ordinary Course Expenses, shall become an Allowed
Claim unless (a) an application, request or proof therefor has been filed with
the Bankruptcy Court and served upon the Distribution Agent, the Reorganized
Debtor and the United States Trustee within thirty (30) days following the
Effective Date (the "Administrative Bar Date") or by such earlier deadline as
may apply to such claim pursuant to an earlier order of the Bankruptcy Court, or
(b) such claim has been approved and allowed by the Bankruptcy Court pursuant to
an order entered prior to the Administrative Bar Date. The Distribution Agent,
the Reorganized Debtor, the United States Trustee and any other party in
interest may object and request a hearing or hearings with respect to all such
applications, requests and proofs as to which any disputes exist or as to which
Bankruptcy Court approval is required by the Bankruptcy Rules and Local Rules,
and shall provide notice of such hearings and any objections to the requesting
claimants, the Reorganized Debtor, the Distribution Agent and the United States
Trustee. As soon as practicable following the Effective Date, the
Distribution Agent shall provide notice of the Administrative Bar
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Date to all parties believed to hold or assert Administrative Expense Claims
other than Ordinary Course Expenses.
3.3. Penalties and Interest. Except as may be expressly set forth in
the Plan or by an order of the Bankruptcy Court, no holder of a Priority Tax
Claim shall be entitled to payment on account of any postpetition interest or
penalties arising with respect to such Claim.
3.4. Payment. Payment of Allowed Nonclassified Priority
Claims shall occur as follows:
3.4.1. Generally. Except as set forth in the provisions of
Section 3.4.2 hereinbelow, all payments on account of Allowed
Nonclassified Priority Claims shall be made by the Distribution
Agent, in Cash on the latest of the following dates, and the
Reorganized Debtor shall have no responsibility, obligation or
liability therefor: (a) on, or as soon as practicable after, the
Administrative Bar Date, or on such later date as to which the holder
of such Claim may have consented; (b) on the date when such Claim
becomes due according to contractual, statutory or other terms
applicable thereto; or (c) as soon as practicable after the order
allowing such Claim becomes a Final Order, if the Claim is disputed
or if applicable provisions of the Bankruptcy Code otherwise require
Bankruptcy Court approval, provided that if such Claim is disputed in
part, then the undisputed portion thereof shall be paid in accordance
with subparts (a) and (b) hereof (or upon Bankruptcy Court approval
if required by
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applicable provisions of the Bankruptcy Code) and the balance of the
Claim shall be paid to the extent and when allowed by a Final Order
of the Bankruptcy Court determining the amount of such Claim.
3.4.2. Certain Ordinary Course Expenses. The Reorganized
Debtor shall pay such portions of Allowed Nonclassified Priority
Claims that are Ordinary Course Expenses, as defined in Exhibit "A"
attached hereto, when and to the extent that such Claims become due
according to contractual, statutory or other terms applicable thereto
after the Effective Date, except for the following: (a) any rent and
real property lease obligations, except to the extent provided by
Section 8.3.5 hereinbelow; (b) any Professional Fees; and (c) any
warranty, return, product defect or refund obligations other than the
Hammer Contingent Claims. Without limiting the generality of the
foregoing, the Reorganized Debtor shall pay such portions of Allowed
Nonclassified Priority Claims as constitute Hammer Contingent Claims.
The Distribution Estate shall have no responsibility, obligation or
liability for any Ordinary Course Expenses.
ARTICLE IV
TREATMENT OF UNIMPAIRED CLASSES
Classes of unimpaired Claims shall be treated as follows:
4.1. Class A (Priority Claims). Each holder of an Allowed
Claim within Class A shall receive on account of such Claim Cash
equal to the allowed amount of such Claim, unless such holder shall
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have agreed to a less favorable treatment of such Claim. Payment or payments on
account of such Claims shall be made by the Distribution Agent on or before the
latest of the following dates: (a) on, or as soon as practicable after, the
Effective Date, or on such later date as to which such holder has consented; (b)
on the date that such Claim becomes due pursuant to contractual, statutory or
other terms applicable thereto; or (c) as to Disputed Claims, as soon as
practicable after the order allowing the Claim has become a Final Order.
4.2. Class B (Secured Claims). Each holder of an Allowed Claim within
Class B, unless such holder shall have agreed with the Reorganized Debtor or the
Distribution Agent, as the case may be, to other treatment of such Claim, shall
be treated in one of the following alternative manners set forth in Subsections
4.2.1 through 4.2.3 hereinbelow. Selection of the treatment of each such Claim
secured by Non-Hammer Assets shall be determined by the Debtor, as evidenced in
a Schedule 4.2(A) (the "Schedule 4.2(A)") to be filed with the Bankruptcy Court,
and served upon such holder, the Preletz Group, the Committee and the United
States Trustee, no less than five Business Days prior to the commencement of the
Confirmation Hearing. Selection of the treatment of each such Claim secured by
Hammer Assets shall be determined by the Preletz Group, as evidenced in a
Schedule 4.2(B) (the "Schedule 4.2(B)") to be filed with the Bankruptcy Court,
and served upon such holder, the Debtor, the Committee and the United States
Trustee, no less than five Business Days prior to the commencement of the
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Confirmation Hearing. The treatment of any Allowed Claim within Class B that is
not identified in said Schedules 4.2(A) or 4.2(B) shall be in the manner set
forth in Section 4.2.3 hereinbelow. The alternative manners of treatment of such
Claims are as follows:
4.2.1. Reinstatement. Any and all defaults shall be Cured,
and any and all damages compensated, by the Reorganized Debtor (as to
Claims secured by Hammer Assets) or by the Distribution Agent (as to
Claims secured by Non-Hammer Assets), to the extent and in the manner
required by the provisions of Section 1124(2) of the Bankruptcy Code,
as soon as practicable after such defaults and damages, if any, have
been determined by agreement among such holder and such curing party,
or by Final Order if no such agreement is reached; the maturity and
terms of such Claim, or such other terms as have been agreed upon
between such holder and such curing party, shall be reinstated
pursuant to the provisions of Section 1124(2) of the Bankruptcy Code
and shall be the obligation of only the Reorganized Debtor as to
Claims secured by Hammer Assets, or the Distribution Agent as to
Claims secured by Non-Hammer Assets.
4.2.2. Full Satisfaction. Such Allowed Secured Claim shall
be paid in full by the Reorganized Debtor (as to Claims secured by
Hammer Assets) or by the Distribution Agent (as to Claims secured by
Non-Hammer Assets), or in such lesser amount as may be agreed upon by
the holder of such Claim, as soon as practicable after such Claim
becomes an Allowed Secured Claim,
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in exchange for which the holder of such Claim shall execute and
deliver to the Reorganized Debtor or the Distribution Agent, as the
case may be, all appropriate documentation reasonably necessary to
evidence and effectuate a full release and discharge of all liens,
security interests and obligations arising from such Claim.
Notwithstanding anything to the contrary hereinabove, the
Distribution Agent shall have no responsibility, obligation or
liability pursuant to this Section 4.2.2 for the payment of any Claim
secured by Hammer Assets, and the Reorganized Debtor shall have no
responsibility, obligation or liability pursuant to this Section
4.2.2 for the payment of any Claim secured by Non-Hammer Assets.
4.2.3. Abandonment, Foreclosure and Deficiency. Such holder
shall be permitted to remove, at its own cost and peril, and at a
time mutually convenient to such holder and the Reorganized Debtor
(as to Hammer Assets) or the Distribution Agent (as to Non-Hammer
Assets), and foreclose upon, such property as to which it holds a
perfected security interest in conformity with applicable provisions
of the Uniform Commercial Code or other applicable law.
ARTICLE V
TREATMENT OF IMPAIRED CLASSES
Classes of impaired Claims and Interests shall be treated as follows:
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5.1. Class C (Convenience Claims). In lieu of treatment under Section
5.2 of the Plan, and in full satisfaction and discharge of all Allowed Claims
within Class C, each holder of an Allowed Convenience Claim who does not make
the election described in Section 5.1.1 hereinbelow, shall receive from the
Distribution Agent, on or before sixty (60) days after the Effective Date, or
such later date as such Claim becomes an Allowed Claim, Cash equal to ten
percent (10%) of the amount of such Allowed Convenience Claim, provided:
5.1.1. Opt-Out Election. Any holder of a Convenience Claim
may, by written election served upon, and actually received by, the
Debtor's general bankruptcy counsel on or prior to the deadline for
submission of Ballots, elect to be treated within Class D.
5.1.2. Opt-In Election. A holder of a Claim in excess
of $3,000.00 may, by written election actually received by the
Debtor's general bankruptcy counsel on or prior to the
deadline for submission of Ballots, reduce such Claim to
$3,000.00, in which case such Claim shall be treated as a
Convenience Claim. In the event of such election, the Claim
amount in excess of $3,000.00 shall be deemed fully released,
waived and discharged.
5.2. Class D (General Unsecured Claims). All Allowed Claims
within Class D shall be deemed fully satisfied and discharged by the
distributions of Cash and Reorganized Shares pursuant to the provisions of
Sections 5.2.1 and 5.2.4, respectively, as follows:
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5.2.1. Cash Distributions. Subject to each of the
provisions of Section 5.2 herein, each holder of an Allowed Claim
within Class D shall receive pro-rata Cash payments from the
Distribution Estate on account of such Claim, as follows:
5.2.1.1. Payments Commenced. No later than June
30, 1998 as directed by the Committee, and thereafter in
accordance with the provisions of Section 7.8.6
hereinbelow, the Distribution Agent shall make Cash
payments from the Distribution Estate upon all Allowed
Claims within Class D, to the extent of available funds and
based upon the calculations described in Section 5.2.2
hereinbelow.
5.2.1.2. Payments Ceased. Such Cash payments
shall cease once all funds reasonably anticipated to be
received into the Distribution Estate, have been exhausted.
5.2.2. Pro-Rata Calculations. Cash payments and stock
distributions made pursuant to Sections 5.2.1 and 5.2.4,
respectively, shall be made on a pro-rata basis to holders of all
such Allowed Claims (with reserves for Disputed Claims). The
aggregate of all such Cash payments made by the Distribution Agent at
any one time shall be equal to all of the available Cash in the
Distribution Estate, (i) less the amount of Cash reserves which the
Distribution Agent determines may be required in order to satisfy the
Distribution Agent's other obligations under the terms of the
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Plan, including full distributions upon Allowed Nonclassified
Priority Claims pursuant to Section 3.4.1 hereinabove, distributions
upon Allowed Claims within Classes A, B and C pursuant to Sections
4.1, 4.2.1, 4.2.2 and 5.1 hereinabove, Cures with respect to
executory contracts pursuant to Section 6.4.2 hereinbelow, and future
anticipated expenses, such as postconfirmation administrative fees
and costs and quarterly fees owing to the United States Trustee,
pursuant to Section 7.10 hereinbelow; and (ii) less a reserve for
Disputed Claims, equal to the aggregate amount of pro-rata
distributions that would be made on Disputed Claims, if Allowed in
full, or such lesser amounts as may be established by the Bankruptcy
Court following notice and an opportunity for hearing; provided,
however, that if the Distribution Agent determines that the amount of
funds available for distribution, net of such reserves, is too small
to be efficiently distributed, relative to the costs of distribution,
such distribution may be deferred until the next distribution due.
5.2.3. Pari Passu Treatment. Notwithstanding anything to
the contrary elsewhere in the Plan, all Claims arising from the
Public Debt Securities (i.e., the Notes and the Debentures) shall be
treated as Claims, to the extent Allowed, within Class D, and shall
be treated on a pari passu basis, without subordination between them.
Any claims between holders of Notes and holders of Debentures,
including without
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limitation any issues of subordination with respect to the
obligations of the Debtor in connection with the Public Debt
Securities, shall be deemed compromised and settled in accordance
with the provisions of this Plan, which, among other things, shall be
deemed to constitute sufficient consideration for the pari passu
treatment of such Claims.
5.2.4. Stock Distribution. Subject to each of the
provisions of this Section 5.2, the Distribution Agent shall
distribute all Reorganized Shares received by the Distribution Estate
pursuant to Section 8.1.1 hereinbelow as follows:
5.2.4.1. Pro Rata. Such Reorganized Shares shall
be distributed on account of all Allowed Claims within
Class D, based upon the pro-rata calculations described in
Section 5.2.2 hereinabove.
5.2.4.2. Value. Each such Reorganized Share, when
distributed, shall be deemed to have a value of $0.325 for
purposes of calculating distributions upon, and
satisfaction of, Allowed Claims within Class D.
5.2.4.3. Fractional and Remainder Shares.
Notwithstanding the pro-rata calculation provided for in
Section 5.2.2, only whole numbers of Reorganized Shares
shall be distributed in accordance with Section 5.2 of this
Plan. Whenever the Pro-Rata calculation provided for in
said Section 5.2.2 would otherwise entitle a holder of an
Allowed Class D Claim to a distribution of a number of
Reorganized Shares that is not a whole
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number, the actual number of Reorganized Shares to be
distributed to such holder shall be rounded to the next
higher or lower whole number as follows:
(i) fractions of 4/5 or greater
shall be rounded to the next higher whole number;
and
(ii) fractions of less than 4/5 shall
be rounded to the next lower whole number.
No consideration shall be provided in lieu of fractional
shares that are rounded down. In the event that any
Reorganized Shares remain in the Distribution Estate after
the distribution in accordance with the terms of Section
5.2.4 hereof, the Distribution Agent shall dispose of such
remaining Reorganized Shares as an asset of the
Distribution Estate in accordance with the terms of Section
7.8.3 of this Plan.
5.2.5. Subordination. Except as expressly provided in
Section 5.2.3 hereinabove, no provision of the Plan shall be
construed to impair, prohibit or prejudice the right of any party,
including without limitation the Distribution Agent, to seek the
subordination of distributions upon any Allowed Claim within Class D,
in whole or in part, to distributions upon some or all other Allowed
Claims within Class D, whether pursuant to the provisions of Section
510(a) or (c) of the Bankruptcy Code or otherwise.
5.2.6. Provisions Affecting Public Debt Securities. The
following provisions shall affect each of the Indentures and
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all distributions made under the Plan on account of Claims arising
from Public Debt Securities:
5.2.6.1. Record Date. The Bankruptcy Court, in
the order approving the Disclosure Statement, shall
designate a record date for the holders of Public Debt
Securities (the "Record Date"). As of the Record Date, the
transfer registers (the "Registers") in respect of each
issue of Public Debt Securities shall be closed for
purposes of determining the holders of such Public Debt
Securities which are entitled to vote and receive
distributions under the Plan, and neither the Indenture
Trustees nor the Distribution Agent shall be under any
obligation to recognize the transfer of any Public Debt
Securities occurring after the Record Date for purposes of
voting or distributions. The Distribution Agent and each
Indenture Trustee shall recognize and deal for all purposes
under the Plan and each respective Indenture only with
holders of record of the Public Debt Securities as of the
close of business on the Record Date.
5.2.6.2. Manner of Distributions; Surrender of
Public Debt Securities. All distributions provided for
under the Plan to holders of Public Debt Securities shall
be distributed to the appropriate Indenture Trustee for
application pursuant to the provisions of its respective
Indenture, including, without limitation, those
provisions which govern the priority of distribution and
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the rights, duties, indemnification and compensation of
such Indenture Trustee (subject to all other provisions of
this Section 5.2.6). As of the Effective Date, all
outstanding Public Debt Securities shall be deemed
cancelled and exchanged for the right to receive
distributions pursuant to the terms of the Plan, and the
rights of holders of such Public Debt Securities shall
thereafter be governed solely by the terms of the Plan and,
subject to the provisions of Section 5.2.6.3 of the Plan,
by applicable provisions of the Indentures. As a condition
to receiving distributions provided for by the Plan in
respect of Public Debt Securities, the holder of a Public
Debt Security as of the Record Date must (a) surrender or
cause to be surrendered to the appropriate Indenture
Trustee the original Note or Debenture held by it, or (b)
unless waived by the Indenture Trustee in writing, in the
event that such holder is unable to surrender his original
Note or Debenture because the same has been lost,
destroyed, stolen or mutilated, furnish such Indenture
Trustee with (i) an executed affidavit of loss and
indemnity with respect thereto in a form customarily
utilized for such purpose that is reasonably acceptable to
the Indenture Trustee, or (ii) a bond in such amount and in
form as such Indenture Trustee shall reasonably direct,
sufficient to indemnify such Indenture Trustee against
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any claim made against the Indenture Trustee on account of
such alleged loss, destruction, theft or mutilation or the
distribution of property hereunder. All Public Debt
Securities surrendered to the appropriate Indenture Trustee
shall be marked "Compromised and Settled only as provided
in the Debtor's Plan of Reorganization" and surrendered to
the Reorganized Debtor.
5.2.6.3. Compensation of Indenture Trustees. The
Indenture Trustees, the Debtor, the Distribution Agent,
holders of Public Debt Securities, other Claimants and all
of their respective successors-in-interest shall be deemed
to reserve all rights, claims and defenses with respect to
any claims for compensation, reimbursement or
indemnification which either Indenture Trustee may assert
(whether or not pursuant to Section 503(b)(5) of the
Bankruptcy Code), subject to the following:
5.2.6.3.1. From Estate. To the extent
that either Indenture Trustee may seek, from time
to time, payment of Claims for compensation,
reimbursement or indemnification from the
Distribution Estate, whether as Nonclassified
Priority Claims or as Class D Claims, such Claims
must be filed in accordance with applicable
deadlines established by Section 3.2 hereinabove,
other provisions of the Plan or orders of the
Bankruptcy Court, and the Distribution Agent and
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all other parties in interest shall be entitled
to object thereto in accordance with applicable
provisions of the Plan.
5.2.6.3.2. From Distribution. To the
extent that either Indenture Trustee may seek,
from time to time, payment of compensation,
reimbursement or indemnification as a deduction
from, or lien against, funds held or received by
such Indenture Trustee for distribution upon
Claims arising from the Public Debt Securities,
in accordance with the terms of the respective
Indenture, such payment shall be made only upon
notice and opportunity for hearing given to all
holders of such Claims. In the event that any
such holder objects and requests a hearing
thereon in writing within twenty (20) days
following receipt of such notice, such payment
shall not be made without an order of the
Bankruptcy Court (or, if the Bankruptcy Court is
determined to lack proper jurisdiction therefor,
then a court with competent jurisdiction)
approving or awarding such payment (upon such
standards as such court determines proper).
Nothing set forth herein shall in any manner
prejudice any rights of holders of Public Debt
Securities or the Distribution Agent to challenge
the right of either Indenture Trustee to receive
any compensation,
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reimbursement or indemnification whatsoever, or
to assert a lien or right of deduction therefor.
5.2.6.4. Unclaimed Distributions. If any holder
of a Public Debt Security as of the Record Date cannot be
located or fails to satisfy the conditions precedent to
receipt of a distribution under the Plan within one year
after the Effective Date, then the distributions in respect
of such holder, or the proceeds thereof and interest
thereon, shall be returned to the Distribution Agent for
distribution in accordance with this Section 5.2.
5.3. Class E (Interests). All Interests within Class E, including
without limitation Rescission Claims, shall be treated as follows:
5.3.1. No Distributions. All such Interests shall be deemed
fully and finally released and discharged as of the Effective Date,
and no distributions whatsoever shall be made upon such Interests
from the Distribution Estate or by the Reorganized Debtor.
5.3.2. Cancellation. As of the Effective Date, all shares
of stock, regardless of class or preference rights, and all options,
warrants and other rights affecting stock, giving rise to any
Interests shall be deemed fully and finally cancelled, annulled and
extinguished and of no further force or effect whatsoever.
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ARTICLE VI
EXECUTORY CONTRACTS
6.1. Generally. Unexpired executory contracts, including without
limitation unexpired leases, to which the Debtor is a party as of the Effective
Date, entered into by the Debtor prior to the Petition Date, shall be treated in
the manner set forth in this Article VI.
6.2. Assumption and Rejection. The assumption and rejection
of executory contracts shall be determined as follows:
6.2.1. Schedule. No less than ten (10) days prior to the
commencement of the Confirmation Hearing, the Debtor shall file with
the Bankruptcy Court, and serve upon the United States Trustee, the
Committee and each party to a contract identified therein, a schedule
(the "Schedule 6.2.1") identifying the following: (a) each executory
contract to be assumed by the Reorganized Debtor as of the Effective
Date; (b) each executory contract to be assumed by the Distribution
Estate as of the Effective Date; and (c) the amount of any monetary
default that must be Cured in order to assume each such contract
under the provisions of Section 365(b)(1) of the Bankruptcy Code.
6.2.2. Rejection. Except as otherwise provided
elsewhere in the Plan or by the terms of the Confirmation
Order, as of the Effective Date, all executory contracts,
including without limitation all employment contracts and
employee compensation or benefit plans or programs, shall be
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deemed rejected as of the Effective Date, except for any executory
contract (i) which is listed on Schedule 6.2.1 to be assumed, or (ii)
which has been assumed by the Debtor pursuant to an order of the
Bankruptcy Court entered prior to the Effective Date.
6.2.3. Assumption. As of the Effective Date: (a) all
executory contracts that are assumed pursuant to the
provisions of Section 6.2.1(a) hereinabove shall be deemed
assumed by the Reorganized Debtor; (b) all executory contracts
that are assumed pursuant to the provisions of Section
6.2.1(b) hereinabove shall be deemed assumed by the
Distribution Estate; and (c) all executory contracts that are
assumed pursuant to the provisions of Section 6.2.2(ii)
hereinabove shall be deemed assumed by the Distribution
Estate.
6.3. Cure Amounts. Within five (5) Business Days following the
Confirmation Date, the Committee, the United States Trustee and any party to an
executory contract listed therein may file, and serve upon the Debtor, the
Committee, the United States Trustee and such contract party, an objection to
Schedule 6.2.1 to the extent that it disputes the Cure amount stated for a
particular contract. The amounts set forth in Schedule 6.2.1 shall be
conclusively presumed to be the amounts of Cure, if any, for each contract
identified therein, unless, and except to the extent, that an objection is
timely filed and served in accordance with the provisions of this Section 6.3.
Any amount of Cure in excess of
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those set forth in the Schedule 6.2.1 or such timely filed objections shall be
fully discharged and barred, and shall not be a liability of the Reorganized
Debtor or the Distribution Estate to any extent.
6.4. Payment of Cure. Any and all cash payments necessary to Cure
defaults existing under the executory contracts assumed pursuant to the
provisions of Section 6.2 herein shall be paid as follows:
6.4.1. Payment by Reorganized Debtor. Such Cure amounts
shall be paid by the Reorganized Debtor from its own funds with
respect to any executory contract identified for assumption in
Schedule 6.2.1 pursuant to the provisions of Section 6.2.1(a)
hereinabove, and the Distribution Agent shall have no responsibility
or liability therefor whatsoever.
6.4.2. Payment by Distribution Agent. Such Cure amounts
shall be paid by the Distribution Agent from funds of the
Distribution Estate with respect to any executory contract to be
assumed other than those identified for assumption in Schedule 6.2.1
pursuant to the provisions of Section 6.2.1(a) hereinabove, and the
Reorganized Debtor shall have no responsibility or liability therefor
whatsoever.
6.4.3. Timing of Payment. All such payments of Cure amounts
shall be paid by the later of the following dates: (a) on the
Effective Date, or on such later date as to which the holder of the
right to such Cure may have consented; or (b) on the date when such
Cure of defaults becomes due
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according to contractual, statutory or other terms applicable
thereto, provided that if an objection timely filed and served
pursuant to the provisions of Section 6.3 hereinabove identifies a
larger amount for the Cure of a contract, the undisputed portion
shall be paid in accordance with the foregoing sentence and the
difference in amounts shall be paid to the extent and when allowed by
a Final Order of the Bankruptcy Court determining the amount of such
Cure.
6.5. Approval of Assumption or Rejection. Entry of the
Confirmation Order shall constitute (i) the approval, pursuant to the provisions
of Section 365(a) of the Bankruptcy Code, of the assumption of the executory
contracts assumed pursuant to the provisions of Section 6.2 hereinabove; (ii)
the extension of time pursuant to the provisions of Section 365(d)(4) of the
Bankruptcy Code within which the Debtor may assume or reject the executory
contracts specified in Section 6.2 hereinabove through the Effective Date; and
(iii) the approval, pursuant to the provisions of Section 365(a) of the
Bankruptcy Code, of the rejection of the executory contracts rejected pursuant
to the provisions of Section 6.2 hereinabove.
6.6. Bar Date for Rejection Claims. Except to the extent that the
Bankruptcy Court, the Bankruptcy Code or the Bankruptcy Rules may establish an
earlier deadline with regard to the rejection of particular executory contracts,
any Claims arising out of the rejection of executory contracts pursuant to the
provisions of Section 6.2 herein must be filed with the Bankruptcy Court and
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served upon all parties identified in the Postconfirmation List no
later than thirty (30) days after the Effective Date. Any Claims
not filed within such time will be forever barred from assertion against the
Distribution Estate, and will not receive any distributions therefrom. Any
Claims arising from the rejection of executory contracts (a) may be asserted
only as Claims against the Distribution Estate; (b) may be asserted only to the
extent permitted by Section 365(g) of the Bankruptcy Code; (c) shall be
classified and treated within the treatment of Classes C or D, as the case may
be; and (d) shall not be claims against the Reorganized Debtor to any extent.
ARTICLE VII
MEANS FOR EXECUTION OF THE PLAN
7.1. Plan Effectiveness. The Plan shall become fully effective and
binding upon all parties on the Effective Date.
7.2. Vesting of Estate Property. As of the Effective Date, pursuant
to the provisions of Section 1123(b) of the Bankruptcy Code and otherwise, the
assets of the Debtor's estate shall vest as follows:
7.2.1. Vesting in Reorganized Debtor. Subject to the
provisions of Section 7.2.3 hereinbelow, all title, ownership and
interests of the Debtor's estate in all Hammer Assets, shall be
deemed preserved and re-vested in, and fully owned and possessed by,
the Reorganized Debtor, free and clear of all claims, liens, security
interests and obligations other
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than those that are expressly created or preserved by the provisions
of this Plan or the Confirmation Order.
7.2.2. Vesting in Distribution Estate. All title, ownership
and interests of the Debtor's estate in all Non- Hammer Assets shall
be deemed preserved and retained in, and fully owned and possessed
by, the Distribution Estate, free and clear of all claims, liens,
security interests and obligations other than those that are
expressly created or preserved by the provisions of this Plan or the
Confirmation Order.
7.2.3. Preletz Group Withdrawal. In the event that the
Preletz Group timely and properly withdraws its support and
commitment to the Plan, following ten (10) days' written
notice to the Debtor and to the Committee and prior to the
Effective Date, due to a material adverse change in the
operations of the Debtor's Hammer Product Line business prior
to the Effective Date, then (a) the provisions of Section
7.2.1 hereinabove shall be inoperative, and as of the
Effective Date all title, ownership and interests of the
Debtor's estate in all Hammer Assets shall be deemed preserved
and retained in, and fully owned and possessed by, the
Distribution Estate, and (b) all such Hammer Assets shall
thereafter be treated as Non-Hammer Assets for all purposes of
the Plan.
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7.3. Hammer and Non-Hammer Assets. The terms "Hammer Assets"
and "Non-Hammer Assets" shall have the following respective
meanings:
7.3.1. Hammer Assets. Subject to the provisions of Section
7.2.3 hereinabove, the "Hammer Assets" shall consist of each of the
following assets, to the extent that such assets are property of the
Debtor's estate immediately preceding the Effective Date:
7.3.1.1. All patents, trademarks and other
intellectual property owned by the Debtor and relating to
the Hammer Product Line, including without limitation the
license of Raidion patents received from Farrington
pursuant to the provisions of Section 2.3.2 of the Patent
Sale Agreement, but without any representations or
warranties on behalf of the Debtor or its estate as to the
enforceability, validity or status of such intellectual
property rights or that such rights are sufficient to
operate the Reorganized Debtor's business;
7.3.1.2. All inventory of components,
subassemblies and other material used to develop, assemble
or manufacture any products or units within the Hammer
Product Line;
7.3.1.3. The right to hire specified current
employees of the Debtor, subject to agreement between the
Reorganized Debtor and individual employees as to the
particular terms and conditions of ongoing employment,
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but without such agreements constituting conditions to the
effectiveness of the Plan;
7.3.1.4. All goodwill, name, customer lists and
other general intangibles supporting or related to the
Hammer Product Line;
7.3.1.5. All executory contracts, including
equipment leases, vendor contracts and license agreements,
which are identified in Schedule 6.2.1 pursuant to the
provisions of Section 6.2.1(a) of the Plan;
7.3.1.6. All cash and cash equivalents (excluding
restricted accounts), other than the net proceeds of bulk
sales of Non-Hammer Assets, owned or held by the Debtor
immediately preceding the Effective Date;
7.3.1.7. All accounts and accounts receivable
arising from sales by the Debtor within the Hammer Product
Line, to the extent owned or held by the Debtor immediately
preceding the Effective Date;
7.3.1.8. Specific units of equipment owned or
leased by the Debtor, subject to the following: (a) if such
equipment is unencumbered, it must be identified in writing
by the Preletz Group to the Debtor and to the Committee at
least ten (10) days prior to the Effective Date; (b) if
such equipment is leased by the Debtor, it must be pursuant
to an executory contract identified in Schedule 6.2.1
pursuant to the provisions of Section
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6.2.1(a) of the Plan; and (c) to the extent that such
equipment is encumbered by a lien, it must be identified in
Schedule 4.2(B) pursuant to the provisions of Section 4.2
of the Plan; and
7.3.1.9. All causes of action owned by the Debtor
immediately preceding the Effective Date other than those
constituting Non-Hammer Assets pursuant to the provisions
of Section 7.3.2.7 hereinbelow.
7.3.2. Non-Hammer Assets. Subject to the provisions of
Section 7.2.3 hereinabove, the "Non-Hammer Assets" shall consist of
all assets of the Debtor immediately preceding the Effective Date
other than the Hammer Assets, and shall include without limitation
the following:
7.3.2.1. All inventory within the Raidion Product
Line and owned by the Debtor immediately preceding the
Effective Date;
7.3.2.2. All accounts receivable arising from
sales by the Debtor within the Raidion Product Line and
existing immediately preceding the Effective Date;
7.3.2.3. All cash and cash equivalents
constituting net proceeds of any bulk sales of assets
within the Raidion Product Line and approved by the
Bankruptcy Court pursuant to Section 363(b) of the
Bankruptcy Code, including without limitation the net
proceeds of the patent sale to Farrington and the net
proceeds of the bulk sale to PTG;
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7.3.2.4. All real property and improvements owned
by the Debtor and located in Chatsworth, California;
7.3.2.5. The unsecured promissory note issued by
Titanium Memory Systems, Inc. or an affiliate in the
original principal amount of $500,000, and all related
rights thereunder;
7.3.2.6. All shares of stock of Concentric
Network Corporation, and any and all net proceeds from the
sale thereof, owned by the Debtor immediately preceding the
Effective Date; and
7.3.2.7. All causes of action arising from the
avoidance powers set forth in Sections 544, 545, 546, 547,
548, 549, 550, 551, 552 and 553 of the Bankruptcy Code, and
all other causes of action owned by the Debtor immediately
preceding the Effective Date other than causes of action
arising from, or necessary to the enforcement or benefit
of, Hammer Assets.
