-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlJ5xcykkk2gaqiGoFXBU7slMRk2ZdzFoQ3pkXRJhTk/xaFt4APxXRWky93goi/T qBuoPQQQBi6cdubbB9Sh/A== 0000898430-97-000381.txt : 19970221 0000898430-97-000381.hdr.sgml : 19970221 ACCESSION NUMBER: 0000898430-97-000381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970210 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STREAMLOGIC CORP CENTRAL INDEX KEY: 0000718865 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 953093858 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12046 FILM NUMBER: 97521307 BUSINESS ADDRESS: STREET 1: 21329 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187093300 MAIL ADDRESS: STREET 1: 21329 NORDHOFF STREET CITY: CHATSWORTH STATE: CA ZIP: 91311 FORMER COMPANY: FORMER CONFORMED NAME: MICROPOLIS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 1996 FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ________________________________________ (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 27, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________ Commission File Number: 0-12046 STREAMLOGIC CORPORATION ------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 95-3093858 --------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21329 Nordhoff Street, Chatsworth, California 91311 - ------------------------------------------------------------------------------ (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (818) 701-8400 -------------- Not Applicable - ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. January 31, 1997: 33,522,644 shares of Common Stock, $1.00 Par Value --------------------------------------------------------------------- STREAMLOGIC CORPORATION ----------------------- TABLE OF CONTENTS -----------------
Page Number ----------- PART 1. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets at December 27, 1996 and March 29, 1996 2 Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended December 27, 1996 and December 29, 1995 3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 27, 1996 and December 29, 1995 4 Notes to Condensed Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1 Legal Proceedings 13 Item 3 Defaults Upon Senior Securities 13 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other 14 Item 6 Exhibit and Reports on Form 8-K 14
-1- PART I- FINANCIAL INFORMATION ----------------------------- STREAMLOGIC CORPORATION ----------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share amounts)
December 27, March 29, 1996 1996 ------------ --------- (Unaudited) ASSETS - ------ Current assets: Cash, cash equivalents and short- $ 9,783 $ 40,477 term investments Accounts receivable, net 6,754 19,139 Receivable from Singapore Technologies - 13,966 Inventories 13,697 10,022 Other current assets 2,150 1,033 --------- --------- Total current assets 32,384 84,637 --------- --------- Property, plant and equipment, at cost, less accumulated depreciation and amortization 6,258 5,850 Investments 6,023 - Intangibles 5,029 1,152 Other assets 95 744 --------- --------- $ 49,789 $ 92,383 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Revolving Credit Facility $ 3,575 $ - 10% Subordinated Notes - 20,000 Current maturities of long term debt 645 3,750 Accounts payable 6,819 8,610 Other accrued liabilities 14,546 14,137 --------- --------- Total current liabilities 25,585 46,497 6% Convertible Subordinated Debentures due 2012 4,789 71,250 Increasing Rate Unsecured Notes 7,957 - Other Long Term Debt 625 - Deferred income taxes 1,720 1,720 Shareholders' equity: Preferred stock, $1.00 par value, 2,000,000 shares authorized, none issued - - Common stock, $1.00 par value, 50,000,000 shares authorized; 33,522,644 shares issued and outstanding (15,580,413 in March 1996) 33,523 15,580 Additional paid-in capital 125,982 112,330 Accumulated deficit (150,392) (154,994) --------- --------- Total shareholders' equity (deficit) 9,113 (27,084) --------- --------- $ 49,789 $ 92,383 ========= =========
See accompanying notes. -2- STREAMLOGIC CORPORATION ----------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended -------------------------------- ------------------------------------ December 27, December 29, December 27, December 29, 1996 1995 1996 1995 ------------ ------------ -------------- --------------- (Unaudited) Net sales $ 11,844 $ 41,504 $ 35,980 $ 170,365 Cost of sales 9,827 44,859 32,295 155,860 -------- -------- -------- --------- Gross margin 2,017 (3,355) 3,685 14,505 -------- -------- -------- --------- Operating expenses: Research and development 2,638 9,545 8,707 29,042 Selling, general and administrative 3,767 10,981 10,911 31,103 In-process research and development - - 1,370 - Restructuring charges 733 - 733 - -------- -------- -------- --------- Total operating expenses 7,138 20,526 21,721 60,145 -------- -------- -------- --------- Loss from operations (5,121) (23,881) (18,036) (45,640) Interest expense (174) (1,828) (2,743) (4,628) Interest income 250 381 993 1,172 -------- -------- -------- --------- Loss before income taxes (5,045) (25,328) (19,786) (49,096) Income tax provision (benefit) 50 48 60 105 -------- -------- -------- --------- Loss before extraordinary item (5,095) (25,376) (19,846) (49,201) Extraordinary item 24,448 - 24,448 - -------- -------- -------- --------- Net income (loss) $ 19,353 $(25,376) $ 4,602 $ (49,201) ======== ======== ======== ========= Per Share Data: Loss before extraordinary item $ (0.21) $(1.63) $(1.06) $(3.18) Extraordinary item 1.02 - 1.30 - -------- -------- -------- --------- Net income (loss) $ .81 $(1.63) $0.24 $(3.18) ======== ======== ======== ========= Weighted average common and common equivalent shares outstanding 23,826 15,568 18,788 15,485 ======== ======== ======== =========
See accompanying notes. -3- STREAMLOGIC CORPORATION ------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (In thousands)
Nine Months Ended ------------------------------------ December 27, December 29, 1996 1995 ------------ ------------ (Unaudited) Cash flows from operating activities: Net income (loss) $ 4,602 $ (49,201) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,746 15,286 Write off in-process research and development 1,370 - (Gain) loss on disposal of fixed assets - (484) (Gain) loss on extraordinary item (24,448) - Deferred income taxes - 445 Increase (decrease) from changes in: Accounts receivable 14,823 (5,965) Inventories (256) 5,708 Other current assets (429) 691 Other assets 85 (68) Accounts payable and other accrued liabilities (8,575) (1,410) ------------ ---------- Net cash used in operating activities (11,082) (34,998) Cash flows from investing activities: Investment in Concentric Network Corporation (2,500) - Net change in short-term investments 21,034 (1,905) Proceeds from sale of drive business 13,966 - Proceeds from sale of equipment - 16 Additions to property, plant and equipment (567) (24,368) Other assets 564 - Acquisition of FWB hardware business (5,750) - ------------ ---------- Net cash provided by (used in) investing activities 26,747 (26,257) Cash flows from financing activities: Proceeds from credit facility 3,575 - Increase (decrease) in 10% subordinated notes (20,000) 20,000 Increase in Term Loan Facility - 18,520 Cash in Exchange for 6% CSD's (8,425) - Costs and fees to exchange 6% CSD's (973) - Proceeds from sale of common stock, net 498 1,430 ------------ ---------- Net cash provided by (used in) financing activities (25,325) 39,950 Net decrease in cash and equivalents (9,660) (21,305) Cash and equivalents at beginning of period 15,443 35,959 ------------ ---------- Cash and equivalents at end of period 5,783 14,654 Short-term investments 4,000 13,242 ------------ ---------- Total cash, cash equivalents and short-term investments $ 9,783 $ 27,896 ============ ========== Supplemental cash flow information Interest payments $ 183 $ 3,352 Income tax payments $ 337 $ 503
See accompanying notes -4- STREAMLOGIC CORPORATION ----------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- DECEMBER 27, 1996 ----------------- (Unaudited) NOTE 1. General - ----------------- The accompanying condensed consolidated financial statements have not been audited by independent auditors but, in the opinion of the Company, such unaudited statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the consolidated financial position as of December 27, 1996, and the consolidated results of operations for the three and nine month periods ended December 27, 1996 and December 29, 1995 and cash flows for the nine month periods ended December 27, 1996 and December 29, 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Nevertheless, the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading. Interim results are not necessarily indicative of the results for the full fiscal year. On May 13, 1996 the Company elected to change its fiscal year from the last Friday in December to the last Friday in March beginning with March 1996. The Company has elected to disclose the consolidated results of operations and cash flows for the three and nine month periods ended December 27, 1996 in comparative form with the three and nine month periods ended December 29, 1995, because it believes comparability is improved. The three and nine month periods ended December 27, 1996 exclude the results of operations of the hard disk drive business operated under the name "Micropolis Corporation" and sold by the Company as of March 29, 1996. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the three month transition period ended March 29,1996 filed with the Securities and Exchange Commission. NOTE 2. Inventories - -------------------- Inventories are stated at the lower of standard cost, which approximates first-in, first-out, or market:
December 27, March 29, 1996 1996 ------------ --------- (In thousands) Raw materials and purchased parts $ 7,086 $ 4,564 Work in process 2,513 1,487 Finished goods 4,098 3,971 ------- -------- $13,697 $ 10,022 ======= ========
NOTE 3. Per Share Information - ------------------------------ Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock and applicable common stock equivalents when dilutive outstanding during the period. Primary and fully diluted income (loss) per share are the same. -5- NOTE 4. Acquisition of FWB Inc. - ------------------------------- Effective July 1, 1996 the Company purchased all of the net assets related to the hardware business of FWB Software Inc., ("FWB") a developer of performance computer storage products for pre-press, multi-media and graphics applications. In addition, the Company made an 11% equity investment in the software business being retained by FWB Software Inc. In consideration for such net assets and minority equity investment, at closing the Company paid cash of approximately $5 million and issued 1,256,123 shares of StreamLogic Common Stock. Pursuant to such agreement, FWB was to receive additional shares or return shares of StreamLogic Common Stock such that the market value (based on the average price as defined in the Operating Agreement of FWB Software, LLC) of the shares contributed to FWB would be equal to $7.5 million, such adjustment to have occurred on October 29, 1996. Since the average price of the Company's common stock during the defined period was approximately $1.73, such adjustment would have required the issuance of approximately 3,079,000 additional shares of StreamLogic Common Stock to FWB which issuance, if made, would have contravened the terms of the agreement relating to the offer to exchange discussed in Note 5, as well as certain Nasdaq rules relating to the issuance of 20% or greater of an issuer's outstanding common stock. The Company did not issue such additional shares to FWB on October 29, 1996, and on November 1, 1996 reached an agreement with FWB whereby the Company issued to FWB 1,380,000 additional shares of Common Stock, a $1.25 million promissory note bearing interest at Bank of America's reference rate plus 2% due November 1998 and secured by the Company's equity interest in FWB Software LLC, and paid to FWB $500,000 in cash. In addition, the Company's equity interest in FWB Software LLC was reduced from 11% to 7.5%. The total consideration paid for the net assets related to the hardware business of FWB and investment in FWB Software LLC, including costs of acquisition, was approximately $8.0 million and $3.3 million, respectively. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values and the results of operations of the hardware business of FWB are included in the accompanying statements of operations from the date of acquisition. The purchase price plus costs directly attributable to the completion of the acquisition have been allocated to the assets and liabilities acquired. Approximately $1.4 million of the total purchase price represented the value of in-process research and development that had not yet reached technological feasibility and was charged to the Company's operations during the quarter ended September 27, 1996. The investment in FWB Software LLC is being accounted for at cost. The allocation of purchase price among the identified tangible and intangible assets of the hardware business, including developed technology, trademarks, customer lists and assembled workforce is based on management estimates and an independent valuation study completed during the quarter ended December 27, 1996. Note 5. Investment in Concentric Network Corporation - ----------------------------------------------------- On September 18, 1996 the Company purchased $2.5 million of Concentric Network Corporation ("CNC") Series D Preferred Stock. The Preferred Stock Purchase Agreement, originally dated August 21, 1996, included certain other institutional purchasers of the preferred shares. CNC, based in Cupertino, California, is a provider of virtual private networks, intranet customized consumer applications and is one of the largest gateways to the Internet. Founded in 1991, CNC is privately held. The purchase is accounted for as an investment and is carried at cost on the Company's balance sheet. -6- Note 6. Exchange Offer - ----------------------- On June 14, 1996 the Company entered into an agreement (the "Initial Tender Agreement") with Loomis Sayles & Company, L.P. ("Loomis Sayles"), an entity which advises investors that collectively hold approximately 79% of the Company's outstanding $75 million issue of 6% Convertible Subordinated Debentures ("Debentures") to exchange its Debentures for a package of cash and securities of the Company. On September 13, 1996, the Company announced an amendment to the Initial Tender Agreement (the "First Amendment"), and on October 4, 1996 the Company announced a second amendment to the Initial Tender Agreement (the "Second Amendment"; the Initial Tender Agreement, as amended by both the First Amendment and the Second Amendment, is referred to as the "Tender Agreement"). Pursuant to the Tender Agreement, the Company commenced a tender offer for the Debentures on October 7, 1996. In the tender offer, the Company offered to exchange its Debentures such that, for each $1,000 face amount of Debentures tendered, the holders will receive (a) $120 in cash, (b) $113.33 in increasing rate unsecured promissory notes, (c) 216.66667 shares of StreamLogic Common Stock, and (d) warrants to purchase 40 shares of StreamLogic Common Stock at an initial exercise price of $3.60 per share of Common Stock. The exercise price of the warrants is subject to downward adjustment in certain circumstances, and contains antidilution adjustments. The approval of the Company's shareholders was required pursuant to Nasdaq rules and regulations. Holders of 93.61% of the outstanding Debentures accepted the exchange. The Company subsequently has exchanged the tendered Debentures for approximately (a) $8.4 million in cash, (b) $8 million in unsecured promissory notes due 1998, (c) 15.2 million shares of common stock, and (d) warrants to purchase 2.8 million shares of common stock. As a result, the transaction increased the Company's net tangible assets by $51 million, previously estimated to be $51.6 million in the Company's 8-K report filed on November 21, 1996. The transaction resulted in an extraordinary gain of $24.4 million in the quarter ended December 27, 1996 as set forth below (in thousands): Face Value of Debentures tendered $ 70,211 Cash consideration (8,425) Promissory Notes Issued (7,957) Accrued Interest on Promissory Notes (2,387) Reversal of Accrued Interest on Debentures 2,516 Value of Common Stock Issued (at $1.56 per share) (23,731) Transaction Fees and Expenses (1,548) Charge off unamortized bond issuance costs (1,123) Fair Market Value of Warrants Issued (2,808) Other (300) -------- Extraordinary Gain $ 24,448 ========
The tax effect of the extraordinary gain is minimal due to the utilization of net operating loss carryforwards. However, the Exchange Offer also resulted in a change of ownership as defined under Section 382 of the Internal Revenue Service ("IRS") regulations, and the Company's ability to utilize its net operating loss carryforwards in subsequent periods will be substantially limited. -7- NOTE 7. Litigation - -------------------- On December 23, 1996 the Company announced filing suit in New York seeking a declaratory judgment invalidating a purported acceleration of the remaining $4.8 million of the company's 6% Convertible Subordinated Debentures left outstanding after the company's recently completed exchange offer. In the exchange offer, StreamLogic retired approximately $70.2 million aggregate principal amount of the $75 million of Debentures originally issued. The consideration given by StreamLogic for Debentures tendered in the exchange offer included consideration for the interest payment otherwise due on September 15, 1996. United Equities Company ("United Equities"), which purports to be a continuing debenture holder and to represent other continuing debenture holders, has sought to have the interest and principal on the remaining $4.8 million of Debentures declared due and payable immediately. StreamLogic believes that the trustee for the Debentures had on deposit sufficient funds to pay the interest that had been due on September 15 (together with interest on such interest) at the time of their acceleration demand and that the demand was ineffective. On December 27, 1996 the trustee distributed the amount originally due on September 15 (together with interest on such amount) to Debenture holders of record on December 26, 1996. On January 13, 1997, United Equities answered the Company's complaint and counterclaimed seeking a declaratory judgment that United Equities had properly and timely invoked the acceleration provisions of the indenture governing the Debentures. On February 5, 1997, the Company replied to the counterclaim contained in the answer of defendant United Equities. The Company generally denied United Equities' allegations, asserted various affirmative defenses and requested judgment in favor of StreamLogic. The Company intends to continue to pursue the litigation vigorously. NOTE 8. Cash and Liquidity - ---------------------------- The Company anticipates that cash used in operations during the fourth fiscal quarter of 1997 will amount to $2-$4 million principally as a result of continuing operating losses. The actual amount will depend upon the results of the Company's efforts to reduce its losses by decreasing expenses and reducing costs, and its plans to decrease inventories to generate cash and fund the anticipated loss for the quarter. The Company is also working to sell assets not anticipated to be required after the consolidation to Northern California in the first quarter of fiscal 1998, and to raise additional financing. While the Company believes it has sufficient financial resources to meet its short term financial needs, should internal financial plans and objectives not be met, including the sale of certain assets and planned reductions in inventories, the Company will require additional financing to continue operations. While the Company currently believes such financing may be obtainable from sources it is currently in discussions with, there can be no assurance as to the terms on which it would be available, if at all. MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Results of Operations - --------------------- Three Months Ended December 27, 1996 Compared to Three Months Ended December 29, - -------------------------------------------------------------------------------- 1995 - ---- Net sales decreased 71.5% to $11.8 million in the December 1996 quarter as compared to $41.5 million in the December 1995 quarter. The decline in revenues was due to the sale of the hard disk drive business by the Company as of March 29, 1996. The December 1996 quarter was the second period for which the Company's results of operations included those of the FWB Hammer hardware business purchased from FWB Software, Inc. effective July 1, 1996. The Hammer hardware lines accounted for approximately $5 million in revenue to the Company for the December 1996 quarter. Revenue for the December 1996 quarter included that of the Company's RAIDION family of high-performance and fault-tolerant RAID solutions, the Hammer high-performance storage products and the VIDEON family of video server systems. Such December 1996 quarter revenues for the RAIDION and VIDEON products decreased by 27% from those of the December 1995 quarter. Such decline was largely attributable to the decline in sales of the Microdisk family of external, modular storage sub-systems, and to a lesser extent, a decline in the sales of video servers. The decline in Microdisk revenues accounted for 84% of the total decline from the year ago period. Management has de-emphasized sales of this product by holding price to achieve better gross margins. Cost of sales as a percent of sales decreased to 83% in the December 1996 quarter from 108% in the December 1995 quarter, resulting in a gross margin of 17% in the 1996 quarter, as -8- compared to -8% in the December 1995 quarter. The increase in margin during the 1996 quarter was a result the elimination of negative gross margins associated with the costs of the Company's previous disk drive business. The drive business had high fixed costs associated with maintaining manufacturing locations in Thailand, Singapore and the U.S. In the December 1995 quarter, the Company was operating at less than 50% of capacity and also continued to experience high warranty costs associated with the Javelin family of hard disk drives. During the December 1996 quarter, the Company's business consisted entirely of sub- systems, with drives being purchased as one component of the system. Research and development expenses were 22.3% of sales in the December 1996 quarter, as compared to 23.0% in the December 1995 quarter. The percentage decrease is due to a substantial decrease in expense of $8.3 million, largely offset by lower sales. The decrease in expense was the result of the sale of the hard disk drive business by the Company as of March 29, 1996, the termination of the Company's funding of the costs incurred by Tulip Memory Systems, Inc., a start-up company formed to develop substrates which are to be used in the manufacture of computer disk drives, and a reduction in force of engineering employees during September 1996 at the Company's Chatsworth location. Research and development expense of $2.6 million incurred in the December 1996 quarter was for the Company's RAIDION family of high-performance and fault-tolerant RAID solutions, the Hammer high-performance storage products and the VIDEON family of video server and disk recorder systems. Research and development expense for the RAIDION and VIDEON products amounted to approximately $3.4 million in the December 1995 quarter. The decrease of $790,000 is largely attributable a reduction in engineering headcount at the Company's Chatsworth, California facility. Selling, general and administrative expenses were 32% of sales in the December 1996 quarter, as compared to 26.5% in the December 1995 quarter. The percentage increase is the result of lower sales, offset by a decrease in expense of $7.2 million. The decrease in expense was the result of the sale of the hard disk drive business by the Company as of March 29, 1996, and offset partially by selling, general and administrative expenses to support the Hammer product lines. Restructuring charges in the December 1996 quarter of $.7 million consisted primarily of charges related to the exit costs associated with the Company's decision to consolidate operations in Northern California, and substantially shut-down operations at Chatsworth, California. As a result of that plan, certain items no longer had future economic value and certain incremental costs are estimated to be incurred. The Company accounted for such effects under generally accepted accounting principles, in particular EITF-94-3 and other applicable guidelines. Under the applicable accounting rules, other costs related to the move to Northern California which are anticipated to occur in the future will be recorded on the Company's books and records as they are actually incurred. The Company currently estimates that such additional charges will amount to approximately $1.0 million. Excluding restructuring charges, total operating expenses were $6.4 million for the December 1996 quarter. The cash flow effect of the total estimated restructuring charges of $1.7 million is currently estimated to be $1.5 million. The actual amount of the restructuring charges will depend on future events and may be materially different that the amount set forth above, in particular as it relates to individual employee decisions to relocate to the Bay area, and the actual costs of such moves. The Company has extended a limited number of relocation offers to certain employees and has provided written relocation plans governing the expenses the Company will reimburse. The above estimates have been based in part on management's judgment about the number of employees who will relocate, and statistical information about the typical cost of similar moves. Interest expense was $174,000 in the December 1996 quarter (1.5% of sales) as compared to $1.8 million in the December 1995 quarter (4.3% of sales). The decrease in interest expense was the result of the reduction in debt associated with the successful consummation of the Exchange Offer described further in Note 6 to the financial statements. As part of the required -9- accounting for that transaction, all interest expected to be paid over the life of the increasing rate unsecured promissory notes was recorded as a reduction of the gain on the exchange. As a result, accrued interest expense directly related to those notes will not be reflected as interest expense on the Company's Statement of Operations. Interest income was $250,000 in the December 1996 quarter as compared to $381,000 in the December 1995 quarter. Extraordinary item of $24.4 million in the December 1996 period consisted of the gain on the exchange of the Company's 6% Convertible Subordinated Debentures due 2012. As a result of this transaction, $70.2 million of such debentures were irrevocably tendered and exchanged for a package of cash, common stock, promissory notes, and warrants to purchase common stock. As a result of the above, loss before income taxes was $5.0 million in the December 1996 quarter as compared to $25.3 million in the December 1995 quarter. Loss before extraordinary item was $5.1 million in the December 1996 quarter as compared to $25.4 million in the December quarter. Net income after extraordinary item for the December 1996 quarter was $19.3 million compared to a net loss of $25.4 million in the December 1995 quarter. Nine Months Ended December 27, 1996 Compared to Nine Months Ended December 29, - ------------------------------------------------------------------------------ 1995 - ---- Net sales decreased 78.9% to $36 million in the December 1996 period, as compared to $170.4 million in the December 1995 period. The decline in revenues was due to the sale of the hard disk drive business by the Company as of March 29, 1996. Revenue for the December 1996 period included that of the Company's RAIDION family of high-performance and fault-tolerant RAID solutions, the Hammer high-performance storage products and the VIDEON family of video server