-----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, WkBgxaqrUeQMUXUYgH1/fsDiDCJ+H9TRhlIExiA+iovl4/t2m0dPMy4tA00hQHAQ 8SlcLJ2ndHpBYMwL8SSPRg== 0000950149-98-000449.txt : 19980319 0000950149-98-000449.hdr.sgml : 19980319 ACCESSION NUMBER: 0000950149-98-000449 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980303 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980318 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: 8-K SEC ACT: SEC FILE NUMBER: 000-12046 FILM NUMBER: 98568197 BUSINESS ADDRESS: STREET 1: 8450 CENTRAL AVENUE CITY: NEWARK STATE: CA ZIP: 94560 BUSINESS PHONE: 5106084000 MAIL ADDRESS: STREET 1: 8450 CENTRAL AVENUE CITY: NEWARK STATE: CA ZIP: 94560 FORMER COMPANY: FORMER CONFORMED NAME: MICROPOLIS CORP DATE OF NAME CHANGE: 19920703 8-K 1 DATE OF REPORT - MARCH 3, 1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 3, 1998 STREAMLOGIC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3093858 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) COMMISSION FILE NUMBER: 0-12046 8450 CENTRAL AVENUE NEWARK, CALIFORNIA 94560 (Address of principal executive offices and zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 608-4000 ================================================================================ 2 ITEM 3. BANKRUPTCY OR RECEIVERSHIP. (b) (1) - (2) On June 26, 1997, StreamLogic Corporation (the "Debtor") filed a voluntary petition in the United States Bankruptcy Court for the Northern District of California, San Francisco Division (the "Bankruptcy Court"), seeking protection under Chapter 11 of the United States Bankruptcy Code. On March 3, 1998, the Bankruptcy Court issued its order (the "Confirmation Order") confirming and approving the Debtor's First Amended Plan of Reorganization (Dated January 15, 1998), subject to certain modifications set forth in the Confirmation Order. The Debtor's First Amended Plan of Reorganization (Dated January 15, 1998), as modified by the Confirmation Order, is referred to herein as the "Modified Plan." The Modified Plan is expected to become effective on March 31, 1998 (the "Effective Date"). (b) (3) The material features of the Modified Plan are summarized as follows. Unless otherwise provided herein, capitalized terms shall have the meanings ascribed to such terms in the Modified Plan filed as Exhibit 99.1 hereto. Under the terms of the Modified Plan, the Reorganized Debtor will retain certain core assets of its Hammer Storage Solutions(R) business (the "Hammer Assets"), and the estate remaining on and after the Effective Date (the "Distribution Estate") will retain and sell all other assets (the "Non-Hammer Assets"). The Distribution Estate will receive 3,500,000 shares of common stock of the Reorganized Debtor. The assets of the Distribution Estate, including the Non-Hammer Assets, will be managed by a bonded Distribution Agent and sold for the benefit of the Debtor's creditors. Current shareholders, consistent with the priority scheme set forth in the Bankruptcy Code and the present lack of equity in the Debtor, will receive nothing under the terms of the Modified Plan. The Modified Plan is the product of extensive negotiations over the course of several months among the Debtor, the Official Committee of Unsecured Creditors (the "Committee") and Michael O. Preletz, Chief Executive Officer of the Debtor ("Preletz"), Chapman A. Stranahan, President of the Debtor ("Stranahan"), and certain other investors affiliated with Preletz and Stranahan (collectively, with Preletz and Stranahan, the "Preletz Group") to design a plan which maximizes the recoveries to the Debtor's creditors and other parties in interest and creates a sound capital structure for the reorganized entity. Under the Modified Plan, the Reorganized Debtor will emerge from Chapter 11 proceedings recapitalized and prepared to implement a business plan. All existing shares of common stock of the Debtor will be canceled on the Effective Date, and the Reorganized Debtor will issue new shares of common stock in favor of the Debtor's creditors and the Preletz Group. As described above, the Distribution Estate will receive 3,500,000 shares. In addition, the Preletz Group will receive 2,000,000 shares in exchange for a cash investment of $650,000; 2,000,000 shares will be distributed directly to creditors in exchange for cash investments of $650,000 in the aggregate, pursuant to a creditors' rights offering; and 2,500,000 shares will be available for distribution pursuant to stock options that may be granted to management and nonmanagement employees. 