7.4. Effective Date Actions. As of the Effective Date, the Debtor,
the Committee, the Preletz Group, the Distribution Agent and others shall take
the following actions, and execute and deliver the following documents; provided
that if any such party fails to so act, the Reorganized Debtor or the
Distribution Agent shall be authorized to so act on such party's behalf,
pursuant to an order of the Bankruptcy Court issued on no less than five (5)
Business Days' notice under the provisions of Section 1142(b) of
the Bankruptcy Code; provided further that if Section 7.2.3
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hereinabove becomes operative due to a timely and proper withdrawal by the
Preletz Group, then none of the provisions of Sections 7.4.1, 7.4.3, 7.4.4,
7.4.5(b), 7.4.6 or 7.4.7 hereinbelow shall become effective; and provided
finally that as to all payments and other actions required of the Distribution
Agent on the Effective Date by the terms of this Section 7.4, the Distribution
Agent may rely fully upon specific directions provided jointly by the Debtor and
the Committee:
7.4.1. Revesting of Hammer Assets. As of the Effective
Date, in exchange, among other things, for the issuance of
Reorganized Shares to the Distribution Estate pursuant to Section
8.1.1 hereinbelow and the opportunity of creditors to acquire
additional shares pursuant to Section 8.2 hereinbelow, all of the
Hammer Assets shall revest in the Reorganized Debtor, free and clear
of all liens, Claims, charges, interests and other encumbrances other
than those expressly created or preserved by the terms of the Plan.
7.4.2. Retention of Non-Hammer Assets. As of the Effective
Date, all of the Non-Hammer Assets shall be retained by the
Distribution Estate, free and clear of all liens, Claims, charges,
interests and other encumbrances other than those expressly created
or preserved by the terms of the Plan.
7.4.3. Preletz Group Contribution. On the Effective Date,
the Preletz Group shall contribute Cash to the Reorganized Debtor, in
exchange for Reorganized Shares, as set forth in Section 8.1.3
hereinbelow.
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7.4.4. Participating Creditors' Contribution. On the
Effective Date, the Participating Creditors shall contribute Cash to
the Reorganized Debtor, in exchange for Reorganized Shares, as set
forth in Section 8.1.2 hereinbelow.
7.4.5. Cancellation and Issuance of Stock. On the Effective
Date, (a) all Interests, including without limitation shares of stock
of the Debtor and all warrants and options therefor, shall be deemed
fully cancelled, terminated and of no further force or effect
whatsoever, pursuant to the provisions of Section 5.3.2 hereinabove;
and (b) the Reorganized Debtor shall then and thereafter issue the
Reorganized Shares as set forth in Section 8.1 of the Plan.
7.4.6. Modification of Articles and By-Laws. As of the
Effective Date, the Reorganized Debtor shall be deemed to have
modified its charter, articles of incorporation and by-laws in
accordance with the provisions of Section 8.3 hereinbelow.
7.4.7. Payments by Reorganized Debtor. On and after the
Effective Date, the Reorganized Debtor shall make payments as and
when required of it by the provisions of Sections 3.4.2, 4.2.1,
4.2.2, 6.4.1 and 7.13 of the Plan.
7.4.8. Payments by Distribution Agent. The Distribution
Agent shall (a) pay such amounts to the holders of Allowed Priority
Claims and Allowed Secured Claims as required by the provisions of
Sections 4.1, 4.2.1 and 4.2.2 hereinabove, respectively; and (b) pay
such Cure amounts as required by the provisions of Section 6.4.2
hereinabove.
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7.4.9. Other Releases of Liens and Instruments. Holders of
Secured Claims shall execute such documents as reasonably presented
by the Reorganized Debtor or the Distribution Agent, as the case may
be, in order to effectuate the release of liens and instruments
contemplated by the provisions of Section 4.2.2 hereinabove, to the
extent identified in Schedules 4.2(A) or 4.2(B) for treatment in
accordance with the terms of Section 4.2.2 hereinabove. In addition,
without limiting the generality of the foregoing, on and after the
Effective Date, each holder of an instrument evidencing a Claim shall
surrender such instrument to the Reorganized Debtor or the
Distribution Agent, as the case may be, upon request. No distribution
under the terms of the Plan shall be made to or on behalf of any
holder of a lien or instrument unless and until the same has been
surrendered, and the lien has been released pursuant to a document in
recordable, acceptable form, as requested by the Reorganized Debtor
or the Distribution Agent, as the case may be.
7.4.10. Distribution Estate Accounts. The Distribution
Agent shall establish one or more bank accounts for the maintenance
of funds on behalf of the Distribution Estate, and shall deliver to
the Bankruptcy Court evidence of the issuance of a fidelity bond,
consistent with the requirements of Sections 7.8.1 and 7.7.2,
respectively, of the Plan.
7.4.11. Other Documents. The Reorganized Debtor and the
Distribution Agent, as appropriate, shall execute and deliver
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such documents, and take such actions, as reasonably necessary to
complete and evidence the disposition of assets, vested in either the
Reorganized Debtor or the Distribution Estate, as contemplated by the
terms of the Plan.
7.5. Other Actions. The Debtor, the Committee, the Preletz
Group, the Distribution Agent and all Claimants and other parties in interest
shall take such other actions, and execute such other documents, as are
reasonably necessary to consummate the transactions described in this Plan, and
the Reorganized Debtor shall be free to operate its business and financial
affairs, and to use the Hammer Assets as its own, as it deems appropriate at all
times following the Effective Date, subject only to the express terms of the
Plan.
7.6. Preservation and Vesting of Causes of Action. As of the
Effective Date, each right, claim, avoiding power or cause of action arising
under Sections 502, 506, 510, 541, 542, 543, 544, 545, 546, 547, 548, 549, 550,
551, 552 and 553 of the Bankruptcy Code in favor of the Debtor's estate shall be
deemed fully preserved. All such rights, claims, avoiding powers and causes of
action shall vest as follows:
7.6.1. Vesting in Reorganized Debtor. As of the Effective
Date, any such rights, claims and causes of action, but no such
avoiding powers, that are Hammer Assets shall vest in the Reorganized
Debtor; and
7.6.2. Vesting in Distribution Estate. As of the
Effective Date, the Distribution Estate shall be vested with
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all such avoiding powers, and all other such rights, claims and
causes of action that are not Hammer Assets.
7.7. Distribution Agent. The Distribution Agent shall be
selected, and shall serve, as follows:
7.7.1. Selection. As soon as practicable following the
Confirmation Date, the Committee shall select the Distribution Agent,
on compensation terms acceptable to the Distribution Agent, effective
as of the Effective Date, and shall file with the Bankruptcy Court a
notice of such selection.
7.7.2. Responsibility and Fidelity. At all times on and
after the Effective Date, the Distribution Agent shall have sole
responsibility for maintaining the Distribution Estate and in making
disbursements thereof and disbursements therefrom in accordance with
the terms of the Plan, pursuant to the provisions of Section 7.8
hereinbelow, and preserving, enforcing and otherwise disposing of the
Distribution Estate's rights, entitlements, property and claims. Upon
the Distribution Agent's employment, unless the Debtor and the
Committee agree otherwise, the Distribution Agent shall furnish to
the Bankruptcy Court and to the Debtor, the Committee and the United
States Trustee evidence of the issuance of a fidelity bond covering
all of the Distribution Agent's services under the Plan, in an amount
agreed upon by the Debtor and the Committee, or else as established
by the Bankruptcy Court, which amount may be adjusted from time to
time after the Effective Date by the Bankruptcy Court on
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motion by a party in interest served upon all parties listed in the
Postconfirmation List.
7.7.3. Tenure and Replacement. The Distribution Agent
shall serve at all times at the pleasure and direction of the
Committee. The Committee may terminate the Distribution
Agent's appointment at any time, with or without cause, in
which case such termination shall become effective, and the
Distribution Agent shall turn over all of his/her records,
upon the Committee's appointment of a replacement Distribution
Agent upon terms acceptable to the Committee and such
replacement agent.
7.8. Distribution Estate. The Distribution Agent shall
administer the Distribution Estate, subject to each of the
following provisions:
7.8.1. Accounts. Immediately upon the Effective Date, the
Distribution Agent shall establish one or more deposit accounts with
financial institutions approved by the Office of the United States
Trustee or the Bankruptcy Court or otherwise qualified pursuant to
the provisions of Section 345 of the Bankruptcy Code, for the
maintenance of funds of the Distribution Estate. Whenever possible
and practical, the Distribution Agent shall arrange for the accrual
and earning of interest upon funds held within the Distribution
Estate.
7.8.2. Distribution Agent's Duty. It shall be the duty
of the Distribution Agent to liquidate all of the assets of
the Distribution Estate, and to resolve all Claims
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thereagainst, in a manner reasonably intended and designed to
maximize recoveries by recipients of distributions from such estate,
consistent with sound and prudent principles of cash and asset
management, subject to all applicable terms and conditions of Section
7.8.3 hereinbelow and upon instruction of the Committee. The
Distribution Agent shall report regularly and in detail to the
Committee, as frequently as events dictate or the Committee directs,
as to the status of the administration of the Distribution Estate.
7.8.3. Administration. In disposing of the assets of the
Distribution Estate, and in resolving Claims and other issues
affecting the Distribution Estate, the Distribution Agent may dispose
of assets, compromise controversies and otherwise administer the
Distribution Estate in a manner determined by the Distribution Agent
to be in the best interests of the Distribution Estate, subject to
each of the following terms and conditions:
7.8.3.1. Smaller Sales. The Distribution Agent
may sell any asset or set of assets of the Distribution
Estate in a single sale or a related set of sales, with the
express, written approval of the Committee but without the
notice procedure as set forth in Section 7.8.3.2
hereinbelow, provided that the gross purchase price to be
received by the Distribution Estate for such asset or set
of assets does not exceed the sum of $50,000.00.
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7.8.3.2. Other Dispositions. All dispositions of
assets of the Distribution Estate, including without
limitation sales of assets and compromises of disputes,
other than those sales described in Section 7.8.3.1
hereinabove may be made by the Distribution Agent only: (a)
with the express, written approval of the Committee; and
(b) either (i) in the absence of a timely written objection
received by the Distribution Agent within five (5) Business
Days following written notice given to those parties listed
in the Postconfirmation List, or (ii) in the event of such
timely written notice, upon approval by the Bankruptcy
Court on no less than five (5) Business Days' notice of a
hearing thereon.
7.8.4. Deposits. All funds received by the Distribution
Agent on behalf of the Distribution Estate on the Effective Date or
thereafter, including all funds that constitute Non-Hammer Assets
and all proceeds of other Non-Hammer Assets as sold, shall be
deposited into the Distribution Estate.
7.8.5. Disbursements. Disbursements shall be made from the
Distribution Estate only for the following purposes: (a) payment of
reasonable fees and expenses of the Distribution Agent, his or her
professionals, and the Committee's professionals, the Committee's
members' reasonable out-of-pocket expenses (excluding members'
professionals' fees and expenses), and quarterly fees of the United
States Trustee, to the extent required by the provisions of Section
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7.10 hereinbelow; (b) payment of all distributions to the extent
required by the provisions of Sections 3.4.1 (Nonclassified Priority
Claims), 4.1 (Priority Claims), 4.2.1 and 4.2.2 (Secured Claims), 5.1
(Convenience Claims) and 6.4.2 (Executory contract Cures); and (c)
periodic distributions upon Allowed Claims within Class D as required
by the provisions of Section 5.2 hereinabove, to the extent of
available funds; provided that no payments need be made upon Claims,
other than within Class C (Convenience Claims), under the amount of
$10.00 (a "De Minimis Amount"). A De Minimis Amount due such Claimant
may be retained by the Distribution Agent and disbursed to such
Claimant only if and when the Claimant has accrued the right to a
distribution of $10.00 or more. The Distribution Agent may also round
off, up or down, on disbursement amounts.
7.8.6. Periodic Distributions. Beginning on or before June
30, 1998 and thereafter only as and when directed by the Committee,
until the Distribution Estate has been exhausted and terminated, the
Distribution Agent shall make distributions upon Allowed Claims
within Class D as required by Section 5.2 hereinabove.
7.8.7. [INTENTIONALLY OMITTED].
7.8.8. Unclaimed Payments to Claimants. Distributions
made by the Distribution Agent that are unclaimed for six (6)
months following attempted distribution, including without
limitation distributions of Cash or Reorganized Shares, shall
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be reinvested into the Distribution Estate, to be redistributed
consistent with the terms of the Plan.
7.9. Committee. The Committee shall continue to serve and function
following the Effective Date, with all of the duties, obligations, defenses and
immunities provided by the Plan or applicable provisions of the Bankruptcy Code,
for the purpose of directing and monitoring the administration and distribution
of the Distribution Estate, subject to the following:
7.9.1. Membership. In the event that any member of the
Committee assigns, releases, transfers or otherwise ceases to hold
all or substantially all of its Allowed Claim within Class D, such
assignment, release, transfer or other disposition shall be deemed to
constitute such member's resignation from the Committee. In the event
that any member of the Committee resigns, is removed or otherwise
becomes ineligible to serve as a member of the Committee, a
replacement may be selected by the remaining Committee members from
the holders of Allowed Claims within Class D.
7.9.2. Retention of Professionals. The Committee shall be
entitled to retain, employ and compensate professionals, in order to
assist with its obligations and rights under the terms of the Plan,
subject to the requirements of Section 327 of the Bankruptcy Code
regarding Bankruptcy Court approval, provided that entry of the
Confirmation Order shall be deemed to constitute the Bankruptcy
Court's approval of the Committee's continued retention of the law
firm of Murray &
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Murray, A Professional Corporation, counsel for the Committee prior
to the Effective Date, as the Committee's counsel on and after the
Effective Date, to the extent that the Distribution Agent wishes to
so retain such firm, without the necessity of formal application
therefor.
7.10. Postconfirmation Fees and Expenses. The Distribution
Agent shall be entitled, subject to the approval of the Committee, to retain,
employ and compensate professionals, in order to assist with his or her
obligations and rights under the terms of the Plan, and shall be entitled to
receive compensation, subject to the following:
7.10.1. Court Approval. The requirements of Section 327 of
the Bankruptcy Code regarding Bankruptcy Court approval of the
retention of professionals shall pertain to professionals retained by
the Distribution Agent, subject to the following: Entry of the
Confirmation Order shall be deemed to constitute the Bankruptcy
Court's approval of the Distribution Agent's retention of the law
firms of Goldberg, Stinnett, Meyers & Davis, A Professional
Corporation, and Murray & Murray, A Professional Corporation, counsel
for the Debtor and the Committee, respectively, prior to the
Effective Date, as the Distribution Agent's counsel on and after the
Effective Date, to the extent that the Distribution Agent wishes to
so retain such firms, without the necessity of formal application
therefor.
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7.10.2. Payment of Fees. All (a) fees and expenses of the
Distribution Agent, his or her professionals, and the Committee's
professionals, and out-of-pocket expenses of the Committee's members,
earned or accrued on or after the Effective Date, and (b) quarterly
fees owing to the United States Trustee and accruing for any period
that includes any days occurring on or after the Effective Date,
shall be payable from the Distribution Estate. All fees and expenses
described in subpart (a) hereinabove shall be deemed allowed and
approved, and shall be paid by the Distribution Agent from the
Distribution Estate, upon ten (10) Business Days' notice to all
parties listed in the Postconfirmation List, absent written
objections within that period by a party in interest, or upon
approval by the Bankruptcy Court in the event of such timely written
objections.
7.10.3. Reporting to the United States Trustee. At all
times on and after the Effective Date, the Distribution Agent shall
comply with all applicable reporting and administrative regulations,
including the payment of fees, if any, to the United States Trustee
pursuant to the provisions of Section 1930 of Title 28 of the United
States Code. Any such fees owing to the United States Trustee shall
be measured solely by distributions or payments of Cash from the
Distribution Estate, and not by any distributions, payments,
transfers or other dispositions of funds or assets by the Reorganized
Debtor on or after the Effective Date.
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7.11. Objections to Claims. On and after the Effective Date, the
Distribution Agent and any other party in interest may file and serve timely
objections or requests for subordination as to any claim, except as otherwise
provided in the Plan, provided that such objections or requests are filed with
the Bankruptcy Court, and served upon the Distribution Agent (unless the
Distribution Agent is the objecting party), the Committee and the holder of such
claim, within ninety (90) days following the Effective Date (or within ninety
(90) days following the filing of such claim, if later).
7.12. Term of Injunctions and Stays. Unless otherwise provided herein
or by an order of the Bankruptcy Court, any injunctions or stays issued or
effective as of the Confirmation Date in the Chapter 11 Case, whether under the
provisions of Sections 105 or 362 of the Bankruptcy Code or otherwise, shall
remain in full force and effect until the Effective Date.
ARTICLE VIII
CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR
8.1. Capitalization of Reorganized Debtor. On and after the Effective
Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and
proper withdrawal by the Preletz Group, the Reorganized Debtor shall be
authorized to issue up to 20,000,000 shares of common stock, the Reorganized
Shares, provided that of such amount, (a) 5,000,000 shares may be issued at any
time at the discretion of the Reorganized Debtor's board of directors in its
business judgment, in return for new capital investments by the
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Preletz Group or by one or more third parties, at a per-share price that is not
less than the greater of (i) $1.00 and (ii) current market value, to the extent
that such market value can be reasonably ascertained; and (b) the other
15,000,000 shares may be issued only upon the following terms:
8.1.1. Estate's Shares. On the Effective Date, the
Reorganized Debtor shall issue 3,500,000 Reorganized Shares to the
Distribution Estate, in exchange for, among other things, the
revesting of the Hammer Assets in the Reorganized Debtor.
8.1.2. Participating Creditors' Shares. On the Effective
Date, the Reorganized Debtor shall issue the Subscription Reorganized
Shares (2,000,000 Reorganized Shares) to Participating Creditors, in
exchange for their aggregate contribution of Cash of $650,000.00,
pursuant to the provisions of Section 8.2 hereinbelow.
8.1.3. Preletz Group Shares. On the Effective Date, the
Reorganized Debtor shall issue 2,000,000 Reorganized Shares to
the Preletz Group, or its nominees, in exchange for its
contribution of Cash of $650,000.00, pursuant to the
provisions of Section 7.4.3 hereinabove.
8.1.4. Stock Option Shares. At any time on and after the
Effective Date, the Reorganized Debtor, at its management's
discretion, may issue up to 2,500,000 Reorganized Shares pursuant to
"Employee Stock Options," as defined hereinbelow, subject to the
following terms and conditions:
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8.1.4.1. Employee Stock Options. The term
"Employee Stock Options" is defined as options granted by
the Reorganized Debtor to employees (management and/or
nonmanagement), directors and/or officers as incentive
compensation, which options, to the extent issued to
nonmanagement employees, shall not vest unless the grantee
remains with the Reorganized Debtor (unless terminated
without cause) for at least one year from the date of the
option grant (or longer, if vesting in increments), and
which options shall carry such other terms and conditions
as are customary or as the Reorganized Debtor's management
determines appropriate;
8.1.4.2. To Management. Not more than 1,000,000
such shares may be issued, without further conditions, to
the Reorganized Debtor's management or to employees as
determined by such management in its sole discretion; and
8.1.4.3. To Others. Not less than 1,500,000 such
shares shall be available to be issued to nonmanagement
employees staged over time pursuant to Employee Stock
Options approved by a majority of the board of directors of
the Reorganized Debtor.
8.1.5. Additional Shares. In addition to the foregoing,
the Reorganized Debtor may issue up to an additional 5,000,000
Reorganized Shares at any time, at the discretion of the
Reorganized Debtor's management in its business judgment, for
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any or all of the following purposes (allocated among such purposes
as the Reorganized Debtor's management chooses):
8.1.5.1. New Capital. In return for new capital
investments by the Preletz Group or by one or more third
parties, at a per-share price that is not less than the
greater of (a) $1.00 and (b) current market value, to the
extent that such market value can be reasonably
ascertained;
8.1.5.2. Preletz Group Options. To grant options
to the Preletz Group or their nominees exercisable upon the
achievement of any of the following events, in the
indicated share amounts:
8.1.5.2.1. Up to 2,000,000 Reorganized
Shares in the event that the Reorganized Debtor
remains operating, is generally paying its debts
as they come due, and is not the subject of an
order for relief under the provisions of the
Bankruptcy Code, or an order for general
receivership, as of the first anniversary of the
Effective Date;
8.1.5.2.2. Up to 1,500,000 Reorganized
Shares in the event that the Reorganized Debtor
achieves a Market Value of at least $20,000,000;
and
8.1.5.2.3. Up to 1,500,000 Reorganized
Shares in the event that the Reorganized Debtor
achieves a Market Value of at least $40,000,000;
or
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8.1.5.3. Additional Employee Options. To grant
additional Employee Stock Options to nonmanagement
employees of the Reorganized Debtor.
8.2. Creditors' Rights Offering. As of the Effective Date, unless
Section 7.2.3 hereinabove becomes operative due to a timely and proper
withdrawal by the Preletz Group, 2,000,000 Reorganized Shares shall be issued in
accordance with the provisions of Section 8.1.2 hereinabove to creditors
participating in the following Creditors' Rights Offering, which offering shall
be available to all Claimants (the "Eligible Claimants") asserting Claims which,
if Allowed, will be treated within Class D herein, upon the following terms:
8.2.1. Subscription Rights. Each Eligible Claimant shall be
deemed to have been issued a number of nontransferable rights (the
"Subscription Rights"), each such right representing the right to
subscribe for and purchase one of the 2,000,000 Reorganized Shares to
be issued pursuant to Section 8.1.2 hereinabove (the "Subscription
Reorganized Shares") for the Cash purchase price of $0.325 ($650,000
in the aggregate for all Subscription Rights to purchase all
Subscription Reorganized Shares). Each Eligible Claimant will be
deemed to have been issued a number of Subscription Rights (rounded
up to the nearest whole number) which is equal to the product
obtained by multiplying (i) .06666 by (ii) the Eligible Claimant's
Interim Claim (as defined hereinbelow).
Each Eligible Claimant will be required to exercise all of its
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Subscription Rights if it wishes to exercise any of its Subscription
Rights at all; partial exercises will not be permitted.
8.2.2. Interim Claim. For purposes of calculations and
distributions pursuant to the Creditors' Rights Offering solely, an
Eligible Claimant's "Interim Claim" shall be the lesser of (a) the
amount of the Eligible Claimant's timely filed Claim or the amount,
if any, shown as undisputed, liquidated and noncontingent in the
Schedules if no timely Claim has been filed; and (b) the estimated
amount of the Claim, if such estimation has been made by the
Bankruptcy Court pursuant to the provisions of Section 502(c) of the
Bankruptcy Code prior to the Confirmation Date. The Debtor, the
Committee or any other party in interest may seek such estimation of
a Claim upon five (5) Business Days' notice and opportunity for a
hearing provided to the Eligible Claimant holding such Claim.
8.2.3. Subscription Exercise. Subscription Rights must be
exercised by duly completing, signing and dating the portion of the
Ballot marked "Subscription Rights," and submitting such Ballot in a
timely manner as stated on the Ballot. If the Subscription Rights
portion of the Ballot is otherwise completed by an Eligible Claimant
but states an amount of Subscription
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Rights different from the amount to which such Eligible Claimant is
entitled, such Ballot shall be deemed corrected to state the correct
amount of Subscription Rights, as determined by the Committee. If the
Subscription Rights portion of the Ballot is otherwise incomplete or
incorrectly stated, it may be deemed to be corrected or void, as
determined by the Committee.
8.2.4. Standby Commitment. United Equities, which is an
Eligible Claimant, shall exercise the Subscription Rights which will
be deemed to have been issued to it, based upon an Interim Claim of
approximately $2,500,000. In addition, United Equities shall purchase
any and all Subscription Reorganized Shares which are not purchased
by any other Eligible Claimant pursuant to the exercise of
Subscription Rights.
8.2.5. Notification and Deposit. As soon as practicable
following the calculation of exercised Subscription Rights pursuant
to the foregoing provisions, the Committee shall notify each Eligible
Claimant which has exercised its Subscription Rights (a
"Participating Creditor"), including United Equities as to its
standby commitment amount, of the number of Subscription Reorganized
Shares that such Eligible Claimant shall purchase and the amount of
the Cash purchase price (the "Subscription Payment") therefor. Upon
receipt of such notification, each such Participating Creditor shall
tender its Subscription Payment in Cash to the Committee's counsel by
the deadline set forth in the notification (which deadline shall be
no earlier than seven (7) days following the date of mailing of such
notification.
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8.2.6. Segregated Account. The Committee's counsel shall
hold all Subscription Payments in a segregated account (using the
Debtor's tax identification number), in trust for the Participating
Creditors, and shall not disburse such funds for any purposes other
than the following: (a) on the Effective Date, unless Section 7.2.3
hereinabove becomes operative due to a timely and proper withdrawal
by the Preletz Group, all such funds (including any interest that may
have been earned thereon) shall be disbursed to the Reorganized
Debtor in exchange for the issuance of the Subscription Reorganized
Shares pursuant to Section 8.1.2 hereinabove; or (b) if the Effective
Date does not occur or Section 7.2.3 hereinabove becomes operative
due to a timely and proper withdrawal by the Preletz Group, all such
funds (including any interest that may have been earned thereon)
shall be returned to those Participating Creditors who tendered such
funds, proportionate to the amounts of such tenders.
8.2.7. Determinations by Committee. All determinations made
by the Committee as to the Creditors' Rights Offering, including
without limitation calculations of proper amounts of Subscription
Rights, Subscription Reorganized Shares, Interim Claims and
Subscription Payments, and determinations of the timeliness of
exercises of Subscription Rights and the adequacy and completeness of
information provided in the Subscription Rights portion of the
Ballots, shall be in the Committee's sole discretion and judgment and
shall be final
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and conclusive for all purposes, without an opportunity for
challenge, appeal or dispute.
8.2.8. Untimely Contributions. In the event of untimely
receipts, or lack of receipts, of Subscription Payments, the
subscriptions to which they relate shall be automatically deemed void
and such Subscription Rights shall be deemed reassigned to, and
exercised by, United Equities, which shall deposit with the
Committee's counsel such additional Subscription Payments immediately
upon notification.
8.2.9. Distributions. Prior to the Effective Date, the
Committee shall provide directions to the Debtor as to the final
Subscription Payment, and amount of Subscription Reorganized Shares
of each Participating Creditor in accordance with the foregoing
provisions, and on the Effective Date, the Reorganized Debtor shall
issue the 2,000,000 Subscription Reorganized Shares pursuant to such
directions of the Committee.
8.2.10. Special Considerations. A purchase of the
Subscription Reorganized Shares will involve a high degree of
risk, and may result in the loss of the purchaser's entire
investment.
8.3. Corporate Governance of Reorganized Debtor. As of the
Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a
timely and proper withdrawal by the Preletz Group, the Reorganized Debtor's
corporate governance and operative parameters shall include the following,
including modifications of its
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charter, articles of incorporation and by-laws to the extent appropriate:
8.3.1. Operational Control. The Preletz Group shall
maintain all operational control of the Reorganized Debtor, including
the appointment, compensation, employment and retention of the
Reorganized Debtor's senior management, for at least three years
following the Effective Date.
8.3.2. Board of Directors. The Reorganized Debtor's board
of directors shall consist of five (5) directors, and the Preletz
Group shall be entitled to select, remove and replace three (3) of
those five directors at all times during the first three years
following the Effective Date.
8.3.3. Formalized Provisions. The control provisions set
forth in Sections 8.3.1 and 8.3.2 hereinabove shall be formalized by
contractual provisions of shareholder agreements that shall be deemed
adopted and accepted by all shareholders as of the Effective Date,
and by modification of the Reorganized Debtor's articles of
incorporation and bylaws.
8.3.4. Extraordinary Actions. Consent of the holders of a
majority of issued and vested Reorganized Shares shall be required
for certain extraordinary nonoperational actions, including but not
limited to merger or consolidation with another entity, sale of a
substantial portion (at least twenty percent (20%)) of the
Reorganized Debtor's assets, commencement of a case under the
Bankruptcy Code or consent to
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the appointment of a general receiver of the Reorganized Debtor's
assets.
8.3.5. Relocation and Rent. Prior to the Effective Date,
the Debtor shall relocate its operations and remaining assets and
employees to new facilities, and shall vacate the premises occupied
as of the Petition Date. On and after the Effective Date and until
October 1, 1998, the Distribution Agent may use a portion of the new
facilities rent-free for storage, and the Reorganized Debtor shall be
solely responsible for all rent obligations arising from the
occupancy of either the Distribution Agent or the Reorganized Debtor
with respect to such facilities.
8.3.6. Free Services. Following the Effective Date until
the first anniversary of the Effective Date, the Reorganized Debtor
shall provide to the Distribution Agent, free of charge, the
full-time services of Michael O. Preletz, and the services of other
officers of the Reorganized Debtor on a part-time (20%) basis, in
order to assist in the liquidation of the Raidion Product Line, as
well as to review Claims based upon the Raidion Product Line.
Notwithstanding the foregoing, the Distribution Agent shall not be
required to retain Mr. Preletz or other officers of the Reorganized
Debtor for any such services, and may release such individuals from
continuation of such services at any time, at the Distribution
Agent's sole discretion.
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8.3.7. Public Market. The Reorganized Debtor shall use its
best reasonable efforts to obtain or maintain registration and public
listing of its shares at the earliest possible time, consistent with
applicable securities laws, sound business judgment and prudent
expenditures of funds, to permit holders of Reorganized Shares access
to public markets to dispose of such shares if they so desire.
8.3.8. Prohibition. To the extent required by the
provisions of Section 1123(a)(6) of the Bankruptcy Code, the
Reorganized Debtor's charter shall be deemed amended as of the
Effective Date so as to prohibit the issuance of nonvoting equity
securities, and to provide, to the extent that more than one class of
securities may exist, such distributions of voting power as are
required by the provisions of said Section 1123(a)(6).
ARTICLE IX
ASSUMPTION, DISCHARGE AND EXCULPATION
9.1. Reorganized Debtor's Assumption of Liabilities. As of the
Effective Date, the Reorganized Debtor shall be deemed to have assumed each of
the following Claims and liabilities: (a) the Ordinary Course Expenses to the
extent required by the provisions of Section 3.4.2 hereinabove; (b) any and all
Hammer Contingent Claims; (c) rent obligations under the terms of the real
property lease of the Debtor's new facilities, to the extent provided in Section
8.3.5 hereinabove; (d) obligations identified by the Preletz Group in Schedule
4.2(B) pursuant to the provisions of
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Section 4.2 hereinabove, to the extent of reinstatement costs, reinstated
obligations and full satisfaction costs; and (e) Cure payments and ongoing
obligations with respect to those executory contracts identified in Schedule
6.2.1 pursuant to the provisions of Section 6.2.1(a) hereinabove. The
Distribution Estate shall have no liability, responsibility or obligation with
respect to any of the Claims or liabilities identified in subparts (d) or (e)
herein. The Reorganized Debtor shall indemnify the Distribution Estate, and hold
the Distribution Estate harmless, against any expenditures, damages, costs
(including reasonable attorneys' fees and expenses) or distributions arising
from the assertion against the Distribution Estate of any Claim or liability
assumed by the Reorganized Debtor pursuant to the terms of this Section 9.1.
9.2. Discharge. The rights afforded herein, and the treatment of all
Claims and Interests set forth herein, shall be in full exchange for, and in
complete satisfaction, discharge and release of, all Claims and Interests of any
kind or nature whatsoever, whether known or unknown, matured or contingent,
liquidated or unliquidated, existing, arising or accruing, whether or not yet
due, prior to the Effective Date, including without limitation any Claims, or
interest on Claims, accruing on or after the Petition Date, against the Debtor
or its estate, or any assets or property thereof. Except as, and to the extent,
expressly provided in the Plan or the Confirmation Order, at all times on and
after the Effective Date, unless Section 7.2.3 hereinabove becomes
operative due to a timely and proper withdrawal by the Preletz
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Group, (a) all such Claims against, and Interests in, the Debtor or its estate
shall be deemed fully and finally satisfied, discharged and released; (b) all
persons shall be fully and finally barred, enjoined and precluded from asserting
against the Reorganized Debtor, the Distribution Estate, or any of their
respective successors or assets, any Claims or Interests based upon any act or
omission, transaction, agreement, right, privilege, duty, entitlement,
obligation or other event or activity of any kind or nature whatsoever that
occurred prior to the Effective Date; and (c) all Claims and Interests shall be
fully and finally discharged and deemed satisfied to the fullest extent
permitted by the provisions of Section 1141 of the Bankruptcy Code.