systems. Such December 1996 period revenues for the RAIDION and VIDEON products decreased by 13.6% from those of the December 1995 period. Such decline was largely attributable to reductions in sales of the Microdisk brand product of external storage sub-systems. The Hammer line of products accounted for approximately $10.2 million of revenues in the December 1996 period. Cost of sales as a percent of sales decreased slightly to 89.8% in the December 1996 period from 91.5% in the December 1995 period, resulting in a gross margin of 10.2% in the 1996 period, as compared to 8.5% in the 1995 period. Research and development expenses were 24.2% of sales in the December 1996 period, as compared to 17.1% in the December 1995 period. The percentage increase is the result of lower sales, offset substantially by a decrease in expense of $20.3 million. The decrease in expense was the result of the sale of the hard disk drive business by the Company as of March 29, 1996, and the termination of the Company's funding of the costs incurred by Tulip Memory Systems, Inc., and reductions in levels of engineering staffing in Chatsworth, California in September 1996. Research and development expense in the December 1996 period consisted of expenditures incurred for the Company's RAIDION family of high-performance and fault-tolerant RAID solutions, the Hammer high- performance storage products and the VIDEON family of video server systems. Research and development expense for the RAIDION and VIDEON products amounted to approximately $8.6 million in the December 1995 period. Selling, general and administrative expenses were 30.3% of sales in the December 1996 period, as compared to 18.3% in the December 1995 period. The percentage increase is the result of lower sales, offset by a decrease in expense of $20.2 million. The decrease in expense was the result of the sale of the hard disk drive business by the Company as of March 29, 1996, and offset partially by selling, general and administrative expenses to support the Hammer product lines. -10- Non-recurring charges in the December 1996 period of $1.4 million consisted primarily of in-process research and development purchased from FWB that had not yet reached technological feasibility and, therefore, were required to be written off under generally accepted accounting principles. Restructuring charges during the December 1996 period were $733,000 consisted primarily of exit costs associated with the Company's decision to consolidate operations in Northern California, and substantially shut-down operations at Chatsworth, California. Excluding non-recurring and restructuring charges, total operating expenses were $19.6 million for the December 1996 period. Interest expense was $2.7 million in the December 1996 period (7.6% of sales) as compared to $4.6 million in the December 1995 period (2.7% of sales). The decrease in expense was primarily the result of the reduction in debt associated with the Company's Exchange Offer. Interest income was $993,000 in the December 1996 period, as compared to $1,172,000 in the December 1995 period. Extraordinary item of $24.4 million in the December 1996 period consisted of the gain on the exchange of the Company's 6% Convertible Subordinated Debentures due 2012. As a result of this transaction, $70.2 million of such debentures were irrevocably tendered and exchanged for a package of cash, common stock, promissory notes, and warrants to purchase common stock. As a result of the above, loss before income taxes was $19.8 million in the December 1996 period, as compared to $49.1 million in the December 1995 period. Loss before extraordinary item in the December 1996 quarter was $19.8 million, compared to $49.2 million in the December 1995 period. Net income after extraordinary item in the December 1996 quarter was $4.6 million, compared to a net loss of $49.2 million in the December 1995 period. Liquidity and Capital Resources - ------------------------------- Cash, cash equivalents and short-term investments decreased to $9.8 million as of December 27, 1996 from $40.5 million as of March 29, 1996 primarily as a result of cash used in operations of $11.1 million, the acquisition of the hardware business of FWB, and the reduction of debt. Net cash used in operations of $11.1 million is primarily due to the Company's loss from operations of $18.0 million offset by reductions in trade accounts receivable as well as from Singapore Technologies Pte. Ltd. In consideration of the sale of the hard disk drive business as of March 29, 1996, the Company received total cash consideration of approximately $54 million. $39.7 million of such cash consideration was received as of the March 29, 1996 closing, $13 million in cash consideration was received on June 6, 1996, and in November, a final payment of $1 million was offset against accounts payable otherwise owed to Micropolis (S) Pte. Ltd. The Company's capital expenditures in the first nine months of the 1997 fiscal year were $2.0 million as compared to $24.4 million in the like period of 1995. Capital expenditures in 1996 related primarily to the acquisition of the hardware business of FWB. Capital expenditures in the 1995 period related primarily to the construction of a new manufacturing facility in Singapore to replace the current leased facility and for equipment and tooling to support new products. The new facility was completed in 1996 and sold as part of the sale of the hard disk drive business. Fiscal 1997 capital spending will be substantially less than that of fiscal 1995 and will be principally for equipment and tooling required for the Company's new products. On November 20, 1996 the Company consummated the Exchange Offer described further in Note 6 to the financial statements. As result of the Exchange Offer, the Company paid $8.4 million to tendering debenture holders. On June 28, 1996 the Company established a $4 million revolving credit facility with Wells Fargo Bank bearing interest and secured by cash of the Company. As of December 27, 1996, $3.6 million was outstanding under the facility and $173,000 was available. During October 1995, the Company completed the private placement to an institutional investor of $20,000,000 aggregate principal amount of 10% Convertible Subordinated Notes (the "Notes"), due October 15, 1998. The Notes were convertible at the option of the holder into shares of Common Stock of the Company at a conversion price of $6.00 per share, a premium to the market price of the Company's Common Stock at the time of issuance. The Notes were senior to the Debentures and were collateralized by substantially all of the assets of the Company. During March 1996, the Company obtained the required consent of the holder -11- of the Notes to allow consummation of the Sale and, in consideration for such consent, agreed to repay the Notes on July 2, 1996 and issued warrants to purchase 1,500,000 shares of the Company's Common Stock at a price of $4 per share. On April 5, 1996, the Company repaid $10,000,000 of the Notes, and on July 1, 1996, the Company repaid the remaining $10,000,000 of the Notes. The Company anticipates that cash used in operations during the fourth fiscal quarter of 1997 will amount to $2-$4 million principally as a result of continuing operating losses. The actual amount will depend upon the results of the Company's efforts to reduce its losses by decreasing expenses and reducing costs, and its plans to decrease inventories to generate cash and fund the anticipated loss for the quarter. The Company is also working to sell assets not anticipated to be required after the consolidation to Northern California in the first quarter of fiscal 1998, and to raise additional financing. While the Company believes it has sufficient financial resources to meet its short term financial needs, should internal financial plans and objectives not be met, including the sale of certain assets and planned reductions in inventories, the Company will require additional financing to continue operations. While the Company currently believes such financing may be obtainable from sources it is currently in discussions with, there can be no assurance as to the terms on which it would be available, if at all. Recent Developments - ------------------- On October 16, 1996, the Company announced a plan to relocate its corporate headquarters and consolidate all of its manufacturing operations in Northern California. This cost saving measure calls for the closing of the company's current Chatsworth facility and relocation of its manufacturing operations, engineering and corporate administration by early April 1997. On January 28, 1997, the Company announced its earnings for the period ended December 27, 1996 and discussed the estimated cost of the above consolidation. The Company estimated that total restructuring charges related to the move to Northern California will amount to $1.7 million over a three quarter period from December 1996 to June 1997, and that the related cash flow impact of the related restructuring charges will be $1.5 million. For further information, please refer to management's discussion and analysis of financial condition and results of operations. -12- PART II - OTHER INFORMATION --------------------------- STREAMLOGIC CORPORATION ----------------------- Item 1. Legal Proceedings ----------------- On December 23, 1996 the Company filed suit in the United States District Court, Southern District of New York seeking a declaratory judgment invalidating a purported acceleration of the remaining $4.8 million of the company's 6% Convertible Subordinated Debentures left outstanding after the company's recently completed exchange offer. In the exchange offer, StreamLogic retired approximately $70.2 million aggregate principal amount of the $75 million of Debentures originally issued. The consideration given by StreamLogic for Debentures tendered in the exchange offer included consideration for the interest payment otherwise due on September 15, 1996. United Equities Company ("United Equities"), which purports to be a continuing debenture holder and to represent other continuing debenture holders, has sought to have the interest and principal on the remaining $4.8 million of Debentures declared due and payable immediately. StreamLogic believes that the trustee for the Debentures had on deposit sufficient funds to pay the interest that had been due on September 15 (together with interest on such interest) at the time of their acceleration demand and that the demand was ineffective. On December 27, 1996 the trustee distributed the amount originally due on September 15 (together with interest on such amount) to Debenture holders of record on December 26, 1996. On January 13, 1997, United Equities answered the Company's complaint and counterclaimed seeking a declaratory judgment that United Equities had properly and timely invoked the acceleration provisions of the indenture governing the Debentures. On February 5, 1997, the Company replied to the counterclaim contained in the answer of defendant United Equities. The Company generally denied United Equities' allegations, asserted various affirmative defenses and requested judgment in favor of StreamLogic. The Company intends to continue to pursue the litigation vigorously. Item 3. Defaults Upon Senior Securities ------------------------------- On October 15, 1996, the Company's non-payment of the interest due on September 15, 1996 on the $75 million amount of Debentures subject to the Company's exchange offer became an "Event of Default" under the terms of the Debentures. The interest due on September 15, 1996 was $2,250,000. In the exchange offer, the Company retired approximately $70.2 million in aggregate principal amount of the Debentures. The consideration given by the Company for Debentures exchanged in the exchange offer included consideration for the interest payment otherwise due on September 15, 1996. The interest due on September 15 (together with interest on such interest) on the remaining $4.8 million of Debentures was distributed to the holders of such Debentures by the trustee on December 27, 1997. Although all interest currently due and payable on the Debentures has been paid, a holder of Debentures is seeking to have all interest and principal on the Debentures declared due and payable immediately. See Item 1, Legal Proceedings. -13- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Set forth below are the results of the Company's solicitation of the written consent of its stockholders to approve the offer to exchange the outstanding Debentures for a package of cash, unsecured promissory notes, common stock and warrants. For: 8,873,192 Against: 103,075 Abstain: 24,870 Broker non-votes: 0 Not Voted: 7,929,653
The Proxy Statement soliciting the written consent to the Exchange Offer was first mailed to stockholders on October 7, 1996. The termination date for receipt of written consents was 5:00 p.m. on November 20, 1996, and the Exchange Offer closed at midnight on such date. Item 5. Other ----- Following consummation of the Exchange Offer, on December 23, 1996 the Company received a letter from The Nasdaq Stock Market, Inc. stating that the Company had been found to be in compliance with all requirements necessary for continued listing on the Nasdaq National Market based upon a review of the Company's 8-K dated November 21,1996 as well as all additional information requested by the Nasdaq staff. Therefore, the Company's common stock continues to be listed on the Nasdaq National Market and trades under the symbol STLC. Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits -------- 10.1 Letter Agreement dated as of June 14, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.2 Employment Agreement, dated June 19, 1996, between the Company and Eric Herzog. 10.3 Employment Agreement, dated June 24, 1996, between the Company and Stephen Dalton. 10.4 Employment Agreement, effective as of July 1, 1996, between the Company and J. Larry Smart. 10.5 OEM License Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-3 (No. 333- 10241) dated as of November 4, 1996.) 10.6 Trademark License Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-3 (No. 333- 10241) dated as of November 4, 1996.) 10.7 Assignment of Equipment Leases, signed July 8, 1996 effective July 1, 1996 between the Company, FWB Software, Inc. and FWB Software, LLC (a California limited liability company) (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-3 (No. 333- 10241) dated as of November 4, 1996.) 10.8 Assignment and Assumption Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.9 Operating Agreement of FWB Software, LLC, signed July 8, 1996 effective July 1, 1996 among the StreamLogic Software Corporation (a Delaware corporation and wholly-owned subsidiary of the Company), FWB Software, Inc., and FWB Software, LLC. (Incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.10 Company Rights Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, LLC. (Incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-3 (No. 333- 10241) dated as of November 4, 1996.) 10.11 Rights Agreement, signed July 8, 1996 effective July 1, 1996 by and among StreamLogic Software Corporation, FWB Software, Inc. and FWB Software, LLC. (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.12 Letter Agreement dated September 13, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(2) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.13 Limited Liability Company Agreement, dated as of September 12, 1996, between Sattel Communications LLC and the Company. 10.14 Letter dated September 12, 1996 from Concentric Network Corporation, regarding transfer of Series D Preferred Stock. 10.15 Amendment No. 4 to Rights Agreement, dated as of September 13, 1996, to Rights Agreement dated as of May 18, 1989 (as amended), between the Company and First Interstate Bank of California, or its successor, as Rights Agent. 10.16 Letter Agreement dated as of October 3, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(3) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.17 Letter of Understanding regarding Operating Agreement of FWB Software, LLC, dated November 1, 1996. (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.18 Consulting Agreement, dated as of November 1, 1996, between the Company and Chriss Street. 10.19 $1,250,000 Promissory Note, dated November 4, 1996, by the Company to FWB Software, LLC. 10.20 First Amendment to Operating Agreement of FWB Software, LLC, dated November 4, 1996, between the Company and FWB Software, LLC. 10.21 First Amendment to Company Rights Agreement, dated November 4, 1996, between the Company and FWB Software, LLC. 10.22 Share Pledge and Security Agreement, dated November 4, 1996, between the Company and FWB Software, LLC. 10.23 Letter dated November 12, 1996, amending Employment Agreement between the Company and Stephen Dalton dated June 24, 1996. 10.24 Letter dated November 12, 1996, amending Employment Agreement between the Company and Eric Herzog dated June 19, 1996. 10.25 Severance Agreement, dated as of November 21, 1996, between the Company and Barbara V. Scherer. 10.26 Indenture, dated as of November 29, 1996, between the Company and NorWest Bank Minnesota, as Trustee, with respect to the Company's Increasing Rate Unsecured Promissory Notes due November 29, 1998. (Incorporated by reference to Appendix B of Exhibit (a)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.27 Warrant Agreement, dated as of November 29, 1996, between the Company and Wells Fargo Bank, N.A., as Warrant Agent (Incorporated by reference to Appendix C of Exhibit (a)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 27 Article 5 FDS for 3rd Fiscal Quarter 10-Q b) Reports on Form 8-K ------------------- The Company filed one report on Form 8-K during the fiscal quarter covered by this report, as follows: (1) Report on Form 8-K filed on November 21, 1996, reporting under Item 5 the successful consummation of the Exchange Offer and setting forth certain unaudited pro forma financial statements required by the Nasdaq Stock Market, Inc. -14- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 1997. STREAMLOGIC CORPORATION By /s/ J. Larry Smart ------------------------------------ J. Larry Smart President and Chief Executive Officer By /s/ Barbara V. Scherer ------------------------------------ Barbara V. Scherer Senior V.P. and Chief Financial Officer -15- EXHIBIT INDEX ------------- 10.1 Letter Agreement dated as of June 14, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.2 Employment Agreement, dated June 19, 1996, between the Company and Eric Herzog. 10.3 Employment Agreement, dated June 24, 1996, between the Company and Stephen Dalton. 10.4 Employment Agreement, effective as of July 1, 1996, between the Company and J. Larry Smart. 10.5 OEM License Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.6 Trademark License Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.7 Assignment of Equipment Leases, signed July 8, 1996 effective July 1, 1996 between the Company, FWB Software, Inc. and FWB Software, LLC (a California limited liability company) (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.8 Assignment and Assumption Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, Inc. (Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.9 Operating Agreement of FWB Software, LLC, signed July 8, 1996 effective July 1, 1996 among the StreamLogic Software Corporation (a Delaware corporation and wholly-owned subsidiary of the Company), FWB Software, Inc., and FWB Software, LLC. (Incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.10 Company Rights Agreement, signed July 8, 1996 effective July 1, 1996 between the Company and FWB Software, LLC. (Incorporated by reference to Exhibit 10.6 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.11 Rights Agreement, signed July 8, 1996 effective July 1, 1996 by and among StreamLogic Software Corporation, FWB Software, Inc. and FWB Software, LLC. (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-3 (No. 333- 10241) dated as of November 4, 1996.) 10.12 Letter Agreement dated September 13, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(2) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.13 Limited Liability Company Agreement, dated as of September 12, 1996, between Sattel Communications LLC and the Company. 10.14 Letter dated September 12, 1996 from Concentric Network Corporation, regarding transfer of Series D Preferred Stock. 10.15 Amendment No. 4 to Rights Agreement, dated as of September 13, 1996, to Rights Agreement dated as of May 18, 1989 (as amended), between the Company and First Interstate Bank of California, or its successor, as Rights Agent. 10.16 Letter Agreement dated as of October 3, 1996 between the Company and Loomis Sayles & Co., L.P. (Incorporated by reference to Exhibit (c)(3) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.17 Letter of Understanding regarding Operating Agreement of FWB Software, LLC, dated November 1, 1996. (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-3 (No. 333-10241) dated as of November 4, 1996.) 10.18 Consulting Agreement, dated as of November 1, 1996, between the Company and Chriss Street. 10.19 $1,250,000 Promissory Note, dated November 4, 1996, by the Company to FWB Software, LLC. 10.20 First Amendment to Operating Agreement of FWB Software, LLC, dated November 4, 1996, between the Company and FWB Software, LLC. 10.21 First Amendment to Company Rights Agreement, dated November 4, 1996, between the Company and FWB Software, LLC. 10.22 Share Pledge and Security Agreement, dated November 4, 1996, between the Company and FWB Software, LLC. 10.23 Letter dated November 12, 1996, amending Employment Agreement between the Company and Eric Herzog dated June 19, 1996. 10.24 Letter dated November 12, 1996, amending Employment Agreement between the Company and Stephen Dalton dated June 24, 1996. 10.25 Severance Agreement, dated as of November 21, 1996, between the Company and Barbara V. Scherer. 10.26 Indenture, dated as of November 29, 1996, between the Company and NorWest Bank Minnesota, as Trustee, with respect to the Company's Increasing Rate Unsecured Promissory Notes due November 29, 1998. (Incorporated by reference to Appendix B of Exhibit (a)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 10.27 Warrant Agreement, dated as of November 29, 1996, between the Company and Wells Fargo Bank, N.A., as Warrant Agent (Incorporated by reference to Appendix C of Exhibit (a)(1) to the Company's Issuer Tender Offer Statement on Schedule 13E-4 filed with the Commission on October 7, 1996.) 27 Article 5 FDS for 3rd Fiscal Quarter 10-Q EX-10.2 2 EMPLOYMENT AGREEMENT, DATED JUNE 19, 1996 EXHIBIT 10.2 [LETTERHEAD OF STREAMLOGIC CORPORATION] June 19, 1996 Mr. Eric Herzog 2775 Calle De La Loma Pleasanton, CA 94566 Dear Eric: I am pleased to extend this offer of employment for the position of Vice President, Marketing. This position will report to J. Larry Smart, President/Chairman/CEO. The terms of the offer are as follows: . Starting salary will be $150,000 annually. . You will be eligible for a performance and salary review on an annual basis by your supervisor. At that time and based upon your performance, compensation and other benefits will be reviewed and adjusted by your supervisor. . You will be granted a stock option of 55,000 shares of StreamLogic Corporation common stock. The terms and vesting schedule are described in your Incentive Stock Option Agreement with the exception that your vesting period will be three years. The vesting period will begin on your first day of employment. Each year of the three year vesting period will come due upon the anniversary of your hire date. . You will also receive a share grant of 6,000 shares of StreamLogic stock. The shares will be granted on the first anniversary date of your employment with StreamLogic. . As we agreed, if StreamLogic goes through a buyout or is acquired by any other company in any other fashion, your stock options and grant shares will be automatically vested in full. . You will receive a one-time $20,000 compensatory bonus during the first month of employment. If your employment is terminated voluntarily or for cause within twelve months following payment of the compensatory bonus, all monies will be due and payable no later than ninety days from your last day of employment. . You will eligible to participate in the StreamLogic Bonus Plan with a maximum payout of $50,000 annually. The objectives for the Bonus Plan will be agreed upon between you and your supervisor by July 15, 1996. The Bonus Plan will be divided into two six month period annually from your first day of employment, with a maximum payout of $25,000 per each six month period. The Bonus Plan will be paid upon completion of each six month period. Objectives for the second Bonus Plan period will be set within two weeks of its commencement. Eric Herzog Employment Offer June 19, 1996 Page 2 . You will receive a car allowance of $450 per month and we will provide you with a personal computer. . During your first twelve months of employment with StreamLogic Corporation, should your employment be terminated for any reason other than cause or resignation, we will guarantee you base salary continuation for the twenty-six week period following your termination date. Salary continuation will be offset by any earnings from other employment. Your benefit package which includes medical, dental, vision coverage, long term disability and life insurance will remain the same. In accordance with the requirements of the Immigration Reform and Control Act of 1986, you will be required to provide verification of your identity and legal right to work in the United States. This documentation must be presented on your first day of employment with StreamLogic. We are looking forward to a strong working relationship between StreamLogic and FWB. If you have any questions, please feel free to call me at 818-701-8448. This offer will remain open until close of work on Friday, June 21, 1996. Sincerely, STREAMLOGIC CORPORATION /s/ Sue Whitfield Sue Whitfield Director, Human Resources SW:ls I have read, understand and accept the terms and conditions of this employment offer. /s/ Eric Herzog 6/20/96 - ----------------------------------- ------------------------------ Eric Herzog Date EX-10.3 3 EMPLOYMENT AGREEMENT, DATED JUNE 24, 1996 [LETTERHEAD OF STREAMLOGIC CORPORATION] EXHIBIT 10.3 June 24, 1996 Steve Dalton c/o FWB, Inc. 1555 Adams Drive Menlo Park, CA 94025 Dear Steve: I am pleased to extend this offer of employment for the position of Vice President, Engineering. This position will report to J. Larry Smart, President/Chairman/CEO. The terms of the offer are as follows: . This offer is effective the day following the completed asset sale between StreamLogic Corporation and FWB, Inc. . Starting salary will be $135,000 annually. . You will be granted a stock option of 32,000 shares of StreamLogic Corporation common stock. The terms and vesting schedule are described in your Incentive Stock Option Agreement. . You will also receive a share grant of 6,500 shares of StreamLogic stock. The shares will be granted on the first anniversary date of your employment with StreamLogic. . You will receive a one-time $10,000 compensatory bonus during the first month of employment. If your employment is terminated voluntarily or for cause within twelve months following payment of the compensatory bonus, all monies will be due and payable no later than ninety days from your last date of employment. . You will be eligible to participate in the StreamLogic Bonus Plan with a maximum payout annually of 30% of your base salary. . As we agreed, StreamLogic will provide you with a cellular phone, PC/MAC and ISDN home hook-up. . During your first twelve months of employment with StreamLogic Corporation, should your employment be terminated for any reason other than cause or resignation, we will guarantee you base salary continuation for the twenty-six week period following your termination date. Salary continuation will be offset by any earnings from other employment. Steve Dalton Employment Offer June 24, 1996 Page 2 Your benefit package which includes medical, dental, vision coverage, long term disability and life insurance will remain the same. In accordance with the requirements of the Immigration Reform and Control Act of 1986, you will be required to provide verification of your identity and legal right to work in the United States. This documentation must be presented on your first day of employment with StreamLogic. We are looking forward to a strong working relationship between StreamLogic and FWB. If you have any questions, please feel free to call me at 818-701-8448. Sincerely, STREAMLOGIC CORPORATION /s/ Sue Whitfield Sue Whitfield Director, Human Resources SW:ls I have read, understand and accept the terms and conditions of this employment offer. /s/ Steve Dalton 6/27/96 - ---------------------- ------------------ Steve Dalton Date EX-10.4 4 EMPLOYMENT AGREEMENT, EFFECTIVE AS OF JULY 1, 1996 EXHIBIT 10.4 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement ("Agreement") is made and entered into effective July 1, 1996 by and between StreamLogic Corporation (the "Company") and J. Larry Smart ("Executive"). RECITALS -------- WHEREAS, Executive has been, and continues to be, employed by the Company as Chief Executive Officer; and WHEREAS, Executive and the Company (then named Micropolis Corporation) entered an Employment Agreement at the commencement of his employment as Chief Executive Officer, effective July 10, 1995; and WHEREAS, Executive and the Company (then also named Micropolis Corporation) subsequently agreed to certain changes in the July 10, 1995 Employment Agreement, and entered into an Amended Employment Agreement effective December 20, 1995; and WHEREAS, Executive and Company mutually desire the amend the Amended Employment Agreement further in certain respects, as set forth in this Employment Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. Title and Duties. Executive shall hold the position of Chief ---------------- Executive Officer ("CEO"), reporting directly to the Board of Directors. Executive shall be responsible for all of the duties and services normally performed or provided by a CEO, in accordance with the Company's bylaws and such directives and instructions as Executive may receive from time to time from the Company's Board of Directors. 