2 3 Thereafter, an additional 10,000,000 shares may be issued by the Reorganized Debtor through various stock options or sales, within limitations described in the Modified Plan. The Modified Plan designates various classes of Claims and Interests and provides for distribution rights for each such class, in a manner consistent with the priority system of the Bankruptcy Code. The net proceeds of sale of all assets in the Distribution Estate, after costs and full payment of priority expenses and claims, will be distributed on a pro-rata basis to holders of Allowed Claims, until all funds of the Distribution Estate have been exhausted. (b)(4) As of March 3, 1998, approximately 33,543,544 shares of common stock of the Debtor were issued and outstanding. On and after the Effective Date, the Reorganized Debtor shall be authorized to issue up to 20,000,000 shares of common stock (the "Reorganized Shares"), provided that, of such amount: (a) 5,000,000 shares may be issued at any time at the discretion of the Reorganized Debtor's board of directors in its business judgment, in return for new capital investments by the Preletz Group or by one or more third parties, at a per-share price that is not less than the greater of (i) $1.00 or (ii) current market value as of the date of issuance, to the extent that such market value can be reasonably ascertained; and (b) the other 15,000,000 shares may be issued only upon the following terms: (i) DISTRIBUTION ESTATE'S SHARES. On the Effective Date, the Reorganized Debtor shall issue 3,500,000 Reorganized Shares to the Distribution Estate, in exchange for, among other things, the revesting of the Hammer Assets in the Reorganized Debtor. (ii) PARTICIPATING CREDITORS' SHARES. On the Effective Date, the Reorganized Debtor shall issue 2,000,000 Reorganized Shares to Participating Creditors, in exchange for their aggregate contribution of cash of $650,000.00, pursuant to Section 8.2 of the Modified Plan. (iii) PRELETZ GROUP SHARES. On the Effective Date, the Reorganized Debtor shall issue 2,000,000 Reorganized Shares to the Preletz Group, or its nominees, in exchange for its contribution of cash of $650,000.00, pursuant to the provisions of Section 7.4.3 of the Modified Plan. (iv) STOCK OPTION SHARES. At any time on and after the Effective Date, the Reorganized Debtor, at its management's discretion, may issue up to 2,500,000 Reorganized Shares pursuant to "Employee Stock Options," pursuant to the terms and conditions of the Modified Plan. (v) ADDITIONAL SHARES. In addition to the foregoing, the Reorganized Debtor may issue up to an additional 5,000,000 Reorganized Shares at any time, at the discretion of the Reorganized Debtor's management in its business judgment, pursuant to the terms and conditions of the Modified Plan. 3 4 (b)(5) For information as to the assets and liabilities of the Debtor, reference is made to the Monthly Operating Report for the Month of January 1998 (as filed with the United States Bankruptcy Court for the Northern District of California, San Francisco Division), filed with the Securities and Exchange Commission on February 26, 1998 under cover of Current Report on Form 8-K, which is incorporated by reference herein. ITEM 5. OTHER EVENTS. See Press Release dated March 4, 1998 attached as Exhibit 99.5. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. Exhibits 99.1 Debtor's First Amended Plan of Reorganization (Dated January 15, 1998). 99.2 Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (Without exhibits -- exhibits will be furnished upon request to the Company.) 99.3 Order Confirming Debtor's Plan of Reorganization. 99.4 Findings of Fact and Conclusions of Law Regarding Plan of Reorganization. 99.5 Press Release dated March 4, 1998. 4 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. STREAMLOGIC CORPORATION (Registrant) Date: March 17, 1998 By /s/ Chapman A. Stranahan ------------------------- Chapman A. Stranahan President 5 6 Exhibit Index 99.1 Debtor's First Amended Plan of Reorganization (Dated January 15, 1998). 99.2 Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (Without exhibits -- exhibits will be furnished upon request to the Company.). 99.3 Order Confirming Debtor's Plan of Reorganization. 99.4 Findings of Fact and Conclusions of Law Regarding Plan of Reorganization. 99.5 Press Release dated March 4, 1998. 6 EX-99.1 2 DEBTOR'S 1ST AMENDED PLAN OF REORG. DATED 1,15,98 1 EXHIBIT 99.1 DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION (Dated January 15, 1998) 2 FILED JAN 15, 1998 KEENAN G. CASADY, CLERK UNITED STATES BANKRUPTCY COURT SAN FRANCISCO, CA GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation MERLE C. MEYERS, ESQ. #66849 KATHERINE D. RAY, ESQ. #121002 KENNETH G. DEJARNETTE, ESQ. #168074 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Telephone: (415) 362-5045 Counsel for Debtor-In-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION In re ) Case No. 97-32984 DM ) STREAMLOGIC CORPORATION, ) Under Chapter 11 a Delaware corporation, ) formerly known as ) Micropolis Corporation, ) ) Debtor. ) ) Tax Id. No. 95-3093858 ) _____________________________) DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION (Dated January 15, 1998) 3 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITION AND CONSTRUCTION OF TERMS........................................1 1.1. Definitions.....................................................1 1.2. Other Terms.....................................................1 1.3. Construction of Certain Terms...................................1 1.4. Plan Controls...................................................2 ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT..........................2 2.1. Classification..................................................2 2.1.1. Class A (Priority Claims)............................3 2.1.2. Class B (Secured Claims).............................3 2.1.3. Class C (Convenience Claims).........................3 2.1.4. Class D (General Unsecured Claims)...................3 2.1.5. Class E (Interests)..................................3 2.2. Impairment......................................................3 ARTICLE III TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS..................................3 3.1. Generally.......................................................3 3.2. Administrative Bar Date.........................................4 3.3. Penalties and Interest..........................................5 3.4. Payment.........................................................5 3.4.1. Generally............................................5 3.4.2. Certain Ordinary Course Expenses.....................6 ARTICLE IV TREATMENT OF UNIMPAIRED CLASSES.............................................6 4.1. Class A (Priority Claims).......................................6 4.2. Class B (Secured Claims)........................................7 4.2.1. Reinstatement........................................8 4.2.2. Full Satisfaction....................................8 4.2.3. Abandonment, Foreclosure and Deficiency..............9 ARTICLE V TREATMENT OF IMPAIRED CLASSES...............................................9 5.1. Class C (Convenience Claims)....................................10 5.1.1. Opt-Out Election.....................................10 5.1.2. Opt-In Election......................................10 5.2. Class D (General Unsecured Claims)..............................10 5.2.1. Cash Distributions...................................11 5.2.1.1. Payments Commenced........................11 5.2.1.2. Payments Ceased...........................11 5.2.2. Pro-Rata Calculations................................11 5.2.3. Pari Passu Treatment.................................12 5.2.4. Stock Distribution...................................13 5.2.4.1. Pro Rata..................................13
i 4 5.2.4.2. Value.....................................13 5.2.4.3. Fractional and Remainder Shares....................................13 5.2.5. Subordination........................................14 5.2.6. Provisions Affecting Public Debt Securities...........................................14 5.2.6.1. Record Date...............................15 5.2.6.2. Manner of Distributions; Surrender of Public Debt Securities................................15 5.2.6.3. Compensation of Indenture Trustees..................................17 5.2.6.3.1. From Estate....................17 5.2.6.3.2. From Distribution..............18 5.2.6.4. Unclaimed Distributions...................19 5.3. Class E (Interests).............................................19 5.3.1. No Distributions.....................................19 5.3.2. Cancellation.........................................19 ARTICLE VI EXECUTORY CONTRACTS.........................................................20 6.1. Generally.......................................................20 6.2. Assumption and Rejection........................................20 6.2.1. Schedule.............................................20 6.2.2. Rejection............................................20 6.2.3. Assumption...........................................21 6.3. Cure Amounts....................................................21 6.4. Payment of Cure.................................................22 6.4.1. Payment by Reorganized Debtor........................22 6.4.2. Payment by Distribution Agent........................22 6.4.3. Timing of Payment....................................22 6.5. Approval of Assumption or Rejection.............................23 6.6. Bar Date for Rejection Claims...................................23 ARTICLE VII MEANS FOR EXECUTION OF THE PLAN.............................................24 7.1. Plan Effectiveness..............................................24 7.2. Vesting of Estate Property......................................24 7.2.1. Vesting in Reorganized Debtor........................24 7.2.2. Vesting in Distribution Estate.......................25 7.2.3. Preletz Group Withdrawal.............................25 7.3. Hammer and Non-Hammer Assets....................................26 7.3.1. Hammer Assets........................................26 7.3.2. Non-Hammer Assets....................................28 7.4. Effective Date Actions..........................................29 7.4.1. Revesting of Hammer Assets...........................30 7.4.2. Retention of Non-Hammer Assets.......................30 7.4.3. Preletz Group Contribution...........................30 7.4.4. Participating Creditors' Contribution................31 7.4.5. Cancellation and Issuance of Stock...................31 7.4.6. Modification of Articles and By-Laws.................31