9.3. Exculpation of Certain Persons. As of the Effective Date, the
Plan shall be deemed to satisfy, waive and release in full any and all claims of
the Debtor or its estate against the Debtor, the Preletz Group, the Committee,
the members of the Committee and each of their present officers, directors,
agents, advisors, attorneys or accountants from any claim arising out of or in
connection with any act or failure to act in connection with their rights and
duties arising under or related to the Chapter 11 Case from the Petition Date to
and including the Effective Date, except any claims expressly created or
preserved under the terms of the Plan or any documents executed, or to be
executed, in connection with the Plan. Except as expressly provided in the Plan
or any other document executed or to be executed in connection with
the Plan, neither the Debtor, nor the Preletz Group, nor the
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Committee, nor its members, nor any of their respective present officers,
directors, agents, advisors, attorneys or accountants, shall have any liability
to the Debtor, the Distribution Agent, the Distribution Estate or the
Reorganized Debtor for actions taken or omitted to be taken under or in
connection with the Plan or the Chapter 11 Case from the Petition Date to and
including the Effective Date.
9.4 Immunity. (a) All actions taken before, on or after the Effective
Date by the Distribution Agent, the Committee or any of their respective agents,
representatives, attorneys, advisors or accountants, as contemplated under the
terms of the Plan, shall be conclusively deemed to be actions within the scope
of Sections 1103 and 1107 of the Bankruptcy Code; (b) except for willful
misconduct or gross negligence, neither the Distribution Agent, the Committee,
their respective professionals, the Committee's members nor United Equities
shall be determined liable to the Distribution Estate or to any other person or
party for any action or omission taken or made in connection with the Plan or
its effectuation before, on or after the Effective Date, and such parties may in
good faith exercise or refrain from exercising any right, duty or obligation
contemplated hereunder without challenge or recourse; and (c) the Bankruptcy
Court shall have and retain exclusive jurisdiction over any and all claims
asserted against any party with respect to any act or omission taken or made in
connection with the Plan or its effectuation at any time.
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ARTICLE X
RETENTION OF JURISDICTION
10.1. Generally. Until the Chapter 11 Case has been closed, and
thereafter upon a motion to reopen the case, the Bankruptcy Court shall have
exclusive jurisdiction of all matters concerning the allowance of Claims and
Interests, and the interpretation and implementation of the Plan, pursuant to,
and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code,
including without limitation the following purposes:
(a) to hear and determine applications for the assumption
or rejection of executory contracts or unexpired leases, if any are
pending on the Effective Date, and the allowance of Claims resulting
therefrom;
(b) to determine any and all claims, causes of action,
adversary proceedings, applications and contested matters which are
pending on the Effective Date or which are thereafter commenced by or
related to the Distribution Estate;
(c) to hear and determine any objection to Administrative
Expense Claims or to Claims;
(d) to enter and implement such orders as may be
appropriate in the event that the Confirmation Order is for any
reason stayed, revoked, modified, or vacated;
(e) to issue such orders in aid of execution of the Plan,
to the extent authorized by the provisions of Section 1142 of the
Bankruptcy Code;
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(f) to consider any modifications of the Plan, to cure any
defect or omission, or reconcile any inconsistency in any order of
the Bankruptcy Court, including, without limitation, the Confirmation
Order;
(g) to hear and determine all applications for Professional
Fees accrued through the Effective Date, and for Professional Fees
accrued thereafter in the event of a timely objection;
(h) to hear and determine disputes arising in connection
with the interpretation, implementation or enforcement of the Plan;
(j) to hear and determine matters concerning state, local
and federal taxes in accordance with Sections 346, 505, and 1146 of
the Bankruptcy Code;
(k) to enter a final decree closing the Chapter 11 Case,
and orders reopening the Chapter 11 Case as appropriate; and
(l) to hear and determine claims described in Section
9.4(c) hereinabove.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. Exemption from Transfer Taxes. Pursuant to the provisions of
Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of
notes or equity securities under the Plan, the creation of any mortgage, deed of
trust or other security interest, the making or assignment of any lease or
sublease, the sale or other transfer of any assets by the Distribution Agent to
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a third party, or the making or delivery of any deed or other instrument of
transfer under, in furtherance of, or in connection with the Plan, including any
deeds, bills of sale or assignments executed in connection with any of the
transactions contemplated under the Plan, shall not be subject to any stamp,
real estate transfer, mortgage recording, sales or other similar tax.
11.2. Section 1145(a) Exemption from Registration. Pursuant to the
provisions of Section 1145(a) of the Bankruptcy Code, and except with respect to
underwriters as defined in Section 1145(b) of the Bankruptcy Code, the offer,
sale, issuance and distribution of shares of stock of the Reorganized Debtor
under the terms of Sections 5.2.4, 8.1.1, 8.1.2 or 8.2 of this Plan, are, and
shall be deemed, fully exempt from, and unaffected by, any of the provisions of
Section 5 of the Securities Act of 1933 and any State or local law requiring
registration for offer or sale of a security or registration or licensing of an
issuer of, underwriter of, or broker or dealer in, a security. The issuance of
Reorganized Shares under the terms of Sections 8.1(a), 8.1.3, 8.1.4 or 8.1.5 of
this Plan shall not be deemed to be exempt from registration or licensing
pursuant to the terms of Section 1145(a) of the Bankruptcy Code.
11.3. Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Reorganized Debtor, the Preletz Group, the Committee, the
Distribution Estate, the Distribution Agent and all holders of Claims (including
without limitation all holders of
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Debentures or Notes) and Interests and their respective successors and assigns,
whether or not they have accepted the Plan.
11.4. Ratification. Subject to all of the terms of this Plan, the
Confirmation Order shall be deemed to ratify all transactions effectuated by the
Debtor during the pendency of its chapter 11 case to the extent either in the
ordinary course of business or pursuant to an order of the Bankruptcy Court.
11.5. Notices. Any notice required or permitted to be provided under
the terms of the Plan shall be in writing and shall be served by the quickest
practical available method of delivery (which shall be conclusively presumed to
be (a) by hand delivery or (b) by facsimile with hard copy to follow by
overnight courier, as to the Debtor, the Committee, the Reorganized Debtor, the
Preletz Group and the Distribution Agent). All notices to the Debtor, the
Committee, the Reorganized Debtor, the Preletz Group or the Distribution Agent
shall be delivered as follows (or as otherwise directed by such party by notice
given pursuant hereto):
If to the Debtor (prior to the Effective Date), to:
StreamLogic Corporation
8450 Central Avenue
Newark, California 94560
Attn: Michael O. Preletz, C.E.O.
Telephone: (510) 608-4075
Telecopier: (510) 608-4012
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With a copy to:
Goldberg, Stinnett, Meyers & Davis
A Professional Corporation
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Attn: Merle C. Meyers, Esq.
Telephone: (415) 362-5045
Telecopier: (415) 362-2392
If to the Reorganized Debtor (on and after the Effective Date), to:
StreamLogic Corporation
8450 Central Avenue
Newark, California 94560
Attn: Michael O. Preletz, C.E.O.
Telephone: (510) 608-4075
Telecopier: (510) 608-4012
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, CA 90064-1614
Attn: T. Hale Boggs, Esq.
Telephone: (310) 312-4000
Telecopier: (310) 312-4224
If to the Committee (prior to the Effective Date), to:
Murray & Murray
A Professional Corporation
3030 Hansen Way, Suite 200
Palo Alto, California 94304
Attn: Patrick M. Costello, Esq.
Telephone: (415) 852-9000
Telecopier: (415) 852-9244
If to the Preletz Group, to:
MBI Group
1334 Parkview Avenue, Suite 245
Manhattan Beach, CA 90266
Attn: Michael O. Preletz
Telephone: (310) 545-3504
Telecopier: (310) 546-4206
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With a copy to:
Graven Perry Block Brody & Qualls
523 West Sixth Street, Suite 1130
Los Angeles, CA 90014
Attn: Kriston D. Qualls, Esq.
Telephone: (213) 680-9770
Telecopier: (213) 489-1332
If to the Distribution Agent: As directed by notice provided by or on
behalf of the Distribution Agent on or as soon as practicable after
the Effective Date, with copies to:
Goldberg, Stinnett, Meyers & Davis
A Professional Corporation
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Attn: Merle C. Meyers, Esq.
Telephone: (415) 362-5045
Telecopier: (415) 362-2392
and
Murray & Murray
A Professional Corporation
3030 Hansen Way, Suite 200
Palo Alto, California 94304
Attn: Patrick M. Costello, Esq.
Telephone: (415) 852-9000
Telecopier: (415) 852-9244
11.6. Governing Law. Except to the extent that the Bankruptcy Code or
Bankruptcy Rules are applicable, the rights and obligations arising under the
Plan shall be governed by, and construed and enforced in accordance with, the
laws of the State of California, without giving effect to the conflict of laws
provisions thereof.
11.7. Headings. Headings are used in the Plan for
convenience and reference only, and shall not constitute a part of
the Plan for any other purpose.
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11.8. Exhibits. Any and all exhibits to the Plan are
incorporated into and are a part of the Plan as if set forth in
full herein.
11.9. Closing Case. At such point as the Court determines, upon a
motion of the Distribution Agent, and following ten (10) Business Days' notice
and an opportunity for hearing to all parties listed in the Postconfirmation
List, that all pending claims objections, contested matters and adversary
proceedings have been resolved, or that the Chapter 11 Case need remain open no
longer despite the pendency of such objections, matters or proceedings, the
Chapter 11 Case may be closed by the terms of a final decree of the Bankruptcy
Court, provided that such case will be reopened thereafter if necessary in order
to facilitate any of the actions contemplated by the terms of Section 10.1
hereinabove.
11.10. Expenses. In the event that any action, motion, contested
matter, complaint, answer, counterclaim, cross-claim or other action is filed or
taken by the Distribution Agent or the Reorganized Debtor after the Effective
Date either in the Bankruptcy Court or otherwise, in order to enforce or
interpret any terms of the Plan or the Confirmation Order, or any order or
agreement made in implementation of the Plan, the prevailing party in such
matter (as determined by a court of competent jurisdiction) shall be entitled to
recover from any opposing party its expenses, including reasonable attorneys'
fees and costs, incurred in such matter.
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11.11. Modification and Enforcement. The following shall pertain, in
addition to applicable provisions of the Bankruptcy Code and the Bankruptcy
Rules, to the modification or enforcement of the Plan:
11.11.1. Modification. Following the Effective Date, the
Reorganized Debtor or the Distribution Agent may jointly or
separately institute a proceeding or motion in the Bankruptcy Court
in order to remedy any defects or omissions, or to reconcile any
inconsistencies, in the Plan, the Disclosure Statement or the
Confirmation Order, upon no less than ten (10) Business Days' notice
of such proceedings or motion shall be served on all parties listed
in the Postconfirmation List, or upon such parties as authorized by
the Bankruptcy Court.
11.11.2. Enforcement. The Reorganized Debtor or the
Distribution Agent may jointly or separately take such actions,
including the initiation of proceedings or the prosecution of a
motion, as may be reasonably necessary in order to interpret or
enforce the purposes and intent of the Plan.
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DATED: January 15, 1998
STREAMLOGIC CORPORATION, a Delaware
corporation
By: /s/ CHAPMAN A. STRANAHAN
------------------------------------
Chapman A. Stranahan
Assistant Chief Executive Officer
Submitted By:
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
By: /s/ MERLE C. MEYERS, ESQ.
---------------------------------
Merle C. Meyers, Esq.
Attorneys for Debtor-in-Possession
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EXHIBIT "A"
SCHEDULE OF DEFINITIONS
As used herein or in the Plan, the following terms have the meanings
specified below, unless the context otherwise requires:
A. Administrative Expense Claim means any Claim arising before the
Effective Date under Sections 503(b) and 507(a)(1) of the Bankruptcy Code,
including, without limitation, any actual and necessary expenses of preserving
the Debtor's estate, any actual and necessary expenses of operating the business
of the Debtor, all compensation or reimbursement of expenses allowed by the
Bankruptcy Court under the provisions of Sections 330, 331 or 503 of the
Bankruptcy Code, any fees or charges assessed against the Debtor's estate under
the provisions of Section 1930 of chapter 123 of title 28 of the United States
Code, and all Claims arising from employment with the Debtor on or after the
Petition Date, except for Claims that are also Secured Claims.
B. Allowed means:
1. With respect to a Claim, any Claim that is neither a
Disputed Claim nor a Disallowed Claim, and proof of which was timely
and properly filed or, if no proof of claim was filed, which has been
or hereafter is listed by the Debtor on its Schedules as liquidated
in amount and not disputed or contingent. "Allowed Administrative
Expense Claim" or "Allowed Claim" shall not include interest on such
Administrative Expense Claim or Claim from and after the Petition
Date except as expressly specified in the Plan;
2. With respect to an Interest, any Interest as of the
Effective Date, as defined elsewhere in this Exhibit "A."
C. Allowed Claim means an Allowed Claim within the particular Class
or category identified.
D. Ballot means each of the voting forms to be distributed with the
Plan and the Disclosure Statement to holders of Claims or Interests in Classes
that are impaired under the terms of the Plan and are entitled to vote in
connection with the solicitation of acceptances of the Plan.
E. Bankruptcy Code means Title 11 of the United States Code, as
amended from time to time, as applicable to the Chapter 11 Case.
F. Bankruptcy Court means the United States Bankruptcy Court for the
Northern District of California, San Francisco Division, or such other court
having competent jurisdiction over the Chapter 11 Case.
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G. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure,
as amended from time to time, as applicable to the Chapter 11 Case, including
the Local Rules of the Bankruptcy Court.
H. Business Day means any day on which commercial banks are generally
open for business in San Francisco, California, other than a Saturday, Sunday or
legal holiday in the State of California.
I. Cash means the legal tender of the United States of America.
J. Chapter 11 Case means the case under Chapter 11 of the Bankruptcy
Code commenced by the Debtor, styled as In re StreamLogic Corporation, a
Delaware corporation, formerly known as Micropolis Corporation, Case No.
97-32984 DM, currently pending in
the Bankruptcy Court.
K. Claim means (a) any right to payment from the Debtor, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured, (b) any right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment from the Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured, or (c) any claim
as defined by the provisions of Section 101(5) of the Bankruptcy Code.
L. Claimant means a person asserting a Claim against the Debtor or
the Debtor's estate.
M. Class means a category of holders of Claims or Interests as
established by the terms of Article II of the Plan.
N. Committee means the Official Committee of Unsecured Creditors
appointed in the Chapter 11 Case, as it may be constituted from time to time.
O. Confirmation Date means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order.
P. Confirmation Hearing means the hearing before the Bankruptcy Court
for the purpose of determining whether the Plan will be confirmed by the
Bankruptcy Court pursuant to the provisions of Section 1129 of the Bankruptcy
Code.
Q. Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to the provisions of Section 1129 of the Bankruptcy
Code.
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R. Convenience Claims means any Allowed Unsecured Claim (other than a
Subordinated Claim or Rescission Claim) of $3,000.00 or less, and all Allowed
Unsecured Claims (other than Subordinated Claims and Rescission Claims) in
excess of $3,000.00 whose holders exercise the "opt-in" election set forth in
Section 5.1.1 of the Plan, but excluding Claims whose holders exercise the
"opt-out" election set forth in Section 5.1.2 of the Plan.
S. Creditor means any person that has a Claim against the Debtor that
arose on or before the Petition Date, or a claim against the Debtor of any kind
specified in sections 502(f), 502(g), 502(h) or 502(i) of the Bankruptcy Code.
T. Creditors' Rights Offering means the offering of Reorganized
Shares to Claimants as set forth in Section 8.2 of the Plan.
U. Cure means the distribution of Cash as and to the extent required
for the cure and assumption of an unexpired executory contract pursuant to the
provisions of Section 365(b) of the Bankruptcy Code, or for the cure and
reinstatement of a secured obligation pursuant to the provisions of Section
1124(2) of the Bankruptcy Code.
V. Debentures means the 6% Convertible Subordinated Debentures due
2012 and issued pursuant to the Indenture dated as of March 15, 1987 between the
Debtor and Harris Trust and Savings Bank, as successor indenture trustee.
W. Debtor means StreamLogic Corporation, a Delaware corporation
formerly doing business as Micropolis Corporation, the debtor-in-possession in
the Chapter 11 Case and the proponent of the Plan.
X. Debtor-in-Possession means the Debtor, as debtor-in-possession in
the Chapter 11 Case.
Y. Disallowed Claim means:
1. Any Claim, proof of which was not timely and
properly filed and, in the case of a Claim other than an
Administrative Expense Claim, which is listed in the
Schedules as unliquidated, disputed or contingent, or is
not listed in the Schedules; and
2. Any Claim that has not been allowed by an
earlier order of the Bankruptcy Court or by the terms of
the Plan and as to which the Debtor, the Reorganized Debtor
or any other party with authority to file objections to
Claims, has filed an objection or request for estimation
within ninety (90) days following the Effective Date (or
within ninety (90) days following the
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filing of such Claim, if later) or such other applicable
limitation period fixed by the Plan, the Bankruptcy Code,
the Bankruptcy Rules or the Bankruptcy Court, to the extent
that such Claim is disallowed by a Final Order.
Z. Disclosure Statement means the disclosure statement relating to
the Plan, as approved by the Bankruptcy Court pursuant to the provisions of
Section 1125 of the Bankruptcy Code.
AA. Disputed Claim means any Claim that has not been allowed by an
earlier order of the Bankruptcy Court or by the terms of the Plan and as to
which the Debtor, the Reorganized Debtor, the Distribution Agent or any other
party with authority to file objections to Claims, has filed an objection or
request for estimation within ninety (90) days following the Effective Date (or
within ninety (90) days following the filing of such Claim, if later) or such
other applicable limitation period fixed by the Plan, the Bankruptcy Code, the
Bankruptcy Rules or the Bankruptcy Court, except to the extent that such
objection or request for estimation has been withdrawn or determined by a Final
Order.
AB. Distribution Agent means the individual, in his or her official
capacity, selected to manage the Distribution Estate pursuant to the provisions
of Section 7.7 of the Plan.
AC. Distribution Estate means the remaining estate on and after the
Effective Date maintained by the Distribution Agent for the benefit of holders
of Allowed Claims and Allowed Interests, pursuant to the provisions of Section
7.8 of the Plan.
AD. Effective Date means the effective date of the Plan, which shall
be a date designated by the Debtor, the Committee and the Preletz Group, but
which date shall be no less than 11 days, and no more than 30 days, following
the Confirmation Date (or such later date as may be agreed upon by the Debtor
and the Preletz Group, each in their sole and absolute discretion, in the event
that effectuation of the Plan is enjoined or stayed by a court of competent
jurisdiction for any period of time, provided that such later date is not later
than 30 days following expiration of such stay or injunction).
AE. Eligible Claimant shall have the meaning identified in Section
8.2 of the Plan.
AF. ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time, together with all regulations issued pursuant
thereto.
AG. Farrington means Farrington Investments, Ltd., a Cayman Islands
corporation with offices at P.O. Box 1092, Fort Street, Grand Cayman, Cayman
Islands.
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AH. Filing Date means the Petition Date.
AI. Final Order means an order of a court of competent jurisdiction
as to which the time to appeal, petition for certiorari, or move for reargument
or rehearing has expired and as to which no appeal, petition for certiorari, or
other proceedings for reargument or rehearing shall then be pending or as to
which any right to appeal, petition for certiorari, reargument or rehearing
shall have been waived, or, in the event that an appeal, writ of certiorari,
reargument or rehearing thereof has been sought, such order shall have been
determined by the highest court to which such order was appealed, or certiorari,
reargument or rehearing shall have been denied and the time to take any further
appeal, petition for certiorari or move for reargument or rehearing shall have
expired.
AJ. Hammer Assets shall have the meaning identified in Section 7.3.1
of the Plan.
AK. Hammer Contingent Claims means any Claim arising from the sale by
the Debtor of products within the Hammer Product Line, including without
limitation any and all Claims for refund, return, reimbursement, breach of
warranty or product defects.
AL. Hammer Product Line means the Debtor's business and product line
based upon the "Hammer" products, together with all related products of the
Debtor and all intellectual property rights owned by the Debtor immediately
preceding the Effective Date.
AM. Indenture means, with respect to the Debentures, the Indenture
dated as of March 15, 1987 between the Debtor and Harris Trust and Savings Bank,
as successor indenture trustee, and, with respect to the Notes, the Indenture
dated as of November 29, 1996 between the Debtor and Norwest Bank Minnesota,
N.A., as indenture trustee.
AN. Indenture Trustee means Harris Trust and Savings Bank with
respect to the Debentures and Norwest Bank Minnesota, N.A., with respect to the
Notes, or its respective successor.
AO. Interest means (a) any equity interest in the Debtor, and any
option, warrant or other agreement requiring the issuance of any such equity
interest to the extent fully exercised in accordance with applicable terms, that
is a matter of the records of the Debtor's stock transfer agent as of the
Effective Date; and (b) any Rescission Claim.
AP. Interim Claim shall have the meaning identified in Section 8.2.1
of the Plan.
AQ. Market Value means the total value of the Reorganized Debtor's
issued and outstanding shares, as measured by pricing in
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a public market if the Reorganized Shares are publicly traded; or by an
arm's-length purchase of all or substantially all of its assets, less
liabilities, to a purchaser with whom the Preletz Group has no past, present or
contemplated economic relationship; or by a sale by the Reorganized Debtor of no
less than 1,000,000 Reorganized Shares to one or more parties that are not
Affiliates (as defined within Section 101(2) of the Bankruptcy Code) of the
Preletz Group or the Reorganized Debtor's management.
AR. Nonclassified Priority Claim means a Priority Claim that is
either a Priority Tax Claim or an Administrative Expense Claim.
AS. Non-Hammer Assets shall have the meaning identified in Section
7.3.2 of the Plan.
AT. Notes means the Increasing Rate Unsecured Promissory Notes due
November 29, 1998 and issued pursuant to the Indenture dated as of November 29,
1996 between the Debtor and Norwest Bank Minnesota, N.A., as indenture trustee.
AU. Ordinary Course Expenses means a liability incurred by the Debtor
on or after the Petition Date in the ordinary course of its business,
specifically excluding income tax liabilities, tort liabilities, environmental
cleanup or indemnity claims, liabilities arising under ERISA, and other items
not customarily incurred by the Debtor in the ordinary operation of its
business.
AV. Participating Creditor shall have the meaning identified in
Section 8.2.5 of the Plan.
AW. Patent Sale Agreement means the Agreement For The Sale Of Patents
entered into as of September 2, 1997 between the Debtor and Farrington, for the
sale of certain patents and other intellectual property rights, which sale was
completed as of October 14, 1997.
AX. Petition means the voluntary petition filed by the Debtor with
the Bankruptcy Court in order to commence the Chapter 11 Case on June 26, 1997.
AY. Petition Date means June 26, 1997, the date on which the Petition
was filed with the Bankruptcy Court, commencing the Chapter 11 Case.
AZ. Plan means this Debtor's First Amended Plan Of Reorganization
(Dated January 15, 1998) (including all exhibits and schedules annexed hereto or
filed separately), either in its present form or as it may be legally altered,
amended, or modified from time to time.
BA. Postconfirmation List means the United States Trustee, the
Reorganized Debtor and its counsel, the Distribution Agent and his/her counsel,
the Committee and its members and counsel, and
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those parties who, subsequent to the Confirmation Date, file with the Bankruptcy
Court and serve upon the parties and counsel named above written requests for
special notice as provided by the terms of the Plan, provided, that any such
requesting party may be eliminated from such list from time to time by consent
of such party or by order of the Bankruptcy Court on notice to the then-
constituted Postconfirmation List, upon a showing that such party no longer
holds material interests or claims in the Chapter 11 Case.
BB. Preletz Group means Michael O. Preletz, and other investors as
may be designated by Mr. Preletz, agreeing to invest in the Reorganized Debtor,
conditioned upon the occurrence of the Effective Date according to the terms of
the Plan.
BC. Priority Claim means a Claim entitled to priority treatment under
the provisions of Section 507(a) of the Bankruptcy Code.
BD. Priority Tax Claim means a Priority Claim of a governmental unit
entitled to priority treatment pursuant to the provisions of Sections 502(i) and
507(a)(8) of the Bankruptcy Code, other than Secured Claims.
BE. Pro Rata means:
1. Regarding Claims, the ratio of the amount of an Allowed
Claim in a particular Class to the aggregate amount of all Allowed
Claims in such Class; and
2. Regarding Interests, the ratio of the amount of the
Allowed Interest in a particular Class to the aggregate amount of all
Allowed Interests in such Class.
BF. Professional Fees means a Claim for compensation or reimbursement
of expenses of a professional retained in the Chapter 11 Case in accordance with
the provisions of Sections 327 et seq. of the Bankruptcy Code.
BG. PTG means Peripheral Technology Group, Inc., a Minnesota
corporation.
BH. Public Debt Securities means the Notes and the Debentures.
BI. Raidion Product Line means the business and products formerly
supported by the Debtor with respect to "Raidion" products, all of the patents
and patent applications which have been transferred to Farrington pursuant to
the Patent Sale Agreement.
A-7
<PAGE> 79
BJ. Reorganized Debtor means the Debtor as reorganized pursuant to
the terms of the Plan, on and after the Effective Date.
BK. Reorganized Shares means all shares of common stock issued by the
Reorganized Debtor on and after the Effective Date pursuant to the provisions of
Section 8.1 of the Plan.
BL. Rescission Claim means a Claim arising from the rescission of a
purchase or sale of common stock of the Debtor or an affiliate of the Debtor,
for damages arising from the purchase or sale of such stock, or for
reimbursement or contribution allowed under Section 502 of the Bankruptcy Code
on account of such a Claim.
BM. Schedule 4.2(A) means the schedule described and defined as such
in Section 4.2 of the Plan.
BN. Schedule 4.2(B) means the schedule described and defined as such
in Section 4.2 of the Plan.
BO. Schedule 6.2.1 means the schedule to be filed and served pursuant
to the provisions of Section 6.2.1 of the Plan.
BP. Schedules means the schedules of assets and liabilities and the
statement of financial affairs filed by the Debtor in the Chapter 11 Case as
required by the provisions of Section 521 of the Bankruptcy Code and Bankruptcy
Rule 1007, and all amendments or modifications filed with respect thereto.
BQ. Secured Claim means an Allowed Claim held by any entity to the
extent of the value, as set forth in the Plan, as determined by a Final Order of
the Bankruptcy Court pursuant to Section 506(a) of the Bankruptcy Code or as
agreed upon by such entity, on the one hand, and the Reorganized Debtor (as to
Claims secured by Hammer Assets) or the Distribution Agent (as to Claims secured
by Non-Hammer Assets), on the other hand, of any duly perfected interest in
property of the Debtor's estate validly and enforceably securing such Allowed
Claim.
BR. Secured Creditor means the holder of a Secured Claim.
BS. Subscription Payment shall have the meaning identified in Section
8.2.5 of the Plan.
BT. Subscription Reorganized Shares shall have the meaning identified
in Section 8.2.1 of the Plan.
BU. Subscription Rights shall have the meaning identified in Section
8.2.1 of the Plan.
A-8
<PAGE> 80
BV. United Equities means United Equities Company, a company holding
Unsecured Claims of approximately $2,500,000 arising from the Debentures.
BW. Unsecured Claim means any Claim that is not a Secured Claim or
Priority Claim. Such Unsecured Claims include, without limitation, all Claims
arising from the rejection of leases and other executory contracts, guarantee
claims, all Claims held by the Debtor's trade vendors and suppliers.
A-9
<PAGE> 1
EXHIBIT 99.2
DEBTOR'S FIRST AMENDED DISCLOSURE STATEMENT
(Dated January 15, 1998)
(Without exhibits -- exhibits will be furnished upon request to the Company.)