2. Outside Business Activities Precluded. During his employment, ------------------------------------- Executive shall devote his full energies, interest, abilities and productive time to the performance of his duties under this Agreement and shall not, without the prior written consent of the Company, render to others services of any kind for compensation or engage in any other business activity that would materially interfere with the performance of his duties under this Agreement, except as listed in Appendix A. 3. Compensation. Executive shall be paid a base salary of $5,673 per ------------ week, in accordance with the Company's normal payroll practices and procedures. 4. Term. The effective date of this Agreement is July 1, 1996. This ---- Agreement shall be terminated immediately upon Executive's death or disability, or for Executive's willful misconduct, willful breach of this Agreement, gross negligence, or habitual neglect of his duties hereunder ("Cause"). The Company may terminate this Agreement for reasons other than Cause prior to a Change of Control with twelve (12) months' written notice to Executive; provided, however, that Executive shall be relieved of all duties immediately upon receiving notice and shall also be relieved of the obligations set forth in paragraph 2 of this Agreement. Executive may terminate this Agreement at any time and for any reason or no reason, upon thirty (30) days' written notice to the Company. The Company's obligation to pay Executive compensation shall terminate upon the termination of this Agreement. Executive's Involuntary Termination by the Company without Cause in the 18-month period following a Change of Control (as defined herein) shall be governed by paragraph 8 of this Agreement rather than this paragraph. 5. Benefits. During the term of this Agreement, including any notice -------- period provided for in paragraph 4, Executive shall be eligible to participate in all of the benefits and benefit programs generally available to employees and senior executives of the Company pursuant to the terms of the applicable policies or plan documents. In addition, Executive shall receive a car allowance in the amount of $1,000 per month. The Company shall use its best efforts to obtain long-term disability coverage for Executive that will pay up to 100% of his salary if he becomes disabled (subject to eligibility, underwriting requirements (including a satisfactory physical exam, if required), and the terms of the applicable policy and plan documents). 6. Incentive Stock Options. Effective July 5, 1995, Executive was ----------------------- granted incentive stock options to purchase up to 350,000 shares of the Company's common stock, at an exercise price equal to the stock's fair market value as of the date such options were granted by the Company's Compensation Committee, pursuant to the Stock Option Plan for Executive and Key Employees of Micropolis Corporation (the "Plan"), to be vested over three (3) years in three (3) equal installments of 116,666 1/3 shares on each of the first three (3) anniversaries of his employment, if Executive is employed by the Company at that time (the "Options"). Since 33 1/3% or more of the assets of the Company have been acquired by a "third party," the Company's Board of Directors authorized the immediate vesting of Executive's Options pursuant to Section 4.3(b) of the Plan. 7. Cash Bonus. For calendar year 1996 and thereafter, the Company's ---------- Board of Directors shall develop a long-term cash bonus program for Executive that will be based on 70% objective evaluation and 30% subjective evaluation of Executive's performance. Pursuant to this program, Executive shall be eligible for a cash bonus of up to 100% of his annual base salary based on the Board of Director's evaluation of his performance. Executive must be employed by the Company at the end of a calendar year to be eligible for payment of a bonus for that year's performance. 8. Acceleration of Stock Options Upon Change of Control and Severance ------------------------------------------------------------------ Pay Upon Involuntary Termination. - -------------------------------- (a) In the event of the consummation of any transaction (including, without limitation, any merger or consolidation) during the term of this Agreement, the result of which is that any person (including any person as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) not affiliated with the Company or the Executive becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of 33 1/3% or more of the voting power of the fully-diluted common stock of the Company ("Change of Control"), all of the unexpired stock options granted to Executive to which Executive would otherwise be entitled will immediately vest; provided, however, that such acceleration will not occur to the extent the options are to be assumed by the acquiring entity. If necessary, the Compensation 2 Committee of the Company's Board of Directors will take such action as may be required pursuant to Section 4.3(b) of the Plan to effect such acceleration. (b) In the event that (i) the outstanding options are so assumed or the Change in Control is effected through the acquisition of 33 1/3% or more of the Company's outstanding voting stock pursuant to a hostile tender offer and (ii) Executive's employment is Involuntarily Terminated (other than for Cause) within 18 months following such assumption or acquisition, then any unexpired options at the time held by Executive under the Plan will immediately accelerate. (c) Executive's Involuntary Termination is defined for purposes of this Agreement as Executive's discharge or dismissal (other than for Cause) or other termination of employment, whether voluntary or involuntary, following a material reduction in Executive's compensation or level of responsibilities, a change in Executive's job location without his consent, or a material reduction in Executive's benefits and perquisites. (d) In addition to the acceleration of Executive's options, Executive may become entitled to a lump sum severance payment upon his Involuntary Termination without Cause within 18 months after the Change in Control. Accordingly, to the extent the spread on Executive's accelerated options (the excess of the market price, at the time of acceleration of the shares of common stock for which the options are accelerated, over the aggregate exercise price payable for such shares) does not exceed 2.99 times the Executive's average W-2 wages from the Company for the five fiscal years preceding the fiscal year in which the Change in Control occurs, a cash severance payment will be provided to Executive. However, the cash payment will in no event exceed the lesser of two times the sum of Executive's annual rate of base salary in effect at the time of his Involuntary Termination plus the bonuses earned by him for the immediately preceding fiscal year or (ii) the amount necessary to bring the total benefit package (acceleration plus severance) up to the "2.99 times average W-2 wages" limitation. (e) Notwithstanding anything in the foregoing to the contrary, if any of the payments provided for in this Agreement, together with any other notice or payments which the Executive have the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code), the payments pursuant to this Agreement shall be reduced (reducing first the payments under paragraph 8(d)) to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Internal Revenue Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made by the Company in good faith, and such determination shall be conclusive and binding on the Executive with respect to its treatment of the payment for tax reporting purposes. 9. Reimbursement of Expenses. The Company shall reimburse Executive ------------------------- for actual and reasonable business expenses incurred in connection with performance of his duties, subject to the Company's policies and procedures. The Company shall provide a San Jose office set-up for Executive and shall pay for reasonable, business travel incurred to perform Executive's business duties. 10. Arbitration of Disputes. The Company and Executive agree that any ----------------------- and all disputes concerning this Agreement or his employment by the Company shall be submitted to final and 3 binding arbitration to be conducted according to the Commercial Arbitration Procedures of the American Arbitration Association. Such arbitration may be compelled and enforced according to the California Arbitration Act, C.C.P. (S)1280, et seq. If any party to this Agreement brings an action to enforce or declare his/its rights hereunder, the prevailing party shall be entitled to recover his/its costs and expenses, including reasonable attorneys' fees, incurred in connection with such action. 11. Ancillary Agreements. Executive shall sign and comply with the -------------------- Company's standard form Assignment of Inventions and Confidential Information Agreement and any other agreements generally applicable to the Company's employees. 12. Competitive Activities. During the term of this Agreement ---------------------- (including any notice period provided for in paragraph 4), Executive shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, nor shall he, for himself or for any other person or entity, call on, solicit, entice or make known to any other organization or firm the names of customers or employees of the Company for the purposes of competing with the Company, or otherwise interfere with the Company's operations. 13. Confidentiality and Non-Disclosure of Proprietary Information. ------------------------------------------------------------- Executive acknowledges that the Company holds as confidential certain information and knowledge respecting the intimate and confidential affairs of the Company in the various phases of its business, including, but not limited to, trade secrets, marketing plans, forecasts, and customer lists ("Proprietary Information"). Executive agrees as follows: a. All Proprietary Information shall be the sole property of the Company and its assigns at all times. Both during the term of this Agreement and after its termination, Executive agrees that he will keep all Proprietary Information in confidence and will not use or disclose any Proprietary Information or anything related to it without the prior written consent of the Company, except as required in the ordinary course of performing his duties as Executive. b. Upon the termination of this Agreement, or at the Company's written request at any time, Executive agrees to return all written Proprietary Information to the Company, including all copies and photocopies of such documents. 14. General Provisions. ------------------ 14.1 Notices. Any notice, request, demand, or other ------- communication required or permitted hereunder shall be deemed to properly given when personally served in writing, when deposited in the United States mail, postage pre-paid, or when communicated to a public telegraph company for transmittal, addressed to the Company or Executive at his or its last known address. Each party may change his or its address by written notice in accordance with this paragraph. 14.2 Applicable Law. This Agreement is made and is to be -------------- governed by and construed under the laws of the State of California. 4 14.3 Captions and Paragraph Headings. Captions and ------------------------------- paragraph headings as used herein are for convenience only and are not part of this Agreement and shall not be used in construing it. 14.4 Severability. The provisions of this Agreement are ------------ severable. If any provisions of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions or enforceable parts hereof shall not be affected thereby and shall be enforced to the fullest extent permitted by law. 14.5 Benefit of Agreement. This Agreement shall inure to -------------------- the benefit of and be binding upon the parties hereto and their respective executors, administrators, successors and assigns; provided, however, that Executive may not assign any of his rights or duties hereunder except upon the prior written consent of the Board of Directors of the Company. 14.6 Entire Agreement. This Agreement contains the entire ---------------- agreement of the parties, and except as expressly stated herein supersedes any and all other agreements, whether oral or in writing, between the parties hereto with respect to the employment of the Executive by the Company. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by the Chairman of the Board on the one hand and by Executive on the other. If Executive becomes Chairman of the Board, any modifications or amendments to this Agreement must be by an agreement ratified by a majority of the Board of Directors or signed by the Chairman of the Compensation Committee. STREAMLOGIC CORPORATION /s/ J. Larry Smart By: /s/ Chriss W. Street - ------------------------ ---------------------------- J. Larry Smart Chriss W. Street Dated: August 28, 1996 Director ---------------------------- Title Dated: August 28, 1996 5 EX-10.13 5 LIMITED LIABILITY COMPANY AGREEMENT, DATED SEPTEMBER 12, 1996 EXHIBIT 10.13 ================================================================================ LIMITED LIABILITY COMPANY AGREEMENT OF SATLOGIC LLC A DELAWARE LIMITED LIABILITY COMPANY DATED AS OF SEPTEMBER 12, 1996 ================================================================================ TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE 1.............................................................. 1 - --------- ORGANIZATIONAL MATTERS................................................. 1 1.1 FORMATION............................................... 1 1.2 NAME.................................................... 1 1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS... 1 1.4 BUSINESS PURPOSE........................................ 1 1.5 CERTIFICATE OF FORMATION; FILINGS....................... 1 1.6 FICTITIOUS BUSINESS NAME STATEMENTS..................... 2 1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS................. 2 1.8 TERM.................................................... 2 ARTICLE 2.............................................................. 2 - --------- DEFINITIONS............................................................ 2 2.1 "ACT"................................................... 2 2.2 "ADDITIONAL MEMBERS".................................... 2 2.3 "ADJUSTED CAPITAL ACCOUNT DEFICIT"...................... 2 2.4 "AFFILIATE"............................................. 2 2.5 "AGREEMENT"............................................. 3 2.6 "ASSIGNEE............................................... 3 2.7 "CAPITAL ACCOUNT"....................................... 3 2.8 "CAPITAL CONTRIBUTIONS"................................. 3 2.9 "CASH AVAILABLE FOR DISTRIBUTION"....................... 4 2.10 "CERTIFICATE"........................................... 4 2.11 "CODE".................................................. 4 2.12 "COMPANY"............................................... 4 2.13 "COMPANY ASSETS......................................... 4 2.14 "COMPANY MINIMUM GAIN".................................. 4 2.15 "DEPRECIATION".......................................... 4 2.16 "ECONOMIC INTEREST"..................................... 4 2.17 "ENCUMBRANCE"........................................... 4 2.18 "GROSS ASSET VALUE"..................................... 4 2.19 "IMMEDIATE FAMILY"...................................... 5 2.20 "INCAPACITY"............................................ 6 2.21 "INDEMNITEE"............................................ 6 2.22 "LIQUIDATOR"............................................ 6 2.23 "MAJORITY IN INTEREST".................................. 6 2.24 "MAJORITY OF REMAINING MEMBERS"......................... 6 2.25 "MANAGING MEMBERS"...................................... 6 2.26 "MEMBER MINIMUM GAIN"................................... 6 2.27 "MEMBER NONRECOURSE DEBT"............................... 6 2.28 "MEMBER NONRECOURSE DEDUCTIONS"......................... 6 2.29 "MEMBERS"............................................... 6 2.30 "MEMBERSHIP INTEREST" or "INTEREST"..................... 6 2.31 "MINIMUM CAPITAL ACCOUNT BALANCE"....................... 6 2.32 "NET PROFITS" or "NET LOSSES"........................... 6 2.33 "NONRECOURSE DEDUCTIONS"................................ 7 2.34 "NONRECOURSE LIABILITY"................................. 7 2.35 "OPERATING CASH EXPENSES"............................... 7 2.36 "PERCENTAGE INTEREST"................................... 8 2.37 "PERSON"................................................ 8 2.38 "RECOURSE LIABILITY".................................... 8 2.39 "REGULATIONS"........................................... 8 i PAGE ---- 2.40 "REGULATORY ALLOCATIONS"................................ 8 2.41 "REQUIRED NOTICE"....................................... 8 2.42 "RESERVES".............................................. 8 2.43 "RESPONSIBLE PARTY"..................................... 8 2.44 "SUBSTITUTE MEMBER"..................................... 8 2.45 "TERMINATING CAPITAL TRANSACTION"....................... 8 2.46 "TERMINATION PAYMENT"................................... 8 2.47 "TRANSFER".............................................. 8 ARTICLE 3.............................................................. 9 - --------- CAPITAL; CAPITAL ACCOUNTS AND MEMBERS.................................. 9 3.1 CAPITAL COMMITMENTS OF MEMBERS.......................... 9 3.2 CAPITAL CONTRIBUTIONS BY MEMBERS........................ 9 3.3 FAILURE TO CONTRIBUTE................................... 10 3.4 CAPITAL ACCOUNTS........................................ 12 3.5 ADDITIONAL MEMBERS...................................... 12 3.6 MEMBER CAPITAL.......................................... 12 3.7 MEMBER LOANS............................................ 12 3.8 LIABILITY OF MEMBERS.................................... 12 ARTICLE 4.............................................................. 13 - --------- DISTRIBUTIONS.......................................................... 13 4.1 DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION........ 13 4.2 DISTRIBUTIONS UPON LIQUIDATION.......................... 13 4.3 WITHHOLDING............................................. 13 4.4 DISTRIBUTIONS IN KIND................................... 14 4.5 LIMITATIONS ON DISTRIBUTIONS............................ 14 ARTICLE 5.............................................................. 14 - --------- ALLOCATIONS OF NET PROFITS AND NET LOSSES.............................. 14 5.1 GENERAL ALLOCATION OF NET PROFITS AND LOSSES............ 14 5.2 REGULATORY ALLOCATIONS.................................. 14 5.3 TAX ALLOCATIONS......................................... 16 5.4 OTHER PROVISIONS........................................ 16 ARTICLE 6.............................................................. 17 - --------- OPERATIONS AND INDEMNIFICATION......................................... 17 6.1 MANAGEMENT.............................................. 17 6.2 LIMITATIONS ON AUTHORITY OF MANAGING MEMBERS............ 19 6.3 RELIANCE BY THIRD PARTIES............................... 20 6.4 COMPENSATION OF MANAGING MEMBERS........................ 20 6.5 RECORDS AND REPORTS..................................... 20 6.6 INDEMNIFICATION AND LIABILITY OF THE MANAGING MEMBER.... 21 6.7 REMOVAL AND WITHDRAWAL OF MANAGING MEMBER............... 22 6.8 OTHER ACTIVITIES........................................ 22 ARTICLE 7.............................................................. 23 - --------- INTERESTS AND TRANSFERS OF INTERESTS................................... 23 7.1 TRANSFERS AND ENCUMBRANCES.............................. 23 7.2 FURTHER RESTRICTIONS.................................... 23 7.3 RIGHTS OF ASSIGNEES..................................... 24 ii PAGE ---- 7.4 ADMISSIONS, WITHDRAWALS AND REMOVALS.................... 24 7.5 PAYMENT UPON WITHDRAWAL OR REMOVAL OF MEMBER............ 24 7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS............ 24 7.7 WITHDRAWAL OF MEMBERS................................... 25 7.8 CONVERSION OF MEMBERSHIP INTEREST....................... 25 7.9 COMPLIANCE WITH IRS SAFE HARBOR......................... 25 ARTICLE 8.............................................................. 26 CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS................... 26 ------------------------------------------------- 8.1 REPRESENTATIONS OF EACH MEMBER.......................... 26 8.1.1 STATUS......................................... 26 8.1.2 AUTHORITY...................................... 26 8.1.3 NO BREACH OR DEFAULT........................... 26 8.1.4 NO GOVERNMENTAL CONSENTS....................... 26 8.1.5 USE OF MEMBER'S NAME........................... 26 8.1.6 ACCURACY OF INFORMATION........................ 26 8.2 INVESTMENT REPRESENTATIONS.............................. 27 ARTICLE 9.............................................................. 28 - --------- DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY............... 28 9.1 LIMITATIONS............................................. 28 9.2 EXCLUSIVE CAUSES........................................ 28 9.3 EFFECT OF DISSOLUTION................................... 29 9.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION................ 29 9.5 LIQUIDATION............................................. 29 ARTICLE 10............................................................. 29 - ---------- MISCELLANEOUS.......................................................... 29 10.1 APPOINTMENT OF MANAGING MEMBERS AS ATTORNEY-IN-FACT..... 29 10.2 AMENDMENTS.............................................. 30 10.3 ACCOUNTING AND FISCAL YEAR.............................. 31 10.4 MEETINGS................................................ 31 10.5 ENTIRE AGREEMENT........................................ 31 10.6 FURTHER ASSURANCES...................................... 31 10.7 NOTICES................................................. 31 10.8 TAX MATTERS............................................. 32 10.9 GOVERNING LAW........................................... 32 10.10 CONSTRUCTION............................................ 32 10.11 CAPTIONS - PRONOUNS..................................... 32 10.12 BINDING EFFECT.......................................... 32 10.13 SEVERABILITY............................................ 32 10.14 CONFIDENTIALITY......................................... 32 10.15 COUNTERPARTS............................................ 33 iii LIMITED LIABILITY COMPANY AGREEMENT OF SATLOGIC LLC THIS LIMITED LIABILITY COMPANY AGREEMENT (the "AGREEMENT") is made and entered into as of the 12th day of September, 1996, by and between Sattel Communications LLC, a California limited liability company ("SATTEL") and StreamLogic Corporation, a Delaware corporation ("STREAMLOGIC") (each, a "MEMBER" and, together, the "MEMBERS), for the purpose of forming SatLogic LLC (the "COMPANY") a limited liability company organized under the Delaware Limited Liability Company Act (the "ACT"). ARTICLE 1 --------- ORGANIZATIONAL MATTERS ---------------------- 1.1 FORMATION. The Members hereby form the Company under the Act for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members of the Company shall be as provided in the Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in this Agreement and any non-mandatory provisions of the Act, the terms and conditions contained in this Agreement shall govern. 1.2 NAME. The name of the Company shall be SatLogic LLC. The Company may also conduct business at the same time under one or more fictitious names if the Managing Members determine that such is in the best interests of the Company. The Managing Members may change the name of the Company, from time to time, in accordance with applicable law. 1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS. The principal place of business of the Company is located at 26025 Mureau Road, Calabasas, California 91302, or such other place within or outside the State of Delaware as the Managing Members may from time to time designate. The Company may maintain offices and places of business at such other place or places within or outside the State of Delaware as the Managing Members deem advisable. 1.4 BUSINESS PURPOSE. The purpose of the Company shall be the implementation and exploitation, directly or indirectly, of a wholesale business created to sell or resell network services elements to other value added network service providers such as Internet service providers as well as other transactions. The Company may engage in such additional businesses as are agreed upon in writing by the Managing Members, provided that the restrictions contained in Paragraph 6.8(b) shall only apply to such additional businesses if --------- agreed upon by the Managing Members. 1.5 CERTIFICATE OF FORMATION; FILINGS. The Managing Members shall cause to be executed and filed a Certificate of Formation (the "CERTIFICATE") in the Office of the Delaware Secretary of State as required by the Act. The Managing Members may execute and file any duly authorized amendments to the Certificate from time to time in a form prescribed by the Act. The Managing Members shall also cause to be made, on behalf of the Company, such additional filings and recordings as the Managing Members shall deem necessary or advisable. 1.6 FICTITIOUS BUSINESS NAME STATEMENTS. Following the execution of this Agreement, fictitious business name statements shall be filed and published when and if the Managing Members determine it necessary. Any such statement shall be renewed as required by applicable law. 1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS. The Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process on the Company in the State of Delaware. 1.8 TERM. The Company shall commence on the date that the Certificate is filed with the Office of the Delaware Secretary of State, and shall continue until terminated pursuant to this Agreement. ARTICLE 2 --------- DEFINITIONS ----------- Capitalized words and phrases used and not otherwise defined elsewhere in this Agreement shall have the following meanings: 2.1 "ACT" is defined in the Preamble. 