ii 5 7.4.7. Payments by Reorganized Debtor.....................31 7.4.8. Payments by Distribution Agent.....................31 7.4.9. Other Releases of Liens and Instruments............32 7.4.10. Distribution Estate Accounts.......................32 7.4.11. Other Documents....................................32 7.5. Other Actions.................................................33 7.6. Preservation and Vesting of Causes of Action..................33 7.6.1. Vesting in Reorganized Debtor......................33 7.6.2. Vesting in Distribution Estate.....................33 7.7. Distribution Agent............................................34 7.7.1. Selection..........................................34 7.7.2. Responsibility and Fidelity........................34 7.7.3. Tenure and Replacement.............................35 7.8. Distribution Estate...........................................35 7.8.1. Accounts...........................................35 7.8.2. Distribution Agent's Duty..........................35 7.8.3. Administration.....................................36 7.8.3.1. Smaller Sales...........................36 7.8.3.2. Other Dispositions......................37 7.8.4. Deposits...........................................37 7.8.5. Disbursements......................................37 7.8.6. Periodic Distributions.............................38 7.8.7. [INTENTIONALLY OMITTED]............................38 7.8.8. Unclaimed Payments to Claimants....................38 7.9. Committee.....................................................39 7.9.1. Membership.........................................39 7.9.2. Retention of Professionals.........................39 7.10. Postconfirmation Fees and Expenses............................40 7.10.1. Court Approval.....................................40 7.10.2. Payment of Fees....................................41 7.10.3. Reporting to the United States Trustee.............41 7.11. Objections to Claims..........................................42 7.12. Term of Injunctions and Stays.................................42 ARTICLE VIII CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR.......................42 8.1. Capitalization of Reorganized Debtor..........................42 8.1.1. Estate's Shares....................................43 8.1.2. Participating Creditors' Shares....................43 8.1.3. Preletz Group Shares...............................43 8.1.4. Stock Option Shares................................43 8.1.4.1. Employee Stock Options..................44 8.1.4.2. To Management...........................44 8.1.4.3. To Others...............................44 8.1.5. Additional Shares..................................44 8.1.5.1. New Capital.............................45 8.1.5.2. Preletz Group Options...................45 8.1.5.3. Additional Employee Options.............46 8.2. Creditors' Rights Offering....................................46 8.2.1. Subscription Rights................................46 8.2.2. Interim Claim......................................47
iii 6 8.2.3. Subscription Exercise................................47 8.2.4. Standby Commitment...................................48 8.2.5. Notification and Deposit.............................48 8.2.6. Segregated Account...................................49 8.2.7. Determinations by Committee..........................49 8.2.8. Untimely Contributions...............................50 8.2.9. Distributions........................................50 8.2.10. Special Considerations...............................50 8.3. Corporate Governance of Reorganized Debtor......................50 8.3.1. Operational Control..................................51 8.3.2. Board of Directors...................................51 8.3.3. Formalized Provisions................................51 8.3.4. Extraordinary Actions................................51 8.3.5. Relocation and Rent..................................52 8.3.6. Free Services........................................52 8.3.7. Public Market........................................53 8.3.8. Prohibition..........................................53 ARTICLE IX ASSUMPTION, DISCHARGE AND EXCULPATION.......................................53 9.1. Reorganized Debtor's Assumption of Liabilities..................53 9.2. Discharge.......................................................54 9.3. Exculpation of Certain Persons..................................55 9.4. Immunity........................................................56 ARTICLE X RETENTION OF JURISDICTION...................................................57 10.1. Generally.......................................................57 ARTICLE XI MISCELLANEOUS PROVISIONS....................................................58 11.1. Exemption from Transfer Taxes...................................58 11.2. Section 1145(a) Exemption from Registration.....................59 11.3. Binding Effect..................................................59 11.4. Ratification....................................................60 11.5. Notices.........................................................60 11.6. Governing Law...................................................62 11.7. Headings........................................................62 11.8. Exhibits........................................................63 11.9. Closing Case....................................................63 11.10. Expenses........................................................63 11.11. Modification and Enforcement....................................64 11.11.1. Modification.........................................64 11.11.2. Enforcement..........................................64 EXHIBITS TO PLAN OF REORGANIZATION EXHIBIT "A" SCHEDULE OF DEFINITIONS..................................A-1