<PAGE> 2
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #066849
KATHERINE D. RAY, ESQ. #121002
KENNETH G. DEJARNETTE, ESQ. #168074
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Attorneys for Debtor-in-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Chapter 11
a Delaware corporation )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax I.D. No. 95-3093858 )
________________________________)
DEBTOR'S FIRST AMENDED DISCLOSURE STATEMENT
(DATED JANUARY 15, 1998)
THIS DISCLOSURE STATEMENT, AND ITS DISTRIBUTION TO CREDITORS AND OTHER PARTIES
IN INTEREST, HAS BEEN APPROVED BY THE UNITED STATES BANKRUPTCY COURT FOR THE
NORTHERN DISTRICT OF CALIFORNIA AS CONTAINING ADEQUATE INFORMATION AS REQUIRED
BY THE BANKRUPTCY CODE FOR SOLICITATION OF ACCEPTANCES OF THE PLAN OF
REORGANIZATION DESCRIBED HEREIN. THE COURT HAS MADE NO INDEPENDENT INVESTIGATION
OR DETERMINATION OF ANY FACTUAL STATEMENT OR DOLLAR VALUE SET FORTH IN THE PLAN
OR IN THIS DISCLOSURE STATEMENT.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
I. INTRODUCTION..........................................................1
A. Generally...................................................1
B. Right to Vote on the Plan...................................4
II. OVERVIEW OF THE PLAN..................................................6
III. PREPETITION BACKGROUND................................................9
A. History of Business.........................................9
1. Generally.........................................9
2. Sale to Micropolis...............................10
3. Purchase from FWB................................11
B. Industry Segment and Market................................12
C. Products...................................................13
D. Discontinued Operations....................................14
1. Video Servers....................................14
2. Video Disk Recorder Technology...................15
3. Raidion Product Line.............................16
E. International Operations and Foreign Subsidiaries..........16
F. Competition................................................18
G. Patents and Know-How.......................................18
H. Employees..................................................19
I. Real Property..............................................19
J. Investments................................................20
1. Concentric Network Stock.........................20
2. Note from Titanium Memory Systems................21
K. Debentures and Notes.......................................22
1. Convertible Debentures...........................22
2. 1996 Exchange Offer; Increasing Rate Notes.......23
3. Remaining Debentures and Litigation..............24
4. Substitution of Indenture Trustee................25
L. Relocation and Consolidation...............................27
M. Change in Management.......................................28
N. Debt Repayment Plans.......................................29
O. Events Preceding Chapter 11 Case Commencement..............30
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE........................31
A. Continuation of Business; Stay of Litigation...............32
B. Appointment of the Creditors' Committee....................32
C. Representation of the Debtor and the Committee.............34
D. Development and Implementation of Strategic Plan...........35
E. Bar Date for Filing Proofs of Claim........................36
F. Asset Sales Relating to Raidion Product Line...............36
G. Dispute with Newark Landlord...............................37
H. Remaining Assets...........................................39
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
V. THE PLAN OF REORGANIZATION...........................................40
A. Classification and Treatment of Claims and
Interests..................................................41
1. Nonclassified Claims.............................41
2. Class A -- Other Priority Claims.................45
3. Class B -- Secured Claims........................46
4. Class C -- Convenience Claims....................48
5. Class D -- General Unsecured Claims..............49
6. Class E -- Stock Interests.......................52
B. Recapitalization of the Debtor.............................53
1. Revesting of Assets..............................53
2. Reorganized Shares...............................54
3. Creditors' Rights Offering.......................55
4. Corporate Governance.............................57
C. Distribution Estate........................................58
D. Discharge and Exculpation..................................60
E. Executory Contracts........................................61
F. Other Provisions...........................................62
VI. CONFIRMATION PROCEDURE...............................................63
A. Solicitation of Votes......................................63
B. The Confirmation Hearing...................................64
C. Confirmation...............................................65
1. Acceptance.......................................65
2. Nonconsensual Confirmation.......................66
a. Unsecured Creditors...................66
b. Equity Interests......................66
3. Feasibility......................................67
4. Best Interests Test..............................67
D. Consummation...............................................68
VII. MANAGEMENT OF THE REORGANIZED DEBTOR.................................68
A. Composition of the Board of Directors......................69
B. Identity of Officers.......................................69
C. Compensation of Executive Officers.........................71
D. Compensation of Directors..................................71
VIII. APPLICABILITY OF CERTAIN FEDERAL AND OTHER
SECURITIES LAWS TO THE REORGANIZED SHARES
DISTRIBUTED UNDER THE PLAN...........................................71
A. Initial Issuance of Reorganized Shares.....................72
B. Resale of Reorganized Shares...............................73
1. Controlling Persons..............................74
2. Accumulators and Distributors....................75
3. Syndicators......................................76
4. Dealers..........................................76
C. Liquidity in the Reorganized Shares........................77
1. Trading on the OTC...............................77
2. The Nasdaq Stock Market..........................77
D. Hart-Scott-Rodino Act Requirements.........................78
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
IX. CERTAIN RISK FACTORS TO BE CONSIDERED................................79
A. Overall Risks to Recovery Upon Claims......................79
B. Projected Financial Information............................79
C. Dividend Policy............................................80
D. Liquidity to Stockholders..................................80
E. Substantial Control by Officers,
Directors and Certain Shareholders.........................82
F. Key Personnel..............................................82
X. PROJECTIONS AND LIQUIDATION ALTERNATIVES.............................83
A. Projected Performance......................................83
B. Liquidation Alternative....................................85
C. Projected Recoveries.......................................89
XI. CONCLUSION AND RECOMMENDATION........................................90
</TABLE>
iii
<PAGE> 6
EXHIBITS
Exhibit A -- Statement of Support of Debtor's Plan
Exhibit B -- Debtor's Monthly Operating Report for the Month
of October 1997
Exhibit C -- Proforma Financial Summary
Exhibit D -- Liquidation Analysis of Non-Hammer Assets
Exhibit E -- Liquidation Analysis of Hammer Assets
Exhibit F -- Projected Distributions in Class D
iv
<PAGE> 7
I. INTRODUCTION
A. GENERALLY
STREAMLOGIC CORPORATION, a Delaware corporation formerly known as
Micropolis Corporation ("StreamLogic" or the "Debtor")(1), commenced this
chapter 11 reorganization case on June 26, 1997, in the United States Bankruptcy
Court for the Northern District of California, San Francisco Division, by the
filing of a voluntary petition on that date. This Debtor's First Amended
Disclosure Statement (Dated January 15, 1998) (as hereafter amended, modified or
supplemented, the "Disclosure Statement") has been prepared by the Debtor for
distribution to creditors, equity interest holders and other parties in interest
for the purpose of soliciting acceptances of the Debtor's First Amended Plan of
Reorganization (Dated January 15, 1998) (as hereafter amended, modified or
supplemented, the "Plan") proposed and served concurrently herewith by the
Debtor. The Disclosure Statement is being provided to parties in interest in
order to provide adequate information to enable such parties to make informed
judgments about the Plan.
This Disclosure Statement has been approved as containing adequate
information by an order of the Bankruptcy Court, and its distribution to parties
in interest has been authorized and directed by the Bankruptcy Court.
NONETHELESS, THE DEBTOR IS
- ----------
(1) Unless otherwise expressly defined herein, or unless the context
requires otherwise, all capitalized terms used in this Disclosure Statement
shall have the meanings assigned to them in the Plan, including the Schedule of
Definitions that is attached to the Plan as Exhibit "A."
1
<PAGE> 8
UNABLE TO WARRANT OR REPRESENT THAT ALL INFORMATION CONTAINED IN THIS DISCLOSURE
STATEMENT OR IN EXHIBITS ATTACHED HERETO IS WITHOUT ERROR, ALTHOUGH ALL
REASONABLE EFFORTS UNDER THE CIRCUMSTANCES HAVE BEEN MADE TO BE ACCURATE. IN
PARTICULAR, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE DEBTOR NOTES
THAT THE ASSUMPTIONS AND PROJECTIONS OF FUTURE PERFORMANCE AND ALTERNATIVE
SCENARIOS ARE ONLY PREDICTIONS OF FUTURE OR HYPOTHETICAL EVENTS, MOST OF WHICH
ARE BEYOND THE DEBTOR'S CONTROL, AND THEREFORE THERE CAN BE NO ASSURANCES THAT
THE ASSUMPTIONS WILL IN FACT MATERIALIZE OR THAT THE PROJECTIONS WILL IN FACT BE
MET. IN ADDITION, THE DEBTOR
NOTES:
- - ANY DESCRIPTION OF THE TERMS OF THE PLAN CONTAINED HEREIN IS
A SUMMARY ONLY, AND YOU ARE CAUTIONED TO REVIEW CAREFULLY THE TERMS
OF THE PLAN ITSELF FOR SIGNIFICANT DETAILS. ALL CLAIMANTS AND EQUITY
INTEREST HOLDERS ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND
THE PLAN IN THEIR ENTIRETY. PLAN SUMMARIES AND STATEMENTS MADE IN
THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PLAN, OTHER EXHIBITS ANNEXED HERETO AND OTHER
DOCUMENTS REFERENCED AS FILED WITH THE BANKRUPTCY COURT PRIOR TO OR
CONCURRENT WITH THE FILING OF THIS DISCLOSURE STATEMENT.
- - THERE CAN BE NO ASSURANCE: (A) THAT THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY ACCURATE; OR
(B) THAT THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL
INFORMATION. FURTHER, ALL CLAIMANTS SHOULD READ CAREFULLY AND
CONSIDER FULLY THE "RISK FACTORS" SECTION HEREINBELOW BEFORE
VOTING FOR OR AGAINST THE PLAN.
- - THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE
FEDERAL RULES OF BANKRUPTCY PROCEDURE AND NOT IN ACCORDANCE
WITH ANY FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE
NONBANKRUPTCY LAW. PERSONS OR ENTITIES TRADING IN OR
OTHERWISE PURCHASING, SELLING OR TRANSFERRING SECURITIES OF
THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE
PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED.
- - THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
2
<PAGE> 9
"SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF ANY OF
THE STATEMENTS CONTAINED HEREIN.
- - THIS DISCLOSURE STATEMENT SHALL NOT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL
EFFECTS OF THE DEBTOR'S REORGANIZATION AS TO HOLDERS OF CLAIMS
AGAINST, OR EQUITY INTERESTS IN, THE DEBTOR.
- - THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY
THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE
SOLICITATION OF VOTES ACCEPTING OR REJECTING THE PLAN. NO
REPRESENTATION CONCERNING THE DEBTOR, ITS BUSINESS OPERATIONS,
THE VALUE OF ITS ASSETS OR THE VALUE OF ANY SECURITIES TO BE
ISSUED OR BENEFITS OFFERED PURSUANT TO THE PLAN ARE AUTHORIZED
BY THE BANKRUPTCY COURT, EXCEPT AS EXPLICITLY SET FORTH IN
THIS DISCLOSURE STATEMENT OR IN ANY OTHER DOCUMENT APPROVED
FOR DISTRIBUTION BY THE BANKRUPTCY COURT.
Attached as exhibits to this Disclosure Statement are copies
of the following, as referenced elsewhere herein:
- A Support Statement evidencing the support of the
Official Committee of Unsecured Creditors and of
Michael O. Preletz for confirmation of the Plan
(Exhibit "A");
- The Debtor's Monthly Operating Report for the
Month of October 1997 (Exhibit "B");
- Proforma Financial Summary (Exhibit "C");
- Liquidation Analysis of Non-Hammer Assets
(Exhibit "D");
- Liquidation Analysis of Hammer Assets
(Exhibit "E"); and
- Projected Distribution Results (Exhibit "F").
In addition, the Plan, a ballot for the acceptance or rejection of the Plan (the
"Ballot") and other pertinent documents are enclosed with the Disclosure
Statement submitted herewith. Further, copies of the most recent annual and
quarterly reports filed by the Debtor with the Securities and Exchange
Commission, up to the quarter ending December 31, 1996, are available upon
written request to the
3
<PAGE> 10
Debtor or from the Securities and Exchange Commission pursuant to customary
procedures of such agency.
B. RIGHT TO VOTE ON THE PLAN
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired under the terms and provisions of the Plan are entitled to vote to
accept or reject the Plan. Holders of allowed claims in classes of claims that
are unimpaired under the terms and provisions of the Plan are conclusively
presumed to have accepted the Plan and therefore are not entitled to vote on the
Plan. Further, holders of allowed claims or equity interests in classes which
will receive nothing under the terms and provisions of the Plan are conclusively
presumed to have rejected the Plan and therefore are not entitled to vote on the
Plan.
The Debtor believes that Classes A and B of the Plan are unimpaired,
are conclusively presumed to have accepted the Plan, and therefore do not have
the right to vote on the Plan. Holders of Claims in Classes C and D are impaired
and therefore are entitled to vote to accept or reject the Plan. Holders of
Interests in Class E will receive nothing under the terms of the Plan, are
conclusively presumed to have rejected the Plan, and therefore do not have the
right to vote on the Plan.
The Bankruptcy Code defines "acceptance" of a plan by a class of
claims as acceptance by creditors in that class that hold at
least two-thirds in dollar amount, and more than one-half in
4
<PAGE> 11
number, of claims that cast ballots for acceptance or rejection of the plan.
The Bankruptcy Code defines "acceptance" of a plan by a class of equity
interests as acceptance by equity interest holders in that class that hold at
least two-thirds in amount of the allowed interests that cast ballots for
acceptance or rejection of the plan.
If a Class of Claims or Interests rejects the Plan or is deemed to
reject the Plan, the Debtor has the right, and does intend, to request
confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code.
Section 1129(b) permits the confirmation of a plan notwithstanding the
nonacceptance of such plan by one or more impaired classes of claims or equity
interests if the proponent thereof complies with the provisions of that section.
Under that section, a plan may be confirmed by a bankruptcy court if it does not
discriminate unfairly and is fair and equitable with respect to each
nonaccepting class.
The Debtor believes that through the Plan, creditors will obtain a
greater recovery from the estate of the Debtor than the recovery which would be
available if the assets of the Debtor were liquidated under the provisions of
Chapter 7 of the Bankruptcy Code.
THE DEBTOR BELIEVES THAT ACCEPTANCE OF THE PLAN IS IN THE BEST
INTERESTS OF THE DEBTOR AND ITS CREDITORS AND EQUITY INTEREST
HOLDERS. AS EVIDENCED IN THE SUPPORT STATEMENT ATTACHED HERETO AS
EXHIBIT "A," THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS (THE
"COMMITTEE") APPOINTED HEREIN TO REPRESENT THE INTERESTS OF
5
<PAGE> 12
UNSECURED CREDITORS GENERALLY, HAS STATED THAT IT TOO SUPPORTS CONFIRMATION OF
THE PLAN AS BEING IN THE BEST INTERESTS OF THE DEBTOR'S UNSECURED CREDITORS.
ACCORDINGLY, THE DEBTOR URGES ALL PARTIES IN INTEREST, TO THE EXTENT ENTITLED TO
VOTE, TO VOTE TO ACCEPT THE PLAN.
An acceptance or rejection of the Plan may be voted by completing the
Ballot which accompanies the Plan and this Disclosure Statement and mailing it
to Merle C. Meyers, Esq. of Goldberg, Stinnett, Meyers & Davis, A Professional
Corporation, 44 Montgomery Street, Suite 2900, San Francisco, California 94104,
in the enclosed envelope, for actual receipt on or before the date set forth as
the deadline in the Ballot or in other documents accompanying the Plan and the
Disclosure Statement.
II. OVERVIEW OF THE PLAN
The Plan is the product of extensive negotiations over the course of
several months among the Debtor, the Committee and the Preletz Group (Michael O.
Preletz and affiliated investors) to design a plan which maximizes the
recoveries to creditors and creates a sound capital structure for the
reorganized entity. Under the Plan, the reorganized Debtor will emerge from
bankruptcy recapitalized and prepared to implement a business plan that, if
fulfilled, will result in increased value and profitability, to the benefit of
both its new investors and the estate herein.
Under the terms of the Plan, the reorganized Debtor will retain
certain core assets of its Hammer business, the Hammer Assets, and the remaining
estate will retain and sell all other
6
<PAGE> 13
assets, the Non-Hammer Assets. The assets of the remaining estate (or, as
defined in the Plan, the "Distribution Estate"), the Non- Hammer Assets, will be
managed by a bonded Distribution Agent (acting on the instructions of the
post-Effective Date Committee) and sold for the benefit of creditors. The sale
proceeds thereof, net of administrative costs, together with a block of
3,500,000 shares of stock of the reorganized Debtor, will be distributed to
creditors on a pro-rata basis. Former shareholders, consistent with the priority
scheme set forth in the Bankruptcy Code and the present lack of equity in the
Debtor, will receive nothing under the terms of the Plan.
All existing shares of stock of the Debtor will be cancelled on the
Plan's Effective Date, and the reorganized Debtor will issue new shares in favor
of the estate, the company's new investors and others. In particular, the
remaining estate will receive 3,500,000 shares; the Preletz Group will receive
2,000,000 shares in exchange for a cash investment of $650,000; 2,000,000 shares
will be distributed to creditors in exchange for cash investments of $650,000 in
the aggregate, pursuant to a creditors' rights offering, as explained below; and
2,500,000 shares will be available for distribution pursuant to stock options
granted to management and nonmanagement employees. Thereafter, an additional
10,000,000 shares may be issued by the reorganized Debtor for various stock
options or sales, within limitations described in the Plan.
7
<PAGE> 14
The Plan designates various classes of Claims and Interests and
provides for distribution rights for each such class, in a manner consistent
with the priority system of the Bankruptcy Code. In essence, the net proceeds of
sale of all assets in the Distribution Estate, after costs and full payment of
priority expenses and claims, will be distributed on a pro-rata basis to holders
of Allowed Claims, until all funds of the Distribution Estate have been
exhausted.
The Preletz Group, which will be a new investor in the reorganized
Debtor, includes Michael O. Preletz and Chapman A. Stranahan, who presently
serve as the Debtor's senior management. Those same individuals will continue in
their senior management positions in the reorganized Debtor, and will receive
valuable consideration in exchange for their investments in, and management of,
the reorganized Debtor. Because of the Preletz Group's role in the matter, the
Debtor has engaged the Committee in direct negotiations with respect to the
terms of the Plan, and as a result, the terms of the Plan, particularly as they
affect the Preletz Group and present management of the Debtor, are the product
of extensive and good faith negotiations among the Preletz Group, the Debtor and
the Committee. It is on the basis of those negotiations that both the Debtor and
the Committee have concluded that the Plan is in the best interests of the
estate herein, and in the view of the Debtor, the recoveries that will occur
pursuant to the Plan are better than the likely recovery under any alternative
reorganization or liquidation.
8
<PAGE> 15
As stated, the Plan is supported by the Committee and by the Preletz
Group. That support is evidenced by the statement of support that is attached
hereto as EXHIBIT "A."
III. PREPETITION BACKGROUND
A. HISTORY OF BUSINESS
1. GENERALLY. The Debtor is a developer and manufacturer of
information storage products and systems. StreamLogic sells its products and
systems directly to original equipment manufacturers, or OEMs, and system
integrators, and through independent distributors and valued-added resellers, or
VARs, for resale to end users. The Debtor is headquartered in Newark, California
and presently employs approximately 33 employees.
The Debtor was initially incorporated in California in December 1976
under the name Micropolis Corporation, and was reincorporated in Delaware in
April 1987. In April 1996, the Debtor changed its name from Micropolis
Corporation to StreamLogic Corporation.
Prior to April 1996, the Debtor's business was substantially larger
than it is presently, with a large percentage of the company's business devoted
to the design, manufacture and sale of disk drives. However, as a result of the
sale of the disk drive business in early 1996, as described below, the Debtor's
business became significantly smaller, with the number of employees decreasing
from approximately 2,000 immediately prior to the sale to approximately 150
persons shortly after the sale. The company's stock was publicly traded on the
NASDAQ National Market System, or
9
<PAGE> 16
NASDAQ, until it was de-listed on June 25, 1997, the day preceding the Chapter
11 filing.
2. SALE TO MICROPOLIS. On January 24, 1996, the Debtor entered into
an agreement with ST Chatsworth Pte. Ltd., a Singapore corporation which was
later renamed "Micropolis (S) Pte. Ltd." ("Micropolis"), a wholly owned
subsidiary of Singapore Technologies, to sell substantially all of the Debtor's
assets (other than cash and accounts receivable) related to the Debtor's disk
drive business, and the sale was consummated on March 29, 1996, following
approval by the Debtor's shareholders. The transferred assets included the name
"Micropolis" and the capital stock of Micropolis Thailand, the Debtor's
manufacturing subsidiary in Thailand, a newly constructed manufacturing facility
in Singapore, and five of the Debtor's European and Asian sales and marketing
subsidiaries. In exchange for those assets, Micropolis paid the Debtor
approximately $54 million in cash and assumed certain limited liabilities of the
Debtor relating to the disk drive business.
As a result of the sale of the disk drive business, the Debtor's
revenues and ongoing expenses shrank considerably. As of June 28, 1996, for
example, the book value of the Debtor's property, plant and equipment totalled
approximately $6 million, as compared to approximately $47 million for the same
period in 1995, and net sales decreased 84% to $11.2 million in the quarter
ending June 30, 1996, as compared to sales of $70.1 million for the same quarter
in 1995.
10
<PAGE> 17
3. PURCHASE FROM FWB. Subsequent to the divestiture of its disk drive
business, the Debtor acquired a new business: Effective as of July 1, 1996, the
Debtor acquired certain assets and liabilities relating to the hardware business
of FWB Software, Inc., a California corporation doing business as FWB, Inc.
("FWB"), a developer of performance computer storage products, including the
"Hammer" line of products. In connection with the FWB hardware business
acquisition, one of the Debtor's subsidiaries made an 11% equity investment in
FWB Software, LLC, a limited liability company newly formed by FWB and the
Debtor to operate the software business retained by FWB.
In consideration for FWB's hardware business assets and the minority
equity investment in the software business, the Debtor paid FWB cash in the
approximate amount of $5.75 million and issued 1,256,123 shares of its common
stock. Pursuant to the agreement between FWB and the Debtor, that number of
shares was to be adjusted, by the Debtor's issuance of additional shares or
FWB's return of delivered shares, to the extent necessary to provide FWB with a
market value of stock equal to $7.5 million as of October 29, 1996. However,
because of a drop in the Debtor's average stock prices, that adjustment would
have required the issuance of over 3 million additional shares to FWB and would
have contravened other terms of the parties' agreement and certain NASDAQ rules.
Accordingly, the parties agreed on November 1, 1996 that instead, the Debtor
would issue 1,380,000 additional shares to FWB, together with a $1,250,000
promissory note and cash of $500,000. The
11
<PAGE> 18
transaction was then completed, with the note being issued by StreamLogic
Software, Inc. ("SLC Software"), one of the Debtor's wholly owned subsidiaries,
and secured by SLC Software's equity interest (reduced from 11% to 7.5%) in FWB
Software LLC. The note is guaranteed by the Debtor.
The aggregate consideration paid for the net assets related to the
hardware business of FWB and investment in FWB Software LLC, including costs of
acquisition, was approximately $7,900,000 and $3,400,000, respectively. The
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair market values.
Approximately $1,400,000 of the total purchase price represented the value of
in-process research and development that had not yet reached technological
feasibility and was charged to the Debtor's operations.
B. INDUSTRY SEGMENT AND MARKET
The Debtor operates within the data storage technology industry and
competes in the external storage market for high-end desktop PCs and
workstations (host). An external storage subsystem will consist of one or more
disk drives in an external enclosure that is attached to the host system via
cables. The disk drives are configured for use by the host system through
special software and hardware to meet the needs of the specific application
being run on the host. External storage subsystems are popular choices for
high-end desktop PCs and workstations to meet capacity, performance, or
reliability needs not available in the host
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systems. The market for this technology can be further segmented into categories
for the specific application being run on the host and the operating systems
employed by the end user.
The Debtor is currently focused in two application market segments:
professional desktop publishing known as "Prepress" and digital media creation
or multimedia creation. Examples of digital media creation are digital video,
two- or three-dimensional modeling, computer-aided design, animation, virtual
reality and graphics.
C. PRODUCTS
The Debtor's development efforts are currently focused around the
Hammer product line, historically used primarily with the Apple Macintosh
("MAC") operating system. The Debtor also offers limited products for use with
the Silicon Graphics Irix and Microsoft Windows NT operating systems. The Debtor
plans to continue developing its products for all three operating system
marketing segments to broaden its market, especially the multimedia
applications.
The Debtor's products are sold in a wide variety of configurations of
hardware and software addressing specific applications. A basic Hammer storage
subsystem consists of three components: software, hardware controller, and
enclosure with drive(s). The software is operating system-specific and consists
of a graphical user interface (GUI), utilities to configure the disk drives, and
a driver to facilitate data transfer between the host and storage subsystem. The
controller can be either a
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Jackhammer SCSI controller board for high-performance applications and/or a RAID
controller used for high-reliability applications. The enclosures range from the
single-drive Pockethammer, to the multi-drive Sledgehammer, to the
removable-drive Sledgehammer Pro. (A hardware-based RAID controller is currently
available for only the MAC and Windows NT operating systems.)
D. DISCONTINUED OPERATIONS
In addition to the Debtor's former disk drive business, other
discontinued operations and product lines of the Debtor include the following:
1. VIDEO SERVERS. Video servers are used to play back video material
that has been previously digitally encoded and compressed. Video servers, which
can replace video-cassette recorder systems, use hard disk drives to store and
retrieve audio and full motion video signals. The Debtor previously marketed its
line of video server products to hospitality, multimedia and cable television
markets. Video server applications in the hospitality and related markets
included displaying digitally encoded and compressed movies to guests in hotels,
aircraft and cruise ships. Multimedia applications included corporate training,
campus training and video libraries.
In 1995, the Debtor entered into a development agreement with
Matsushita Avionics System Corporation ("MASC") regarding the development of the
Debtor's video server technology for aircraft use and the sale of products using
that technology to MASC. However, financial difficulties arose in the
implementation of that
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agreement, and in March 1997, the parties entered into a termination agreement
pursuant to which, among other things, the relationship was curtailed and the
Debtor transferred various inventory, equipment and other assets to MASC,
including a nonexclusive license of its video server technology.(2) As a result,
the Debtor is not presently developing any of its video server technology.
Also, in March 1997 the Debtor entered into an agreement with
Sumitomo Corporation or an affiliate ("Sumitomo") pursuant to which the Debtor
sold excess inventory and a license relating to the Debtor's video server
products to Sumitomo. The inventory was sold on an "as is" basis for cash
consideration in the approximate amount of $300,000.
2. VIDEO DISK RECORDER TECHNOLOGY. Prior to the commencement of the
Chapter 11 Case, the Debtor had been developing a line of low cost digital video
disk recorders using hard disk drives to store and retrieve audio and full
motion video signals. In 1995, the Debtor entered into a development agreement
with BTS Broadcast Television Systems GmBH ("BTS") for the joint development
design, development and manufacture of a family of video disk recorders. Under
the agreement, BTS was to provide funding to the Debtor in the total amount of
$1,000,000, payable in specified increments upon the Debtor achieving certain
milestones in the
- ----------
(2) The Debtor is presently in the process of reviewing its previous
transactions with MASC and its 1997 transfers to MASC in order to determine the
present status of any claims or rights of either the Debtor or MASC against each
other.
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development of certain technology and products, and in exchange, BTS was granted
certain rights in the technology developed.
The Debtor received an aggregate amount of $650,000 from BTS under
the agreement, but prior to the commencement of the Chapter 11 Case, disputes
arose between the parties regarding the extent and nature of BTS' rights in and
to the technology developed. Both parties ceased any further significant
activities or payments under the terms of their development agreement, although
neither party has given formal notice of termination of the agreement. The
Debtor is presently reviewing its legal options with respect to its relationship
with BTS.
3. RAIDION PRODUCT LINE. During the last several months, beginning
prior to the commencement of the Chapter 11 Case, the Debtor has restructured
its operations so as to discontinue its support of its Raidion line of products.
The Raidion product line consists of data storage products and systems using the
RAID (redundant array of independent disk drives) technology. Since the
commencement of the Chapter 11 Case, the Debtor has sold most of the assets that
comprised the Raidion product line, consisting primarily of patents, inventory
and equipment, as more fully described hereinbelow.
E. INTERNATIONAL OPERATIONS AND FOREIGN SUBSIDIARIES
The Debtor sells its products into European, as well as domestic,
markets. Historically, the Debtor's foreign sales originated primarily from the
company's Singapore facility, which was sold to Micropolis as part of the
divestiture of the disk drive
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business. Based on the Debtor's most recent Forms 10-K and 10-Q reportings,
export sales (sales originating in the United States to customers in foreign
countries) have most recently represented less than ten percent (10%) of total
sales for consolidated operations.
Following the sale of its disk drive business, the Debtor has served
foreign markets primarily through two European operating subsidiaries, located
in the United Kingdom (StreamLogic Ltd.) and Germany (StreamLogic GmBH).
StreamLogic Ltd. has served as the distribution and repair center for all of the
Debtor's European sales. StreamLogic GmBH has served as a sales facility for
European markets. In addition, other wholly owned foreign subsidiaries of the
Debtor include StreamLogic Pty Ltd. (Australia), Micropolis BV (Netherlands) and
StreamLogic (Cayman Islands), each of which is inactive.
None of the Debtor's subsidiaries is a debtor under the provisions of
the Bankruptcy Code, but StreamLogic Ltd. and StreamLogic GmBH ceased operations
following the commencement of the Debtor's Chapter 11 Case. The Debtor believes
that it has no material financial obligations owing with respect to the
operations or affairs of any of its subsidiaries, and as of June 1997, the
Debtor's books and records reflected net intercompany accounts receivable owing
to the Debtor. However, the Debtor estimates that intercompany accounts
receivable are largely uncollectible. It is anticipated that under the Plan, all
of the Debtor's subsidiaries will be wound down or liquidated, and will cease to
exist.
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F. COMPETITION
The data storage industry is competitive and characterized by price
erosion over the life of a product. The Debtor believes that being first to
market with new products is a critical element in the achievement of desired
gross margins. Being first to market provides initial price advantages to the
Debtor and the opportunity to accelerate learning and cost reduction curves due
to increased production volumes. In the high-performance market in which the
Debtor competes, the principal dimensions of competition are generally data
storage capacity, data transfer rate, average access time, form factor, timely
delivery in quantity, reliability and price.
Some of the Debtor's competitors are much larger in size and have
access to greater financial and other resources than the Debtor. The Debtor
believes that its future success hinges on its ability to bring cost and
feature-competitive products to market on a timely basis. Competitors in the
high-performance desktop computers and workstation external storage subsystems
market include Megadrive, Micronet and Eurologic.
G. PATENTS AND KNOW-HOW
The Debtor's management believes that the ability to develop and
manufacture products is dependent upon the know-how and special skills within
the Debtor. In addition, the Debtor has obtained and presently owns a number of
patents, patent applications, and patent and technology licenses. It is the
Debtor's policy to enforce its proprietary rights. The Debtor's management
believes that the
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patents and know-how rights currently owned, which are exclusive of
patents relating to the Raidion business which were sold during the
Chapter 11 Case, are adequate for the conduct of its Hammer
business. In the opinion of the Debtor's management, however, no
individual patent or license is of critical importance.
H. EMPLOYEES
As of October 31, 1997, the Debtor employed approximately
33 full-time employees. Of those employees, eight were engaged in
manufacturing, seven were engaged in sales and marketing, six were
engaged in research and engineering, six were engaged in customer
service and operations and the remaining six were administrative
and clerical personnel. The Debtor believes that labor relations
in the Company are generally satisfactory.
I. REAL PROPERTY
The Debtor owns real property in the City of Chatsworth, Los Angeles
County, California where its operations and corporate headquarters were formerly
located. The Chatsworth property, commonly known as 21329 Nordhoff Street,
consists of a 75,650 square foot, light manufacturing facility situated on a
2.29-acre site.
According to the Debtor's books and records, the land and
improvements cost the Debtor approximately $7.6 million. Based on a February
1997 appraisal of the property, the property had a fair market value of
$3,500,000 at that time. Since the commencement of this Chapter 11 Case, the
Debtor has received several offers to purchase the property, and the Debtor
has formally listed the
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property with Beitler Commercial Real Estate Services, a licensed
real estate broker. The Debtor was recently in negotiations with
a prospective purchaser to sell the property for approximately
$3.5 million, net of commissions, but those negotiations have been
discontinued by the purchaser. The property is not encumbered by
any security interests securing any Claims of significant amounts.
J. INVESTMENTS
1. CONCENTRIC NETWORK STOCK. In September 1996, the Debtor purchased
$2.5 million of shares of preferred stock of Concentric Network Corporation
("Concentric") from Sattel Communications ("Sattel"). Founded in 1991 and
headquartered in Cupertino, California, Concentric is a provider of virtual
private networks and intranet customized consumer applications. Sattel acquired
the Concentric stock pursuant to a Preferred Stock Purchase Agreement dated
August 21, 1996 among Concentric, Sattel and others (the "Stock Purchase
Agreement"). At the time the Debtor acquired the Concentric stock from Sattel,
Concentric was a privately held corporation.
On July 30, 1997, Concentric was reincorporated in Delaware and
effected a 1-for-15 reverse stock split. On July 31, 1997, Concentric made an
initial public offering (the "IPO") of 4,300,000 shares of its common stock at
an initial price of $12 per share, and public aftermarket trading began on
August 1, 1997 in the Nasdaq National Market stock listings under the symbol
"CNCX."
As a result of the reincorporation and reverse split and
completion of the IPO, the Debtor's 1,838,235 shares of Concentric
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preferred stock have been exchanged for 128,272 shares of Concentric common
stock, and by virtue of the terms of the Stock Purchase Agreement, the Debtor is
restricted from selling the shares for a period of 180 days from the date of the
IPO. As of December 27, 1997, the Concentric shares were trading at a price of
$8.00 per share. The Debtor estimates that the approximate market value of the
Concentric shares as being $1,026,176 as of December 27, 1997, subject to the
trading restrictions identified above and the effect that those restrictions may
have upon value.
2. NOTE FROM TITANIUM MEMORY SYSTEMS. In 1992, the Debtor purchased
an equity interest of approximately 27% of the stock of Titanium Memory Systems,
Inc., formerly known as Tulip Memory Systems, Inc. ("TMS"), a start-up company
formed to develop substrates used in the manufacture of computer disk drives.
During 1994, the Debtor increased its ownership to approximately 60%, pending
anticipated outside investment. In connection with its original investment, the
Debtor agreed to guarantee the obligations of TMS to pay the acquisition cost of
equipment. In order to consummate the sale of its disk drive business, the
Debtor paid its $1.3 million guaranty obligation under the agreement with TMS.
The Debtor discontinued funding of TMS in early 1996.