2.2 "ADDITIONAL MEMBERS" means those Persons admitted to the Company pursuant to Paragraph 3.4 of the Agreement. --------- 2.3 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: 2.3.1 Add to such Capital Account the following items: (a) The amount, if any, that such Member is obligated to contribute to the Company upon liquidation of such Member's Interest; and (b) The amount that such Member is obligated to restore or is deemed to be obligated to restore pursuant to Regulations Section 1.704- 1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and 2.3.2 Subtract from such Capital Account such Member's share of the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. 2.4 "AFFILIATE" means, with reference to a specified Person: (a) a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person, (b) any Person that is an officer, partner or trustee of, or serves in a similar capacity with respect to, the specified Person, or for which the specified Person is an officer, partner or trustee, or serves in a similar capacity, or (c) any member of the Immediate Family of the specified Person. 2 2.5 "AGREEMENT" is defined in the Preamble. 2.6 "ASSIGNEE" means any Person (a) to whom a Member (or assignee thereof) Transfers all or any part of its interest in the Company, and (b) which has not been admitted to the Company as a Substitute Member pursuant to Paragraph 7.6 of this Agreement. - --------- 2.7 "CAPITAL ACCOUNT" means the Capital Account maintained for each Member on the Company's books and records in accordance with the following provisions: 2.7.1 To each Member's Capital Account there shall be added (a) such Member's Capital Contributions, (b) such Member's allocable share of Net Profits and any items in the nature of income or gain that are specially allocated to such Member pursuant to Article 5 hereof or other provisions of ------- this Agreement, and (c) the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member. 2.7.2 From each Member's Capital Account there shall be subtracted (a) the amount of (i) cash and (ii) the Gross Asset Value of any Company Assets (other than cash) distributed to such Member (other than any payment of principal and/or interest to such Member pursuant to the terms of a loan made by the Member to the Company) pursuant to any provision of this Agreement, (b) such Member's allocable share of Net Losses and any other items in the nature of expenses or losses that are specially allocated to such Member pursuant to Article 5 or other provisions of this Agreement, and (c) liabilities of such ------- Member assumed by the Company or which are secured by any property contributed by such Member to the Company. 2.7.3 In the event any interest in the Company is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. 2.7.4 In determining the amount of any liability for purposes of Paragraphs 2.7.1 and 2.7.2 hereof, there shall be taken into account Code ---------- Section 752(c) and any other applicable provisions of the Code and Regulations. 2.7.5 The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied in a manner consistent with such Regulations. In the event that the Managing Members shall determine that it is prudent to modify the manner in which the Capital Accounts, or any additions or subtractions thereto, are computed in order to comply with such Regulations, the Managing Members may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 9 hereof ------- upon the dissolution of the Company. The Managing Members shall also make (a) any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (b) any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Sections 1.704- 1(b) and 1.704-2. 2.8 "CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total amount of money and the initial Gross Asset Value of property (other than money) contributed to the capital of the 3 Company by such Member, whether as an initial Capital Contribution or as an additional Capital Contribution. 2.9 "CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any fiscal year, all Company cash receipts (excluding the proceeds from any Terminating Cash Transaction), after deducting payments for Operating Cash Expenses, payments required to be made in connection with any loan to the Company or any other loan secured by a lien on any Company Assets, capital expenditures and any other amounts set aside for the restoration, increase or creation of reasonable Reserves. 2.10 "CERTIFICATE" means the Certificate of Formation of the Company filed under the Act in the Office of the Delaware Secretary of State for the purpose of forming the Company as a Delaware limited liability company, and any duly authorized, executed and filed amendments or restatements thereof. 2.11 "CODE" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). 2.12 "COMPANY" is defined in the Preamble. 2.13 "COMPANY ASSETS" means all direct and indirect interests in real and personal property owned by the Company from time to time, and shall include both tangible and intangible property (including cash). 2.14 "COMPANY MINIMUM GAIN" has the meaning set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum gain." 2.15 "DEPRECIATION" means, for each fiscal year or other period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managing Members. 2.16 "ECONOMIC INTEREST" means a Person's right to share in the Net Profits, Net Losses, or similar items of, and to receive distributions from, the Company, but does not include any other rights of a Member including, without limitation, the right to vote or to participate in the management of the Company, or, except as specifically provided in this Agreement or required under the Act, any right to information concerning the business and affairs of the Company. 2.17 "ENCUMBRANCE" means a pledge, alienation, mortgage, hypothecation, encumbrance or similar collateral assignment by any other means, whether for value or no value and whether voluntary or involuntary (including, without limitation, by operation of law or by judgment, levy, attachment, garnishment, bankruptcy or other legal or equitable proceedings). 2.18 "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: 4 2.18.1 The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Managing Members and the contributing Member. 2.18.2 The Gross Asset Values of all Company Assets immediately prior to the occurrence of any event described in subsection (a), subsection (b), subsection (c) or subsection (d) hereof shall be adjusted to equal their respective gross fair market values, as determined by the Managing Members using such reasonable method of valuation as they may adopt, as of the following times: (a) the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement) by a new or existing Member in exchange for more than a de minimis Capital Contribution, if the Managing Members reasonably determine that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Members in the Company; (b) the distribution by the Company to a Member of more than a de minimis amount of Company Assets as consideration for an interest in the Company, if the Managing Members reasonably determine that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Members in the Company; (c) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (d) at such other times as the Managing Members shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. 2.18.3 The Gross Asset Value of any Company Asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution as determined by the Managing Members. 2.18.4 The Gross Asset Values of Company Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this Paragraph 2.18.4 to --------- the extent that the Managing Members reasonably determine that an adjustment pursuant to Paragraph 2.18.2 above is necessary or appropriate in connection --------- with a transaction that would otherwise result in an adjustment pursuant to this Paragraph 2.18.4. --------- 2.18.5 If the Gross Asset Value of a Company Asset has been determined or adjusted pursuant to Paragraph 2.18.1, Paragraph 2.18.2 or Paragraph 2.18.4 --------- --------- --------- hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such Company Asset for purposes of computing Net Profits and Net Losses. 2.19 "IMMEDIATE FAMILY" means, and is limited to, an individual Member's current spouse, parents, parents-in-law, grandparents, children, siblings, and grandchildren, or a trust or estate, all of the beneficiaries of which consist of such Member or members of such Member's Immediate Family. 5 2.20 "INCAPACITY" means the entry of an order of incompetence or of insanity, or the death, dissolution, bankruptcy (as defined in the Act) or termination (other than by merger or consolidation) of any Person. 2.21 "INDEMNITEE" is defined in Paragraph 6.6.1. --------- 2.22 "LIQUIDATOR" is defined in Paragraph 9.5.1. --------- 2.23 "MAJORITY IN INTEREST" means Members (including the Managing Members) holding, in the aggregate, a majority of the Percentage Interests held by all Members of the Company. 2.24 "MAJORITY OF REMAINING MEMBERS" means Members owning (a) a majority of the profits interests in the Company held by all Member, determined and allocated based on any reasonable estimate of profits from the relevant date to the projected termination of the Company and taking into account present and future allocations of profits under the Agreement as it is in effect on the relevant date, and (b) a majority of the capital interests in the Company, determined as of the relevant date under this Agreement, owned by all the Members. 2.25 "MANAGING MEMBERS" shall mean Sattel Communications LLC and StreamLogic Corporation, and shall include any additional or successor Managing Members as may be appointed pursuant to Paragraph 6.7.1 or 6.1.3. --------- 2.26 "MEMBER MINIMUM GAIN" means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i) with respect to "partner minimum gain." 2.27 "MEMBER NONRECOURSE DEBT" has the meaning set forth in Regulations Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt." 2.28 "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(i) for the phrase "partner nonrecourse deductions." 2.29 "MEMBERS" means the Persons owning Membership Interests, including the Managing Members and any Substitute or Additional Members, with each Member being referred to, individually, as a "MEMBER." 2.30 "MEMBERSHIP INTEREST" or "INTEREST" means the entire ownership interest of a Member in the Company at any particular time, including without limitation, the Member's Economic Interest, any and all rights to vote and otherwise participate in the Company's affairs, and the rights to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. 2.31 "MINIMUM CAPITAL ACCOUNT BALANCE" is defined in Paragraph 3.2.4. --------- 2.32 "NET PROFITS" or "NET LOSSES" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: 6 2.32.1 Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Paragraph 2.32 shall be added to such taxable income or loss; --------- 2.32.2 Any expenditure of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Paragraph 2.32, shall --------- be subtracted from such taxable income or loss; 2.32.3 Gain or loss resulting from any disposition of Company Assets where such gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company Assets disposed of, notwithstanding that the adjusted tax basis of such Company Assets differs from its Gross Asset Value; 2.32.4 In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year; 2.32.5 To the extent an adjustment to the adjusted tax basis of any asset included in Company Assets pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for the purposes of computing Net Profits and Net Losses; 2.32.6 If the Gross Asset Value of any Company Asset is adjusted in accordance with Paragraph 2.18.2 or Paragraph 2.18.3 of this Agreement, the --------- --------- amount of such adjustment shall be taken into account in the taxable year of such adjustment as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses; and 2.32.7 Notwithstanding any other provision of this Paragraph 2.32, --------- any items that are specially allocated pursuant to Paragraph 5.2 or Paragraph --------- --------- 5.4.2 hereof shall not be taken into account in computing Net Profits or Net Losses. 2.33 "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Sections 1.704-2(b)(1) and 1.704-2(c). 2.34 "NONRECOURSE LIABILITY" has the meaning set forth in Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2). 2.35 "OPERATING CASH EXPENSES" means, with respect to any fiscal period, the amount of cash disbursed in the ordinary course of business during the period, including without limitation, all cash expenses, such as advertising, promotion, property management, insurance premiums, taxes, utilities, repair, maintenance, legal, accounting, bookkeeping, computing, equipment use, travel on Company business, telephone expenses and salaries, and direct expenses of Company employees (if any) and agents while engaged in Company business. Operating Cash Expenses shall include fees paid by the Company to the Managing Members or any Affiliate thereof permitted by this Agreement, and the actual cost of goods, materials and administrative services used for or by the Company, whether incurred by the Managing Members, any Affiliate thereof or any non- Affiliate in performing functions set forth in this 7 Agreement reasonably requiring the use of such goods, materials or administrative services. Operating Cash Expenses shall not include expenditures paid from Reserves. 2.36 "PERCENTAGE INTEREST" means, with respect to each Member, the percentage set forth opposite such Member's name on Exhibit "A", attached hereto ----------- as it may be modified or supplemented from time to time. 2.37 "PERSON" means and includes an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated organization, a government or any department or agency thereof, or any entity similar to any of the foregoing. 2.38 "RECOURSE LIABILITY" has the meaning set forth in Regulations Section 1.752-1(a)(1). 2.39 "REGULATIONS" means proposed, temporary and final Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding Treasury Regulations). 2.40 "REGULATORY ALLOCATIONS" is defined in Paragraph 5.2.9. --------- 2.41 "REQUIRED NOTICE" is defined in Paragraph 3.2.3(b). --------- 2.42 "RESERVES" means funds set aside or amounts allocated to reserves that shall be maintained in amounts deemed sufficient by the Managing Members for working capital, to pay taxes, insurance, debt service, and other costs or expenses incident to the conduct of business by the Company as contemplated hereunder. 2.43 "RESPONSIBLE PARTY" is defined in Paragraph 6.6.6. --------- 2.44 "SUBSTITUTE MEMBER" means any Person (a) to whom a Member (or assignee thereof) Transfers all or any part of its interest in the Company, and (b) which has been admitted to the Company as a Substitute Member pursuant to Paragraph 7.6 of this Agreement. - --------- 2.45 "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of all or substantially all of the assets of the Company or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Company. 2.46 "TERMINATION PAYMENT" is defined in Paragraph 7.5. --------- 2.47 "TRANSFER" means, with respect to any interest in the Company, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means (other than an Encumbrance), whether for value or no value and whether voluntary or involuntary (including, without limitation, by realization upon any Encumbrance or by operation of law or by judgment, levy, attachment, garnishment, bankruptcy or other legal or equitable proceedings), or an agreement to do any of the foregoing. The term "Transferred" shall have a correlative meaning. 8 ARTICLE 3 --------- CAPITAL; CAPITAL ACCOUNTS AND MEMBERS ------------------------------------- 3.1 CAPITAL COMMITMENTS OF MEMBERS. Each Member, in exchange for its initial Membership Interest, shall make a capital commitment (each, a "CAPITAL COMMITMENT") in the amount specified opposite such Member's name under the heading "CAPITAL COMMITMENT" in the Schedule of Members attached hereto as Exhibit "A". Exhibit "A" shall also reflect the names, addresses, initial - ----------- ----------- Capital Contributions and Percentage Interests of the Members. 3.2 CAPITAL CONTRIBUTIONS BY MEMBERS. 3.2.1 Except as provided in Paragraphs 3.2.2, 3.2.3 and 3.2.4, no ---------- Member shall be permitted or required to make any additional Capital Contributions to the Company. 3.2.2 Within ten (10) business days of the Agreement Date, Sattel shall make an initial Capital Contribution of $500,000 in cash (the "INITIAL CASH CONTRIBUTION") and StreamLogic shall make an initial Capital Contribution of $1,000,000 in the form of a promissory note in favor of the Company (the "NOTE"). The Note shall be secured by a pledge of 735,294 shares of Series D Preferred Stock of Concentric Network Corporation pursuant to a Pledge Agreement to be entered into between StreamLogic and the Company and shall be on such terms as are mutually agreed upon by the parties thereto. The Note shall bear interest annually in arrears at a rate equal to one percent (1%) per annum plus the prime rate listed from time to time in The Wall Street ---- --------------- Journal (which listing appears as of the date hereof under the caption "Money ------- Rates") or, if such listing is no longer published, then the reference rate offered at such time by the Bank of America NT&SA. 3.2.3 As and when the Managing Members, in their sole discretion, determine is appropriate, the Managing Members shall pay expenses or obligations of the Company, or establish adequate Reserves therefor, as follows: (a) It shall first apply the Initial Cash Contribution; (b) Thereafter, if from time to time the Company requires additional capital, as determined by the Managing Members, then the Managing Members may provide written notice thereof to each Member (the "REQUIRED NOTICE"). Each Member (including the Managing Members) shall thereafter be required to make additional Capital Contributions as follows: (i) each Member shall make additional Capital Contributions in cash (or such other property as the Managing Members shall agree upon) on a pro rata basis in accordance with their respective Percentage Interests until Sattel has made additional Capital Contributions pursuant to this Paragraph 3.2.3(b)(i) in the aggregate amount of --------- $500,000; (ii) thereafter, StreamLogic shall exclusively make such additional Capital Contributions in an aggregate amount equal to all accrued and unpaid interest and the remaining outstanding principal amount of the Note (after giving effect to the Capital 9 Contributions made by StreamLogic pursuant to Paragraph --------- 3.2.3(b)(i)); and (iii) thereafter, each Member shall be required to make additional Capital Contributions on a pro rata basis in accordance with their respective Percentage Interests; provided that no Member shall be required to make additional Capital Contributions pursuant to this Paragraph 3.2.3 in excess of the then-current amount of --------- its unused Capital Commitment. Any and all additional Capital Contributions by StreamLogic made pursuant to this Paragraph 3.2.3(b) shall reduce StreamLogic's obligations under the Note --------- (being applied first to accrued and unpaid interest and thereafter to the then outstanding principal amount) in an amount equal to such additional Capital Contributions. 3.2.4 The Managing Members shall at all times maintain, in the aggregate, a minimum positive Capital Account balance equal to the lesser of (a) one percent (1%) of total positive Capital Account balances for all Members or (b) Five Hundred Thousand Dollars ($500,000) (in either case, the "MINIMUM CAPITAL ACCOUNT BALANCE"). Upon the making of any Capital Contribution to the Company by any Member, the Managing Members shall immediately make additional Capital Contributions, pro rata in accordance with their respective Percentage Interests, in an amount at least equal, in the aggregate, to 1.01 percent of such Member's Capital Contributions or such lesser amount as may be necessary to cause the positive balances in the Managing Members' Capital Accounts to equal or exceed, in the aggregate, the Minimum Capital Account Balance. Notwithstanding the foregoing, the provisions of this Paragraph 3.2.3 shall cease to apply upon a written determination by --------- the Managing Members, based on the issuance of new final Regulations pursuant to Section 7701 of the Code or other changes in federal tax law and corresponding changes in applicable state tax laws or regulations (to the extent that such changes do not automatically follow the changes in federal tax law), to the effect that such provisions are no longer necessary to cause the Company to be treated as a partnership for federal and applicable state income tax purposes. 3.3 FAILURE TO CONTRIBUTE. 3.3.1 If any Member fails to contribute timely all or any portion of any Capital Contribution required to be made by such Member pursuant to this Agreement and such failure continues for a period of five (5) Business Days after receipt by such Member (such Member being hereinafter referred to as a "DELINQUENT MEMBER") of notice from the Managing Members specifying such failure (such failure being hereinafter referred to as a "DEFAULT"), then the Managing Members (or, in the event a Managing Member is the Delinquent Member, the other Managing Member or, in the event both Managing Members are the Delinquent Members, a Majority in Interest of the other Members) may, at their option, take one or more of the following actions: (a) Take such action (including, without limitation, the filing of a suit) as they deem appropriate to obtain payment by the Delinquent Member of that portion of its Capital Contribution which is in default, together with interest thereon at the rate of interest equal to five percent (5%) per annum plus the prime rate listed from time to time in ---- The Wall Street Journal (which listing appears as of the ----------------------- date hereof under the caption "Money Rates") or, if such listing is no longer published, then the reference rate offered at such time by the Bank of America NT&SA, 10 measured from the date that such Capital Contribution was due until the date that such Capital Contribution, together with any costs and expenses incurred by the Company as a result of the Default, and together with all interest accrued thereon, is paid to the Company. Until all such amounts have been paid, all distributions that would otherwise be made to such Delinquent Member shall be withheld in partial satisfaction of such obligations and shall be first applied to any costs and expenses incurred by the Company as a result of the Default, then to interest earned and unpaid, and then to principal; (b) Advance on a pro rata basis based upon the relative Percentage Interests of the participating Members, that portion of such contribution which is in default, on the following terms: (A) the sums thus advanced shall be deemed to be demand recourse loans from the Members participating therein to the Delinquent Member and a Capital Contribution of such sums to the Company by the Delinquent Member; (B) such loans shall bear interest at the rate of interest equal to five percent (5%) per annum plus the prime rate listed ---- from time to time in The Wall Street Journal (which listing ----------------------- appears as of the date hereof under the caption "Money Rates") or, if such listing is no longer published, then the reference rate offered at such time by the Bank of America NT&SA, measured from the date that the advance was made until the date that such advance, together with any costs and expenses incurred by the Company as a result of the Default, and together with all interest accrued thereon, is repaid to the Members; (C) unless otherwise paid, the repayment of these loans shall be made from any and all distributions of the Company otherwise to be made to the Delinquent Member, with the full amount of such loan (plus all accrued interest thereon) to be refunded in full before any distribution is made to the Delinquent Member during the term of the Company or upon dissolution; and (D) all such repayments shall be first applied to any costs and expenses incurred by the Company as a result of the Default, then to interest earned and unpaid, and then to principal; (c) Unless the Delinquent Member shall have theretofore cured its failure to make the required Capital Contribution (and reimbursed the Company for all costs and expenses incurred as a result of such Default), sell the Delinquent Member's interest in the Company to the other Members wishing to participate (other than the Delinquent Member) on a pro rata basis based upon the relative Percentage Interests of the other participating Members or to any other Person, to the extent the Members fail to purchase their pro rata share, without further notice to the Delinquent Member on the terms and for such consideration as the contributing Member(s) may determine in its sole and absolute discretion. Proceeds from any such sale shall be retained by the Company or the Members (as the case may be) to the extent of the amount, including interest, costs and expenses (including, without limitation, any and all costs and expenses incurred as a result of the Default), then owing to the Company or the Members (as the case may 11 be) (the Delinquent Member remaining liable for any deficiency); any excess shall be paid to the Delinquent Member; and/or (d) Exercise such other rights and remedies to which the contributing Member(s) or the Company may be entitled at law or in equity or by statute. 3.3.2 No right, power or remedy conferred pursuant to this Paragraph --------- 3.3 shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy whether conferred in this Paragraph 3.3 or --------- now or hereafter available at law or in equity or by statute or otherwise. 3.4 CAPITAL ACCOUNTS. A Capital Account shall be established and maintained for each Member in accordance with the terms of this Agreement. 3.5 ADDITIONAL MEMBERS. Following formation of the Company, the Managing Members are hereby authorized to issue interests in the Company directly from the Company, and to admit one or more recipients of such interests as additional Members ("ADDITIONAL MEMBERS") from time to time, on such terms and conditions and for such Capital Contributions, if any, as the Managing Members may determine. No action or consent by any Member other than the Managing Members shall be required in connection with the admission of an Additional Member. As a condition to being admitted to the Company, each Additional Member shall execute an agreement to be bound by the terms and conditions of this Agreement. It is anticipated that certain employees and/or officers will be offered the opportunity to become Additional Members, on such terms and subject to such conditions as the Managing Members shall determine. 3.6 MEMBER CAPITAL. Except as otherwise provided in this Agreement or with the prior written consent of the Managing Members: (a) no Member shall demand or be entitled to receive a return of or interest on its Capital Contributions or Capital Account, (b) no Member shall withdraw any portion of its Capital Contributions or receive any distributions from the Company as a return of capital on account of such Capital Contributions, and (c) the Company shall not redeem or repurchase the Interest of any Member. 3.7 MEMBER LOANS. No Member shall be required or permitted to make any loans or otherwise lend any funds to the Company, except with the consent of the Managing Members. Notwithstanding the foregoing, the Managing Members shall be permitted (but not required) to make loans to the Company to the extent the Managing Members reasonably determine that such loans are necessary or advisable for the business of the Company, provided that the terms of such loans are no less favorable to the Company as may be available from independent third parties, taking into account, inter alia, the amount to be borrowed, the unsecured nature of any such borrowing and the creditworthiness of the Company. No loans made by any Member to the Company shall have any effect on such Member's Percentage Interest, such loans representing a debt of the Company payable or collectible solely from the assets of the Company in accordance with the terms and conditions upon which such loans were made. 3.8 LIABILITY OF MEMBERS. Except as otherwise required by any non- waivable provision of the Act or other applicable law: (a) no Member shall be personally liable in any manner whatsoever for any debt, liability or other obligation of the Company, whether such debt, liability or other obligation arises in contract, tort, or otherwise; and (b) no Member shall in any event have any liability whatsoever 12 in excess of (i) the amount of its Capital Contributions, (ii) its share of any assets and undistributed profits of the Company, (iii) the amount of any unconditional obligation of such Member to make additional Capital Contributions to the Company pursuant to this Agreement, and (iv) the amount of any wrongful distribution to such Member, if, and only to the extent, such Member has actual knowledge (at the time of the distribution) that such distribution is made in violation of Section 18-607 of the Act. ARTICLE 4 --------- DISTRIBUTIONS ------------- 4.1 DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION. 4.1.1 Except as otherwise provided in Article 9, Cash Available for ------- Distribution shall be distributed to the Members only at such times as may be determined in the sole discretion of the Managing Members. 4.1.2 Subject to Article 9 hereof, all distributions of Cash ------- Available for Distribution shall be distributed to the Members pro rata in accordance with their respective Percentage Interests. 4.2 DISTRIBUTIONS UPON LIQUIDATION. Distributions made in conjunction with the final liquidation of the Company, including, without limitation, the net proceeds of a Terminating Capital Transaction, shall be applied or distributed as provided in Article 9 hereof. ------- 4.3 WITHHOLDING. The Company may withhold distributions or portions thereof if it is required to do so by any applicable rule, regulation, or law, and each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Managing Members determine that the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement. Any amount paid on behalf of or with respect to a Member pursuant to this Paragraph 4.3 shall constitute a loan by the --------- Company to such Member, which loan shall be repaid by such Member within fifteen (15) days after notice from the Company that such payment must be made unless: (i) the Company withholds such payment from a distribution which would otherwise be made to the Member or (ii) the Managing Members determine in their sole and absolute discretion that such payment may be satisfied out of Cash Available For Distribution which would, but for such payment, be distributed to the Member. Any amounts withheld pursuant to this Paragraph 4.3 shall be treated as having --------- been distributed to such Member. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member's Interest in the Company to secure such Member's obligation to pay to the Company any amounts required to be paid pursuant to this Paragraph 4.3. In the event that a --------- Member fails to pay any amounts owed to the Company pursuant to this Paragraph --------- 4.3 when due, the remaining Members may, in their respective sole and absolute discretion, elect to make the payment to the Company on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies of the Company as against such defaulting Member (including, without limitation, the right to receive distributions). Any amounts payable by a Member hereunder shall bear interest equal to five percent (5%) per annum plus the prime rate ---- listed from time to time in The Wall Street Journal (which listing appears as of ----------------------- the date hereof under the caption "Money Rates") or, if such listing is no longer published, then the reference rate offered at such time by the Bank of America NT&SA, from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. Each Member shall take such actions as the Company shall request in order to perfect or enforce the security interest created hereunder. 13 A Member's obligations hereunder shall survive the dissolution, liquidation, or winding up of the Company. 4.4 DISTRIBUTIONS IN KIND. No right is given to any Member to demand or receive property other than cash as provided in this Agreement. The Managing Members may determine in their sole and absolute discretion to make a distribution in kind of Company Assets to the Members, and such Company Assets shall be distributed in such a fashion as to ensure that the fair market value thereof is distributed and allocated in accordance with this Article 4 and ------- Articles 5 and 9 hereof; provided, however, that no Member may be compelled to - -------- accept a distribution consisting, in whole or in part, of any Company Assets in kind unless the ratio that the fair market value of such distribution in kind bears to such Member's total distribution does not exceed the ratio that the fair market value of similar distributions in kind bear to the total distributions of other Members receiving distributions concurrently therewith (if any), except upon a dissolution and winding up of the Company. ------ 4.5 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding any provision to the contrary contained in this Agreement, neither the Company nor the Managing Members acting on behalf of the Company, shall knowingly make a distribution to any Member or the holder of any Economic Interest on account of its Membership Interest or Economic Interest in the Company (as applicable) in violation of Section 18-607 of the Act. ARTICLE 5 --------- ALLOCATIONS OF NET PROFITS AND NET LOSSES ----------------------------------------- 5.1 GENERAL ALLOCATION OF NET PROFITS AND LOSSES. 5.1.1 Net Profits and Net Losses shall be determined and allocated with respect to each fiscal year of the Company as of the end of such fiscal year. Subject to the other provisions of this Agreement, an allocation to a Member of a share of Net Profits or Net Losses shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Profits or Net Losses. 5.1.2 Subject to the other provisions of this Article 5, Net ------- Profits, Net Losses and any other items of income, gain, loss and deduction for any fiscal year shall be allocated, for purposes of adjusting the Capital Accounts of the Members, in proportion to the Members' respective Percentage Interests. 5.2 REGULATORY ALLOCATIONS. Notwithstanding the foregoing provisions of this Article 5, the following special allocations shall be made in the following ------- order of priority: 5.2.1 If there is a net decrease in Company Minimum Gain during a Company taxable year, then each Member shall be allocated items of Company income and gain for such taxable year (and, if necessary, for subsequent years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704- 2(g)(2). This Paragraph 5.2.1 is intended to comply with the minimum gain --------- chargeback requirement of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. 5.2.2 If there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company taxable year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in 14 accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such taxable year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in a manner consistent with the provisions of Regulations Section 1.704-2(g)(2). This Paragraph 5.2.2 is intended to comply with the --------- partner nonrecourse debt minimum gain chargeback requirement of Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. 5.2.3 If any Member unexpectedly receives an adjustment, allocation, or distribution of the type contemplated by Regulations Section 1.704- 1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated to all such Members (in proportion to the amounts of their respective Adjusted Capital Account Deficits) in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit of such Member as quickly as possible. It is intended that this Paragraph 5.2.3 qualify and be construed as a "qualified --------- income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d). 5.2.4 If the allocation of Net Loss to a Member as provided in Paragraph 5.1 hereof would create or increase an Adjusted Capital Account --------- Deficit, there shall be allocated to such Member only that amount of Net Loss as will not create or increase an Adjusted Capital Account Deficit. The Net Loss that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to the limitations of this Paragraph 5.2.4. --------- 5.2.5 To the extent that an adjustment to the adjusted tax basis of any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its Interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event that Regulations Section 1.704- 1(b)(2)(iv)(m)(4) applies. 5.2.6 The Nonrecourse Deductions for each taxable year of the Company shall be allocated to the Members in proportion to their Percentage Interests. 5.2.7 The Member Nonrecourse Deductions shall be allocated each year to the Member that bears the economic risk of loss (within the meaning of Regulations Section 1.752-2) for the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable. 5.2.8 The allocations set forth in Paragraphs 5.2.1, 5.2.2, 5.2.3, ---------- 5.2.4, 5.2.5, 5.2.6 and 5.2.7 hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of Regulations Sections 1.704- 1(b) and 1.704-2(i). Notwithstanding the provisions of Paragraph 5.1.2, the --------- Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. 15 5.3 TAX ALLOCATIONS. 5.3.1 Except as provided in Paragraph 5.3.2 hereof, for income tax --------- purposes under the Code and the Regulations, each Company item of income, gain, loss and deduction shall be allocated between the Members as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to this Article 5. - ------- 5.3.2 Tax items with respect to Company Assets that are contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated between the Members for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Company shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the Managing Members, including, without limitation, the "traditional method" as described in Regulations Section 1.704-3(b). If the Gross Asset Value of any Company Asset is adjusted pursuant to Paragraph --------- 2.18, subsequent allocations of income, gain, loss and deduction with respect to such Company Asset shall take account of any variation between the adjusted basis of such Company Asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations promulgated thereunder under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the Managing Members. Allocations pursuant to this Paragraph 5.3.2 are solely for purposes --------- of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Net Profits, Net Losses and any other items or distributions pursuant to any provision of this Agreement. 5.4 OTHER PROVISIONS. 5.4.1 For any fiscal year during which any part of a Membership Interest or Economic Interest is transferred between the Members or to another Person, the portion of the Net Profits, Net Losses and other items of income, gain, loss, deduction and credit that are allocable with respect to such part of a Membership Interest or Economic Interest shall be apportioned between the transferor and the transferee under any method allowed pursuant to Section 706 of the Code and the applicable Regulations as determined by the Managing Members. 5.4.2 Notwithstanding the foregoing provisions of Article 5 (other ------- than Paragraph 5.2), each Managing Member's interest in each item of Company --------- income, gain, loss, deduction or credit shall equal at least one percent (1%) of each of those items at all times during the existence of the Company. 5.4.3 In the event that the Code or any Regulations require allocations of items of income, gain, loss, deduction or credit different from those set forth in this Article 5, the Managing Members are hereby authorized to ------- make new allocations in reliance on the Code and such Regulations, and no such new allocation shall give rise to any claim or cause of action by any Member. 5.4.4 For purposes of determining a Member's proportional share of the Company's "excess nonrecourse liabilities" within the meaning of Regulations Section 1.752-3(a)(3), each Member's interest in Net Profits shall be such Member's Percentage Interest. 5.4.5 The Members acknowledge and are aware of the income tax consequences of the allocations made by this Article 5 and hereby agree to be ------- bound by the provisions of this Article ------- 16 5 in reporting their shares of Net Profits, Net Losses and other items of income, gain, loss, deduction and credit for federal, state and local income tax purposes. ARTICLE 6 --------- OPERATIONS AND INDEMNIFICATION ------------------------------ 6.1 MANAGEMENT. 6.1.1 Except as otherwise expressly provided in this Agreement, the Managing Members shall have sole and complete charge and management of all the affairs and business of the Company, in all respects and in all matters. The Managing Members shall be agents of the Company's business, and the actions of the Managing Members taken in such capacity and in accordance with this Agreement shall bind the Company. Each Managing Member shall at all times be a Member of the Company. Except as otherwise expressly provided in this Agreement, the Members other than the Managing Members shall not participate in the control of the Company, and shall have no right, power or authority to act for or on behalf of, or otherwise bind, the Company. Unless otherwise provided herein, all decisions and actions that may be made or taken by the Managing Members shall be so made or taken, if at all, by unanimous consent. Except as expressly provided in this Agreement or required by any non-waivable provisions of applicable law, Members other than the Managing Members shall have no right to vote on or consent to any other matter, act, decision, or document involving the Company or its business. 6.1.2 The Managing Members shall have full, exclusive and complete discretion to manage and control the business and affairs of the Company, to make all decisions affecting the business and affairs of the Company, to take all such actions as they deem necessary or appropriate to accomplish the purposes and direct the affairs of the Company and to delegate in writing any of the foregoing powers to any other Person mutually satisfactory to the Managing Members. The Managing Members shall have the sole power and authority to bind the Company, except and to the extent that such power is expressly delegated in writing to any other Person by the Managing Members, and such delegation shall not cause the Managing Members to cease to be a Member or the Managing Members of the Company. 6.1.3 The Managing Members shall also have the exclusive right, power and authority, in the management of the business and affairs of the Company, to do or cause to be done any and all acts, at the expense of the Company, deemed by the Managing Members to be necessary or appropriate to effectuate the business of the Company. Without limiting the generality of the foregoing, the Managing Members shall have full and complete power and authority, without the approval of any other Member: (a) to acquire by purchase, lease, contribution or otherwise, and/or to otherwise own, hold, operate, maintain, finance, improve, lease, sell, convey, mortgage, transfer or dispose of any property or other assets (real or personal, tangible or intangible) that the Managing Members deem necessary or advisable; (b) to negotiate, enter into, perform, modify, extend, terminate, amend, waive, renegotiate and/or carry out any contracts and agreements of any kind and nature, including, without limitation, contracts and agreements 17 with any Member or Affiliate thereof, or any other agent of the Company, as the Managing Members deem necessary or advisable; (c) to lend money, to invest and reinvest its funds, and to take and hold real and/or personal property for the payment of funds so loaned or invested; (d) to sue and be sued, complain and defend, and participate in administrative, judicial and other proceedings, in the name of, and behalf of, the Company; (e) to pay, collect, compromise, arbitrate or otherwise adjust or settle any and all claims or demands of or against the Company, in such amounts and upon such terms and conditions as the Managing Members shall reasonably determine; (f) to, from time to time, employ, engage, hire or otherwise secure the services of such Persons, including any Member or Assignee, or any Persons related thereto or Affiliates thereof, as the Managing Members may deem necessary or advisable for the proper execution of their respective duties as Managing Member hereunder, including the hiring of a management team with the written consent of the Managing Members and to delegate to such Persons such power and authority as the Managing Members deem appropriate; provided such services are within the scope of the foregoing authority granted to the Managing Members hereunder, with such employment to be for such compensation and upon such terms and conditions as the Managing Members shall determine; (g) to, from time to time, appoint such officers and agents of the Company (including, without limitation, a President, Chief Executive Officer and/or additional Managing Members) as the Managing Members deem necessary or advisable, define and modify, from time to time, such officers' and agents' duties, and fix and adjust, as appropriate, such officers' and agents' compensation; (h) to cause the Company to indemnify any Person in accordance with, and to the fullest extent permitted by, applicable law, and to obtain, for or on behalf of the Company, any and all types of insurance deemed necessary or advisable by the Managing Members; (i) to borrow money and issue evidences of indebtedness necessary, convenient or incidental to the business of the Company, and secure the same by mortgage, pledge or other lien on any Company Assets or other assets of the Company; (j) to prepare, execute, file, record, publish and deliver any and all instruments, documents or statements necessary or convenient to effectuate any and all actions that the Managing Members are authorized to take on behalf of the Company; 18 (k) to merge the Company with, or consolidate the Company with or into, any other corporation, partnership, limited liability company or other Person (whether domestic or foreign); (l) to deal with, or otherwise engage in business with, or provide services to and receive compensation therefor from, any Person who has provided or may in the future provide services to, lend money to, sell property to, or purchase property from the Company, the Members or any Affiliate of the Members; and (m) to establish and maintain Reserves for such purposes and in such amounts as the Managing Members deem appropriate from time to time. 6.1.4 The Managing Members shall prepare and submit to the Members an annual business plan, to be adopted within thirty (30) days prior to the beginning of each fiscal year, to contain, inter alia, sources and uses of capital, estimated revenues and expenditures and business goals and strategies. The annual business plan for the remainder of the current fiscal year and for the following fiscal year shall be agreed upon by the Managing Members within ninety (90) days following the execution of this Agreement. 6.1.5 Except as otherwise expressly provided in this Agreement or required by any non-waivable provision of the Act or other applicable law, no Member other than the Managing Members shall (a) have any right to vote on or consent to any other matter, act, decision or document involving the Company or its business, or (b) take part in the day-to-day management, or the operation or control, of the business and affairs of the Company. Except to the extent expressly delegated by the Managing Members, no other Member or Person other than the Managing Members shall be an agent for the Company or have any right, power or authority to transact any business in the name of the Company or to act for or on behalf of or to bind the Company. 6.1.6 Only the Managing Members may commence a voluntary case on behalf of, or an involuntary case against, the Company under a chapter of Title 11 U.S.C. by the filing of a "petition" (as defined in 11 U.S.C. 101(42)) with the United States Bankruptcy Court. Any such petition filed by any other Member shall be deemed an unauthorized and bad faith filing and all parties to this Agreement shall use their best efforts to cause such petition to be dismissed. 6.2 LIMITATIONS ON AUTHORITY OF MANAGING MEMBERS. 6.2.1 Notwithstanding any contrary provision of this Agreement, without the written consent of a Majority in Interest, the Managing Members shall not have the authority to: (a) Dissolve the Company; or (b) Approve any Terminating Capital Transaction. 6.2.2 Notwithstanding any contrary provision of this Agreement, without the written consent of all Members, the Managing Members shall not have the authority to: (a) Do any act in contravention of this Agreement; or 19 (b) Knowingly perform any act that would subject any Member to liability for the debts, liabilities or obligations of the Company. 6.3 RELIANCE BY THIRD PARTIES. Any Person dealing with the Company or the Managing Members may rely upon a certificate signed by the Managing Members as to: (a) the identity of the Managing Members or any other Member of the Company; (b) the existence or non-existence of any fact or facts which constitute a condition precedent to acts by the Managing Members or in any other manner germane to the affairs of the Company; (c) the Persons who are authorized to execute and deliver any instrument or document for or on behalf of the Company; or (d) any act or failure to act by the Company or as to any other matter whatsoever involving the Company or any Member. 6.4 COMPENSATION OF MANAGING MEMBERS. 6.4.1 The Managing Members may receive fees for their services in administering the Company only with the consent of a Majority in Interest. 6.4.2 The Managing Members shall be entitled to reimbursement on a monthly basis from the Company for all out-of-pocket costs and expenses incurred by them, in their reasonable discretion, for or on behalf of the Company. 6.5 RECORDS AND REPORTS. 6.5.1 The Managing Members shall cause to be kept, at the principal place of business of the Company, or at such other location as the Managing Members shall reasonably deem appropriate, full and proper ledgers, other books of account, and records of all receipts and disbursements, other financial activities, and the internal affairs of the Company for at least the current and past four fiscal years. 6.5.2 The Managing Members shall also cause to be sent to each Member of the Company, the following: (a) within ninety (90) days following the end of each fiscal year of the Company, a report that shall include all necessary information required by the Members for preparation of its federal, state and local income or franchise tax or information returns, including each Member's pro rata share of Net Profits, Net Losses and any other items of income, gain, loss and deduction for such fiscal year; and (b) a copy of the Company's federal, state and local income tax or information returns for each fiscal year, concurrent with the filing of such returns. 20 6.5.3 Members (personally or through an authorized representative) may, for purposes reasonably related to their Interests, examine and copy (at their own cost and expense) the books and records of the Company at all reasonable business hours. 6.6 INDEMNIFICATION AND LIABILITY OF THE MANAGING MEMBERS. 6.6.1 The Company shall indemnify and hold harmless the Managing Members, their respective Affiliates and subsidiaries, and all officers, directors, employees, and agents of any of the foregoing (individually, an "INDEMNITEE") to the full extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities, joint and several, expenses of any nature (including attorneys' fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Indemnitee may be involved, or threatened to be involved as a party or otherwise, relating to the performance or nonperformance of any act concerning the activities of the Company, if (i) the Indemnitee acted in good faith and in a manner it believed to be in, or not contrary to, the best interests of the Company, and (ii) the Indemnitee's conduct did not constitute gross negligence or willful misconduct. The termination of an action, suit or proceeding by judgment, order, settlement, or upon a plea of nolo contendere or its equivalent, shall not, in and of itself, create a presumption or otherwise constitute evidence that the Indemnitee acted in a manner contrary to that specified in clauses (i) or (ii) above. 6.6.2 Expenses incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding subject to this Paragraph 6.6 shall be --------- advanced by the Company prior to the final disposition of such claim, demand, action, suit, or proceeding upon receipt by the Company of a written commitment by or on behalf of the Indemnitee to repay such amount if it shall be determined that such Indemnitee is not entitled to be indemnified as authorized in this Paragraph 6.6. --------- 6.6.3 Any indemnification provided hereunder shall be satisfied solely out of the assets of the Company, as an expense of the Company. No Member shall be subject to personal liability by reason of these indemnification provisions. 6.6.4 The provisions of this Paragraph 6.6 are for the benefit of --------- the Indemnitees and shall not be deemed to create any rights for the benefit of any other Person. 6.6.5 Neither the Managing Members nor any of their respective subsidiaries or Affiliates nor the officers, directors, employees or agents of any of the foregoing shall be liable to the Company or to a Member for any losses sustained or liabilities incurred as a result of any act or omission of the Managing Members or any such other Person if (i) the act or failure to act of such Managing Member(s) or such other Person was in good faith and in a manner it believed to be in, or not contrary to, the best interests of the Company, and (ii) the conduct of such Managing Member(s) or such other Person did not constitute gross negligence or willful misconduct. 6.6.6 To the extent that either of the Managing Members, or any Affiliate or subsidiary thereof, or any officer, director, employee or agent of any of the foregoing (each, a "RESPONSIBLE PARTY") has, at law or in equity, duties (including, without limitation, fiduciary duties) to the Company, any Member or other Person bound by the terms of this Agreement, such Responsible Parties acting in accordance with this Agreement shall not be liable to the Company, any Member, or any such other Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties of a Responsible Party 21 otherwise existing at law or in equity, are agreed by all parties hereto to replace such other duties to the greatest extent permitted under applicable law. 6.6.7 Whenever a Responsible Party is required or permitted to make a decision, take or approve an action, or omit to do any of the foregoing: (a) in its discretion, under a similar grant of authority or latitude, or without an express standard of behavior (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall be entitled to consider only such interests and factors, including its own, as it desires, and shall have no duty or obligation to consider any other interests or factors whatsoever, or (b) with an express standard of behavior (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall comply with such express standard but shall not be subject to any other, different or additional standard imposed by this Agreement or otherwise applicable law. 6.7 REMOVAL AND WITHDRAWAL OF MANAGING MEMBERS. 