In June 1996, TMS was recapitalized, and in connection therewith the
Debtor agreed to accept 1,498,645 shares of preferred stock of TMS, having a
book value of approximately $0.14 per share, and a promissory note issued by
TMS in the principal amount of
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$500,000, all in exchange for cancellation of TMS's debt to the Debtor in an
aggregate, approximate amount of $10 million.
In May 1997, the Debtor sold all of its TMS stock, as follows:
Approximately 749,322 shares were repurchased by TMS at a price of $0.20 per
share, or $149,864.40, and the remaining 749,322 shares were sold to Titanium
Metals Corporation, another investor in TMS, in exchange for cash in the amount
of $149,864.40. At the present time, the Debtor holds the $500,000 note issued
by TMS, which is payable in ten annual installments of approximately $50,000,
beginning in 1998.
K. DEBENTURES AND NOTES
1. CONVERTIBLE DEBENTURES. In 1987 the Debtor entered into an
Indenture dated as of March 15, 1987 (the "Indenture") between the Company and
First Interstate Bank of California, as trustee, later replaced by Harris Trust
and Savings Bank, as trustee (the "Trustee"). Pursuant thereto, the Debtor
issued debentures in an aggregate principal amount of $75 million, bearing 6
percent interest and due in the year 2012. The debentures were convertible to
stock under certain circumstances, were subordinated to certain indebtedness of
the Debtor and carried various other terms, conditions and other features.
Subject to adjustments set forth in the Indenture, the conversion price for the
Debentures was $48.50 per share.
In particular, the Debentures were subordinated in right of
payment to certain indebtedness of the Debtor, including indebtedness arising
from money borrowed or notes or similar
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instruments given in connection with the acquisition of businesses, properties
or other assets, obligation arising under capital leases and indebtedness
arising from the renewals, extensions or refundings of such obligations. In
light of the specific wording and terms of the Indenture, the Debtor does not
believe that it owes any indebtedness to which the Debentures are presently
subordinated.
2. 1996 EXCHANGE OFFER; INCREASING RATE NOTES. In early 1996, the
Debtor evaluated several alternatives with respect to a restructuring of the
Debentures, and Loomis Sayles & Company, L.P. ("Loomis Sayles"), an entity which
advises investors that collectively held approximately 79% of the aggregate
principal amount of the outstanding Debentures, indicated to the Debtor its
potential interest in reaching an agreement with respect to a restructuring of
the Debentures after the sale of the disk drive business had been completed.
Therefore, in October 1996, the Debtor commenced a tender offer for
the Debentures, pursuant to which the Debentures were to be exchanged for cash,
increasing rate unsecured promissory notes, common stock and warrants of the
Debtor. Of the $75 million of the Debentures originally issued, holders of
approximately 94% of the outstanding Debentures accepted the exchange,
representing approximately $70.2 million in aggregate principal amount. The
Debtor subsequently exchanged the tendered Debentures for approximately $8.5
million in cash, $8 million in unsecured promissory notes due in 1998, 15.2
million shares of common stock,
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and warrants to purchase an additional 2.8 million shares of common stock.
As a result, among the Debtor's present obligations are approximately
$8 million in increasing-rate unsecured promissory notes (the "Notes") issued in
exchange for approximately $70.2 million in formerly outstanding Debentures, as
well as approximately $4.8 million in Debentures that were not tendered in the
exchange.
3. REMAINING DEBENTURES AND LITIGATION. Following the exchange, there
remained Debentures of approximately $4.8 million in aggregate principal balance
that had not been exchanged or extinguished. With respect to those remaining
Debentures, issues arose as to whether the Debtor had failed to make interest
payments thereon in a timely fashion and whether, as a consequence, the holders
of the Debentures had properly and timely declared an acceleration of all
amounts owing under the Debentures. As a result of those disputes, litigation
ensued in the United States District Court for the Southern District of New York
between the Debtor and United Equities Company ("United Equities"), an entity
which owns or represents the holders of a majority of the outstanding aggregate
principal balance of the remaining Debentures. As of the date of commencement of
the Chapter 11 Case herein, that litigation, which began in December 1996,
remained pending, although neither party to the action is presently pursuing the
matter actively. Given the present bankruptcy context, the matter of
acceleration of the Debentures has become moot.
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4. SUBSTITUTION OF INDENTURE TRUSTEE. Subsequent to the Petition
Date, United Equities, which owns or represents the holders of a majority of the
outstanding aggregate principal balance of the remaining Debentures, has served
as a voting member of the Committee. Notwithstanding United Equities' active
involvement in the Chapter 11 Case, Harris Trust and Savings Bank ("Harris"),
the trustee under the Indenture, has at its insistence served as a non-voting
member of the Committee.
United Equities has assumed a very active role in the Chapter 11 Case
by, among other things, participating in negotiations of the Plan on behalf of
the Committee (which negotiations have inured directly to the benefit of the
estate and its creditors, including Debenture holders), assisting in revising
the Plan and committing to effectively "backstop" the Creditors' Rights Offering
(described elsewhere herein) by agreeing to purchase whatever Subscription
Reorganized Shares are not purchased by other existing creditors.
During the pendency of the Chapter 11 Case, it became apparent that a
significant overlap or duplication existed with respect to the efforts and
expenses of United Equities and Harris. Therefore, in order to avoid unnecessary
effort and expense, a majority of the Debenture holders sought to replace Harris
with a trustee that would be more acceptable to, and work in concert with, the
Debenture holders (i.e., the real parties in interest).
Thereafter, numerous discussions and negotiations ensued
between and among the interested parties with respect to the resolution of the
matter. In this regard, Harris raised concerns
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with respect to its compensation for services rendered and its asserted lien
rights with respect thereto. Ultimately, the parties reached an agreement
whereby the Indenture would be amended to reduce the capital requirements of the
trustee from $50 million to $10 million, Harris would be replaced as trustee by
American Stock Transfer & Trust Company, and Harris' pre- and post-Petition Date
fees and expenses would be settled and fixed at $25,000 payable by the Debtor as
an administrative expense claim (as reduced from an amount asserted by Harris to
be in excess of $60,000).
Consistent with this settlement, the Indenture will be amended as
described above, and a letter agreement fixing Harris' claim has been executed.
The Debtor has filed a motion seeking Bankruptcy Court approval of the
settlement and authority to amend the Indenture, which motion is scheduled to be
heard by the Bankruptcy Court on January 13, 1998.
United Equities has advised the Debtor that, based upon its services
rendered on behalf of the Debenture holders for the benefit of the estate
(including the efforts of its counsel, Tenzer Greenblatt LLP, which will also
serve as counsel for the replacement indenture trustee), United Equities and the
replacement trustee may seek payment or reimbursement of its counsel fees
incurred both prior and subsequent to the replacement of Harris as trustee. In
that regard, United Equities and the replacement trustee may assert, among other
things, that they are entitled to (i) charge the Debenture holders'
distributions under the Plan; (ii) a hold a claim for substantial contribution;
and/or (iii) hold
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an administrative expense claim for services rendered subsequent to the
appointment of the replacement trustee. The Debtor has not yet taken any
position supporting or opposing any such assertions or claims.
L. RELOCATION AND CONSOLIDATION
In late 1996, the Debtor announced its plans to consolidate and
relocate its operations and corporate headquarters from Chatsworth, California
to Northern California. In conjunction therewith, on November 7, 1996, the
Debtor entered into a long-term lease of commercial real property located at
7015 Gateway Boulevard, Newark, California, consisting of office, manufacturing
and warehouse space of approximately 56,000 square feet. Pursuant to the terms
of the lease, the Debtor delivered to the landlord an irrevocable standby letter
of credit in the amount of $252,288, issued by Wells Fargo Bank, to secure its
performance of obligations under the lease, and also provided a deposit of one
month's rent of approximately $50,000. In order to provide collateral for the
issuance of the letter of credit, the Debtor deposited cash funds with Wells
Fargo Bank in exchange for a certificate of deposit in the amount of the letter
of credit. Once the lease was executed, tenant improvements were undertaken by
the landlord, and those improvements were completed in or about April 1997, at a
cost of approximately $963,533, of which the landlord had agreed to pay
$839,985.
In early 1997, the Debtor proceeded with the closure of its
Chatsworth facility and relocated its corporate headquarters and
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administrative offices to Menlo Park, California on an interim basis, in the
offices previously occupied by FWB prior to the Debtor's acquisition of FWB's
assets. Thereafter, as planned, the Debtor completed its relocation to the
Newark premises, on or about June 30, 1997.
Concurrent with its relocation efforts, the Debtor also reduced its
staffing and administrative expenses substantially, through the discontinuation
of certain of the Debtor's product lines, including the Raidion product line and
video server and video disk recorder technologies. That downsizing effort began
prior to the commencement of the within Chapter 11 Case and continued thereafter
and even to the present time.
M. CHANGE IN MANAGEMENT
As of the end of 1996, the Debtor's board of directors consisted of
five directors, namely J. Larry Smart, Greg Reyes, Jr., Chriss W. Street,
Ericson M. Dunstan and Elliott D. James. Executive officers of the company at
that time included Mr. Smart, as the Debtor's president and chief executive
officer, and Barbara V. Scherer, as the company's senior vice president and
chief financial officer. In January 1997, the Debtor's board of directors was
expanded from five members to seven members, pursuant to the terms of the
November 1996 debenture exchange, and two additional directors, Jack S. Kenney
and Mark M. Glickman, were designated by Loomis Sayles.
During the first half of 1997, all of the aforementioned
directors other than Mr. Glickman resigned from the board, and
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Michael O. Preletz, a turnaround expert with many years' experience in assisting
troubled technology companies, was named to the board. In particular, Mr.
Dunstan resigned as of January 22, 1997; Mr. Smart resigned from all positions
with the Debtor as of March 23, 1997; and following the remaining directors'
appointment of Mr. Preletz as an additional director and as chief executive
officer as of March 24, 1997, Messrs. James, Reyes, Street and Kenney resigned
as directors, and Ms. Scherer resigned as an officer, in April and May 1997. Mr.
Glickman was elected to replace Ms. Scherer as chief financial officer, upon her
resignation.
Following the commencement of the Debtor's chapter 11 case, and
effective as of August 5, 1997, Mr. Glickman resigned as an officer and director
of the Debtor, and as a result, Mr. Preletz is presently the sole director and
chief executive officer of the Debtor.
N. DEBT REPAYMENT PLANS
During the three to six months immediately preceding the commencement
of the Debtor's chapter 11 case, the Debtor experienced extreme cash flow
difficulties and as a result, found itself unable to pay invoices as they became
due. In order to maintain essential working relationships with important trade
creditors, the Debtor entered into a variety of informal, largely undocumented
arrangements with trade creditors to pay past-due amounts and to continue to
receive services and products. Those arrangements included extending invoice
terms of past-due
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receivables, paying past-due invoices pursuant to negotiated payment schedules
while keeping current invoices paid, and making partial payments on past-due
invoices depending on the Debtor's needs and cash flow.
Trade creditors with whom the Debtor entered into such payment
arrangements included Mountain Gate, Seagate Technology, Inc., Sony Electronics,
Wyle Electronics, Elliott Laboratories, Federal Express, Micron Electronics,
Andataco, Nakasuji Associates, Q Logic, Bell Microproducts and Rational
Technology, Inc. At present, the Debtor is investigating the extent and
circumstances of such payments in order to determine whether any such payments
may be avoidable under the preference provisions of Section 547 of the
Bankruptcy Code. Based upon a preliminary analysis, the Debtor believes that a
significant amount of such payments may be recoverable under applicable
preference statutes.
O. EVENTS PRECEDING CHAPTER 11 CASE COMMENCEMENT
Operations of the Debtor in 1996 and early 1997 produced operating
losses, draining the Company of its operating funds. In addition, after the
Debtor's new management was installed, it found the books and records of the
Debtor to be in substantial disarray, and determined that ongoing revenues were
materially less than had been projected by prior management, resulting in
further losses.
The Debtor estimated its net losses for the quarter ending March 28,
1997 to be approximately $20.8 million, and for the full year ending March 28,
1997, the Debtor estimated that it lost $16.1 million (net of certain
extraordinary gains within the fiscal
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year, including a substantial gain arising from the cancellation of debt
integral to the debenture exchange described in Section III(K)(2) above). As
those losses translated themselves into negative cash flow, the Debtor found
itself in a substantial cash crisis, causing it to suspend payments on many
accounts and to respond to various collection actions initiated and threatened
against it.
Whereas in the spring of 1997, the Debtor attempted various means to
solve its cash crisis, including refinancings, recapitalizations and negotiated
settlements and payout schedules with creditors, the Debtor ultimately
determined that none of those efforts would avoid the necessity of a full and
formal reorganization of its operations and finances, which could not be
accomplished without the protections and benefits of chapter 11 of the
Bankruptcy Code.
Finally, in mid-June 1997, a creditor obtained an attachment order
against assets of the Debtor, threatening to paralyze all of the Debtor's
operations, and the Debtor was compelled to commence the present Chapter 11 Case
in order to remove the lien arising from that attachment order and to preserve
the company's ongoing operations.
IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE
Since the Debtor commenced its Chapter 11 Case, it has continued to
operate as a debtor-in-possession pursuant to Sections 1107 and 1108 of the
Bankruptcy Code. The following is a brief
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description of some of the major events that have occurred during the Chapter 11
Case.
A. CONTINUATION OF BUSINESS; STAY OF LITIGATION
Following the commencement of its Chapter 11 Case, the Debtor has
continued to operate its business and manage its properties as a
debtor-in-possession, no trustee having been appointed. The Bankruptcy Court has
certain supervisory powers over the Debtor's operations during the Chapter 11
Case, particularly as to proposed transactions outside of the ordinary course of
business. In addition, Bankruptcy Court approval is required for certain other
transactions, such as the borrowing of money on a secured basis or the
employment of attorneys, accountants and other professionals. Most importantly,
the Bankruptcy Court must confirm a reorganization plan for the plan to become
effective.
An immediate effect of the filing of the Chapter 11 Case was
the imposition of the automatic stay under the provisions of
Section 362(a) of the Bankruptcy Code which, with limited
exceptions, enjoins the commencement or continuation of all
prepetition litigation against, and efforts to collect funds from,
the Debtor. This injunction remains in effect unless modified or
lifted by order of the Bankruptcy Court.
B. APPOINTMENT OF THE CREDITORS' COMMITTEE
On July 18, 1997, the United States Trustee appointed an official
committee of unsecured creditors (the "Committee") to represent the collective
interests of all unsecured creditors of the Debtor, pursuant to Section 1102
of the Bankruptcy Case. The
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membership of the Committee has been supplemented twice since then, and two
members, CDI Corporation and Micropolis Inc., have since resigned.
Since its formation, the Committee has consulted extensively with the
Debtor concerning the administration of the Chapter 11 Case, and the Debtor has
kept the Committee informed about its operations and has sought the concurrence
of the Committee for actions and transactions taken outside of the ordinary
course of the Debtor's business, wherever possible. In particular, as described
elsewhere, the Committee has participated actively and extensively, together
with the Debtor's management and professionals, in negotiating a consensual plan
of reorganization.
The Committee currently consists of six voting members and two
nonvoting members, and includes representatives of each of the
principal constituencies of unsecured creditors of the Debtor. The
current members of the Committee are as follows:
VOTING MEMBERS:
FWB SOFTWARE, INC.
Attn: Steven Gibbs, C.F.O.
2750 El Camino Real
Redwood City, CA 94061-3911
NETWORK STORAGE SOLUTIONS
Attn: Joseph Pisula
600 Herndon Parkway
Herndon, VA 22070
NORWEST BANK MINNESOTA, N.A.
Attn: Gavin Wilkinson
Corporate Trust Department
6th and Marquette
Minneapolis, MN 55479-0069
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SEAGATE TECHNOLOGY
Attn: Bill Hayward, Senior Director
920 Disc Drive
Scotts Valley, CA 95066
UNITED EQUITIES COMPANY
Attn: Philippe D. Katz
160 Broadway
New York, NY 10038
NON-VOTING MEMBERS:
LOOMIS, SAYLES & COMPANY, LP
Attn: Frederick Vyn, V.P.
One Financial Center
Boston, MA 02111
HARRIS TRUST AND SAVINGS BANK
Attn: Kevin Healey, V.P.
311 W. Monroe Street, 12th Floor
Chicago, IL 60606
C. REPRESENTATION OF THE DEBTOR AND THE COMMITTEE
Since the commencement of the Debtor's Chapter 11 Case, the law firm
of Goldberg, Stinnett, Meyers & Davis, A Professional Corporation, whose offices
are located at 44 Montgomery Street, Suite 2900, San Francisco, California
94104, has acted as StreamLogic's general bankruptcy counsel, with Bankruptcy
Court approval. In addition, the Debtor has retained the following special
counsel and advisors with Bankruptcy Court approval:
Firm Purpose
Manatt, Phelps & Phillips, Special Counsel
LLP (Corporate and
Securities)
Hickey and Hill, Inc. Financial Advisor
Oppenheimer, Poms, Smith, Special Counsel
Lande & Rose (Intellectual
Property Rights)
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The Committee has retained the law firm of Murray & Murray, located
at 3030 Hansen Way, Suite 200, Palo Alto, California 94304- 1009 to act as its
counsel in the Chapter 11 Case, and the accounting firm of Price Waterhouse LLP
to act as its financial advisor, with Bankruptcy Court approval.
D. DEVELOPMENT AND IMPLEMENTATION OF STRATEGIC PLAN
Since the commencement of the Debtor's Chapter 11 Case, through the
auspices and direction of the company's new senior management, the Debtor has
continued its efforts to restructure its operations and develop and implement
its strategic plan.
First, as stated earlier, the Debtor restructured its operations so
as to focus on one of its product lines. Until that restructuring, the Debtor
supported two distinct lines of products, its Raidion product line and its
Hammer product line. The Raidion line consists of data storage products and
systems using the RAID (redundant array of independent disk drives) technology,
which renders the system fault-tolerant through either hardware or software. The
Raidion products are used in applications in which the integrity of large
amounts of data is of paramount concern. The Hammer product line, on the other
hand, while also a data storage product, is more targeted to uses in which data
transfer speed, rather than total capacity, is the primary concern. Typical uses
of Hammer products involve desktop digital video and color publishing.
During the last several months, the Debtor has restructured
its operations so as to discontinue its support of the Raidion
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product line and focus its efforts on the Hammer product line. In May 1997, the
Debtor began outsourcing the production of certain of its Raidion line of
products pursuant to an arrangement with JMR Electronics, Inc., a Chatsworth
company which had provided assembly services to the Debtor in the past for its
Raidion products.
As part of its restructuring of operations and discontinuance of
parts of those operations, the Debtor has also continued its downsizing in order
to reach a level of expenses consistent with its revenue base. As a result of
present management's restructuring efforts, the head count has been reduced by
approximately 78%, from approximately 150 at the end of the Debtor's fiscal 1996
year (i.e., March 29, 1996) to 33 at present.
E. BAR DATE FOR FILING PROOFS OF CLAIM
The Bankruptcy Court set November 3, 1997 as the deadline for the
filing of proofs of claim, other than claims of governmental entities. Since
that deadline passed, the Debtor has begun its review of filed proofs of claim
in order to determine whether, and to what extent, objections to disputed claims
will be necessary.
F. ASSET SALES RELATING TO RAIDION PRODUCT LINE
In the process of restructuring its operations, the Debtor has sold
most of the assets relating to its Raidion product line, consisting primarily of
patents, inventory and tooling. On October 1, 1997, the Court issued its order
granting the Debtor's motion and approving a sale of the Raidion patents to
Farrington Investments, Ltd. ("Farrington") for the purchase price of
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<PAGE> 43
$1,020,000, and that sale was consummated on or about October 14, 1997. The
proceeds of the sale are maintained by the Debtor in a segregated,
interest-bearing account and have not been treated as part of the Debtor's
general operating funds. Disbursements from that account, such as for
Court-approved professional fees, have been made only upon order of the
Bankruptcy Court or consent of the Debtor and the Committee.
As of September 25, 1997, the Debtor entered into an agreement to
sell most of the rest of its Raidion assets, namely inventory, molding and
tooling equipment and certain licenses relating to the Raidion product line, to
Peripheral Technology Group, Inc. ("PTG") for the purchase price of $263,000,
subject to Court approval and certain contractual adjustments. Two creditors,
JMR Electronics, Inc. ("JMR") and A&S Mold And Die Corporation ("A&S"), have
asserted liens against the assets sold to PTG, which liens are disputed by the
Debtor. On November 21, 1997, the Bankruptcy Court issued orders granting the
Debtor's motions seeking approval of sale free and clear of the disputed liens
of JMR and A&S, and the sale was consummated on December 2, 1997. At present,
the Debtor maintains the net proceeds of sale, in the approximate amount of
$135,000, in a separate, segregated account, pending resolution of JMR's and
A&S's disputed liens.
G. DISPUTE WITH NEWARK LANDLORD
As stated above, in late 1996 the Debtor executed a long-term lease
for commercial premises in Newark, California and in June 1997, the Debtor moved
into the facility. Shortly before the
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commencement of its Chapter 11 Case, the Debtor reached oral agreements with the
landlord, WHLNF Real Estate Limited Partnership ("Lincoln"), and Decibel
Instruments, Inc. ("Decibel") to sublet approximately one-half of the premises
to Decibel, a start-up company in the business of developing and manufacturing
hearing aid and diagnostics products. However, as of the Petition Date, no
written agreements had been executed with either Lincoln or Decibel in order to
implement the oral sublease agreement.
After the Petition Date, on July 25, 1997, the Debtor filed a motion
seeking Bankruptcy Court approval of the assumption of the master lease with
Lincoln and execution of the sublease with Decibel. From the Debtor's
perspective, the transactions would allow the Debtor to preserve a master lease
carrying a rental rate below current market rates, while defraying one-half of
the monthly obligation by subleasing unused space.
However, once the motion had been filed, Lincoln indicated its
intention to oppose the Debtor's motion and imposing discovery demands upon the
Debtor. At the same time, the Committee concluded that assumption of the master
lease would be premature until reorganization prospects were better defined, and
requested that the Debtor withdraw its motion. Accordingly, the Debtor withdrew
its motion and advised Decibel that it would be unable to complete the sublease
arrangement.
After the motion was withdrawn, the Landlord filed a motion to compel
the Debtor to assume or reject the Newark lease on an expedited basis. The
Debtor opposed the motion and filed a cross-
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motion for extension of assumption deadlines, and in a hearing on September 12,
1997, the Bankruptcy Court granted the Debtor's motion on an interim basis and
deferred Lincoln's motion.
Meanwhile, the Debtor found alternative premises within Newark,
approximately two miles from its first premises. The new premises, approximately
8,500 square feet, more closely fit the Debtor's space needs and cost much less
(approximately $9,000 per month versus approximately $51,000). Accordingly, in
early November 1997, the Debtor rejected its lease with Lincoln, vacated that
lease's premises and relocated to its new, smaller Newark premises.
As stated, Lincoln holds more than $300,000 of deposits in order to
offset any damages arising from the Debtor's rejection of its lease. However,
the Debtor believes that the lease's contractual rental rate is significantly
below current market rates and that Lincoln will in fact suffer no such damages
in any event (and may in fact be benefitted by the Debtor's rejection).
Therefore, the outcome of the deposits held by Lincoln, and any claims for
damages which it may assert, are undetermined, and the Debtor intends to review
the matter closely for the estate's benefit.
H. REMAINING ASSETS
As of early December 1997, following the sales and dispositions of
assets referenced hereinabove, the Debtor owned the following remaining
significant assets (excluding assets of nonmaterial or highly speculative
value): the building and related
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<PAGE> 46
real property in Chatsworth, California referred to in Section III(I)
hereinabove; the Hammer product line and related technology and inventory; cash
proceeds of the sale of Raidion patents, net of Court-approved disbursements for
interim professional fees, in the approximate net amount of $800,000; cash
proceeds from the sale of Raidion inventory and related assets in the
approximate amount of $135,000, subject to disputed lien claims of JMR and A&S;
128,272 shares of common stock of Concentric, as described in Section III(J)(1)
hereinabove; a promissory note in the principal amount of $500,000 from Titanium
Memory Systems, as described in Section III(J)(2) hereinabove; miscellaneous
office furnishings and equipment of undetermined value; possible preference
causes of action related to debt repayments prior to the commencement of the
Chapter 11 Case, as described in Section III(N) hereinabove; a certificate of
deposit maintained with Wells Fargo Bank in the approximate principal amount of
$252,000, subject to the bank's lien thereagainst in conjunction with the letter
of credit issued to the Debtor's former Newark landlord; restricted funds of
approximately $250,000 against which former officers and directors assert
interests; a directors' and officers' liability policy; and possible causes of
action against third parties with respect to prepetition events and
transactions.
V. THE PLAN OF REORGANIZATION
The following is a limited summary of the terms of the Plan, served
concurrently with this Disclosure Statement and the Ballot. The summary is
qualified in its entirety, however, by reference to
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<PAGE> 47
the more detailed provisions set forth in the Plan itself, which control for all
purposes.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
1. NONCLASSIFIED CLAIMS. Applicable provisions of the Bankruptcy Code
provide that certain claims, namely, administrative expenses incurred during the
Chapter 11 Case and priority tax claims incurred before the commencement of the
Chapter 11 Case, are not to be classified in a plan, but instead treated in the
manner required by the Bankruptcy Code. In particular, all administrative
expenses must be paid upon the Plan's effectiveness, and priority tax claims can
be paid over a defined period of time.
Under the Plan, all such nonclassified claims will be paid in full on
the latest of the following dates: (a) on, or as soon as practicable after, the
Administrative Bar Date (which is thirty days following the Effective Date), or
such later date as to which the claimant may consent; (b) on the date when the
claim becomes due, according to applicable contractual, statutory or other
terms; or (c) once an order of the Bankruptcy Court allowing the claim becomes
final, if the claim is disputed or requires Bankruptcy Court approval (such as
is the case with Professional Fees).
Proofs of claim for nonclassified expenses which consist of priority
tax claims must be filed by the deadline already established by the Bankruptcy
Court for governmental claims generally, to wit, December 23, 1997. With respect
to nonclassified expenses which consist of administrative expenses (that is,
claims incurred by the Debtor after the Petition Date and
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<PAGE> 48
before the Effective Date), other than certain Ordinary Course Expenses (see the
definition of "Ordinary Course Expenses" below), proofs of such claims, or
requests for payment, must be filed with the Bankruptcy Court and served upon
the Distribution Agent, the reorganized Debtor and the United States Trustee by
the thirtieth day (the "Administrative Bar Date") following the Effective Date,
absent which such claims will not be allowed and no distribution or payment will
by made on such claims.
As defined and used in the Plan, the term "Ordinary Course Expenses"
means liabilities incurred by the Debtor on or after the commencement of the
Chapter 11 Case in the ordinary course of its business, specifically excluding
income tax liabilities, tort liabilities, environmental cleanup or indemnity
claims, liabilities arising under the Employee Retirement Income Security Act of
1974 (as amended), and any other items not customarily incurred by the Debtor in
the ordinary operation of its business.
The reorganized Debtor will be responsible for paying all allowed
Ordinary Course Expenses other than Professional Fees, certain lease obligations
and warranty, return, product refund or defect claims relating to products other
than Hammer products. The Distribution Agent will be responsible for payment of
all other allowed nonclassified claims.
The Debtor estimates that Ordinary Course Expenses for which the
reorganized Debtor will be responsible will be approximately $270,000,
representing approximately one month's general and
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<PAGE> 49
administrative expenses, plus a variable amount representing costs of goods.
Professional Fees, that is, compensation and expense reimbursements
earned by attorneys, advisors, accountants and other professionals retained in
the Chapter 11 Case by the Debtor or the Committee, are estimated as follows:
For services rendered through September 30, 1997, the following fees
and expenses have been approved by the Bankruptcy Court, and paid by the Debtor
or credited against retainer balances, on an interim basis:
<TABLE>
<CAPTION>
Professional: Interim Amount:
------------- ---------------
<S> <C>
Goldberg, Stinnett, Meyers &
Davis $ 190,254.99
Murray & Murray 47,514.13
Manatt, Phelps & Phillips(3) 32,978.47
Oppenheimer, Smith, Poms, Lande
& Rose 8,871.14
Price Waterhouse LLP 13,872.00
--------------
TOTAL: $ 293,490.73
</TABLE>
For services rendered after September 30, 1997 and until the
Effective Date, and for remaining unpaid amounts for services rendered up to
September 30, 1997, the Debtor estimates that the estate will incur additional
fees and expenses (with the caution that it is an estimate only, and
subsequent events may cause the
- --------
(3) Fees and expenses awarded to the Manatt firm are for services rendered
through October 24, 1997.
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<PAGE> 50
estimated amounts to increase or decrease significantly) in the approximate
amount of $350,000.
In addition to the foregoing, the Debtor estimates that as of the
Effective Date, there may be owed approximately $4,000 in unpaid quarterly fees
owing, but not yet due, to the United States Trustee, and that there may be owed
an undetermined amount in reimbursements of expenses to members of the
Committee. Also, Section 503(b) of the Bankruptcy Code provides for payment of
compensation to creditors, indenture trustees and other persons making a
"substantial contribution" to a reorganization case, and to attorneys for, and
other professional advisors to, such persons. The amounts, if any, which may be
sought by entities for such compensation are not known by the Debtor at this
time. Requests for compensation must be approved by the Bankruptcy Court after a
hearing on notice at which the Debtor and other parties in interest may
participate and, if appropriate, object to the allowance of any compensation and
reimbursement of expenses.
Priority tax claims are those claims for taxes entitled to priority
in payment under Section 507(a)(8) of the Bankruptcy Code. The aggregate amount
of priority tax claims as reflected in proofs of claim filed by taxing
authorities, or, in the event that no proof of claim was filed, in the Debtor's
Schedules, is approximately $1,050,000 (excluding duplications). That amount,
however, may later increase by virtue of claim amendments following the
completion and filing of delinquent tax returns for years preceding the Petition
Date, particularly for the year ending
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<PAGE> 51
December 31, 1996. The Debtor estimates that of all such amounts, approximately
between $200,000 and $400,000 will be allowed, based upon its preliminary
analysis of the claims.(4)
The difference between the aggregate amount of asserted tax claims
and the Debtor's estimated range of those claims that will eventually be allowed
arises largely from disputes regarding claims filed by the California Franchise
Tax Board in the amount of $580,165.60, by the Comptroller for the State of
Texas in the amount of $344,848.45 and by the Internal Revenue Service in the
amount of $115,873.20. The Debtor believes most filed priority tax claims will
be disallowed or reduced substantially, resulting in the estimated range of
allowable tax claims mentioned above.
2. CLASS A -- OTHER PRIORITY CLAIMS. Priority claims within Class A
are certain non-tax claims incurred by the Debtor prior to the commencement of
the Chapter 11 Case which are entitled to priority in accordance with Sections
507(a)(2), (3), (4), (5), (6) or (7) of the Bankruptcy Code. Such claims include
(i) unsecured claims for accrued employee compensation earned within ninety days
prior to commencement of the Chapter 11 Case to the extent of $4,000.00 per
employee and (ii) contributions to employee benefit plans arising from services
rendered within 180 days prior to the commencement of the Chapter 11 Case, but
only for each such plan to the extent of (x) the number of employees covered by
such plan
- ----------
(4) The increment between the high and low ends of that range depends largely
upon potential income tax liabilities for the year 1996, which are as yet
undetermined, but which may ultimately equal as much as $200,000.
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multiplied by $4,000.00, less (y) the aggregate amount paid to such employees
from the estates for priority wages, salaries and commissions.