6.7.1 No Managing Member may be removed as the Managing Member at any time except for actions which constitute gross negligence or willful misconduct, upon the unanimous vote of the other Members. Upon (a) the removal of a Managing Member pursuant to this Paragraph 6.7.1, (b) the --------- withdrawal of a Managing Member as Managing Member or (c) the occurrence of any event which would terminate the continued existence of a Managing Member as a Member (including, without limitation, the Incapacity of the Managing Member) (if the business of the Company is continued pursuant to Paragraph --------- 9.2(c)), the Company shall be managed by the other Managing Member and, if there is no such other Managing Member, by the Members, with all actions requiring the affirmative vote of a Majority in Interest (except to the extent a greater percentage is required under this Agreement or any non-waivable provision of the Act), unless and until a Majority in Interest of the Members elect a new Managing Member. Upon removal (pursuant to this Paragraph 6.7.1) --------- or withdrawal (pursuant to Paragraph 6.7.2), such Managing Member shall remain --------- a Member with all the rights of a Member (including, without limitation, its Economic Interest) to which it previously was entitled (other than rights to which it was entitled solely in its capacity as a Managing Member). 6.7.2 A Managing Member may withdraw as Managing Member at any time without the prior consent of any other Member by providing the Members written notice thereof. 6.8 OTHER ACTIVITIES. (a) Subject to Paragraph 6.8(b), the Members (including the --------- Managing Members) may engage or invest in, and devote their time to, any other business venture or activity of any nature and description (independently or with others). Neither the Company nor any other Member shall have any right by virtue of this Agreement or the relationship created hereby in or to such other venture or activity of any Member (or to the income or proceeds derived therefrom), and the pursuit thereof shall not be deemed wrongful or improper. Notwithstanding the foregoing, the Managing Members shall devote such time to the Company as they deem reasonably necessary for the proper performance of their obligations and duties hereunder. (b) No Member shall engage or invest in, or devote their time to, any business activity or venture that is deemed by the Managing Members to be competitive with the Company and/or seek to provide service or products which are substantially the same as those being offered by the Company. 22 ARTICLE 7 --------- INTERESTS AND TRANSFERS OF INTERESTS ------------------------------------ 7.1 TRANSFERS AND ENCUMBRANCES. (a) Subject to Paragraph 7.8, no Member or Assignee may Transfer all --------- or any portion of its Interest (or beneficial interest therein) to any other Person without the prior written consent of the Managing Members, which consent may be given or withheld in the Managing Members' sole and absolute discretion, provided that any Member may Transfer all or any portion of its Interest without the consent of any other Member to any Affiliate thereof so long as (a) such Affiliate remains an affiliate of the transferring Member, and (b) the admission of such Affiliate as a Substitute Member remains subject to the provisions of Paragraph 7.6. Any purported Transfer which is not in --------- accordance with this Agreement shall be null and void. Unless and until the Person receiving an Interest Transferred pursuant to, and in accordance with, this Paragraph 7.1 is admitted as a Substitute Member pursuant to Paragraph --------- --------- 7.6, such Person shall be an Assignee only, and shall have only such rights as are provided for in Paragraph 7.3. --------- (b) No Member or Assignee may create an Encumbrance with respect to all or any portion of its Interest (or any beneficial interest therein) unless the Managing Members consent in writing thereto, which consent may be given or withheld, or made subject to such conditions as are determined by the Managing Members, in their sole and absolute discretion. Any purported Encumbrance which is not in accordance with this Agreement shall be null and void. 7.2 FURTHER RESTRICTIONS. Notwithstanding any contrary provision in this Agreement, any otherwise permitted Transfer shall be null and void if: (a) such Transfer would cause a termination of the Company for federal or state, if applicable, income tax purposes; (b) such Transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for federal or state income tax purposes; (c) such Transfer requires the registration of such Transferred Interest pursuant to any applicable federal or state securities laws; (d) such Transfer causes the Company to become a "Publicly Traded Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the Code; (e) such Transfer subjects the Company to regulation under the Investment Company Act of 1940, the Investment Advisers Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (f) such Transfer results in a violation of applicable laws; (g) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Interest; or 23 (h) the Company does not receive written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as an Assignee) that are in a form satisfactory to the Managing Members (as determined in the Managing Members' sole and absolute discretion). 7.3 RIGHTS OF ASSIGNEES. Until such time, if any, as a transferee of any permitted Transfer pursuant to this Article 7 is admitted to the Company as a ------- Substitute Member pursuant to Paragraph 7.6: (i) such transferee shall be an --------- Assignee only, and only shall receive, to the extent Transferred, the distributions and allocations of income, gain, loss, deduction, credit, or similar item to which the Member which Transferred its Interest would be entitled, and (ii) such Assignee shall not be entitled or enabled to exercise any other rights or powers of a Member, such other rights remaining with the transferring Member. In such a case, the transferring Member shall remain a Member even if he has transferred his entire Economic Interest in the Company to one or more Assignees. In the event any Assignee desires to make a further assignment of any Economic Interest in the Company, such Assignee shall be subject to all of the provisions of this Agreement to the same extent and in the same manner as any Member desiring to make such an assignment. 7.4 ADMISSIONS, WITHDRAWALS AND REMOVALS. No Person shall be admitted to the Company as a Member except in accordance with Paragraph 3.4 (in the case of --------- Persons obtaining an interest in the Company directly from the Company) or Paragraph 7.6 (in the case of transferees of a permitted Transfer of an interest - --------- in the Company from another Person). Except as otherwise specifically set forth in Paragraph 7.7, no Member, including the Managing Member, shall be entitled to --------- retire or withdraw from being a Member of the Company without the written consent of a Majority in Interest, which consents may be given or withheld in each Member's sole and absolute discretion. Except as otherwise provided in Paragraph 9.2(c), no admission, withdrawal or removal of a Member shall cause - --------- the dissolution of the Company. Any purported admission, withdrawal or removal which is not in accordance with this Agreement shall be null and void. 7.5 PAYMENT UPON WITHDRAWAL OR REMOVAL OF MEMBER. If any Member withdraws from the Company with the consent of a Majority in Interest of the remaining Members (other than pursuant to Paragraph 7.7), then such Member --------- automatically shall receive from the Company a payment equal to the Member's Capital Account balance as adjusted as of the effective date of the written election of withdrawal (the "TERMINATION PAYMENT"). The Termination Payment shall be paid on the effective date of the removal or written election of withdrawal. If any Member attempts to withdraw from the Company (other than pursuant to Paragraph 7.7) without the consent of a Majority in Interest of the --------- remaining Members, then, notwithstanding the last sentence of Paragraph 7.4, the --------- Managing Members may, in their sole and absolute discretion, permit such withdrawal (without waiving, in any manner, any other rights available to it or the Company at law or in equity and in addition to, and not in lieu of, any other remedies to which it or the Company may be entitled), provided that such withdrawing Member shall not be entitled to any Termination Payment or any other compensation whatsoever in consideration for its terminated Membership Interest. 7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS. 7.6.1 An Assignee shall become a Substitute Member only if and when each of the following conditions are satisfied: (a) the assignor of the Interest transferred sends written notice to the Managing Members requesting the admission of the Assignee as a Substitute Member and setting forth the name 24 and address of the Assignee, the Percentage Interest transferred, and the effective date of the Transfer; (b) the Managing Members (or, if at any time no Managing Member exists, a Majority in Interest of non-transferring the Members) consent in writing to such admission, which consent may be given or withheld in the Managing Members' (or such other non-transferring Members') sole and absolute discretion; and (c) the Managing Members receive from the Assignee (i) such information concerning the Assignee's financial capacities and investment experience as may reasonably be requested by the Managing Members, and (ii) written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as a Substitute Member) that are in a form satisfactory to the Managing Members (as determined in the Managing Members' sole and absolute discretion). 7.6.2 Upon the admission of any Substitute Member, Exhibit "A" shall ------- be amended to reflect the name, address and Percentage Interest of such Substitute Member and to eliminate or adjust, if necessary, the name, address and Percentage Interest of the predecessor of such Substitute Member. 7.7 WITHDRAWAL OF MEMBERS. If a Member has transferred all of its Membership Interest to one or more Assignees, then such Member shall withdraw from the Company if and when all such Assignees have been admitted as Substitute Members in accordance with this Agreement. 7.8 CONVERSION OF MEMBERSHIP INTEREST. Upon the Incapacity of a Member (and the subsequent continuation of the business of the Company pursuant to Paragraph 9.2(c) if such Incapacity relates to any Managing Member), such - --------- Incapacitated Member's Membership Interest shall automatically be converted to an Economic Interest only, and such Incapacitated Member (or its executor, administrator, trustee or receiver, as applicable) shall thereafter be deemed an Assignee for all purposes hereunder, with the same Economic Interest as was held by such Incapacitated Member prior to its Incapacity, but without any other rights of a Member unless the holder of such Economic Interest is admitted as a Substitute Member pursuant to Paragraph 7.6. --------- 7.9 COMPLIANCE WITH IRS SAFE HARBOR. The Managing Members shall monitor the Transfers of Interests in the Company to determine (i) if such Interests are being traded on an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of section 7704 of the Code, and (ii) whether additional Transfers of Interests would result in the Company being unable to qualify for at least one of the "safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which Interests will not be treated as "readily tradable on a secondary market (or the substantial equivalent thereof)" within the meaning of section 7704 of the Code) (the "SAFE HARBORS"). The Managing Members shall take all steps reasonably necessary or appropriate to prevent any trading of Interests or any recognition by the Company of Transfers made on such markets and, except as otherwise provided herein, to ensure that at least one of the Safe Harbors is met. 25 ARTICLE 8 --------- CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS ------------------------------------------------- 8.1 REPRESENTATIONS OF EACH MEMBER. Each of the Members hereby makes the following representation and warranties to, and agreements with, the other Members and the Company as of the Agreement Date: 8.1.1 STATUS. Such Member is duly incorporated, organized or formed (in the event such Partner is not a corporation), validly existing and in good standing under the laws of its state or country of incorporation, organization or formation (as the case may be). Such Member has full power and authority to own its property and to carry on its business as now conducted. 8.1.2 AUTHORITY. Such Member has full power and authority to execute and deliver this Agreement and to carry out its obligations hereunder in accordance with the terms and provisions hereof. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action, corporate or otherwise, on the part of such Member. This Agreement constitutes the valid and legally binding obligation of such Member, enforceable against it in accordance with its terms, except as enforceability may be affected by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally; (ii) the limitation of certain remedies by certain equitable principles of general applicability; and (iii) the fact that the rights to indemnification hereunder may be limited by federal or state securities laws. 8.1.3 NO BREACH OR DEFAULT. The execution, delivery and performance by such Member of this Agreement and the transactions contemplated hereby will not constitute a material breach of any term or provision of, or a material default under (i) any outstanding indenture, mortgage, loan agreement or other similar contract or agreement to which such Member or any of its Affiliates is a party or by which it or any of its Affiliates or its or their property is bound; (ii) its certificate or articles of incorporation or bylaws or other constituent documents; (iii) any applicable law, rule or regulation; or (iv) any order, writ, judgment or decree having applicability to it. 8.1.4 NO GOVERNMENTAL CONSENTS. All material consents, licenses, approvals and authorizations, if any, and all filings and registrations, required from any governmental body, authority, bureau or agency for or on the part of any such Member or any of its Affiliates in connection with its execution and delivery of this Agreement and its contributions to the capital of the Company have been obtained prior to the Agreement Date. 8.1.5 USE OF MEMBER'S NAME. With respect to any matters relating to the Company, such Member shall not use the name of any other Member in a press release or in any other written communication to the general public, except as may be required by law, without the prior written consent of such other Member. 8.1.6 ACCURACY OF INFORMATION. Such Member shall furnish to the Managing Members all information regarding itself or its Affiliates reasonably requested by the Managing Members which is or may be required for inclusion in any documents required to be prepared or filed in connection with the business of the Company, and all such information when supplied to the Company and thereafter will be true and correct in all material respects and will not omit to state any material fact necessary to be stated therein in order that such information shall not be misleading. 26 8.2 INVESTMENT REPRESENTATIONS. 8.2.1 Each Member represents and warrants that it is acquiring its Membership Interest solely for investment, for its account and not with a view to, or for resale in connection with, the distribution or other disposition thereof, except for such distributions and dispositions which are (A) explicitly permitted or contemplated under the terms of this Agreement as well as (B) effected in compliance with the Securities Act of 1933, as amended (the "SECURITIES ACT"), the rules and regulations of the Securities and Exchange Commission promulgated thereunder and all applicable state securities and "blue sky" laws. 8.2.2 Each Member understands that the purchase of Membership Interests is a speculative investment which involves a high degree of risk of loss of its investment therein, there are substantial restrictions on the transferability of the Membership Interests under the provisions of this Agreement and the Securities Act, and there will never be a public market for the Membership Interests and, accordingly, it may not be possible to liquidate its investment in the Fund in case of emergency or otherwise. 8.2.3 All information which each Member has provided to the Managing Members and their Affiliates and representatives, if any, concerning itself and its financial position is true, complete and correct in all material respects as of the date of this Agreement and, if there should be any material change in such information prior to the date such Member's initial Capital Contribution or any additional Capital Contributions are made it will immediately furnish such revised or corrected information to the Managing Members or their Affiliates or representatives. 8.2.4 Each Member's financial situation is such that it can afford to bear the economic risk of holding the Membership Interests for an indefinite period of time and suffer a complete loss of its investment in the Company. 8.2.5 Each Member's knowledge and experience in financial and business matters are such that it is capable of evaluating the merits and risks of its purchase of the Membership Interests or it has been advised by a representative possessing such knowledge and experience. 8.2.6 Each Member and its representatives as it deems necessary, including its professional, tax and other advisors, have reviewed the purchase of the Membership Interests and such Member understands and has taken cognizance of (or has been advised by its representatives as to) all the risk factors related to the purchase of the Membership Interests. 8.2.7 In making its decision to purchase its Membership Interest, each Member has relied upon independent investigations made by it and, to the extent believed by it to be appropriate, its representatives. 8.2.8 Each Member and its representatives and advisors, if any, have been afforded the opportunity to examine all documents related to and, if applicable, executed in connection with, the transactions contemplated hereby, which such Member or its representatives or advisors, if any, desire to examine. 8.2.9 The Managing Members, their Affiliates or representatives have provided each Member with the opportunity to ask questions of, and to receive answers from, the Managing Members, their Affiliates, and their representatives concerning the terms and conditions of the 27 purchase of the Membership Interest. No representations or warranties have been made to such Member or its representatives concerning the Membership Interests or the Company, their prospects or other matters except as set forth in this Agreement. 8.2.10 Each Member is an "accredited investor" as defined in Rule 501(a) under the Securities Act. 8.2.11 As of the date as of which each Member executes this Agreement and for so long as it holds a Membership Interest thereafter, that (A) it is not an "investment company" registered under the Investment Company Act; (B) it is not an entity which would be defined as an "investment company" under Section 3(a) of the Investment Company Act but for the exception provided from that definition by Section 3(c)(1) of the Investment Company Act; (C) it is not a business development company, as defined in Section 202(a)(22) of the Investment Advisers Act, as amended; (D) it was not formed for the specific purpose of making an investment in the Fund; and (E) it is an involuntary, noncontributory pension plan and constitutes one beneficial owner of the Membership Interest being purchased by it for purposes of the Investment Company Act. ARTICLE 9 --------- DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY -------------------------------------------------------- 9.1 LIMITATIONS. The Company may be dissolved, liquidated, and terminated only pursuant to the provisions of this Article 9, and the parties ------- hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company Assets. 9.2 EXCLUSIVE CAUSES. Notwithstanding the Act, the following and only the following events shall cause the Company to be dissolved, liquidated, and terminated: (a) By the election of the Managing Members and the written consent of a Majority in Interest; (b) The occurrence of a Terminating Capital Transaction; (c) The Incapacity of any Managing Members (or, if no Managing Member exists, of any Member), unless a Majority of Remaining Members votes to continue the Company within ninety (90) days following the occurrence of any such Incapacity, provided that, the provisions of this Section 9.2(c) shall cease to apply upon a written determination by the Members, based on the issuance of new final Regulations pursuant to Section 7701 of the Code or other changes in federal tax law and corresponding changes in applicable state tax laws or regulations (to the extent that such changes do not automatically follow the changes in federal tax law), to the effect that such provisions are no longer necessary to cause the Company to be treated as a partnership for federal and applicable state income tax purposes; or (d) Judicial dissolution. Any dissolution of the Company other than as provided in this Paragraph 9.2 --------- shall be a dissolution in contravention of this Agreement. 28 9.3 EFFECT OF DISSOLUTION. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it has been wound up and its assets have been distributed as provided in Paragraph 9.5 of this Agreement. --------- Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement. 9.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall look solely to the assets of the Company for all distributions with respect to the Company, its Capital Contribution thereto, its Capital Account and its share of Net Profits or Net Losses, and shall have no recourse therefor (upon dissolution or otherwise) against any other Member. Accordingly, if any Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which the liquidation occurs), then such Member shall have no obligation to make any Capital Contribution with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other person for any purpose whatsoever. 9.5 LIQUIDATION. 9.5.1 Upon dissolution of the Company, the Managing Members shall act as the "Liquidator" of the Company, provided, however, that, in the event of a dissolution of the Company pursuant to Paragraph 9.2(c), a Person --------- designated by a Majority in Interest of the remaining Members shall act as Liquidator. The Liquidator shall liquidate the assets of the Company, and after allocating (pursuant to Article 5 of this Agreement) all income, gain, ------- loss and deductions resulting therefrom, shall apply and distribute the proceeds thereof as follows: (a) First, to the payment of the obligations of the Company, to the expenses of liquidation, and to the setting up of any Reserves for contingencies which the Managing Members may consider necessary. (b) Thereafter, to the Members in proportion to the positive balances in the Members' respective Capital Accounts, determined after taking into account all Capital Account adjustments for the Company taxable year during which such liquidation occurs (other than those made as a result of the distributions set forth in this Paragraph 9.5.1(b) of this Agreement), by the --------- end of the taxable year in which such liquidation occurs or, if later, within 90 days after the date of the liquidation. 9.5.2 Notwithstanding Paragraph 9.5.1 of this Agreement, in the --------- event that the Managing Members determine that an immediate sale of all or any portion of the Company Assets would cause undue loss to the Members, the Managing Members, in order to avoid such loss to the extent not then prohibited by the Act, may either defer liquidation of and withhold from distribution for a reasonable time any Company Assets except those necessary to satisfy the Company's debts and obligations, or distribute the Company Assets to the Members in kind. ARTICLE 10 ---------- MISCELLANEOUS ------------- 10.1 APPOINTMENT OF MANAGING MEMBERS AS ATTORNEY-IN-FACT. 10.1.1 Each Member, including each Additional Member and Substitute Member, by its execution of this Agreement, irrevocably constitutes and appoints the Managing Members as its true and lawful attorney-in-fact with full power and authority in its name, place and stead to 29 execute, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to carry out the provisions of this Agreement, including but not limited to: (a) All certificates and other instruments (including counterparts of this Agreement), and all amendments thereto, which the Managing Members deem appropriate to form, qualify, continue or otherwise operate the Company as a limited liability company (or other entity in which the Members will have limited liability comparable to that provided in the Act), in the jurisdictions in which the Company may conduct business or in which such formation, qualification or continuation is, in the opinion of the Managing Members, necessary or desirable to protect the limited liability of the Members. (b) All amendments to this Agreement adopted in accordance with the terms hereof, and all instruments which the Managing Members deem appropriate to reflect a change or modification of the Company in accordance with the terms of this Agreement. (c) All conveyances of Company Assets, and other instruments which the Managing Members reasonably deem necessary in order to complete a dissolution and termination of the Company pursuant to this Agreement. 10.1.2 The appointment by all Members of the Managing Members as attorney-in-fact shall be deemed to be a power coupled with an interest, in recognition of the fact that each of the Members under this Agreement will be relying upon the power of the Managing Members to act as contemplated by this Agreement in any filing and other action by it on behalf of the Company, shall survive the Incapacity of any Person hereby giving such power, and the transfer or assignment of all or any portion of the Interest of such Person in the Company, and shall not be affected by the subsequent Incapacity of the principal; provided, however, that in the event of the assignment by a Member of all of its Interest in the Company, the foregoing power of attorney of an assignor Member shall survive such assignment only until such time as the Assignee shall have been admitted to the Company as a Substitute Member and all required documents and instruments shall have been duly executed, filed and recorded to effect such substitution. 10.2 AMENDMENTS. 10.2.1 Each Additional Member and Substitute Member shall become a signatory hereto by signing such number of counterpart signature pages to this Agreement, a power of attorney to the Managing Members, and such other instruments, in such manner, as the Managing Members shall determine. By so signing, each Additional Member and Substitute Member, as the case may be, shall be deemed to have adopted and to have agreed to be bound by all of the provisions of this Agreement. 10.2.2 In addition to amendments specifically authorized herein, any and all amendments to this Agreement may be made from time to time by the Managing Members without the consent of any other Member; except that, without the consent of the Members to be adversely affected, this Agreement may not be amended so as to (a) modify the limited liability of a Member 30 or (c) adversely affect the interest of a Member in Net Profits, Net Losses or Cash Available for Distribution (other than to reflect the admission of an Additional Member). 10.2.3 In addition to other amendments authorized herein, amendments may be made to this Agreement from time to time by the Managing Members, without the consent of any other Member: (a) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement that are not inconsistent with the provisions of this Agreement; (b) to delete or add any provision of this Agreement required to be so deleted or added by any federal or state official, which addition or deletion is deemed by such official to be for the benefit or protection of all of the Members; and (c) to take such actions as may be necessary (if any) to insure that the Company will be treated as a partnership for federal income tax purposes. 10.2.4 In making any amendments, there shall be prepared and filed by, or for, the Managing Members such documents and certificates as may be required under the Act and under the laws of any other jurisdiction applicable to the Company. 