The Debtor estimates that the allowed amount of Class A priority
claims will be approximately $35,000, all arising from employee wage and benefit
obligations incurred by the Debtor shortly before the Petition Date. Actual
claims filed by creditors asserting priority status are in an aggregate,
approximate amount of $150,000, but of that amount, the Debtor believes that at
least $100,000 is either overstated or not entitled to priority treatment,
resulting in the lesser estimated amount mentioned above.
Pursuant to the Plan, allowed Class A priority claims will be paid in
full, and, in the Debtor's view, are thus unimpaired. As such, the holders of
Class A claims are conclusively presumed to have accepted the Plan. Payment of
such claims, to the extent allowed, will occur on the latest of the following
dates: (a) on, or as soon as practicable after, the Effective Date, or such
later date as to which the claimant may consent; (b) on the date when the claim
becomes due, according to applicable contractual, statutory or other terms; or
(c) once an order of the Bankruptcy Court allowing the claim becomes final, if
the claim is disputed.
3. CLASS B -- SECURED CLAIMS. Class B consists of all secured claims,
that is, claims secured by valid, perfected and enforceable liens or security
interests encumbering assets of the Debtor. To the best of the Debtor's
knowledge, the only secured
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<PAGE> 53
claims, if there are any at all, consist of (a) the claim of Wells Fargo Bank in
the approximate principal amount of $252,000, secured by the bank's certificate
of deposit issued in conjunction with the Debtor's former Newark real property
lease, described hereinabove; and (b) warehouse, mechanics' or other possessory
liens asserted by certain of the Debtor's suppliers, vendors or materialmen,
including the disputed liens asserted by JMR and A&S.
In all, exclusive of claims of equipment lessors, claims have been
filed by creditors asserting security interests in an aggregate, approximate
amount of $670,000. However, secured creditors are not required to file claims
in order to preserve their lien rights, and in particular, Wells Fargo Bank,
holding a lien against $252,000 of funds of the Debtor, has not filed a claim.
The Debtor estimates that the only secured claims that will be ultimately
allowed are those of Wells Fargo Bank in the above-stated amount and the lien
claims of JMR and A&S, but only to the extent that those claims survive
challenge by the Debtor.
By an order of the Bankruptcy Court issued on November 21, 1997 at
the Debtor's request, the disputed lien claims of JMR and A&S have been limited
to sale proceeds in the aggregate, approximate amount of $135,000, subject to
the Debtor's challenges; the Debtor believes that the actual amounts of JMR's
and A&S's valid liens may be considerably less, and may in fact be zero.
Nonetheless, as a matter of conservative estimation for purposes of this
Disclosure Statement, and without waiving any rights with
respect thereto, the Debtor estimates aggregate allowed secured
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<PAGE> 54
claims within Class B to be approximately $390,000, based upon the foregoing.
All secured claims within Class B, to the extent allowed, will be
unimpaired, in accordance with the provisions of Section 1124 of the Bankruptcy
Code, as follows: As to each such claim, the reorganized Debtor or the
Distribution Agent (depending upon whether the collateral is a Hammer Asset or a
Non-Hammer Asset) will either (a) cure any defaults and reinstate the
obligations, going forward on normal contractual terms; (b) pay the claim in
full in exchange for a full release of liens; or (c) abandon to the creditor the
collateral securing the claim. The particular treatment of each such claim will
be set forth in Schedules 4.2(A) and 4.2(B) to be filed and served by the Debtor
and the Preletz Group, respectively, no less than five Business Days prior to
the commencement of the Confirmation Hearing.
Any holder of a Secured Claim that is not reinstated may assert an
unsecured deficiency claim, if any, within Class C or D by filing and serving a
claim therefor no later than 30 days following the Effective Date, subject to
any timely objections that may be asserted by parties in interest.
4. CLASS C -- CONVENIENCE CLAIMS. Class C claims are impaired by the
Plan, and therefore are entitled to vote to accept or reject the Plan. Class C
claims consist of allowed claims that are equal to, less than, or reduced to,
$3,000.00, which the Plan treats separately for administrative convenience.
Claimants may elect to be within or without Class C by the following procedure:
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<PAGE> 55
Claims of $3,000.00 or less will automatically be classified within Class C
unless the holder of such claim elects in writing to opt out of the class, in
which case such claim will be within Class D; holders of claims greater than
$3,000.00 may elect in writing to reduce their claims to the amount of $3,000.00
and be treated within Class C, in which event the claim amount in excess of
$3,000.00 will be deemed fully waived. In either case, written elections must be
made by completing the appropriate information and box within the Ballot and
returning the Ballot in the manner and within the deadline stated thereon.
Under the terms of the Plan, each holder of an allowed claim within
Class C will receive a payment from the Distribution Estate in an amount equal
to ten percent (10%) of the allowed amount of the claim. The payment will be
made within 60 days following the Effective Date, or upon final resolution of
any disputes as to the claim, whichever is later. The Debtor anticipates that
holders of approximately 340 allowed claims, in an aggregate amount of
approximately $360,000 (before required reductions), will elect to be within
Class C, and that the distributions thereon will be approximately $34,000. Those
amounts assume that holders of claims of up to $4,000.00 will elect to reduce
their claims to be within Class C.
5. CLASS D -- GENERAL UNSECURED CLAIMS. Class D consists of all
allowed claims that are unsecured and not in any other designated class. Such
claims include claims of the Debtor's trade vendors and suppliers, claims
arising from product warranties and
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<PAGE> 56
related obligations of the Debtor with respect to the purchase and use of
Non-Hammer products, claims arising from the rejection of leases of equipment or
other real or personal property and other executory contracts. Class C claims
also include claims arising under the Debentures and Notes described above.
The Debtor estimates that the aggregate amount of all allowed claims
within Class D, including the aforementioned Debentures and Notes, will be
approximately $30,000,000 (after elimination of Class C claims), although the
amount may be higher or lower once all proofs of claim are filed, reviewed and
resolved. The aggregate amount of all claims asserted in Class D, as reflected
in proofs of claim filed by creditors, or, in the event no proof of claim was
filed, in the Debtor's Schedules, is approximately $40,000,000, excluding claims
for which no amounts were specified and otherwise unliquidated claims. The
Debtor's estimates of allowed claims is based only upon its preliminary analysis
of the claims, and may change as further analysis is made.
Claims within Class D will be impaired by the Plan, and thus Class D
claimants are entitled to vote to accept or reject the Plan, based upon the
following treatment:
Holders of Allowed Claims within Class D will receive pro-rata
distributions of funds from the Distribution Estate on a periodic basis, as
funds become available for such distributions, beginning no later than June 30,
1998. Each distribution will be made from available funds after accounting for
reserves for disputed claims, anticipated administrative costs and any other
payments not yet
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<PAGE> 57
made but required by the terms of the Plan. Some of the particular provisions of
the Plan affecting those distributions are as follows:
- Notwithstanding certain subordination terms set forth in
the Debentures (which the Debtor believes are
inoperative), there will be no subordination between
claims arising from Notes and claims arising from
Debentures, all of which claims will be treated as
Class D claims, to the extent allowed, on a pari passu
basis (Plan, Sec. 5.2.3).
- A portion of the stock of the reorganized Debtor, the
Reorganized Shares as described in Section V(B)(2)
hereinbelow, will be distributed among holders of allowed
claims within Class D on a pro-rata basis, with each
share deemed to have a value of $0.325 for purposes of
calculating distributions. No fractional shares will be
issued, and the Plan provides for rounding to whole
numbers and disposition of any remainder shares held by
the Distribution Estate after stock distributions have
been completed (Plan, Sec. 5.2.4).
- Some claims within Class D may be subject to
subordination to other claims within Class D, either in
part or in whole, by order of the Bankruptcy Court. All
parties will be deemed to have preserved their right to
assert rights to such subordination within Class D, other
than as follows: Any right to subordination between
claims under Debentures and Notes as described above
shall be deemed to have been waived and released, and all
such claims shall be deemed to be within Class D on a
pari passu basis as between each other. All such claims
of subordination will be settled by the Plan's terms
(Plan, Secs. 5.2.3 and 5.2.5).
- Certain specific provisions, set forth in Section 5.2.6
of the Plan, pertain specifically to claims arising from
Debentures or Notes, which provisions provide for the
cancellation of such securities in exchange for
distribution rights under the Plan, a record date for
purposes of voting and distributions, and procedures for
claims that may be asserted by indenture trustees for
compensation, indemnification and reimbursement (Plan,
Sec. 5.2.6).
The Debtor estimates that distributions upon allowed claims
within Class D will be in an aggregate amount that is approximately
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<PAGE> 58
17.10 percent of the total amount of such allowed claims, based upon the
analysis set forth in EXHIBIT "F" attached hereto. That estimate is of course
subject to change based upon events and claims resolutions that cannot be
accurately predicted at this time, including the outcome of causes of action
against third parties on behalf of the Distribution Estate, resolution of
disputes regarding claims asserted against the Distribution Estate, the effect
of assumptions or rejections of executory contracts for which claims have not
yet been asserted and the like. Also, the Debtor believes that distributions
upon such allowed claims will occur over a period of time, spanning at least one
to two years, and no attempt has been made to determine the present value of
such distributions.
6. CLASS E -- STOCK INTERESTS. Class E consists of all Interests in
the Debtor, meaning all shares of the Debtor's common stock and all options,
warrants and other rights affecting the Debtor's stock or equity interests.
On the Effective Date, all existing shares of the Debtor will be
cancelled and all options, warrants and other rights affecting such stock will
be terminated. All Interests (including Rescission Claims, which are primarily
claims arising from the rescission or breach of contracts for purchase or sale
of stock, together with related claims) shall be deemed fully and finally
released and discharged entirely. No distributions will be made upon any
Interests, either by the Distribution Estate or by the reorganized
Debtor. Thus, holders of Interests within Class E are deemed to
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<PAGE> 59
have rejected the Plan, because they will receive and retain nothing under the
Plan's terms.
The Plan provides for no distribution to holders of Interests because
the Debtor has determined, through review of its assets and liabilities and in
consultation with its advisors, that the aggregate value of the Debtor's assets
is exceeded, by a large amount, by the sum of allowable claims against the
Debtor. As a result, there is no present equity in the Debtor and, in the
Debtor's view, all present shares of stock of the Debtor are worthless.
B. RECAPITALIZATION OF THE DEBTOR
On the effective date of the Plan (which will occur within 30 days
following the Plan's confirmation), the Debtor will be reorganized and will
emerge from bankruptcy with a new capital structure and working capital which
its management believes is sufficient to return the company to profitability,
through support of its Hammer product line and related operations. The
recapitalization necessary for that reorganization will occur as follows:
1. REVESTING OF ASSETS. On the Plan's effective date, all assets
related to the Hammer product line, as defined in detail in Section 7.3.1 of the
Plan and known as the "Hammer Assets," will be revested in the reorganized
Debtor as the core of its ongoing business. All other assets of the Debtor will
vest in the Distribution Estate, as described below. In exchange for the
Hammer Assets, the reorganized Debtor will issue a portion of its
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<PAGE> 60
stock to the Distribution Estate, for distribution to creditors, as described
below.
As defined within the Plan, "Hammer Assets" include essentially all
of the Debtor's intellectual property rights remaining after disposing of the
Raidion product line (including the Debtor's Hammer technology, its Gandiva
technology, the video disk recorder technology described in Section III(D)(2)
above and all other intellectual property rights related to the Hammer product
line, but not including the video server technology described in Section
III(D)(1) above), all inventory and equipment used in the Hammer product line,
all cash (other than restricted funds) as of the Plan's effective date, certain
executory contracts and secured assets which the reorganized Debtor elects to
assume and cure, any and all causes of action necessary to preserve the benefit
and protection of other Hammer Assets,(5) and other related assets. As used in
the Plan, the term "Non-Hammer Assets" refers to all assets of the Debtor
immediately preceding the Plan's effective date other than Hammer Assets.
2. REORGANIZED SHARES. On the Plan's effective date, the reorganized
Debtor will issue the following new shares of common stock, or "Reorganized
Shares": 3,500,000 Reorganized Shares to the Distribution Estate for
distribution to creditors; 2,000,000 Reorganized Shares to participating
creditors in the Creditors'
- ----------
(5) As of the date of this Disclosure Statement, the Debtor is unaware of any
events or actions that would give rise to any such causes of action.
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<PAGE> 61
Rights Offering described below, in exchange for cash contributions of $650,000;
and 2,000,000 Reorganized Shares to the Preletz Group in exchange for a cash
contribution of $650,000. Also, as set forth in detail in the Plan, the
reorganized Debtor may issue additional Reorganized Shares, up to a total of
20,000,000 outstanding Reorganized Shares, for new cash consideration or as
employee stock options or incentive bonuses, all within the limitations and
restrictions set forth in the Plan. In this manner, existing creditors of the
Debtor will collectively own a substantial portion of the equity of the
reorganized Debtor, and will have an opportunity to benefit from any
appreciation in value of the reorganized Debtor, if it occurs, while the Debtor,
as reorganized, will be newly capitalized, with working capital which the Debtor
believes will be sufficient to return its operations to profitability.
3. CREDITORS' RIGHTS OFFERING. As set forth in Section 8.2 of the
Plan, a portion of the Reorganized Shares (the "Subscription Reorganized
Shares") will be issued in conjunction with a Creditors' Rights Offering
available to all existing creditors of the Debtor that are within Class D of the
Plan. Through the procedures set forth in said Section 8.2, existing creditors
will have an opportunity to acquire Reorganized Shares for new cash
contributions at the same per-share price as the Preletz Group, and on a
pro-rata basis among them. United Equities, holding claims of approximately $2.5
million arising from Debentures, has agreed to participate in the offering
subject to the terms and conditions
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described in the Plan, by committing to purchase its allocable portion of the
Subscription Reorganized Shares plus whatever Subscription Reorganization Shares
are not purchased in accordance with the terms of the Creditors' Rights Offering
by any other creditors.
In order to participate in the Creditors' Rights Offering, each
creditor must elect to do so in the space provided therefor in the Ballot which
accompanies this Disclosure Statement and the Plan and returning the Ballot
within the time frame, and in the manner, stated on the face of the Ballot. Each
eligible claimant will be entitled to subscribe for a proportionate share of
2,000,000 Reorganized Shares based upon all, but not less than all, of such
claimant's claim, all as set forth more fully in Section 8.2 of the Plan. All
determinations of eligibility, proportionate share, timeliness of election and
share calculations will be made by the Committee and shall not be subject to
challenge.
As stated, in order to participate in the offering, eligible
creditors must timely elect to do so by completing the appropriate space on the
Ballot and returning the Ballot in a timely manner. Thereafter, those
participating claimants will be required to timely deposit their subscription
payments in cash with the Committee's counsel, upon notification of the timing
and amount thereof, and such counsel will hold all such deposits in trust in a
segregated account pending the effectiveness of the Plan. All creditors who are
interested in so subscribing should read the details of Section 8.2 carefully in
all respects.
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4. CORPORATE GOVERNANCE. Following the Plan's effective date, the
reorganized Debtor will be free of the constraints of the chapter 11 process,
but will be subject to certain rules of corporate governance set forth in
Section 8.3 of the Plan. In particular, the Preletz Group will be allowed to
maintain full operational control over the reorganized Debtor for at least three
years following the Plan's effective date, and will have full control over the
appointment, compensation, employment and retention of the reorganized Debtor's
senior management. In addition, the Preletz Group will be entitled to select,
remove and replace three of the reorganized Debtor's five directors for the
first three years following the Plan's effective date, but no extraordinary
nonoperational actions, such as mergers or consolidations, sale of substantial
portions of assets or commencement of a succeeding bankruptcy case, will be
permitted without the consent of the holders of a majority of issued and vested
Reorganized Shares.
Among other details of corporate governance, the reorganized Debtor
will provide rent-free space for storage of assets, books and records of the
Distribution Estate at least until October 1, 1998; certain officers of the
reorganized Debtor will provide services to the Distribution Estate free of
charge in order to assist in the disposition of remaining assets within such
estate, at the discretion of the Distribution Agent; and the reorganized
Debtor will use its best reasonable efforts to maintain
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registration and public listing of its shares, within certain constraints set
forth in the Plan.
C. DISTRIBUTION ESTATE
As of the Plan's effective date (or, as defined in the Plan, the
"Effective Date"), all assets that will not be revested in the reorganized
Debtor, that is the "Non-Hammer Assets," will be retained and vested in a
Distribution Estate created for the benefit of creditors. The Distribution
Estate will be maintained and administered by a Distribution Agent, under the
monitoring and governance of the Committee, which will continue to operate after
such effective date. The Distribution Agent will be selected by the Committee,
and shall manage the Distribution Estate subject to the following provisions of
the Plan, among others:
- The Distribution Agent will serve at the pleasure and
direction of the Committee, which will be entitled to
terminate and replace the Distribution Agent at any time
(Plan, Sec. 7.7.3).
- It shall be the Distribution Agent's duty to dispose of
all assets of the Distribution Estate and to resolve all
claims against that estate, at the instruction of the
Committee and in a manner reasonably intended and
designed to maximize recoveries by creditors, and the
Distribution Agent shall report regularly and in detail
to the Committee with regard to the status of the
administration of such estate (Plan, Sec. 7.8.2).
- The Distribution Agent will be authorized to sell assets
with the Committee's approval but without other notice,
provided that the gross purchase price of each such sale
does not exceed the sum of $50,000. For other
dispositions, including larger sales and any compromises
of disputes, the Distribution Agent will be authorized to
implement such dispositions only with the approval of the
Committee and either (a) in the absence of a timely
written objection received within five Business Days
following written notice to certain parties within a
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"Postconfirmation List,"(6) or (b) in the event of such
timely written notice, upon approval by the Bankruptcy
Court on no less than five Business Days' notice of a
hearing thereon (Plan, Sec. 7.8.3).
- Disbursements will be made to creditors by the Distribution
Agent from time to time as directed by the Committee, with
appropriate reserves for existing and anticipated
administrative expenses as well as reserves for disputed
claims (Plan, Secs. 7.8.5 and 7.8.6).
- Both the Distribution Agent and the Committee will be
authorized to retain professionals in order to assist in
their respective obligations and rights under the terms
of the Plan, with the Committee's approval, and in
particular, the Distribution Agent will be entitled to
retain the Debtor's present bankruptcy counsel and the
Committee's present counsel without further order of the
Bankruptcy Court, and the Committee will be authorized to
continue to retain its counsel without further order of
the Bankruptcy Court. Fees and expenses of the
Distribution Agent, the Committee and their respective
professionals earned or accrued on or after the Plan's
effective date, together with quarterly fees owing to the
United States Trustee, will be paid periodically from the
Distribution Estate (Plan, Secs. 7.9.2 and 7.10).
- Fees and expenses other than those owing to the United
States Trustee will be paid only upon ten Business Days'
notice to parties within the Postconfirmation List, either
absent written objections or upon approval by the
Bankruptcy Court in the event of timely objections (Plan,
Sec. 7.10.2).
- ----------
(6) For these purposes and for all other purposes under the Plan, the term
"Postconfirmation List" refers to the United States Trustee, the Reorganized
Debtor and its counsel, the Distribution Agent and his or her counsel, the
Committee and its members and counsel, and those parties who, subsequent to the
Plan's confirmation, file with the Bankruptcy Court and serve upon the
aforementioned parties and counsel requests for special notice; provided that
some parties may be removed from the list from time to time either by consent or
by order of the Bankruptcy Court on notice, based upon a showing that such
parties no longer hold material interests or claims in the Chapter 11 Case.
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D. DISCHARGE AND EXCULPATION
Under the terms of the Plan, the reorganized Debtor will be fully
discharged of all debts accruing prior to the Plan's effective date, and the
effectiveness of the Plan shall operate as a permanent injunction against
asserting such obligations against the reorganized Debtor, except for those
obligations which the reorganized Debtor expressly assumes under the terms of
the Plan. Such assumed obligations will include the following: (a) certain
Ordinary Course Expenses, as described hereinabove; (b) all claims for warranty,
return, refund, product defect and the like, to the extent arising from the
purchase of Hammer products; (c) rent obligations with respect to the Debtor's
new Newark office lease, to the extent set forth in the Plan; (d) any
obligations which the Preletz Group elects to assume with respect to the cure
and reinstatement or satisfaction of secured claims; and (e) any cure payments
and ongoing obligations which the reorganized Debtor elects to assume with
respect to executory contracts affecting Hammer Assets. In all other respects,
the effectiveness of the Plan shall operate as a complete and final discharge,
release and satisfaction of all claims that might be asserted against the Debtor
at any time prior to the Plan's effective date, whether those claims are known
or unknown, matured or contingent, liquidated or unliquidated.
In addition, the Plan's effectiveness will operate to release any
claims which the Debtor's estate may have against the Debtor, the Preletz Group,
the Committee, members of the Committee and each
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of their present officers, directors, agents, advisors, attorneys or accountants
or any claim arising out of or in connection with an act or failure to act in
connection with rights and duties related to the Chapter 11 Case, except any
claims expressly created or preserved under the terms of the Plan or related
documents. The Debtor knows of no claims against such parties at the present
time.
Also, the Plan provides that actions taken by the Committee or
by the Distribution Agent, or their respective representatives,
agents and counsel, in implementing the terms of the Plan following
the Plan's effective date will be deemed to be within the scope of
duties and functions set forth in Sections 1103 and 1107 of the
Bankruptcy Code. As such, and absent willful misconduct or gross
negligence, each of such parties will be immune from challenge or
liability for actions taken or not taken during the course of such
Plan implementation.
E. EXECUTORY CONTRACTS
Article VI of the Plan provides for treatment of executory contracts,
including unexpired leases, to which the Debtor is a party as of the Plan's
effective date and which were entered into by the Debtor prior to the
commencement of the Chapter 11 Case. In summary form, all such executory
contracts will be deemed rejected unless they are assumed by specific provision
of the Plan, by a separate order of the Bankruptcy Court or by a schedule of
assumed contracts (the "Schedule 6.2.1") to be filed by the Debtor no later than
ten days prior to the commencement of the Confirmation Hearing. To the extent
that executory contracts are rejected,
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claims arising from such rejection must be filed no later than 30 days following
the Plan's effective date (or earlier if the Bankruptcy Court or Bankruptcy Code
establishes an earlier deadline), and all such rejection claims will be
classified and treated within Classes C or D, to the extent allowed.
To the extent that Schedule 6.2.1 identifies a contract to be
assumed, such schedule will indicate whether the contract is to be assumed by
the reorganized Debtor (with respect to Hammer Assets) or by the Distribution
Estate (with respect to Non-Hammer Assets), and will identify the amount of any
monetary default that must be cured in order to effectuate such assumption. Any
party to a contract identified in such schedule who disputes the cure amount set
forth therein will be required to file and serve an objection thereto within
five Business Days following the Plan's confirmation, absent which any amount of
cure in excess of the amount set forth in said Schedule 6.2.1 will be deemed
discharged and barred. Payment of all allowed cure amounts will be made by the
assuming party (the reorganized Debtor or the Distribution Agent) on the Plan's
effective date, on such later date as such cure becomes due under applicable
terms, or when a final order determining the cure amount is entered, as to any
disputed portions of such cure amounts.
F. OTHER PROVISIONS
Parties in interest are urged to review the entire Plan fully and
carefully, particularly with respect to many details not fully addressed herein.
The following is a summary, but not a
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comprehensive listing, of some of the remaining details of the Plan
not described hereinabove:
- All causes of action owned by the Debtor prior to the
Plan's effective date shall be deemed fully preserved,
and except as to those causes of action relating to the
benefit or protection of Hammer Assets, all such causes
of action shall vest in the Distribution Agent as of the
Plan's effective date. It will be the Liquidation
Agent's responsibility, in consultation with the
Committee, to prosecute all such causes of action to the
extent beneficial to the Distribution Estate (Plan,
Sec. 7.6).
- The Preletz Group has agreed to invest in the reorganized
Debtor as described elsewhere herein with the proviso
that it may withdraw from that commitment, upon ten days'
notice, in the event of a material adverse change in the
operations or business of the Debtor's Hammer product
line prior to the Plan's effective date. The Plan
provides, in Section 7.2.3 and elsewhere, that in the
event of such withdrawal, the Plan will nonetheless
become effective and all assets of the estate, including
those that would otherwise have constituted Hammer
Assets, will vest in the Distribution Estate and will be
liquidated for the benefit of creditors (Plan,
Sec. 7.2.3).
- Section 11.5 of the Plan provides for noticing of certain
parties, including the Debtor, the Preletz Group, the
Committee and the Distribution Agent, and any notices
required by other provisions of the Plan will not be
considered complete unless the notice procedures of such
Section 11.5 have been satisfied (Plan, Sec. 11.5).
- Exhibit "A" attached to the Plan sets forth the meaning
of a number of defined terms of the Plan, and it is
important to review such definitions in order to fully
understand the ramifications of terms and conditions set
forth in the Plan (Plan, Ex. "A").
VI. CONFIRMATION PROCEDURE
A. SOLICITATION OF VOTES
In accordance with Section 1124 of the Bankruptcy Code, the Claims
and Interests in Classes C, D and E of the Plan are impaired. The holders of
Claims in Classes C and D are entitled to
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vote to accept or reject the Plan, and the holders of Interests are deemed to
have voted to reject the Plan. The holders of Allowed Claims in Classes A and B
are unimpaired, and are deemed to have accepted the Plan.
As to classes of claims entitled to vote on a plan, the Bankruptcy
Code defines acceptance of a plan by a class of creditors as acceptance by
holders of at least two-thirds in dollar amount and more than one-half in number
of the claims of that class that have timely voted to accept or reject a plan. A
vote may be disregarded if the Bankruptcy Court determines, after notice and a
hearing, that such acceptance or rejection was not solicited or procured in good
faith or in accordance with the provisions of the Bankruptcy Code.
Any creditor within Classes C or D (i) whose claim has been
listed by the Debtor in the Schedules filed with the Bankruptcy
Court (provided that such claim has not been scheduled as disputed,
contingent or unliquidated), or (ii) who filed a proof of claim
within any other applicable period of limitations, or with leave of
the Bankruptcy Court, which claim or vote is not the subject of an
objection, is entitled to vote.
B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has
been scheduled before the Honorable Dennis Montali, United States Bankruptcy
Judge at the United States Bankruptcy Court, 235 Pine Street, Courtroom 22,
San Francisco,
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California, at a date and time identified in a notice accompanying this
Disclosure Statement. The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice except for an announcement
of the adjourned date made at the Confirmation Hearing. Any objection to
confirmation must be made in writing and specify in detail the name and address
of the objector, all grounds for the objection and the amount of the Claim or
number of shares of stock of the Debtor held by the objector. Any such objection
must be filed and served in the manner and timing set forth in a notice
accompanying this Disclosure Statement.
C. CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will confirm the
Plan only if all of the requirements of Section 1129 of the Bankruptcy Code are
met. Among the requirements for confirmation of a plan are that the plan is (i)
accepted by all impaired classes of claims and equity interests or, if rejected
by an impaired class, that the plan "does not discriminate unfairly" and is
"fair and equitable" as to such class, (ii) feasible, and (iii) in the "best
interests" of creditors and stockholders which are impaired under the plan.
1. ACCEPTANCE. Classes C and D of the Plan are impaired under the
Plan and are entitled to vote to accept or reject the Plan. The Debtor reserves
the right to seek nonconsensual confirmation of the Plan under Section 1129(b)
of the Bankruptcy Code with respect to either such Class if it rejects the Plan.
In
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addition, as stated, Class E is deemed to have voted to reject the Plan, and
the Debtor will seek nonconsensual confirmation of the Plan under Section
1129(b) of the Bankruptcy Code with respect to that Class.
2. NONCONSENSUAL CONFIRMATION. In order to obtain nonconsensual
confirmation of the Plan, the Debtor must demonstrate to the Bankruptcy Court
that the Plan "does not discriminate unfairly" and is "fair and equitable" with
respect to each impaired, nonaccepting Class. The Bankruptcy Code provides
nonexclusive definitions of the term "fair and equitable," including the
following:
a. UNSECURED CREDITORS. For a class of unsecured claims,
either (i) each impaired unsecured creditor within the dissenting
class receives or retains under the plan property of a value equal to
the amount of its allowed claim, or (ii) the holders of claims and
interests that are junior to the claims of the dissenting class will
not receive or retain any property under the plan.
b. EQUITY INTERESTS. For classes of equity interests,
either (i) each holder of an equity interest will receive or retain
under the Plan the value or fixed preference or redemption price,
whichever is higher, or (ii) no classes of claims or interests junior
to such equity interests receive or retain any property under the
plan.
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The Debtor believes that the Plan and the treatment of all Classes of
Claims and Interests under the Plan satisfy the foregoing requirements for
nonconsensual confirmation of the Plan.
3. FEASIBILITY. The Bankruptcy Code also requires that, as a
prerequisite to confirmation of a plan, the plan proponent demonstrate that
confirmation is not likely to be followed by a liquidation or the need for
further financial reorganization, unless such liquidation or reorganization is
contemplated by the plan. As set forth in Section X(A) hereinbelow, the Debtor
believes that no liquidation or further reorganization, other than that which is
expressly contemplated by the Plan, will be required, and that the Plan
therefore satisfies the feasibility requirements of the Bankruptcy Code.
4. BEST INTERESTS TEST. The Bankruptcy Code also requires, as a
prerequisite to confirmation of a plan, that with respect to each impaired class
of claims or interests, each holder of a claim or interest either (i) accepts
the plan or (ii) receives or retains under the plan property of a value, as of
the effective date, that is not less than the amount that such holder would
receive or retain if the Debtor were liquidated under chapter 7 of the
Bankruptcy Code.
With respect to the Plan, Classes C, D and E are impaired, and the
Debtor believes that the Plan satisfies the foregoing "best interests" test as
to each such class. As set forth in Section X(B) hereinbelow, the Debtor
believes that in a chapter 7 liquidation of the Debtor's estate, there would
be no recovery at
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all for holders of equity interests (shareholders), and that the net
distribution to unsecured creditors would be less than is contemplated under the
terms of the Plan. Therefore, the Debtor believes that holders of Allowed Claims
within Classes C and D will likely receive greater distributions under the Plan
than they would in a chapter 7 liquidation, and that shareholders within Class E
will do no worse under the Plan than they would in a chapter 7 liquidation,
because they would receive no distribution in either event.
D. CONSUMMATION
Under the terms of the Plan, its provisions will become binding and
effective as of an Effective Date, as defined within Exhibit "A" attached to the
Plan. Pursuant to that definition, the Plan's effective date will occur within
30 days following the Plan's confirmation (or later in the event of a
Court-imposed stay of implementation), on a date jointly selected by the Debtor,
the Committee and the Preletz Group. The Debtor presently anticipates that the
Effective Date will occur prior to June 30, 1998.
VII. MANAGEMENT OF THE REORGANIZED DEBTOR
As of the Plan's effective date, the management, control and
operation of the reorganized Debtor will become the general responsibility of
its Board of Directors, subject to the governance provisions summarized in
Section X(B)(4) hereinabove. Senior management of the reorganized Debtor will be
subject to the following:
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A. COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the reorganized Debtor will consist
of five directors, including Michael O. Preletz (the Chief
Executive Officer of the Debtor), Chapman A. Stranahan (the
Debtor's Assistant C.E.O.) and other individuals to be selected.
As stated, the Preletz Group will be entitled to select, remove and
replace three of those five directors at all times during the first
three years following the Plan's effective date.
B. IDENTITY OF OFFICERS
It is currently anticipated that the present officers of the Debtor
will continue in their current positions as the officers of the reorganized
Debtor, at least initially. Set forth below is the name and position with the
Debtor of each current officer, together with a brief description of each
officer's employment history:
MICHAEL O. PRELETZ, CHIEF EXECUTIVE OFFICER. Mr. Preletz joined the
Debtor as a director and chief executive officer on March 24, 1997, following
the resignation of J. Larry Smart. Mr. Preletz has over 35 years of experience
as a successful turnaround expert for companies in the high technology industry.
He has held senior management positions with a number of companies and has
overseen the restructuring of Redcor (which later became Silicon General),
Magnuson Computer (which was later acquired by Storage Technologies), Zymed
Medical, Rexon Corporation, ADAC Laboratories, Visual Technology and Read-Rite
Corporation.
CHAPMAN A. STRANAHAN, PRESIDENT AND CHIEF OPERATING OFFICER. Mr.
Stranahan joined the Debtor in August 1997 as part of the
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restructuring team. Mr. Stranahan has over 20 years' experience in helping small
and mid-sized high technology companies grow and expand. He has held management
positions in the areas of sales and marketing, operations and quality control.
Prior to joining the Debtor, Mr. Stranahan held various positions with TRW
Semiconductors, Silicon General, Wangtek, Read-Rite Corporation, and most
recently with Technistar.
MARK R. KOZIOL, EXECUTIVE VICE PRESIDENT. Mr. Koziol joined the
Debtor in June 1997 as part of the turnaround team. Mr. Koziol currently is
responsible for sales and marketing, service and engineering. Mr. Koziol has
nearly 20 years' experience in the storage subsystem market. He has held
management positions in sales, marketing and engineering. Prior to joining the
Debtor, Mr. Koziol held various senior management positions with Unisys, Memorex
Telex, Storage Dimensions, and most recently with Sandisk Corporation.
GEORGE D. OLIVA, VICE PRESIDENT OF FINANCE AND ADMINISTRATION. Mr.
Oliva joined the Debtor in August 1997 as part of the turnaround team. Mr. Oliva
has over 10 years of experience in high growth, high technology public
companies. He has held a variety of senior financial positions, several of which
were within the disk drive or data storage industry. Prior to joining the
Debtor, Mr. Oliva held positions with Conner Peripherals, Read-Rite Corporation,
KLA Instruments, DSC Communications and Arthur Andersen & Company.
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C. COMPENSATION OF EXECUTIVE OFFICERS
Whereas no final determination has yet been made, it is presently
contemplated by the Debtor that the reorganized Debtor's executive officers will
receive the following annual salaries, exclusive of incentive bonuses and stock
option plans that may be implemented in accordance with the terms of Sections
8.1.4 and 8.1.5 of the Plan:
Michael O. Preletz $300,000
Chapman A. Stranahan $120,000
Mark R. Koziol $185,000
George D. Oliva $120,000
D. COMPENSATION OF DIRECTORS
Whereas no final determination has yet been made, it is presently
contemplated by the Debtor that the reorganized Debtor's outside directors
(i.e., those directors who are not also officers or employees of the Debtor),
will receive compensation equal to $1,500 for each meeting of the Board of
Directors which they attend, plus compensation at the rate of $100 per hour for
other services rendered, and that inside directors will receive no compensation
therefor other than the compensation agreed upon by the Debtor with respect to
their roles as officers or employees.
VIII. APPLICABILITY OF CERTAIN FEDERAL AND OTHER
SECURITIES LAWS TO THE REORGANIZED SHARES
DISTRIBUTED UNDER THE PLAN
The issuance of the Reorganized Shares under the Plan raises certain
securities law issues under the Bankruptcy Code and federal and state securities
laws which are discussed generally in this
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Section. This Section should not be considered applicable to all situations. ANY
RECIPIENT OF SECURITIES PURSUANT TO THE PLAN SHOULD SATISFY ITSELF THROUGH
CONSULTATION WITH ITS OWN LEGAL ADVISORS AS TO WHETHER OR NOT RESALES OR OTHER
TRANSACTIONS WITH RESPECT TO SECURITIES ISSUED PURSUANT TO THE PLAN ARE LAWFUL
UNDER THE FEDERAL AND STATE SECURITIES LAWS.
A. INITIAL ISSUANCE OF REORGANIZED SHARES
Section 1145 of the United States Bankruptcy Code ("Section 1145")
provides that the securities registration and/or licensing requirements of
federal and state securities laws do not apply to the offer or sale under a plan
of reorganization of a security of the debtor, or its successor (i) in exchange
for a claim against the debtor; or (ii) principally in such exchange and partly
for cash or property.
Section 11.2 of the Plan provides that the 3,500,000 Reorganized
Shares to be issued to the Distribution Estate pursuant to Section 8.1.1 of the
Plan (the "Creditors' Estate Shares"), as well as the subsequent distribution
from the Distribution Estate to various creditors pursuant to Section 5.2.4, and
the 2,000,000 Reorganized Shares to be issued to Participating Creditors
pursuant to Sections 8.1.2 and 8.2 of the Plan (the "Subscription Reorganized
Shares"), will be issued and distributed principally in exchange for the
discharge of, and in exchange for, claims against the Debtor and partly for
cash. Accordingly, the issuance of the Creditors' Estate Shares and the
Subscription Reorganized Shares
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will be exempt from the registration and/or licensing requirements of federal
and state securities laws pursuant to Section 1145.
However, the Plan provides that the other proposed issuances of
Reorganized Shares, as set forth in Sections 8.1(a), 8.1.3, 8.1.4 and 8.1.5 of
the Plan (namely, 2,000,000 shares to be issued to the Preletz Group (the
"Preletz Group Shares"), 2,500,000 shares to be issued to recipients of
"Employee Stock Options (the "Option Shares") and up to 10,000,000 additional
Reorganized Shares to be issued as options or in connection with new capital
investments by the Preletz Group or third parties (the "Additional Shares"))
will not be deemed to be exempt from registration and/or licensing pursuant to
Section 1145.
The Debtor believes that alternative exemptions from registration are
available for the proposed issuance of the Preletz Group Shares and the Option
Shares under the Plan. Furthermore, prior to issuance, the Reorganized Debtor
intends to confirm the availability of appropriate exemptions from registration
for the Additional Shares or seek registration of such Additional Shares, in the
discretion of management.
B. RESALE OF REORGANIZED SHARES
THE FOLLOWING DISCUSSION APPLIES TO THE RESALE OF REORGANIZED SHARES
THE INITIAL ISSUANCE OF WHICH WAS EXEMPT FROM REGISTRATION AND/OR LICENSING
PURSUANT TO SECTION 1145. ALL OTHER CATEGORIES OF RECIPIENTS OF REORGANIZED
SHARES WILL BE SUBJECT TO THE RESALE LIMITATIONS OF THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") AND/OR APPLICABLE STATE SECURITIES LAWS, AND
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SHOULD CONSULT THEIR OWN ADVISORS REGARDING THEIR ABILITY TO RESELL REORGANIZED
SHARES ISSUED BY THE REORGANIZED DEBTOR.
Any person who is not an underwriter within the meaning of Section
1145 of the Bankruptcy Code and who resells Reorganized Shares issued under the
Plan need not comply with the registration requirements of the Securities Act or
any state registration requirements. The term "underwriter," as used in Section
1145, includes four categories of persons, which are referred to in this Section
as (i) "controlling persons;" (ii) "accumulators;" (iii) "distributors;" and
(iv) "syndicators." The treatment of the four types of underwriters and the
treatment of dealers is discussed below.
1. CONTROLLING PERSONS. "Controlling persons" are persons who, after
the Effective Date, will have the power, directly or indirectly and formally or
informally, to control the management and policies of the Reorganized Debtor.
Whether a person has such power is a question of fact which depends on a number
of factors, including the person's equity in the Reorganized Debtor relative to
other equity holders, and whether the person, acting alone or in concert with
others, has a contractual or other relationship to the Reorganized Debtor giving
that person power over management policies and decisions. Any stockholder who
holds less than 10,000 shares or 1% of the shares of Reorganized Shares
outstanding or options to purchase less than 10,000 shares or 1% of the
aggregate amount of shares of Reorganized Shares outstanding upon exercise of
an option, as calculated in accordance with Rule 13d-3 of the
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Securities Exchange Act of 1934, as amended (the "Exchange Act"), generally
would not be deemed to control the Reorganized Debtor solely by reason of those
holdings.
If any stockholder's ownership percentage of the Reorganized Shares
calculated in this manner is between 1% and 10%, that stockholder may be deemed
to control the Reorganized Debtor, depending upon the facts and circumstances of
his or her particular situation. Such stockholder should seek the advice of his
or her own counsel before reselling any Reorganized Shares.
Controlling persons are permitted to resell or otherwise dispose of
Reorganized Shares only by complying with the registration requirements of the
Securities Act, and state "blue sky" laws or pursuant to an exemption therefrom.
In order to resell the Reorganized Shares without registration under the
Securities Act and without being deemed "underwriters," controlling persons may
rely on Rule 144 of the Securities Act ("Rule 144"), which provides a "safe
harbor" for the resale of restricted securities. To fall within the "safe
harbor," controlling persons must comply with the requirements, including the
holding period requirement, set forth in Rule 144.
2. ACCUMULATORS AND DISTRIBUTORS. "Accumulators" are persons who
purchase a claim against the debtor with a view to distribution of any
Reorganized Shares to be received under the Plan in exchange for such claim.
"Distributors" are persons who offer to sell Reorganized Shares for the holders
of such Reorganized Shares. In prior bankruptcy cases, the staff of the
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Securities and Exchange Commission (the "SEC") has taken the position that
resales by accumulators and distributors of securities distributed under a plan
are exempt from the registration requirements of the Securities Act if made in
ordinary trading transactions.(7)
3. SYNDICATORS. "Syndicators" are persons who offer to buy
Reorganized Shares from the holders with a view to distribution, under an
agreement made in connection with the Plan, with consummation of the Plan or
with the offer or sale of Reorganized Shares under the Plan. Resales by
syndicators of securities distributed under a plan may or may not be exempt from
the registration requirements of the Securities Act if made in ordinary trading
transactions. All syndicators should seek the advice of their own counsel before
reselling any Reorganized Shares received in the reorganization.
4. DEALERS. "Dealers" are persons who engage either for all or part
of their time, directly or indirectly, as agent, broker, or
- ----------
(7) A transaction is an ordinary trading transaction if it involves none of the
following: (1) concerted action by recipients of plan securities in connection
with the sale of plan securities, or concerted action on behalf of one or more
such recipients in connection with sales by distributors; (2) use of
informational documents concerning plan securities prepared or used to assist in
the resale of plan securities, other than a disclosure statement, supplements
thereto, if any, and documents filed with the SEC pursuant to the Exchange Act,
such as annual and quarterly reports on Form 10-K and Form 10-Q; and (3) special
compensation to brokers and dealers in connection with the sale of plan
securities designed as a special incentive to resell plan securities, other than
the compensation that would be paid pursuant to arm's length negotiations
between a seller and a broker or dealer, each acting unilaterally, not greater
than the compensation that would be paid for a routine sale of similar
securities of a similar issuer.
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principal in the business of offering, buying, selling or otherwise dealing or
trading in securities. The Debtor's market-makers typically would be considered
"Dealers" for this purpose. Section 4(3) of the Securities Act exempts
transactions in the Reorganized Shares by Dealers taking place more than 40 days
after the Effective Date. Within the 40-day period after the Effective Date,
transactions by Dealers who are stockbrokers are exempt from the Securities Act
pursuant to Section 1145(a)(4) of the Bankruptcy Code, as long as the
stockbrokers deliver a copy of the Debtor's Disclosure Statement at or before
the time of the transactions.
C. LIQUIDITY IN THE REORGANIZED SHARES
1. TRADING ON THE OTC. Currently, the Debtor believes it has
approximately ten market makers who have registered the Debtor's securities for
trading in the Over-the-Counter Market (the "OTC") on the "pink sheets" or the
electronic bulletin board of the National Association of Securities Dealers,
Inc. Although the securities that currently are trading on the OTC will be
canceled pursuant to the Plan, it is possible that market makers could request
that the Reorganized Shares be listed for trading on the OTC. Trading on the OTC
may provide limited liquidity to stockholders.
2. THE NASDAQ STOCK MARKET. The Debtor was delisted from the Nasdaq
National Market (the "NMS") as of the opening of the market on June 25, 1997.
Consequently, the Debtor must submit an application and meet the initial listing
criteria to be re-listed on the Nasdaq Stock Market.
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For listing on the NMS or the Nasdaq SmallCap Market, the Debtor must
meet various requirements, including, but not limited to: market capitalization,
total assets, total revenue test, net tangible assets, market value of public
float, minimum bid price, market maker and corporate governance requirements.
Additionally, Nasdaq generally will not allow a delisted company to be re-listed
without having filed at least one Annual Report on Form 10-K and two Quarterly
Reports on Form 10-Q.
Currently, the Debtor does not meet one or more of the NMS listing
criteria, and it is likely that the Reorganized Debtor will fail to meet one or
more of the listing criteria for the foreseeable future. Until such time as the
Reorganized Debtor meets such listing criteria and its shares are approved for
listing on a national securities exchange or the Nasdaq Stock Market,
stockholders will have limited liquidity.
D. HART-SCOTT-RODINO ACT REQUIREMENTS
Those that are to receive equity securities under the Plan may have
to observe the filing and waiting period requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"). Holders required to make HSR
Act filings cannot receive any such distribution of equity securities until the
expiration or early termination of the waiting periods under the HSR Act. Such
holders should consult their own counsel regarding their potential
responsibilities under the HSR Act.
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IX. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT
THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING
THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.
A. OVERALL RISKS TO RECOVERY UPON CLAIMS
The ultimate recoveries under the Plan to holders of claims (other
than those holders who are paid in cash under the Plan) depend upon the
realizable value of the Non-Hammer Assets to be sold pursuant to the Plan and
the Distribution Estate's Reorganized Shares, as well as the ultimate amount of
claims allowed. The securities to be issued pursuant to the Plan are subject to
a number of material risks, including, but not limited to, those specified
below. Prior to voting on the Plan, each holder of a claim entitled to vote
should carefully consider the risk factors specified or referred to below, the
exhibits annexed hereto, and all of the information contained in the Plan and
exhibits thereto.
B. PROJECTED FINANCIAL INFORMATION
The projected financial information included in this Disclosure
Statement is dependent upon the successful implementation of the business plan
upon which the projections are based, and upon the validity of other assumptions
contained
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therein. Those projections reflect numerous assumptions, including confirmation
and consummation of the Plan in accordance with its terms, the anticipated
future performance of the reorganized Debtor, industry performance, certain
assumptions with respect to competitors of the Debtor, the development of the
reorganized Debtor's products, general business and economic conditions, and
other matters, most of which are beyond the full control of the Debtor. In
addition, unanticipated events and circumstances occurring subsequent to the
preparation of the projections may affect the actual financial results of the
operations of the reorganized Debtor.
C. DIVIDEND POLICY
The reorganized Debtor does not anticipate that the reorganized
Debtor will pay any dividends upon the Reorganized Shares in the foreseeable
future. Certain institutional investors may only invest in dividend-paying
equity securities or may operate under other restrictions which may prohibit or
limit their ability to invest in the Reorganized Shares.
D. LIQUIDITY TO STOCKHOLDERS
It is unlikely that an active public market for the Reorganized
Shares will develop or be sustained upon emergence from bankruptcy. There is no
assurance that the company's market makers will request that the Reorganized
Shares be listed for trading on the OTC. In addition, there is no assurance as
to if or when the Reorganized Debtor will qualify for listing on the NMS or the
Nasdaq SmallCap Market.
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Even if the Reorganized Debtor were to meet listing criteria for the
NMS or the Nasdaq SmallCap Market, the Reorganized Shares would not be approved
for re-listing on the Nasdaq Stock Market without the Reorganized Debtor having
filed at least one Annual Report on Form 10-K and two Quarterly Reports on Form
10-Q in accordance with the Exchange Act. Due to the Debtor's financial
condition and the unavailability of certain financial information, the company
may be unable to complete an audit for the fiscal year ended March 28, 1997. As
a result, the Reorganized Debtor would be unable to file its Annual Report on
Form 10-K, and consequently would be ineligible for re-listing on the Nasdaq
Stock Market until such time as it were able to provide audited financial
statements covering at least two full fiscal years. In addition, the Reorganized
Debtor would be ineligible for short form registration under Form S-2 or Form
S-3, and unable to satisfy the current public information requirement of Rule
144. There is no assurance that the Reorganized Debtor will be able to obtain an
audit for the 1997 fiscal year, or that the Reorganized Debtor will be able to
obtain relief from the financial statement requirements of the Exchange Act.
Furthermore, there is no assurance that the SEC will not take enforcement action
against the Reorganized Debtor for failure to comply with financial statement
obligations under the Exchange Act.
Even if the Reorganized Shares were to become publicly traded, the
trading price could be subject to wide fluctuations in response
to variations in actual or anticipated quarterly operating results,
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announcements of technological innovations or new products by the Reorganized
Debtor or its competitors. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price of many high technology companies and which often have
been unrelated to the operating performance of these companies.
E. SUBSTANTIAL CONTROL BY OFFICERS,
DIRECTORS AND CERTAIN SHAREHOLDERS
Based upon the number of Reorganized Shares that will be outstanding
upon the Reorganized Debtor's emergence from bankruptcy, certain officers and
directors of the Reorganized Debtor, who may be deemed to be affiliates,(8) will
beneficially own in the aggregate approximately 35% of the outstanding
Reorganized Shares upon emergence from bankruptcy. As a result, the officers,
directors and affiliates of the Reorganized Debtor will retain substantial
voting power.
F. KEY PERSONNEL
The Debtor believes that its success will depend in large part upon
its ability to attract and retain highly skilled technical, managerial and sales
and marketing personnel, and to retain personnel with expertise in turnaround
companies. Competition for such personnel is intense, and the services of
qualified personnel are difficult to obtain or replace. The Debtor has from time
to time experienced difficulty in locating candidates with appropriate
- ----------
(8) An affiliate of an issuer is a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer.
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qualifications. There can be no assurance that the Debtor will be successful in
attracting and retaining the personnel required to conduct its operations
successfully.
X. PROJECTIONS AND LIQUIDATION ALTERNATIVES
Based upon the Debtor's best estimates of the future performance of
the reorganized Debtor's business, the prospects for liquidation proceeds of the
Debtor's various assets and review of claims asserted against the estate herein,
and in consultation with its financial advisors and counsel, the Debtor makes
the following estimates of future results of liquidation alternatives:
A. PROJECTED PERFORMANCE
The Debtor believes that the recapitalization and restructuring of
the reorganized Debtor's finances and operations under the terms of the Plan
will enable the company to achieve profitability and enhanced revenue over the
course of the first few years following the Plan's effective date. In
particular, the Debtor believes, based upon what it believes to be reasonable
assumptions of future events, that it will achieve revenues of approximately $12
million in 1998, $21 million in 1999, $36 million in 2000 and $82 million in
2001. During those same periods, the Debtor projects a net loss of $154,000 in
1998, and net income of $447,000 in 1999, $1,647,000 in 2000 and $9,011,000 in
2001. For the same periods, and based upon a beginning net equity of $1,300,000,
the Debtor projects net equity of $1,146,000 at the end of 1998, $6,594,000 at
the end of 1999 (assuming an infusion of
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approximately $5 million in additional capital in that year), $8,250,000 at the
end of 2000 and $17,261,000 at the end of 2001.
All such projections and estimates, together with the primary
assumptions upon which the projections are based, are set forth in EXHIBIT "C"
attached hereto, which has been prepared by the Debtor's financial advisors,
Hickey & Hill, Inc., in consultation with the Debtor's senior management. Hickey
& Hill, Inc. have advised the Debtor that in the event that the Debtor is able
to achieve the projected revenues and margins forecast by the Debtor's senior
management, and otherwise achieve the assumptions set forth in the projections,
such advisors believe that the reorganized Debtor will be able to accomplish the
aforementioned projections. The advisors have noted that the revenue growth
rates included in the projections are very aggressive and will require the
successful introduction of new products by the year 2000 in order to be
achieved, together with substantially improved profitability derived from the
growth in revenues.
In contrast to those projections, the Debtor's current operations are
not profitable, and produce revenues substantially below those forecast for the
reorganized Debtor. For example, as set forth in EXHIBIT "B" attached hereto,
the company's results for the month of October 1997 indicate gross revenues of
$979,128, and a net loss for the month of $166,335. The company's results for
the month of September 1997 indicate gross revenues of only $555,317, and a net
loss for the month of $228,584. Thus, on an annualized basis, the company's two
most recent months' results
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indicate annual gross revenues of only $9,206,670, and a net annual loss of
$2,369,514.
Nonetheless, the Debtor believes that its projected performance
following its reorganization is reasonable, and that the benefit that will be
derived from reorganization and recapitalization will permit the company to
achieve the milestones forecast therein. Therefore, to the extent that the
reorganized Debtor's future performance is a factor in determining the
feasibility of the Plan, the Debtor believes that the Plan is fully and
demonstrably feasible.
B. LIQUIDATION ALTERNATIVE
The Debtor believes that the only practical alternative for resolving
the Debtor's finances, other than reorganization under the Plan, is a
liquidation of all assets pursuant to the provisions of Chapter 7 of the
Bankruptcy Code. The Debtor believes that such an alternative would produce a
far less favorable outcome for creditors and other parties in interest.
In a Chapter 7 liquidation, a trustee would be appointed by the
United States Trustee in order to liquidate all of the estate's assets for a
fee, and creditors would receive the proceeds of that liquidation, on a pro-rata
basis, net of the costs of liquidation. In the view of the Debtor, the gross
proceeds of that liquidation would be less, and the costs of liquidation would
be greater, than under the terms of the Plan.
Under the Plan, the Non-Hammer Assets will be sold by the
Distribution Agent for the benefit of creditors, much as they would
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be liquidated by a Chapter 7 trustee. However, the Debtor believes that a
Chapter 7 trustee's fees would be substantially greater than those of the
Distribution Agent, inasmuch as the trustee would likely receive a percentage
(up to approximately 3 or 4 percent of gross proceeds), whereas a Distribution
Agent is expected to receive more modest fees based upon an hourly rate and
actual services rendered.
In addition, the Chapter 7 trustee would liquidate the Hammer Assets,
rather than receive stock in the reorganized Debtor as will the Distribution
Agent, and that substitution would diminish ultimate recoveries by creditors, in
the Debtor's view. As set forth in EXHIBIT "E," the Debtor's financial advisors,
Hickey & Hill, Inc., have opined that the liquidation of the Hammer Assets is
approximately $771,000, net of costs directly attributable to that liquidation.
Under the Plan, creditors will receive 3,500,000 shares of stock of the
reorganized Debtor; using the same per-share valuation at which the Preletz
Group and United Equities have agreed to purchase that stock, $0.325, those
3,500,000 shares have an imputed value of $1,137,500. Further, whereas the
shares may ultimately diminish in value, they may also increase substantially in
value, thereby providing to creditors an opportunity for appreciation. Based
upon the Debtor's projections of future performance, and assuming achievement of
such results, the Debtor believes that the reorganized Debtor's stock will have
a value materially higher than the aforementioned imputed value.
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Also, in a Chapter 7 liquidation, the claims against the estate would
likely be greater. Under the Plan, the reorganized Debtor will assume
potentially large warranty and product return rights with respect to the Hammer
product line, but in a liquidation, those claims would be asserted against the
estate, thereby increasing the overall claims against limited assets. In
addition, to the extent that the reorganized Debtor assumes and cures any
executory contracts or secured claims under the Plan, such assumption and cure
will reduce claims against the estate, whereas in a Chapter 7 liquidation, there
would be no offsetting assumptions. Further, under the Plan, the Distribution
Estate will benefit from free rent for a limited period of time and the free
services of management officials of the reorganized Debtor in order to assist in
disposing of estate assets, none of which would be available to the Trustee in a
Chapter 7 liquidation.
Finally, the Debtor believes that recoveries for creditors would be
delayed by a Chapter 7 liquidation, inasmuch as (a) new personnel, including the
trustee and professionals whom the trustee retained, would require some time to
familiarize themselves with the assets and circumstances of the Debtor's estate,
and (b) the necessity of liquidating the Hammer Assets as well as the Non-
Hammer Assets would increase the burden and slow the timing of the
administration of the Debtor's estate.
Attached as EXHIBITS "D" and "E" hereto are liquidation
analyses of the Non-Hammer Assets and the Hammer Assets, respectively,
prepared by Hickey & Hill, Inc. Together, the
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analyses indicate probable liquidation proceeds of all of the assets of the
estate herein in an aggregate amount of approximately $5,569,000, net of costs
directly attributable to liquidation efforts, but before the general
administrative expenses and other priority claims of the estate. Assuming the
same preference recoveries, administrative expenses and priority claims as
projected under the Plan, those liquidation proceeds would be reduced by
approximately $1,100,000, producing net funds available for unsecured creditors
of approximately $4,900,000 (including an estimated $400,000 in net preference
recoveries). The Debtor believes that in a Chapter 7 liquidation, allowable
claims would exceed $33 million, having been increased by additional warranty
and product defect and return claims, as well as additional executory contract
rejection claims. Assuming those amounts, the Debtor believes that unsecured
creditors would receive distributions of between 14 and 15 percent of their
allowable claims, and that shareholders would receive no distributions at all.
As set forth hereinbelow, the Debtor estimates recoveries available
for general unsecured creditors under the Plan to be approximately $5,216,500,
to be divided among a pool of a smaller amount of claims. Thus, the Debtor
believes that distributions to creditors under the Plan, estimated to be
approximately 17.10% of claims (without accounting for any depreciation or
appreciation in value of the reorganized Debtor's stock), will be greater than
distributions in a Chapter 7 liquidation would be.
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For all of the reasons set forth above, the Debtor believes that
recoveries for creditors under the Plan will be more favorable than that
outcome, and accordingly, the Debtor believes that the "best interests" test
described in Section VI(C)(4) hereinabove is satisfied by the terms of the Plan.
C. PROJECTED RECOVERIES
Attached hereto as EXHIBIT "F" are the Debtor's best estimates and
projections for recoveries available for distribution to creditors within Class
D, under the terms of the Plan. As set forth therein and in the notes which
accompany the projections, the Debtor believes that creditors will receive
approximately $5,216,500 in cash and shares of the reorganized Debtor (assuming
an imputed present value for the shares without accounting for any depreciation
or appreciation in the value of the reorganized Debtor's equity). Based thereon,
the Debtor believes that holders of allowed claims within Class D will receive
distributions equal to approximately 17.10 percent of their claims.
Those estimates do not include any amounts attributable to causes of
action that may be asserted against third parties, other than estimated
preference causes of action, and do not assume any costs in pursuing such causes
of action. Also, the projections are subject to all of the cautionary statements
contained elsewhere herein, including the prospect of material changes in
assumed facts and events. Finally, the projections do not take into account the
time value of money, or interest that may be earned, with respect
to funds held by the Distribution Estate. Nonetheless, the Debtor
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believes that the projections constitute reasonable estimates of recoveries for
creditors under the terms of the Plan.
XI. CONCLUSION AND RECOMMENDATION
The Debtor believes that confirmation and implementation of
the Plan is preferable to any alternative because it will provide the greatest
recoveries, in the shortest possible time, to creditors. The Debtor therefore
urges creditors entitled to vote on the Plan to vote to accept the Plan and to
evidence such acceptance by returning their ballots in a timely manner.
DATED: January 15, 1998
STREAMLOGIC CORPORATION, a Delaware
corporation
By: /s/ CHAPMAN A. STRANAHAN
-------------------------------------
Chapman A. Stranahan
Assistant Chief Executive Officer
Submitted By:
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
By: /s/ MERLE C. MEYERS, ESQ.
-----------------------------------
Merle C. Meyers, Esq.
Attorneys for Debtor-in-Possession
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EXHIBIT 99.3
ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION
<PAGE> 2
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #66849
KATHERINE D. RAY, ESQ. #121002
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Attorneys for Debtor-in-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Under Chapter 11
a Delaware corporation )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax I.D. No. 95-3093858 )
_____________________________)
ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION
The Debtor's First Amended Plan Of Reorganization (Dated January 15,
1998) (the "Plan"), was filed on January 15, 1998 by STREAMLOGIC CORPORATION, a
Delaware corporation formerly known as Micropolis Corporation and the
debtor-in-possession herein ("StreamLogic"), together with the Debtor's First
Amended Disclosure Statement (Dated January 15, 1998) (the "Disclosure
Statement").
The Disclosure Statement was approved by this Court under the
provisions of Section 1125 of the Bankruptcy Code, pursuant to an order of this
Court filed on January 15, 1998 (the "Disclosure
<PAGE> 3
Statement Order"), and was transmitted together with the Plan, ballots, a notice
and other documents (collectively, the "Plan Package") to StreamLogic's
creditors and equity security holders on January 23, 1998 in accordance with the
directives of such order.
Pursuant to the terms of the Disclosure Statement Order, and based
upon the mailing of the Plan Package on January 23, 1998, the deadline for the
filing of ballots and objections to confirmation of the Plan was established as
February 17, 1998. The only such objection filed by any party, either before or
after such deadline, was an objection filed by the United States Trustee. Both
StreamLogic and the Committee have filed responses to the United States
Trustee's objection. On February 25, 1998, StreamLogic filed with this Court all
ballots timely received, as well as a summary and analysis of such ballots and a
statement setting forth the Plan's compliance with all provisions of Section
1129 of the Bankruptcy Code.
During the course of the hearing regarding confirmation of the Plan,
StreamLogic has modified the Plan, in the manner set forth paragraph no. 2
hereinbelow. The Plan as so modified is referred to herein as the "Modified
Plan." The Official Committee of Unsecured Creditors appointed herein (the
"Committee") has stated its support for the Modified Plan, as it also did with
respect to the Plan. Unless otherwise defined herein, all capitalized terms used
herein shall have the meanings assigned to them in the Modified Plan.
A hearing was held before this Court on March 3, 1998 to consider
confirmation of the Modified Plan. Based thereon, upon the record of this Court
and upon this Court's findings of fact and
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conclusions of law set forth in the Findings Of Fact And Conclusions Of Law
Regarding Plan Of Reorganization filed by this Court concurrently herewith (the
"Findings and Conclusions"), and for good cause shown, and after due
consideration and deliberation,
NOW, THEREFORE, IT IS HEREBY ORDERED, DETERMINED, ADJUDGED AND
DECREED as follows:
1. To the extent that any objection to confirmation of the Plan has
not been withdrawn as to the Modified Plan prior to the date of the
entry of this Order, each such objection to the Modified Plan,
including without limitation the objection filed by the United States
Trustee, is overruled.
2. The Plan is hereby deemed modified, so as to become the Modified
Plan, in each of the following respects:
A. Section 9.4 of the Plan is modified so as to read in its
entirety as follows:
9.4 Immunity. (a) All actions taken before, on or
after the Effective Date by the Distribution Agent, the
Committee or any of their respective agents,
representatives, attorneys, advisors or accountants, as
contemplated under the terms of the Plan, shall be actions
within the scope of Sections 1103 and 1107 of the
Bankruptcy Code; (b) except for willful misconduct or gross
negligence, neither the Distribution Agent, the Committee,
their respective professionals, nor the Committee's members
(including United Equities, FWB Software, Inc., Network
Storage Solutions, Norwest Bank Minnesota, N.A., Seagate
Technology, Loomis, Sayles & Company, L.P. and Harris Trust
And Savings Bank) shall be determined liable to the
Distribution Estate or to any other person or party for any
action or omission taken or made in connection with the
Plan or its effectuation before, on or after the Effective
Date, and such parties may in good faith exercise or
refrain from exercising any right, duty or obligation
contemplated hereunder without challenge or recourse; and
(c) the Bankruptcy Court shall have and retain exclusive
jurisdiction (or non-exclusive jurisdiction to the extent
that the Bankruptcy Court permits such claims to be
maintained in other courts or tribunals) over any and all
claims asserted against any party with respect to any act
or omission taken or made
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in connection with the Plan or its effectuation at any
time.