10.3 ACCOUNTING AND FISCAL YEAR. Subject to Code Section 448, the books of the Company shall be kept on such method of accounting for tax and financial reporting purposes as may be determined by the Managing Members. The fiscal year of the Company shall end on December 31 of each year, or on such other date permitted under the Code as the Managing Members shall determine. 10.4 MEETINGS. At any time, and from time to time, the Managing Members may, but shall not be required to, call meetings of the Members. Written notice of any such meeting shall be given to all Members not less than two (2) nor more than forty-five (45) days prior to the date of such meeting. Each meeting of the Members shall be conducted by the Managing Members or any designee thereof. Each Member may authorize any other Person (whether or not such other Person is a Member) to act for it or on its behalf on all matters in which the Member is entitled to participate. Each proxy must be signed by the Member or such Member's attorney-in-fact. All other provisions governing, or otherwise relating to, the holding of meetings of the Members, shall from time to time be established in the sole discretion of the Managing Members. 10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersedes any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the subject matter hereof. 10.6 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant and agree on behalf of itself, its successors, and its assigns, without further consideration, to prepare, execute, acknowledge, file, record, publish, and deliver such other instruments, documents and statements, and to take such other action as may be required by law or reasonably necessary to effectively carry out the purposes of this Agreement. 10.7 NOTICES. Any notice, consent, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be (a) delivered personally to the Person or to an officer of the Person to whom the same is directed, or (b) sent by facsimile or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Company, to the Company at the address set forth in Paragraph 1.3 hereof, or to such other address as the Company may from time to - --------- time specify by notice to the Members; if to a Member, to such Member at the address set forth in Exhibit "A", or to such other address as such Member may ----------- from 31 time to time specify by notice to the Company. Any such notice shall be deemed to be delivered, given and received for all purposes as of: (i) the date so delivered, if delivered personally, (ii) upon receipt, if sent by facsimile, or (iii) on the date of receipt or refusal indicated on the return receipt, if sent by registered or certified mail, return receipt requested, postage and charges prepaid and properly addressed. 10.8 TAX MATTERS. 10.8.1 Sattel shall be designated and shall operate as "Tax Matters Partner" (as defined in Code Section 6231), to oversee or handle matters relating to the taxation of the Company. 10.8.2 The Member designated as "Tax Matters Partner" may make all elections for federal income and all other tax purposes (including, without limitation, pursuant to Section 754 of the Code). 10.8.3 Income tax returns of the Company shall be prepared by such certified public accountant(s) as the Managing Member shall retain at the expense of the Company. 10.9 GOVERNING LAW. This Agreement, including its existence, validity, construction, and operating effect, and the rights of each of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. 10.10 CONSTRUCTION. This Agreement shall be construed as if all parties prepared this Agreement. 10.11 CAPTIONS - PRONOUNS. Any titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the text of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as appropriate. 10.12 BINDING EFFECT. Except as otherwise expressly provided herein, this Agreement shall be binding on and inure to the benefit of the Members, their heirs, executors, administrators, successors and all other Persons hereafter holding, having or receiving an interest in the Company, whether as Assignees, Substitute Members or otherwise. 10.13 SEVERABILITY. In the event that any provision of this Agreement as applied to any party or to any circumstance, shall be adjudged by a court to be void, unenforceable or inoperative as a matter of law, then the same shall in no way affect any other provision in this Agreement, the application of such provision in any other circumstance or with respect to any other party, or the validity or enforceability of the Agreement as a whole. 10.14 CONFIDENTIALITY. Each Party hereto agrees that the provisions of this Agreement, all understandings, agreements and other arrangements between and among the parties, and all other non-public information received from or otherwise relating to, the Company shall be confidential, and shall not be disclosed or otherwise released to any other Person (other than another party hereto), without the written consent of the Managing Members. The obligations of the parties hereunder shall not apply to the extent that the disclosure of information otherwise determined to be confidential is required by applicable law, provided that, prior to disclosing such confidential information, a party shall notify the Company thereof, which notice shall include the basis upon which such party believes the information is required to be disclosed. 32 10.15 COUNTERPARTS. This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. IN WITNESS WHEREOF, the parties hereto have duly executed this Limited Liability Company Agreement of SatLogic LLC as of the day and year first above written. MANAGING MEMBER /s/ Jim Fiedler _____________________________ Sattel Communications LLC MANAGING MEMBER /s/ J. Larry Smart _____________________________ StreamLogic Corporation 33 EXHIBIT "A" MEMBERS, CAPITAL COMMITMENTS, CAPITAL CONTRIBUTIONS, AND PERCENTAGE INTERESTS
=================================================================================================== NAME AND ADDRESS OF INITIAL CAPITAL MEMBERS CAPITAL COMMITMENT CONTRIBUTION PERCENTAGE INTEREST - --------------------------------------------------------------------------------------------------- Sattel Communications 50% LLC $2,000,000 $500,000 26025 Mureau Road Calabasas, CA 91302 c/o James J. Fiedler - --------------------------------------------------------------------------------------------------- StreamLogic 1 year promissory note in Corporation $2,000,000 aggregate principal amount 50% 21329 Nordhoff Street of $1,000,000 to be Chatsworth, CA 91311 secured by a pledge of c/o J. Larry Smart 735,294 shares of Series D Preferred Stock of Concentric Network Corporation ===================================================================================================
34 EX-10.14 6 LETTER DATED SEPTEMBER 12, 1996-CONCENTRIC NETWORK CORPORATION EXHIBIT 10.14 [LETTERHEAD OF CONCENTRIC NETWORK CORPORATION] September 12, 1996 StreamLogic Corporation 21329 Nordhoff Street Chatsworth, CA 91311 Re: Transfer of Series D Preferred Stock ------------------------------------ Ladies and Gentlemen: In accordance with Section 8.7 of that certain Series D Preferred Stock Purchase Agreement, dated as of August 21, 1996, among Concentric Network Corporation ("Concentric"), Sattel Communications LLC ("Sattel") and other parties listed on Schedule A thereto (the "Purchase Agreement"), Concentric hereby consents to the assignment by Sattel to StreamLogic Corporation ("StreamLogic") of all of Sattel's rights, title and interest under and in the Purchase Agreement and that certain Amended and Restated Registration Rights Agreement, dated as of August 21, 1996, among Concentric, Sattel and the other parties listed on the signature pages and Schedules I, II, and III thereto (the "Registration Rights Agreement"), in each case with respect to 1,838,235 shares (the "Shares") of Concentric Series D Preferred Stock sold by Sattel to StreamLogic. Concentric acknowledges and agrees that StreamLogic shall be entitled to all of the rights and benefits granted to the Purchasers (as defined in the Purchase Agreement) and to the Series D Holders (as defined in the Registration Rights Agreement) with respect to the Shares and shall be treated as an original holder of Series D Preferred Stock for all purposes under the Purchase Agreement and the Registration Rights Agreement. By: /s/ Michael F. Anthofer ------------------------- Michael F. Anthofer Vice President and CFO EX-10.15 7 AMENDMENT NO. 4 TO RIGHTS AGREEMENT EXHIBIT 10.15 AMENDMENT NO. 4 TO RIGHTS AGREEMENT AMENDMENT NO. 4 (this "Amendment"), dated as of September 13, 1996, to the Rights Agreement, dated as of May 18, 1989, as amended to the date hereof (the "Rights Agreement"), between StreamLogic Corporation, a Delaware corporation (the "Company"), and First Interstate Bank of California or its successor, as rights agent (the "Rights Agent"). RECITALS WHEREAS, at a meeting of the Board of Directors of the Company (the "Board") held on September 13, 1996, the Board considered whether, and on what terms, the Company would: (a) enter into an amendment to that certain letter agreement, between the Company and Loomis Sayles & Company, L.P. ("Loomis Sayles") pursuant to which Loomis Sayles' would agree to advise its clients to tender to the Company any and all of their 6% Convertible Subordinated Debentures due 2012 (the "6% Debentures"); and (b) make an offer to exchange any and all of its 6% Debentures for such consideration (including, without limitation, any combination of cash, promissory notes, Common Shares (as such term is defined in the Rights Agreement) and warrants to purchase Common Shares) as may be determined by the Board, which offer to exchange would conform to the terms and conditions contained in the Tender Agreement (as defined below); WHEREAS, Loomis Sayles has indicated that, as a precondition to its entering an amended Tender Agreement, the Company must agree to take all action necessary to ensure that neither Loomis Sayles nor any institutional client of Loomis Sayles will be deemed to be an "Acquiring Person" under the Rights Agreement solely by virtue of holding or acquiring any Common Shares (whether issued directly or upon the exercise of warrants) or warrants issued pursuant to the offer to exchange; WHEREAS, the Board has considered the manner in which the Rights Agreement would operate in the event the Company were to proceed with the offer to exchange; 1 WHEREAS, the Board has: (a) determined that it is in the best interests of the Company and its stockholders to amend the Rights Agreement to ensure that none of Loomis Sayles, any institutional client of Loomis Sayles or any other Person acting with respect to a Tender Agreement will be deemed to be an Acquiring Person solely because Loomis Sayles, such institutional client or such other Person, as applicable, shall have acquired, or be holding, Common Shares or warrants issued to Loomis Sayles, such institutional client or such other Person, as applicable, pursuant to an offer to exchange; and (b) authorized such an amendment; WHEREAS, the Company and the Rights Agent desire to amend the Rights Agreement, as authorized by Section 26 of the Rights Agreement, by altering, adding and deleting the provisions set forth herein in the manner set forth below; and WHEREAS, the parties have complied with or satisfied all conditions necessary to the amendment of the Rights Agreement; AGREEMENT NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions. All terms used herein as defined terms which are ----------- not defined in this Amendment shall have the meanings ascribed to them in the Rights Agreement. SECTION 2. Amendment to Rights Plan. Section 1(a) of the Rights Agreement ------------------------ shall be deleted in its entirety and replaced by a new Section 1(a), which shall read as follows: (a)(i) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 20% or more of the Common Shares of the Company then outstanding but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such plan, in its capacity as an agent or trustee for any such plan. (ii) Notwithstanding anything to the contrary in the foregoing, for purposes of this Agreement and the definition of Acquiring Person, no Person shall be deemed to be the Beneficial Owner of, or to beneficially own, securities which 2 such Person or any of such Person's Affiliates or Associates may acquire, does or do acquire, or may be deemed to have the right to acquire as or pursuant to (A) any Lindner Note Agreement (as defined below), (B) any Lindner Convertible Notes (as defined below), (C) any Common Shares issued or issuable on conversion of any Lindner Convertible Notes, (D) any Lindner Warrant Agreement (as defined below), (E) any Lindner Warrants (as defined below), or (F) any Common Shares issued or issuable on exercise of any Lindner Warrants. "Lindner Note Agreement" shall mean any agreement approved by resolution of the Board entered into after the date of Amendment No. 1 to this Agreement between the Company and Lindner Dividend Fund, A Series of Lindner Investments, a Massachusetts business trust, relating to the issuance of a newly created series of Lindner Convertible Notes. "Lindner Convertible Notes" shall mean any debt securities convertible into Common Shares which are issued by the Company after the date of Amendment No. 1 to this Agreement pursuant to any Lindner Note Agreement. "Lindner Warrant Agreement" shall mean any agreement approved by resolution of the Board that is entered into after the date of Amendment No. 2 to this Agreement between the Company and Lindner Dividend Fund, A Series of Lindner Investments, a Massachusetts business trust, and that relates to the issuance of Lindner Warrants. "Lindner Warrants" shall mean any common stock purchase warrants for Common Shares which are issued by the Company after the date of Amendment No. 2 to this Agreement pursuant to any Lindner Warrant Agreement. (iii) Also notwithstanding anything to the contrary in the foregoing, neither Loomis Sayles nor any other Person shall be deemed to be the Beneficial Owner of, or to beneficially own, securities which such Person or any of such Person's Affiliates or Associates may acquire, does or do acquire, or may be deemed to have a right to acquire, as or pursuant to or in connection with any Tender Agreement (as defined below) or the issuance of securities pursuant to the consummation of any Offer to Exchange (as defined below), including without limitation the later issuance of any Common Shares in connection with the exercise of any warrants or other securities that were a part of any such issuance. "Offer to Exchange" shall mean any offer by the Company to exchange any or all of the Company's outstanding 6% Convertible Subordinated Debentures due 2012 ("6% Debentures") for such consideration as is approved by the Board (including, without limitation, one of or any combination of cash, promissory notes, Common Shares and warrants to purchase Common Shares. "Tender Agreement" shall mean any agreement approved by resolution of the Board between the Company and any Person, including, without limitation, Loomis Sayles & Company, L.P. ("Loomis Sayles"), that specifies the terms under which such Person will tender any and all of its 6% Debentures to the Company or will advise its clients to tender any and all of their 6% Debentures to the Company. SECTION 3. Miscellaneous. This Amendment may be executed in one or more ------------- counterparts, each of which shall be deemed to be an original, but all of which taken together shall 3 constitute one and the same agreement. This Amendment shall be governed by, and interpreted in accordance with, the laws of the State of Delaware. (signature page follows) 4 IN WITNESS WHEREOF, the Company and the Rights Agent have caused this Amendment to be executed as of the date and year first above written. THE COMPANY ----------- STREAMLOGIC CORPORATION Attest: By: /s/ Carmela LaMalfa By: /s/ Vivien Avella -------------------------- ------------------------- Name: Carmela LaMalfa Name: Vivien Avella Its: Its: Treasurer THE RIGHTS AGENT ---------------- FIRST INTERSTATE BANK OF CALIFORNIA (or its successor) Attest: By: /s/ Sharon Knepper By: /s/ Ronald Lug -------------------------- ------------------------- Name: Sharon Knepper Name: Ronald Lug Its: Assistant Vice President Its: Vice President ChaseMellon Shareholder Services as successor 5 EX-10.18 8 CONSULTING AGREEMENT EXHIBIT 10.18 CONSULTING AGREEMENT -------------------- Agreement made as of the First day of November, 1996 by and between CHRISS STREET & COMPANY, a California corporation maintaining its principal offices at 1111 Bayside Drive, Corona del Mar, California 92625 (hereinafter referred to as "Consultant") and STREAMLOGIC CORPORATION, a Delaware corporation maintaining its principal offices at 21329 Nordhoff Street, Chatsworth, California 91311 (hereinafter referred to as "STREAMLOGIC CORPORATION"). WITNESSETH: ---------- WHEREAS, STREAMLOGIC CORPORATION develops and markets leading-edge video delivery, digital media storage, and networking RAID and data management solutions; and WHEREAS, STREAMLOGIC CORPORATION is desirous of obtaining business and financial advisory services; and WHEREAS, Consultant is engaged in the business of providing and rendering business and financial advisory services, has knowledge, expertise and personnel to render the requisite services to STREAMLOGIC CORPORATION. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, it is agreed as follows: 1. Duties of Consultant. Consultant shall, at the request of STREAMLOGIC -------------------- CORPORATION, upon reasonable notice, render the following services to STREAMLOGIC CORPORATION. (a) Consulting Services. Consultant will provide such financial consulting ------------------- services and advice pertaining to STREAMLOGIC CORPORATION's business affairs as STREAMLOGIC CORPORATION may from time to time reasonably request. Without limiting the generality of the foregoing, Consultant will assist STREAMLOGIC CORPORATION in developing, studying and evaluating, corporate restructuring and repositioning proposals and assist in negotiations and discussions pertaining thereto. 2. Compensation. For the services to be rendered and performed by Consultant ------------ during the term hereof, STREAMLOGIC CORPORATION shall pay to Consultant the sum of $150,000.00 for investment banking services. Payment shall be made in two installments; $75,000 payable on signing and the remaining $75,000 payable on January 15, 1997. STREAMLOGIC CORPORATION shall also reimburse Consultant for all reasonable and necessary out-of-pocket expenses incurred in the performance of its duties for STREAMLOGIC CORPORATION upon presentation of statements setting forth in 1 reasonable detail the amount of such expenses. Consultant shall not incur any expense for any single item in excess of $500.00 except upon the prior approval of a representative of STREAMLOGIC CORPORATION. 3. Available Time. Consultant shall make available such time as it, in its -------------- sole discretion, shall deem appropriate for the performance of its obligation under this Agreement. 4. Relationship. Nothing herein shall constitute Consultant as an employee or ------------ agent of STREAMLOGIC CORPORATION, except to such extent as might hereinafter be agreed upon for a particular purpose. Except as might hereinafter be expressly agreed, Consultant shall not have the authority to obligate or commit STREAMLOGIC CORPORATION in any manner whatsoever. 5. Confidentiality of STREAMLOGIC CORPORATION Business Information. Consultant --------------------------------------------------------------- acknowledges that in the course of the performance of its duties and as a necessary incident thereof, STREAMLOGIC CORPORATION may make available or impart to Consultant or Consultant's agents, servants or employees certain financial and business information concerning the business, affairs, plans and programs of STREAMLOGIC CORPORATION (the "Proprietary Information"). Consultant acknowledges that the Proprietary Information would not otherwise be made available to it but for its relationship to STREAMLOGIC CORPORATION and that such Proprietary Information would not otherwise be publicly available or obtainable. Consultant agrees that neither it nor its officers, employees or agents will, during the term of this Agreement or at any time thereafter, disclose or divulge or use, directly or indirectly, for its own benefit, any of the Proprietary Information. Consultant further agrees that it will not use any of the Proprietary Information in connection with the purchase or sale of any securities of STREAMLOGIC CORPORATION. The provisions of the is Paragraph 5 shall survive the termination of this Agreement. 6. Indemnification by STREAMLOGIC CORPORATION as to Information Provided to ------------------------------------------------------------------------ Consultant. STREAMLOGIC CORPORATION acknowledges that Consultant, in the - ---------- performance of its duties, will be required to rely upon the accuracy and completeness of information supplied to it by STREAMLOGIC CORPORATION's officers, directors, agents and/or employees. STREAMLOGIC CORPORATION therefore agrees to indemnify, hold harmless and defend Consultant, its officers, agents and/or employees from any proceeding or suit which arises out of or is due to the inaccuracy or incompleteness of any material or information supplied by STREAMLOGIC CORPORATION to Consultant. 7. Term and Termination. This agreement shall be for one hundred fifty (150) -------------------- day period commencing November 1, 1996 and terminating March 31, 1997. 2 8. Notices. Any notice to be given by either party to the other hereunder ------- shall be sufficient if in writing and sent by registered or certified mail, return receipt requested, addressed to such party at the address specified on the first page of this Agreement or such other address as either party may have given to the other in writing. 9. Entire Agreement. The within agreement contains the entire agreement and ---------------- understanding between the parties and supersedes all prior negotiations, agreements and discussions concerning the subject matter hereof. 10. Modification and Waiver. This Agreement may not be altered or modified ----------------------- except by writing signed by each of the respective parties hereof. No breach or violation of this Agreement shall be waived except in writing executed by the party granting such waiver. 11. Law To Govern. This Agreement has been negotiated and executed in the State ------------- of California and shall be governed by the laws of the State of California. 12. Non-Assignment. This Agreement shall not be assigned by either party hereto -------------- except upon the prior written consent of the other. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first written above. CHRISS STREET & COMPANY By /s/ Chriss W. Street ----------------------- Chriss W. Street President STREAMLOGIC CORPORATION By /s/ J. Larry Smart ----------------------- J. Larry Smart President 3 EX-10.19 9 $1,250,000 PROMISSORY NOTE, DATED NOVEMBER 4, 1996 EXHIBIT 10.19 PROMISSORY NOTE ("Note") $1,250,000 November 4, 1996 For value received StreamLogic Software Corporation, a Delaware corporation ("Payor"), promises to pay to FWB Software, LLC, or order, ("Holder") the principal sum of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) with interest on the outstanding principal amount at a rate equal to 10.25% per annum, compounded daily, in accordance with terms of this Note. All payments of interest and principal shall be in lawful money of the United States of America. 1. This Note is secured by a Security Agreement by and between Payor and Holder dated November 4, 1996. 2. The outstanding principal balance of this Note shall be due and payable in eight quarterly installments of One Hundred Fifty-Six Thousand Two Hundred Fifty Dollars ($156,250), with the first payment of principal due on February 1, 1996, and the subsequent seven (7) payments due on the first day of each third month thereafter (each, a "Payment Date"). All unpaid interest on this Note accrued as of a Payment Date shall be due and payable on such Payment Date. 3. If a default occurs in any payment under this Note or in the performance of any of the agreements in the Security Agreement securing this Note, the entire principal sum and accrued interest will at once become due and payable, without notice, at the option of the Holder. Any amount due and payable hereunder that is not received by Holder when due shall accrue interest thereafter at a rate of 14.25% per annum, compounded daily. 4. Payor shall have the right to prepay all or any portion of the unpaid principal balance of this Note, together with accrued interest thereon, on all or any portion of the accrued interest on this Note at any time without any prepayment charge. 5. In the event of any default hereunder, Payor shall pay all reasonable attorneys' fees and court costs incurred by Holder in enforcing and collecting this Note. 6. Payor hereby waives demand, notice, presentment, protest and notice of dishonor. 7. The terms of this Note shall be construed in accordance with the laws of the State of California, without regard to the conflict of laws provisions thereof. 1 8. Notwithstanding any other term or provision of this Note, the rate of interest payable with respect to this Note shall not exceed the maximum permissible rate under applicable law, and any payments in excess of such rate shall be deemed to be prepayments of principal and not payments of interest. STREAMLOGIC SOFTWARE CORPORATION By /s/ J. Larry Smart ------------------------------ Its: ---------------------------- StreamLogic Corporation, a Delaware corporation, hereby guarantees timely payment by Payor in full of all principal and interest under this Note. STREAMLOGIC CORPORATION By /s/ J. Larry Smart ------------------------------ Its: ---------------------------- EX-10.20 10 FIRST AMENDMENT TO OPERATING AGREEMENT EXHIBIT 10.20 FIRST AMENDMENT TO OPERATING AGREEMENT OF FWB SOFTWARE, LLC This First Amendment to Operating Agreement of FWB Software, LLC ("First Amendment") is entered into as of November 4, 1996, by and between STREAMLOGIC SOFTWARE CORPORATION, a Delaware corporation ("Sub") and FWB SOFTWARE, INC., a California corporation ("FWB"). RECITALS -------- Sub and FWB previously formed FWB Software, LLC, a California limited liability company (the "Company") pursuant to that certain Operating Agreement dated as of July 1, 1996 (the "Original Agreement"). Capitalized terms used in this First Amendment and not otherwise defined shall have the meanings set forth in the Original Agreement. Sub and FWB desire to amend the Original Agreement to reflect a change in Sub's obligation to contribute to the capital of the Company and a change in the number of Shares to be issued to Sub. Therefore, Sub and FWB agree to amend the Original Agreement as follows: 1. Sub Contribution. Section 2.1(b) of the Original Agreement is amended to read in its entirety as follows: (b) Sub Contribution. At the Closing, Sub shall transfer, assign and deliver to the Company One Million Two Hundred Fifty-Six Thousand One Hundred Twenty-Three (1,256,123) shares of the common stock (the "Common Stock") of StreamLogic Corporation ("StreamLogic"). On November 4, 1996, Sub shall transfer, assign and deliver to the Company One Million Three Hundred Eighty Thousand (1,380,000) additional shares of Common Stock of StreamLogic. Also on November 4, 1996, Sub shall deliver to the Company Five Hundred Thousand Dollars ($500,000) in cash by wire transfer and shall deliver to the Company Sub's promissory note in the principal amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000), in the form attached to this First Amendment as Exhibit A (the "Promissory Note"). Sub's obligations under the Promissory Note shall be secured by the pledge of Sub's Shares, in the form of the security agreement attached to this First Amendment as Exhibit B. The Members agree that the net fair market value of Sub's contribution to the Company and the number of Shares issued in exchange therefor shall be as set forth in an amended Exhibit B to the Original Agreement, in the form attached to this First Amendment as Exhibit C. 2. Effect on Original Agreement. Except as expressly amended by this First Amendment, the Original Agreement shall remain in full force and effect. In the event of a conflict between the Original Agreement and this First Amendment, this First Amendment shall be controlling. The Members have executed this First Amendment as of the date set forth above. STREAMLOGIC SOFTWARE CORPORATION, a Delaware corporation By /s/ J. Larry Smart ------------------------------------- J. Larry Smart Title: ------------------ FWB SOFTWARE, INC., a California corporation By /s/ Norman Fong ------------------------------------- Norman Fong, President EXHIBIT C --------- AMENDED EXHIBIT B ----------------- CAPITAL CONTRIBUTIONS AND SHARE OWNERSHIP -----------------------------------------
Member's Value of Name and Address Capital Contributions Number of Shares ---------------- --------------------- ---------------- FWB Software, Inc. $63,068,183 9,250,000 185 Constitution Drive Suite A Menlo Park, California 94025 Stream Logic Software $ 5,113,636 750,000 Corporation 21329 Nordhoff Street Chatsworth, California 91311
EX-10.21 11 FIRST AMENDMENT TO COMPANY RIGHTS AGREEMENT EXHIBIT 10.21 FIRST AMENDMENT TO COMPANY RIGHTS AGREEMENT This First Amendment to Company Rights Agreement ("First Amendment") is entered into as of November 4, 1996, by and between STREAMLOGIC CORPORATION, a Delaware corporation ("StreamLogic") and FWB SOFTWARE, LLC., a California limited liability company ("FWB"). RECITALS -------- StreamLogic and FWB are parties to that certain Company Rights Agreement dated as of July 1, 1996 (the "Company Rights Agreement"). Capitalized terms used in this First Amendment and not otherwise defined shall have the meanings set forth in the Company Rights Agreement. Therefore, StreamLogic and FWB agree to amend the Company Rights Agreement as follows: 1. Lock-Up Provisions. Section 2.2(a) of the Company Rights Agreement is hereby deleted. 2. S-3 Registration. StreamLogic shall on or before November 4, 1996 at its expense amend its pending S-3 registration statement ("Registration Statement") for the shares of Common Stock of StreamLogic previously delivered to FWB under the Operating Agreement, dated as of July 1, 1996, between StreamLogic Software Corporation and FWB Software, Inc. ("Operating Agreement") to include the additional shares of Common Stock of StreamLogic to be delivered to FWB under Amendment No. 1 to the Operating Agreement dated as of November 4, 1996. StreamLogic shall use its best efforts to expedite and obtain effectiveness of the Registration Statement, as amended, under the Securities Act as soon as possible. 3. Effect on Original Agreement. Except as expressly amended by this First Amendment, the Company Rights Agreement shall remain in full force and effect. In the event of a conflict between the Company Rights Agreement and this First Amendment, this First Amendment shall be controlling. IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed by their respective officers thereunto duly authorized, as of the date set forth above. STREAMLOGIC CORPORATION, a Delaware corporation By /s/ J. Larry Smart ---------------------------- J. Larry Smart Chief Executive Officer FWB SOFTWARE, LLC, a California limited liability company By /s/ Norman Fong ---------------------------- Norman Fong, President EX-10.22 12 SHARE PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.22 SHARE PLEDGE AND SECURITY AGREEMENT THIS SHARE PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated as of November 4, 1996 is made by and between StreamLogic Software Corporation, a Delaware corporation ("Pledgor") and FWB Software, LLC, a California limited liability company ("Secured Party"). R E C I T A L S A. Pledgor is the owner of 750,000 membership shares (the "Pledged Shares") of FWB Software, LLC (the "Shares"), as evidenced by certificate numbers ____________. B. As security for the "Obligations" described in Section 2 below, Pledgor has agreed to make the pledge contemplated by this Agreement. IT IS AGREED: 1. Pledge. Pledgor hereby pledges and delivers to Secured Party, and grants to Secured Party a security interest in, all of the following (the "Pledged Collateral"): (a) The Pledged Shares and the certificate representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and (b) All additional Shares or other securities of Secured Party from time to time acquired by Pledgor in connection with any Share split, Share dividend or other distribution or exchange in respect of any Shares pledged hereunder, and the certificates representing such additional shares or other securities, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares. The inclusion of proceeds in this Agreement does not authorize Pledgor to sell, dispose of or otherwise use the Pledged Collateral in any manner not specifically authorized hereby. 2. Security for Obligations. This Agreement secures the payment and performance of (i) all indebtedness evidenced by, and all liabilities and obligations of Pledgor to Secured Party under, that certain Promissory Note executed by Pledgor dated November 4, 1996 in favor of Secured Party (the "Note"), and all modifications, renewals, extensions and rearrangements thereof and substitutions and replacements therefor, and (ii) all indebtedness, liabilities and obligations of Pledgor now or hereafter existing under this Agreement (all of the foregoing collectively the "Obligations"). 3. Delivery of Pledged Collateral. All certificates representing the Pledged Collateral, accompanied by instruments of transfer or assignment duly executed in blank by Pledgor, have been delivered to and held by or on behalf of Secured Party pursuant hereto, all in form and substance satisfactory to Secured Party. Upon the occurrence and during the continuation of an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default (as defined in Section 7 hereof). Secured Party shall have the right, in its discretion and without notice to Pledgor, to transfer to or to register in its name or the name of a nominee any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 5(a) hereof. In addition, Secured Party shall have the right at any time to exchange certificates representing the Pledged Collateral in its possession for certificates of smaller or larger denominations. 4. Representations and Warranties. Pledgor represents and warrants as follows: (a) Pledgor is a corporation organized and in good standing under the laws of the State of Delaware and has full power and authority to enter into and perform all of its obligations under this Agreement. (b) The execution, delivery and performance by Pledgor of this Agreement do not violate any provision of any statute, law, rule, regulation, judgment, order or decree binding upon Pledgor and will not conflict with, or constitute a breach or default under, any indenture, loan agreement, contract or other agreement or instrument to which Pledgor is a party or by which Pledgor or any of its property is bound. (c) No authorization, consent or approval or other action by, and no notice to or other filing with, any governmental authority or regulatory body is required either (i) for the execution and delivery by Pledgor of this Agreement, the pledge by Pledgor of the Pledged Collateral pursuant hereto or the performance by Pledgor of any of its obligations hereunder, or (ii) for the exercise by Secured Party of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant hereto (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally). (d) Pledgor is, and in the case of any Pledged Collateral other than the Pledged Shares will be, the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option, charge or encumbrance, except for the security interest created by this Agreement. (e) The pledge of the Pledged Shares creates a valid and perfected first priority security interest in the Pledged Collateral, securing payment of the Obligations. 5. Voting Rights; Dividends, Etc. (a) So long as no Event of Default or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any document, agreement or instrument entered into in connection with the Note. (ii) Pledgor shall be entitled to receive and retain any and all cash dividends paid in respect of the Pledged Collateral; provided, however, that all other dividends and Shares, property or otherwise, including dividends representing Shares or liquidating dividends, or a distribution or return of capital upon or in respect of the Pledged Collateral, or any part thereof, or resulting from a split-up, revision or reclassification of the Pledged Shares or any part thereof, or received in exchange for the Pledged Shares or any part thereof as a result of a merger, consolidation or otherwise, shall be paid, delivered and transferred directly to Secured Party immediately upon receipt thereof by Pledgor, or, if received by Secured Party, shall be retained by Secured Party as part of the Pledged Shares. (b) Upon the occurrence and during the continuation of an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default: (i) All rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 5(a)(i) shall cease, and all such rights shall thereupon become vested in Secured Party, who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) Secured Party shall be entitled to receive and retain any and all cash dividends paid in respect of the Pledged Collateral. (iii) All dividends and other distributions which are received by Pledgor contrary to the provisions of this Agreement shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Secured Party as payment in respect of the Obligations (with any necessary endorsements). 6. Transfers and Other Liens; Additional Shares. (a) Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest created by this Agreement or except as set forth below. (b) Pledgor agrees that it will pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional Shares or other securities it may acquire in connection with any Share split, Share dividend or other distribution or exchange in respect of any Shares or other securities pledged hereunder. 7. Events of Default. Pledgor shall be in default under this Agreement upon the happening of any of the following events (each an "Event of Default"): (a) Pledgor fails to pay or perform when due any of the Obligations; (b) Any representation or warranty made by Pledgor in connection with this Agreement proves to be false in any material respect when made; (c) Pledgor makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they mature, applies to any court for the appointment of a trustee or receiver of any substantial part of its properties, or commences any voluntary proceedings under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other similar law of any jurisdiction; or (d) Any such application or any such proceedings described in (c) above are filed or commenced against Pledgor and Pledgor indicates its approval, consent of acquiescence thereto, or an order is entered adjudicating Pledgor or any such endorser, guarantor or surety bankrupt or insolvent and such order remains in effect for thirty (30) days. 8. Rights and Remedies Upon Default. If any Event of Default shall have occurred: (a) Secured Party shall have, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of California at that time, and Secured Party may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more private sales, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Secured Party is authorized at any such sale, if Secured Party deems it advisable, to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account and not with a view to the distribution or sale of any such Pledged Collateral. Each purchaser at any such sale shall hold the Pledged Collateral acquired at such sale absolutely free from any claim or right of any kind, including any equity or right of redemption of Pledgor, and Pledgor hereby expressly waives all rights of redemption, stay or appraisement which it has or may have under any rule, law or statute now or hereafter existing. Pledgor agrees that, to the extent notice of sale shall be required by law, at least five (5) days' notice to Pledgor of the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Secured Party may adjourn any private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, by made at the time and place to which it was so adjourned. Secured Party may, instead of exercising the powers of sale provided for herein and under the Code, proceed by a suit or suits, at law or in equity, to foreclose the pledge of this Agreement and sell the Pledged Collateral, or any portion thereof, under a judgment or decree of any court or courts of competent jurisdiction. (b) Any cash held by Secured Party as Pledged Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and/or then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of the Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (c) All rights and remedies of Secured Party expressed herein are in addition to all other rights and remedies possessed by Secured Party in any other agreement or instrument entered into in connection with or relating to the Obligation or by law. (d) Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. (e) Pledgor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to Secured Party, and that Secured Party has no adequate remedy at law in respect of any such breach and, as a consequence, Pledgor agrees that each and every covenant contained in this Section shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred. 9. Continuing Pledge. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon Pledgor and its successors and assigns, and (iii) inure to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), Secured Party may assign or otherwise transfer any of its rights under this Agreement to any other person, and such person shall thereupon become vested with all the benefits in respect thereof granted to Secured Party herein or otherwise, provided that such members shall continue to remain liable for and shall not be released from any obligations of such members under this Agreement. Upon payment in full of the Obligations, Pledgor shall be entitled to the return, at Pledgor's expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. 10. Further Assurances. Pledgor agrees that it will, at its own expense, promptly execute, acknowledge and deliver all such documents and instruments, and take all such actions, as the Secured Party may from time to time request in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder and otherwise to effectuate the purposes of this Agreement and carry out the terms hereof. 11. Waivers; Remedies Cumulative. No failure on the part of Secured Party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder by Secured Party preclude any other or further exercise thereof or the exercise of any other right or remedy. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 12. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be delivered by hand or mailed by first class mail, registered or certified, return receipt requested, postage prepaid, and properly addressed, to the party at the addresses set forth below. (a) If to Pledgor: (b) If to Secured Party at: FWB Software, Inc. 185 Constitution Avenue Suite A Menlo Park, CA Attention: Norman Fong All such notices, requests, demands and other communications shall be effective only upon receipt. Any party may change its address for notice given in accordance with this Section 12. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed in the State of California, except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Pledged Collateral are governed by the laws of a jurisdiction other than the State of California. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. This Agreement shall be given a fair and reasonable construction in accordance with the intention of the parties and without regard to, or aid of, Section 1654 of the California Civil Code. 14. Miscellaneous. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated, except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. The captions in this Agreement have been inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties have executed this Share Pledge and Security Agreement as of the date first above written. PLEDGOR: SECURED PARTY StreamLogic Software Corporation FWB Software, LLC By: /s/ J. Larry Smart By: /s/ Norman Fong ----------------------------- ------------------------------- J. Larry Smart Norman Fong, President Title: -------------------------- EX-10.23 13 LETTER DATED NOVEMBER 12, 1996 - MR. ERIC HERZOG EXHIBIT 10.23 [LETTERHEAD OF STREAMLOGIC CORPORATION] November 12, 1996 Mr. Eric Herzog 2775 Calle De La Loma Pleasanton, CA 94566 Dear Eric: Congratulations! I am pleased to confirm your promotion to the position of Sr. Vice President, Marketing. The terms of your promotion will be as follows: . Annual salary of $165,000 effective November 12, 1996. . Change from the 20,000 shares granted on October 18, 1996 to 45,000 shares effective the same date. The terms and vesting schedule are described in your Incentive Stock Option Agreement enclosed. Eric, thank you for your continued contributions to making StreamLogic successful. Sincerely, /s/ J. Larry Smart J. Larry Smart, CEO cc: Sue Whitfield EX-10.24 14 LETTER DATED NOVEMBER 12, 1996 - MR. STEVE DALTON EXHIBIT 10.24 [LETTERHEAD OF STREAMLOGIC CORPORATION] November 12, 1996 Mr. Steve Dalton 570 Kelly Way Palo Alto, CA 94306 Dear Steve: Congratulations! I am pleased to confirm your promotion to the position of Sr. Vice President, Engineering. The terms of your promotion will be as follows: . Annual salary of $165,000 retroactive to September 1, 1996. . Change from the 43,000 shares granted on October 18, 1996 to 68,000 shares effective the same date. The terms and vesting schedule are described in your Incentive Stock Option Agreement enclosed. . You will be eligible to participate in the StreamLogic Bonus Plan with a maximum payout of $50,000 annually. We will work together to establish the objectives for the Bonus Plan. The Bonus Plan will be divided into two six month periods annually from your first day of employment, with a maximum payout of $25,000 per each six month period. The Bonus Plan will be paid upon completion of each six month period. Objectives for the second Bonus Plan period will be set within two weeks of its commencement. Steve, thank you for your continuing contributions to making StreamLogic successful. Sincerely, /s/ J. Larry Smart J. Larry Smart, CEO cc: Sue Whitfield EX-10.25 15 SEVERANCE AGREEMENT, DATED AS OF NOVEMBER 21, 1996 EXHIBIT 10.25 StreamLogic Corporation Severance Agreement with Barbara V. Scherer This Severance Agreement ("Agreement") is made as of November 21, 1996 (the "Effective Date"), by and between StreamLogic Corporation, a Delaware corporation ("Streamlogic") and Barbara V. Scherer, ("Executive"). WHEREAS, StreamLogic desires to retain the services of Executive and Executive desires to be employed by StreamLogic; WHEREAS, StreamLogic desires to provide an incentive to Executive to provide an orderly transition should Executive decide to resign from StreamLogic; WHEREAS, the Company has announced its plans to consolidate operations into the Bay Area and Executive has informed Company that the Relocation Plan offered to Executive would not be sufficient to cover all of the costs, expenses, and lost income to Executive incident to such a Relocation on a personal basis; WHEREAS, StreamLogic and Executive have agreed to negotiate in good faith exceptions to the Relocation Plan for the purpose of mitigating the personal costs and hardships involved with Executive's relocation, but to date no such negotiations have occurred and there can be no assurance that the result of such negotiations would be satisfactory to either Executive or StreamLogic; WHEREAS, StreamLogic has limited cash resources, is losing money from operations, and cannot reliably predict a certain return to profitability nor can it provide reasonable assurances that it will obtain significant additional sources of cash should losses from operations require such additional cash resources; WHEREAS, circumstances may arise which would make it advisable and/or necessary for StreamLogic to ask Executive to resign; WHEREAS, StreamLogic and Executive desire to provide for certain rights and obligations with respect to Executive's termination of Employment, in the event such termination of Employment should occur on or before the eighteenth month following the Effective Date of this Agreement. NOW THEREFORE, in consideration of the mutual agreements and understandings set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, StreamLogic and Executive hereby agree as follows: 1. Definitions. ----------- (a) Cause. "Cause" shall mean: ----- (1) Executive's conviction of a crime involving moral turpitude; (2) A willful act by Executive that constitutes misconduct and is materially injurious to StreamLogic; and (3) The commission of any act by Executive which results in the termination of Executive's employment in accordance with the "Work Performance and Conduct" section of the StreamLogic Employee Handbook. (4) The willful failure by Executive to provide an Orderly Transition of her duties and responsibilities as set forth in Paragraph 3 of this Agreement. 2. Severance Payments upon Certain Termination. ------------------------------------------- (a) Severance Payments. Executive's employment with StreamLogic ------------------ is not for any specified term and may be terminated by Executive or by StreamLogic at any time for any reason, with or without Cause; provided, however, that if, on or prior to the eighteenth month following the Effective Date, StreamLogic shall terminate Executive's employment other than for Cause, or if Executive shall resign from her position for any reason, in lieu of any other severance benefits payable to Executive, Executive shall be entitled to a lump sum amount equal to 52 weeks ($3,808 per week, as may be increased from time to time by StreamLogic (the "Base Salary Amount"). The total amount of severance, for example if there has been no Base Salary Adjustment, would be $198,016. Such amount is payable to Executive upon Executive's last day of employment with the Company. (b) No Repayment of Certain Relocation Expenses. Executive ------------------------------------------- will begin the process of relocating to the Bay Area as it is her current intention to relocate with the Company. However, in the event Executive voluntarily resigns from the Company, Executive shall not be obligated to repay to the Company the cost of house hunting trips or other miscellaneous expenses, not to exceed $5,000, incurred in the good faith effort to relocate to the Bay Area. 3. Orderly Transition. Executive has the affirmative obligation to ------------------ assist in providing an orderly transition of her duties and responsibilities in the event that either she voluntarily resigns, or resigns at the request of StreamLogic. An orderly transition shall include the provision of at least 30 days notice to StreamLogic by Executive of resignation prior to last day of employment with StreamLogic, pro-active recruiting efforts to identify potential candidates for both the CFO and the VP, Operations responsibilities for the purpose of advancing the search in the event Executive's employment with StreamLogic is terminated, and training a Controller or other senior financial staff in various elements of Executive's responsibilities in order to effect an orderly transition. 4. Stock Option Vesting. In recognition of Executive's long and -------------------- valuable service to the Company, and as additional compensation for the duties and responsibilities being carried out by Executive, the Company hereby agrees to vest Executive's remaining unvested stock option grants outstanding as of the Effective Date. Future grants, if any, will be issued under the terms and conditions then in practice by the Company. 5. Establishment of Grantor Trust. Executive has the right at any ------------------------------ time to have the Company establish a grantor trust, such that the funds for the entire amount of the severance would be deposited into the trust. The Company has the obligation to carry out Executive's demand, should it be made, without further question, as fast as practicable. Executive is not now making a request for such a trust, in the interest of minimizing workload and expense, and in the interest of keeping this agreement as confidential as the Company wishes it to be. 6. Notices. Any notice, request, claim, demand, document and other ------- communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, or other similar means of communication, as follows: (a) If to StreamLogic, addressed to its principal executive offices to the attention of its Director - Human Resources; (b) If to Executive, to her at the address set forth below under her signature; or to any such other address as either party shall have specified by notice in writing to the other. 7. Entire Agreement. This Agreement constitutes the complete and ---------------- entire agreement between Executive and StreamLogic regarding any and all aspects of their employment relationship and supersedes any and all prior written or oral agreements, understandings or commitments. Executive understands that no representative of StreamLogic has been authorized to enter into any agreement, understanding or commitment with Executive which is inconsistent in any way with the terms of this Agreement. 8. Governing Law. The validity, interpretation, enforceability, and ------------- performance of this Agreement shall be governed by and construed in accordance with the law of the State of California. 9. Arbitration. Any controversy between Executive and StreamLogic or ----------- any employee, director or stockholder of StreamLogic, involving the construction or application of any of the terms, provisions or conditions of this Agreement or otherwise arising out of or related to this Agreement, shall be settled by arbitration in accordance with the then current commercial arbitration rules of the American Arbitration Association, and judgment on the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The location of the arbitration shall be Los Angeles, California. 10. Amendment. All terms set forth in this Agreement may not be --------- modified in any way except by a written agreement signed by Executive and by an authorized representative of StreamLogic which expressly states the intention of the parties to modify the terms of this Agreement. 11. Severability. If any provision of this Agreement, or the ------------ application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 12. Successors. StreamLogic will require any successor (whether ---------- direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of StreamLogic to expressly assume and agree to perform this Agreement in the same manner and to the same extent that StreamLogic would be required to perform it if no such succession had taken place. Effective upon such assumption, StreamLogic shall have no further obligation or liability under or with respect to this Agreement. As used in this Agreement, "StreamLogic" shall mean StreamLogic as herein being defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 10 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 13. Termination. This Agreement shall terminate in full upon ----------- the earliest to occur of (i) a termination of Executive's employment with StreamLogic that would not entitle Executive to a payment pursuant to Section 2(a), or (ii) the eighteenth month following the Effective Date. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. StreamLogic: StreamLogic Corporation a Delaware corporation by: /s/ J. Larry Smart ----------------------------- J. Larry Smart Its: Chairman, CEO and President --------------------------- Executive: /s/ Barbara V. Scherer -------------------------------- Barbara V. Scherer cc: Director, Human Resources EX-27 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STREAMLOGIC CORPORATION AS OF AND FOR THE THREE-MONTH PERIOD ENDED DECEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 3-MOS MAR-28-1997 SEP-28-1996 DEC-27-1996 9,783 0 6,754 3,687 13,697 32,384 6,258 21,686 49,789 25,585 4,789 0 0 33,523 9,113 49,789 11,844 11,844 9,827 9,827 7,138 0 174 (5,045) 50 (5,095) 0 24,448 0 19,353 0.81 0.81
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