B. Section 10.1 of the Plan (before subparts) is
modified so as to read in its entirety as follows:
10.1. Generally. Until the Chapter 11 Case has
been closed, and thereafter upon a motion to reopen the
case, the Bankruptcy Court shall have exclusive
jurisdiction (or non-exclusive jurisdiction, as to (i)
matters initiated by or on behalf of the Distribution
Estate, and (ii) matters which the Bankruptcy Court on
request permits to be maintained in other courts or
tribunals) of all matters concerning the allowance of
Claims and Interests, and the interpretation and
implementation of the Plan, pursuant to, and for the
purposes of, Sections 105(a) and 1142 of the Bankruptcy
Code, including without limitation the following
purposes: . . . .
C. Section 10.1(b) of the Plan is modified so as to
read in its entirety as follows:
(b) to determine any and all claims, causes of
action, adversary proceedings, applications and contested
matters which are pending on the Effective Date or which
are thereafter commenced by or related to the Distribution
Estate, and to order the examination of any entity in
connection with the property, claims, causes of action,
adversary proceedings, applications and contested matters
of the Distribution Estate in accordance with Rule 2004 of
the Federal Rules of Bankruptcy Procedure; D. In all other
respects, the Plan remains unchanged and without
modification.
3. Notwithstanding any language of the Modified Plan to the contrary,
(a) the United States Trustee need not file a claim for quarterly
fees which accrue under the provisions of Section 1930 of Title 28 of
the United States Code, which fees shall be paid in accordance with
the provisions of the Modified Plan notwithstanding the absence of
such a claim filing; and (b) any quarterly fees due and owing to the
United States Trustee pursuant to Section 1930 of Title 28 of the
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United States Code as of the Effective Date shall be paid by the
Reorganized Debtor on the Effective Date.
4. Pursuant to the provisions of Section 1129 of the Bankruptcy Code,
the Modified Plan shall be, and it hereby is, confirmed.
5. Except as otherwise provided herein or in the Modified Plan, in
accordance with the provisions of Section 1141(d) of the Bankruptcy
Code, subject to the occurrence of the Effective Date, the
Reorganized Debtor is hereby discharged of and from any and all debts
and claims that arose or hereafter arise before the Effective Date,
including, without limitation, any debt or claim of a kind specified
in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether
or not (a) a proof of claim based on such a debt is filed or deemed
filed under the provisions of Section 501 of the Bankruptcy Code, (b)
such claim is allowed under the provisions of Section 502 of the
Bankruptcy Code, or (c) the holder of such claim has accepted the
Modified Plan.
6. As of the Effective Date, except as otherwise provided in the
Modified Plan, in accordance with the provisions of Sections 1141(b)
and 1141(c) of the Bankruptcy Code, subject only to the occurrence of
the Effective Date, all Hammer Assets shall be, and they hereby are,
fully revested in the Reorganized Debtor and are free and clear of
all liens, debts, claims and interests of any person or entity and
holders of equity security interests, arising before the Effective
Date, except as set forth in the Modified Plan.
7. Except as otherwise provided in the Modified Plan
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and subject only to the occurrence of the Effective Date, any
judgment at any time obtained, to the extent that such judgment is a
determination of personal liability of StreamLogic with respect to
any debt or claim discharged hereunder shall be, and it hereby is,
rendered null and void.
8. Unless otherwise provided herein, all injunctions or stays
provided for in the chapter 11 case herein pursuant to Sections 105
or 362 of the Bankruptcy Code or otherwise extant on the date of
entry of this order shall remain in full force and effect until the
Effective Date of the Modified Plan.
9. The rights afforded in the Modified Plan, and the treatment of all
Claims and Interests set forth therein, shall be in full exchange
for, and in complete satisfaction, discharge and release of, all
Claims and Interests of any kind or nature whatsoever, whether known
or unknown, matured or contingent, liquidated or unliquidated,
existing, arising or accruing, whether or not yet due, prior to the
Effective Date, including without limitation any Claims, or interest
on Claims, accruing on or after the Petition Date, against
StreamLogic or its estate, or any assets or property thereof. Except
as, and to the extent, expressly provided in the Modified Plan or in
this order, at all times on and after the Effective Date, unless
Section 7.2.3 of the Modified Plan becomes operative due to a timely
and proper withdrawal by the Preletz Group, (a) all such Claims
against, and Interests in, StreamLogic or its estate shall be deemed
fully and finally satisfied, discharged and released; (b) all persons
shall be fully and finally barred, enjoined and precluded from
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asserting against StreamLogic, the Distribution Estate, or any of
their respective successors or assets, any Claims or Interests based
upon any act or omission, transaction, agreement, right, privilege,
duty, entitlement, obligation or other event or activity of any kind
or nature whatsoever that occurred prior to the Effective Date; and
(c) all Claims and Interests shall be fully and finally discharged
and deemed satisfied to the fullest extent permitted by the
provisions of Section 1141 of the Bankruptcy Code.
10. Except as otherwise provided in the Modified Plan and subject
only to the occurrence of the Effective Date, the commencement or
continuation of any action, the employment of any process, or any act
to collect, recover or offset any debt discharged hereunder as a
personal liability of the estate herein or of StreamLogic, or from or
against any property of the estate herein or of StreamLogic, is
hereby permanently enjoined, stayed and restrained. The Bankruptcy
Court shall have jurisdiction to determine and award damages for any
violation of the injunction provided for in the Modified Plan or in
this Order. Notwithstanding the foregoing, nothing in this Order
shall operate to enjoin any person from the commencement of an action
or doing of an act to enforce the liabilities or obligations to be
paid or performed under the Modified Plan, or to otherwise preserve
or protect its prospective rights and benefits under the Modified
Plan.
11. Subject only to the occurrence of the Effective Date, pursuant to
the provisions of Article VI of the Modified Plan and Sections 365
and 1123(b)(2) of the Bankruptcy Code,
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<PAGE> 9
and without further motion to or order of the Bankruptcy Court, (i)
the assumption and rejection of executory contracts and unexpired
leases as and to the extent provided by Section 6.2 of the Modified
Plan is hereby approved; (ii) the time pursuant to Section 365(d)(4)
of the Bankruptcy Code within which StreamLogic may assume or reject
the executory contracts specified in Section 6.2 of the Modified Plan
is hereby extended to the Effective Date; and (iii) all claims for
cure amounts arising from contracts and leases assumed prior to or as
a result of the Effective Date, other than cure amounts established
pursuant to the provisions of Section 6.3 of the Modified Plan, are
hereby disallowed.
12. Proof of any claim for breach of an executory contract or
unexpired lease rejected pursuant to Section 6.2 of the Modified Plan
be, and it hereby is, required to be served and filed with the Court
in the manner set forth in Section 6.6 of the Modified Plan, or it
shall then be barred and discharged. Objections to proofs of claim
for breach of an executory contract or unexpired lease rejected under
Section 6.2 shall be determined by the Bankruptcy Court as a core
proceeding under 28 U.S.C. Section 157(b).
13. All distributions of cash or other consideration required to be
made by the Distribution Agent pursuant to the terms of the Modified
Plan shall be made within the time provided by the Modified Plan and,
in the case of distributions of cash, shall be timely and proper if
(i) mailed by first class mail or delivered by hand on or before the
distribution dates set forth in the Modified Plan to the
8
<PAGE> 10
last known address of the persons entitled thereto, or (ii) payment
is made by wire transfer on or before the distribution dates set
forth in the Modified Plan.
14. StreamLogic, the Reorganized Debtor, the Committee, and the
Distribution Agent, and each of their respective officers, agents,
attorneys and representatives, shall be, and they hereby are,
authorized and empowered to issue, execute, deliver, file or record
any agreement, document or security, and take any action necessary or
appropriate, to implement, effectuate and consummate the Modified
Plan in accordance with its terms, including, without limitation, any
agreement, release or other document referenced in the Modified Plan,
without further application to, or order of, this Court.
15. StreamLogic, the Reorganized Debtor, the Committee, the
Distribution Agent, and each of their respective officers, agents,
attorneys and representatives, shall be, and they hereby are,
authorized to execute and file any and all documents necessary or
appropriate to effectuate or evidence any or all actions authorized
to be taken pursuant to the terms of the Modified Plan, and any or
all such documents shall be accepted by each of the respective State
filing offices and recorded in accordance with applicable State law,
and shall become effective in accordance with their terms and the
provisions of State law as of the Effective Date.
16. Subject to the occurrence of the Effective Date, the Modified
Plan and this Order shall bind StreamLogic, the Reorganized Debtor,
the Committee, the Distribution Agent, and all of their successors
and assigns, and shall bind any person
9
<PAGE> 11
or entity asserting a Claim against the Reorganized Debtor or
StreamLogic, or an Interest in the Reorganized Debtor, or
StreamLogic, whether or not such Claim or Interest is impaired under
the Modified Plan, whether or not the Claim or Interest arose before
or after the Petition Date and prior to the Effective Date, and
whether or not such person or entity has accepted the Modified Plan.
17. The Committee and the Distribution Agent are hereby authorized,
subject to the terms of the Modified Plan and without further order
of the Bankruptcy Court, to investigate, commence, enforce,
compromise, adjust, and prosecute certain claims, causes of action,
and objections to claims, as set forth in the Modified Plan, as to
which matters this Court shall retain jurisdiction under the Modified
Plan and this Order.
18. This Order shall constitute all approvals and consents required,
if any, by the laws, rules or regulations of any State or any other
governmental authority with respect to the implementation or
consummation of the Modified Plan, and any other documents,
instruments or agreements, and any amendments or codifications
thereto, and any other act referred to in or contemplated by the
Modified Plan, the Disclosure Statement and any other documents,
instruments or agreements, and any amendments or modifications
thereto.
19. Pursuant to the provisions of Section 1146(c) of the Bankruptcy
Code, the issuance, transfer or exchange of notes or equity
securities under the Modified Plan, the creation of any mortgage,
deed or trust or other security interest, the
10
<PAGE> 12
making or assignment of any lease or sublease, the sale or other
transfer of any assets by the Distribution Agent to a third party, or
the making or delivery of any deed or other instrument of transfer
under, in furtherance of, or in connection with the Modified Plan,
including any deeds, bills of sale or assignments executed in
connection with any of the transactions contemplated under the
Modified Plan, shall be, and they hereby are, exempt from any stamp,
real estate transfer, mortgage recording, sales or other similar tax.
20. Pursuant to the provisions of Section 1145(a) of the Bankruptcy
Code, and except with respect to underwriters as defined in Section
1145(c) of the Bankruptcy Code, the offer, sale, issuance and
distribution of shares of stock of the Reorganized Debtor under the
terms of Sections 5.2.4, 8.1.1, 8.1.2 or 8.2 of the Modified Plan,
are hereby deemed and determined to be fully exempt from, and
unaffected by, any of the provisions of Section 5 of the Securities
Act of 1933 and any State or local law requiring registration for
offer or sale of a security or registration or licensing of an issuer
of, underwriter of, or broker or dealer in, a security.
21. The issuance of Reorganized Shares under the terms of Sections
8.1(a), 8.1.3, 8.1.4 or 8.1.5 of the Modified Plan shall not be
deemed to be exempt from registration or licensing pursuant to the
terms of Section 1145(a) of the Bankruptcy Code.
22. Until the chapter 11 case herein is closed and a final decree is
entered pursuant to Bankruptcy Rule 3022, StreamLogic, the
Reorganized Debtor, the Committee, the
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<PAGE> 13
Distribution Agent, any creditor or any other party in interest may
commence an adversary proceeding, contested matter or application in
this Court with respect to any matter as to which jurisdiction has
been retained.
23. Until the entry of a final decree in this chapter 11 case, and
thereafter in the event of a reopening of the case, this Court shall
retain jurisdiction over this chapter 11 case for all purposes,
including those listed in Article X of the Modified Plan and to
enforce compliance with any orders of the type referred to in Section
1142 of the Bankruptcy Code.
24. The Effective Date shall occur on a date designated by
StreamLogic, the Committee and the Preletz Group, as set forth in
Paragraph AD of Exhibit "A" attached to the Modified Plan.
25. In accordance with Bankruptcy Rule 3020(c), as soon as
practicable after the Effective Date, the Distribution Agent shall
mail to all creditors, shareholders and other parties in interest who
received the Plan Package pursuant to the directives of the
Disclosure Statement Order, notice of (a) entry of this Order, (b)
the occurrence of the Effective Date, and (c) the deadlines
established by Sections 3.2 and 6.6 of the Modified Plan.
26. All Interests (including all shares of stock of StreamLogic,
warrants, options, Rescission Claims or other interests related
thereto) existing immediately before the Effective Date shall be, and
are hereby, deemed cancelled, terminated, released, discharged, void
and of no further force or effect as of the Effective Date. No
distribution shall be
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<PAGE> 14
made upon any Interests, and the holders of Interests shall receive
nothing under the terms of the Modified Plan.
DATED: March 3, 1998
/s/ Dennis Montali
------------------------------
THE HONORABLE DENNIS MONTALI
United States Bankruptcy Judge
* * * * * * * * *
The undersigned parties consent to the form of the foregoing order:
OFFICE OF THE UNITED STATES TRUSTEE
By: /s/ Stephen L. Johnson
------------------------------
Stephen L. Johnson, Esq.
Attorney-Advisor
MURRAY & MURRAY, A Professional Corporation
By: /s/ Patrick M. Costello
-------------------------------
Patrick M. Costello, Esq.
Attorneys for the Committee
13
<PAGE> 1
EXHIBIT 99.4
FINDINGS OF FACT AND CONCLUSIONS OF
LAW REGARDING PLAN OF REORGANIZATION
<PAGE> 2
GOLDBERG, STINNETT, MEYERS & DAVIS
A Professional Corporation
MERLE C. MEYERS, ESQ. #66849
KATHERINE D. RAY, ESQ. #121002
44 Montgomery Street, Suite 2900
San Francisco, California 94104
Telephone: (415) 362-5045
Attorneys for Debtor-in-Possession
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION
In re ) Case No. 97-32984 DM
)
STREAMLOGIC CORPORATION, ) Under Chapter 11
a Delaware corporation )
formerly known as )
Micropolis Corporation, )
)
Debtor. )
)
Tax I.D. No. 95-3093858 )
____________________________)
FINDINGS OF FACT AND CONCLUSIONS OF
LAW REGARDING PLAN OF REORGANIZATION
On March 3, 1998, this Court heard testimony and argument (the
"Confirmation Hearing") with respect to the Debtor's First Amended Plan Of
Reorganization (Dated January 15, 1998) (the "Plan"), filed on January 15, 1998
by STREAMLOGIC CORPORATION, a Delaware corporation formerly known as Micropolis
Corporation and the debtor-in-possession herein ("StreamLogic"), together with
the Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (the
"Disclosure Statement"), filed by StreamLogic and approved by this Court under
the provisions of Section 1125 of the Bankruptcy Code in an order filed on
January 15, 1998 (the
1
<PAGE> 3
"Disclosure Statement Order").
During the course of the Confirmation Hearing, StreamLogic modified
the Plan by making the modifications (the "Modifications") set forth in Exhibit
"A" attached hereto. Such Modifications produce the modified form of the Plan,
referred to herein as the "Modified Plan." The Official Committee of Unsecured
Creditors appointed herein (the "Committee") has stated its support for the
Modified Plan, as it also did with respect to the Plan. Unless otherwise defined
herein, all capitalized terms used herein shall have the meanings assigned to
them in the Modified Plan.
Only one objection to confirmation of the Plan has been filed, to
wit, the objection of the United States Trustee. Due notice of the Confirmation
Hearing and the time for filing ballots and objections to confirmation of the
Plan has been given to all parties in interest in accordance with the directives
of the Disclosure Statement Order and other applicable orders of this Court. The
Court has found that the form and scope of the notice of the Confirmation
Hearing were appropriate under the circumstances, that all parties in interest
had an opportunity to appear and be heard at the Confirmation Hearing, and that
the procedures by which ballots for acceptance or rejection of the Plan were
distributed and tabulated were fair and were properly conducted in accordance
with the directives of the Disclosure Statement Order and other applicable
orders of this Court.
During the course of the Confirmation Hearing, among other
appearances made as set forth in the record of this Court, the following
appearances were made: Merle C. Meyers, Esq. of Goldberg, Stinnett, Meyers &
Davis, A Professional Corporation
2
<PAGE> 4
appeared on behalf of StreamLogic; Patrick M. Costello, Esq. of Murray & Murray,
A Professional Corporation appeared on behalf of the Committee; Michael Z.
Brownstein, Esq. of Tenzer Greenblatt LLP appeared telephonically on behalf of
United Equities Company; and Stephen L. Johnson, Esq. appeared on behalf of the
United States Trustee. The Court has considered the United States Trustee's
objection to the confirmation of the Plan and the Modified Plan, the responses
thereto, and the evidence offered at the Confirmation Hearing. Based thereon and
on a review of pertinent documents within the Court's record, and for the
reasons stated in open Court as well as the reasoning set forth hereinbelow, and
for good cause shown, this Court hereby makes the following findings of fact and
conclusions of law pursuant to the provisions of Rules 7052 and 9014 of the
Federal Rules of Bankruptcy Procedure.(1)
FINDINGS OF FACT
The Court hereby finds that:
FINDING NO. 1. On June 26, 1997, StreamLogic filed its
voluntary petition under chapter 11 of the
Bankruptcy Code. During the chapter 11 case,
StreamLogic has been engaged in the development
and manufacture of information storage products
and systems. StreamLogic's executive office is
located in Newark, California.
FINDING NO. 2. Each person who has the right to receive
- --------
(1) To the extent that any stated finding of fact is more suitably a
conclusion of law, or a stated conclusion of law is more suitably a finding of
fact, it shall be deemed to be so.
3
<PAGE> 5
notice of the hearing on the adequacy of the
Disclosure Statement and/or notice of hearing on
confirmation of the Modified Plan has received
due, proper and adequate notice thereof. Based
upon the proofs of service filed herein and the
declarations filed in connection therewith, the
Court finds that notices to creditors, equity
interest holders and other parties in interest
were appropriate under the particular
circumstances of the case.
FINDING NO. 3. In proposing the Modified Plan, StreamLogic has
modified the Plan in the manner set forth in
Exhibit "A" attached hereto, which
Modifications are incorporated into and made
part of the Modified Plan.
FINDING NO. 4. Those modifications set forth in Exhibit
"A" do not adversely change the treatment of
the claim of any creditor or the interest of
any equity security interest holder, and such
modifications otherwise comply with the
provisions of Sections 1127(a), (c) and (d) of
the Bankruptcy Code. In particular, with
reference to the provisions of Section 1127(d)
of the Bankruptcy Code, there is no need to
require or allow creditors to change their
votes for acceptance or rejection based on the
Modifications contained in the Modified Plan.
FINDING NO. 5. The Modified Plan complies with all
4
<PAGE> 6
applicable provisions of the Bankruptcy Code,
including Section 1123(a), as set forth herein
and in the Debtor's Statement Of Satisfaction Of
Section 1129 Requirements And Request For
Confirmation, filed with this Court on February
25, 1998.
FINDING NO. 6. The Plan and the Modified Plan have been
proposed in good faith and not by any means
forbidden by law. StreamLogic solicited
acceptances of the Plan in good faith and in
accordance with the requirements of the
Disclosure Statement Order, the Bankruptcy Code
and the Bankruptcy Rules. There was no
evidence presented that solicitation of
acceptances occurred by any means inconsistent
with the Bankruptcy Code or Bankruptcy Rules or
the Disclosure Statement Order.
FINDING NO. 7. All payments made or to be made by
StreamLogic, or by any person issuing
securities or acquiring property under the
terms of the Modified Plan, for services or for
costs and expenses in or in connection with the
chapter 11 case herein (the "Chapter 11 Case"),
or in connection with the Modified Plan and
incident to the Chapter 11 Case, have been
approved, have been fully disclosed to the
Court and are reasonable or, if to be fixed
after confirmation of the Plan, will be subject
5
<PAGE> 7
to approval of the Court.
FINDING NO. 8. The identity, qualifications and
affiliations of the persons who are to be
directors and officers of StreamLogic after
confirmation of the Modified Plan have been fully
disclosed, and the appointment or continuance of
such persons in such offices is consistent with
the interests of creditors and equity security
holders of StreamLogic and with public policy.
The terms of such appointment or employment as
disclosed to the Court are reasonable.
FINDING NO. 9. The identity of any insider that will be
employed or retained by the reorganized debtor
following the effectiveness of the Modified
Plan (the "Reorganized Debtor"), and the nature
of such insider's compensation, has been fully
disclosed.
FINDING NO. 10. No governmental regulatory commission
has jurisdiction, after confirmation of the
Modified Plan, over the rates of StreamLogic.
FINDING NO. 11. With respect to each impaired class of
claims or equity security interests under the
terms of the Modified Plan, each holder of a
claim or equity security interest of such class
has accepted the Modified Plan or will receive
or retain under the Modified Plan property of a
value, as of the effective date of the Modified
6
<PAGE> 8
Plan (the "Effective Date"), that is not less
than the amount that such holder would receive or
retain if StreamLogic were liquidated under
chapter 7 of the Bankruptcy Code on such date.
FINDING NO. 12. No holder of an allowed secured claim
has made an election under Section 1111(b)(2)
of the Bankruptcy Code.
FINDING NO. 13. Claims within Classes A and B are not
impaired by the terms of the Modified Plan.
FINDING NO. 14. Claims and equity security interests
within Classes C, D and E are impaired by the
terms of the Modified Plan. Of those classes,
holders of claims within Classes C and D have
voted to accept the Plan, and, pursuant to the
provisions of Section 1127 of the Bankruptcy
Code, are deemed to have voted to accept the
Modified Plan.
FINDING NO. 15. The equity security interest holders
within Class E are deemed to have rejected the
Modified Plan under the provisions of Section
1126(g) of the Bankruptcy Code, because they
will receive or retain no property under the
terms of the Modified Plan. Pursuant to the
provisions of Section 1129(b)(1) of the
Bankruptcy Code, the Modified Plan may be
confirmed, as requested by StreamLogic,
notwithstanding rejection by Class E, because
the Modified Plan does not discriminate
7
<PAGE> 9
unfairly, and is fair and equitable, with
respect to claims within Class E.
FINDING NO. 16. All holders of claims and interests impaired
under the Modified Plan have been given
adequate opportunity to vote to accept or reject
the Modified Plan.
FINDING NO. 17. As set forth in the provisions of
Section 1129(b)(2)(C)(ii) of the Bankruptcy
Code, the Modified Plan is fair and equitable
with respect to its treatment of interests
within Class E, because no holders of interests
junior to Class E interests will receive or
retain any property under the terms of the
Modified Plan.
FINDING NO. 18. The Modified Plan satisfies the
provisions of Section 1129(a)(9) by providing
for full payment of all administrative and
priority claims on, or shortly after, the
Effective Date or when due, except as to
disputed claims, which will be paid as soon as
practicable after an order allowing the claim
becomes a final order.
FINDING NO. 19. At least one class of claims that is
impaired under the terms of the Modified Plan
has accepted the Modified Plan, determined
without including any acceptance of the
Modified Plan by any insider.
FINDING NO. 20. Confirmation of the Modified Plan is not
8
<PAGE> 10
likely to be followed by the liquidation, or
the need for further financial reorganization,
of the Reorganized Debtor.
FINDING NO. 21. All fees payable under Section 1930 of
title 28 of the United States Code have been
paid or the Modified Plan provides that they
will be paid in full under the terms of the
Modified Plan.
FINDING NO. 22. StreamLogic is not obligated to pay any
retiree benefits, as that term is defined by
the provisions of Section 1114(a) of the
Bankruptcy Code.
FINDING NO. 23. The Court finds that it is not the
principal purpose of the Modified Plan to avoid
taxes or to avoid the application of section 5
of the Securities Act of 1933.
FINDING NO. 24. Additional findings of fact were stated
orally by the Court and recorded in open court,
and those findings are incorporated by
reference as though each of them were set forth
in full herein.
FINDING NO. 25. Section 8.3.8 of the Modified Plan
provides that the Reorganized Debtor's charter
shall be revised so as to prohibit the issuance
of nonvoting equity securities to the extent
required by the provisions of Section
1123(a)(6) of the Bankruptcy Code.
9
<PAGE> 11
CONCLUSIONS OF LAW
The Court hereby concludes that:
CONCLUSION NO. 1. This Court has jurisdiction to approve and
confirm the Modified Plan pursuant to the provisions of 28 U.S.C.
Section 1334 and 157(a).
CONCLUSION NO. 2. Venue in the Northern District of California is
proper under 28 U.S.C. Section 1408.
CONCLUSION NO. 3. Confirmation of the Modified Plan is a core
proceeding pursuant to the provisions of 28 U.S.C. Section 157(b).
CONCLUSION NO. 4. The Modified Plan complies with all
applicable provisions of the Bankruptcy Code, and particularly all
applicable provisions of Sections 1129(a) and (b) of the Bankruptcy
Code, including without limitation the requirements of Section
1129(b)(2)(C)(ii) of the Bankruptcy Code.
CONCLUSION NO. 5. StreamLogic has complied with all applicable
provisions of the Bankruptcy Code, including the disclosure and solicitation
requirements of Section 1125 of the Bankruptcy Code, in proposing the Plan and
the Modified Plan.
CONCLUSION NO. 6. Notice of the hearing to consider confirmation of
the Modified Plan was reasonably calculated to reach affected parties, and was
fair, reasonable and appropriate under the circumstances of this case.
CONCLUSION NO. 7. The procedures used in receiving and tabulating
acceptances and rejections of the Plan and the Modified Plan comply with the
Disclosure Statement Order, the Bankruptcy
10
<PAGE> 12
Code and the Bankruptcy Rules.
DATED: March 3, 1998
/s/ Dennis Montali
-------------------------------
THE HONORABLE DENNIS MONTALI
United States Bankruptcy Judge
* * * * * * * * * *
The undersigned parties consent to the form of the foregoing findings
and conclusions:
OFFICE OF THE UNITED STATES TRUSTEE
By: /s/ Stephen L. Johnson
-----------------------------
Stephen L. Johnson, Esq.,
Attorney-Advisor
MURRAY & MURRAY, A Professional Corporation
By: /s/ Patrick M. Costello
------------------------------
Patrick M. Costello, Esq.
Attorneys for the Committee
11
<PAGE> 13
EXHIBIT "A"
The Modifications, as referenced in the preceding Findings Of Fact
And Conclusions Of Law Regarding Plan Of Reorganization (the "Findings"), are as
follows:
1. Section 9.4 of the Plan is modified so as to read in its entirety
as follows (with strike-outs reflecting deletions and underscoring reflecting
additions):
9.4 Immunity. (a) All actions taken before, on or after the
Effective Date by the Distribution Agent, the Committee or any of
their respective agents, representatives, attorneys, advisors or
accountants, as contemplated under the terms of the Plan, shall be
actions within the scope of Sections 1103 and 1107 of the Bankruptcy
Code; (b) except for willful misconduct or gross negligence, neither
the Distribution Agent, the Committee, their respective
professionals, nor the Committee's members (including United
Equities, FWB Software, Inc., Network Storage Solutions, Norwest Bank
Minnesota, N.A., Seagate Technology, Loomis, Sayles & Company, L.P.
and Harris Trust And Savings Bank) shall be determined liable to the
Distribution Estate or to any other person or party for any action or
omission taken or made in connection with the Plan or its
effectuation before, on or after the Effective Date, and such parties
may in good faith exercise or refrain from exercising any right, duty
or obligation contemplated hereunder without challenge or recourse;
and (c) the Bankruptcy Court shall have and retain exclusive
jurisdiction (or non-exclusive jurisdiction to the extent that the
Bankruptcy Court permits such claims to be maintained in other courts
or tribunals) over any and all claims asserted against any party with
respect to any act or omission taken or made in connection with the
Plan or its effectuation at any time.
2. Section 10.1 of the Plan (before subparts) is modified so as to
read in its entirety as follows (with underscoring reflecting additions):
10.1. Generally. Until the Chapter 11 Case has been
closed, and thereafter upon a motion to reopen the case, the
Bankruptcy Court shall have exclusive jurisdiction (or non-
exclusive jurisdiction, as to (i) matters initiated by or on
behalf of the Distribution Estate, and (ii) matters which the
Bankruptcy Court on request permits to be maintained in other
courts or tribunals) of all matters concerning the allowance
of Claims and Interests, and the interpretation and
implementation of the Plan, pursuant to, and for the purposes
of, Sections 105(a) and 1142 of the Bankruptcy Code, including
without limitation the following purposes: . . . .
i
<PAGE> 14
3. Section 10.1(b) of the Plan is modified, in order to clarify that
the Bankruptcy Court shall retain full jurisdiction in order to direct
examinations under Rule 2004 of the Federal Rules of Bankruptcy Procedure, in
the following manner (with underscoring reflecting additions):
(b) to determine any and all claims, causes of action,
adversary proceedings, applications and contested matters which are
pending on the Effective Date or which are thereafter commenced by or
related to the Distribution Estate, and to order the examination of
any entity in connection with the property, claims, causes of action,
adversary proceedings, applications and contested matters of the
Distribution Estate in accordance with Rule 2004 of the Federal Rules
of Bankruptcy Procedure;
4. In all other respects, the Plan remains unchanged and without
modification.
ii
<PAGE> 1
EXHIBIT 99.5
Press Release dated March 4, 1998
<PAGE> 2
STREAMLOGIC'S PLAN OF REORGANIZATION CONFIRMED
NEWARK, California (March 4, 1998)--StreamLogic Corporation
("StreamLogic" or the "Company"), today announced that the U.S. Bankruptcy Court
for the Northern District of California has confirmed StreamLogic's plan of
reorganization on March 3, 1998.
Commenting on the Bankruptcy Court's decision, Michael O. Preletz,
chief executive officer of the Company, said: "We are delighted by the decision
of the Bankruptcy Court. The confirmation of our plan marks an important step in
our financial restructuring and a new beginning for our company." Chapman
Stranahan, President of the Company, added, "We are pleased that this event is
behind us and we look forward to proceeding with the Company's core business and
improved sales and profitability."
Confirmation of the plan came at the conclusion of a hearing to
assure that all of the reorganization requirements had been met under the
Bankruptcy Code. The confirmation procedure included approval of the plan by the
requisite votes of creditors.
The confirmed plan will bring new capital to the Company through the
purchase of equity interests by senior management and certain creditors. In
addition, the Company will issue a portion of its new shares on behalf of
creditors in exchange for a release of claims. The plan also provides for the
distribution of proceeds from the sale of non-core assets and establishes a
distribution estate to pay claims.
It is expected that the plan of reorganization will become effective
on March 31, 1998 subject to, among other things, contributions of capital
contemplated by the plan. StreamLogic filed for Chapter 11 bankruptcy protection
on June 26, 1997.
Upon effectiveness, all existing shares of StreamLogic's stock will
be canceled and new shares will be issued. Because the Company's liabilities
significantly exceeded its assets, current StreamLogic shareholders will not
receive any equity or other interest in the reorganized entity.
Certain of the matters discussed in this press release constitute
forward-looking statements within the meaning of the securities laws. Actual
results could differ materially from those projected in such forward-looking
statements as a result of a variety of risks and uncertainties. Among others,
these risks and uncertainties include whether the plan is successfully
implemented, including the requisite contributions to capital; whether, if
implemented, the plan will enable the Company to become profitable and to
achieve the timely development and acceptance of its products; and the impact of
competitive products and pricing.