iii 7 STREAMLOGIC CORPORATION, a Delaware corporation formerly known as Micropolis Corporation and the debtor-in-possession herein (the "Debtor"), hereby proposes this Debtor's First Amended Plan Of Reorganization (Dated January 15, 1998) (as it may be altered, amended or modified from time to time, the "Plan") in the within chapter 11 case, for the reorganization of the Debtor's financial affairs, pursuant to the provisions of Section 1121(a) of title 11 of the United States Code: ARTICLE I DEFINITION AND CONSTRUCTION OF TERMS 1.1. Definitions. As used herein, capitalized terms shall have the meanings set forth in the schedule of definitions attached hereto and incorporated herein as EXHIBIT "A." 1.2. Other Terms. Any term used in the Plan that is not defined herein or in Exhibit "A" shall have the meaning ascribed to that term, if any, in the Bankruptcy Code. A term used in this Plan and not defined herein or in the Bankruptcy Code, but which is defined in the Bankruptcy Rules, shall have the meaning assigned to the term in the Bankruptcy Rules. 1.3. Construction of Certain Terms. In addition to the foregoing, the following shall apply: A. The words "herein," "hereof," "hereto," "hereunder," and others of similar import refer to the Plan as a whole and not to any particular section, subsection, or clause contained in the Plan. 1 8 B. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. 1.4. Plan Controls. To the extent of any inconsistencies between the Plan and the Disclosure Statement, the provisions of this Plan shall control and prevail. ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS; IMPAIRMENT 2.1. Classification. The following is a designation of the Classes of Claims and Interests in the Plan. Administrative Expense Claims and Priority Tax Claims (that is, the Nonclassified Priority Claims) have not been classified and are excluded from the following Classes, in accordance with the provisions of Section 1123(a)(1) of the Bankruptcy Code. The treatment accorded Administrative Expense Claims and Priority Tax Claims is set forth in Article III herein. Consistent with the provisions of Section 1122 of the Bankruptcy Code, a Claim or Interest shall be deemed classified by the Plan in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class, and shall be deemed classified in a different Class to the extent that the Claim or Interest qualifies within the description of that different Class. A Claim or Interest is in a particular Class only to the extent that the Claim or Interest is 2 9 an Allowed Claim or Allowed Interest in that Class, as the case may be. 2.1.1. Class A (Priority Claims) consists of all Priority Claims, if any, other than Nonclassified Priority Claims. 2.1.2. Class B (Secured Claims) consists of all Secured Claims, if any, each of which shall be within a separate subclass, Subclasses B1, B2, B3 and so forth (with each subclass to be deemed a separate class for all purposes under applicable provisions of the Bankruptcy Code). 2.1.3. Class C (Convenience Claims) consists of all Convenience Claims. 2.1.4. Class D (General Unsecured Claims) consists of all Unsecured Claims (including Claims arising from guarantee obligations and Claims arising from the rejection of executory contracts) other than Nonclassified Priority Claims and any Claims within Classes A, C, E or F herein. 2.1.5. Class E (Interests) consists of all Interests, including Rescission Claims. 2.2. Impairment. Under the terms of the Plan, Allowed Claims within Classes A and B will not be impaired. Allowed Claims and Interests within Classes C, D and E will be impaired. ARTICLE III TREATMENT OF NONCLASSIFIED PRIORITY CLAIMS 3.1. Generally. Subject to the provisions of all other sections of this Article III, each holder of an Allowed 3 10 Nonclassified Priority Claim shall receive on account of such Claim, Cash equal to the allowed amount of such Claim, unless the Distribution Agent or the Reorganized Debtor (whichever party is the obligor as set forth in Section 3.4 hereinbelow) and such holder shall have agreed upon other treatment of such Claim. 3.2. Administrative Bar Date. No Administrative Expense Claim, including without limitation Professional Fees, arising on or before the Effective Date, other than Ordinary Course Expenses, shall become an Allowed Claim unless (a) an application, request or proof therefor has been filed with the Bankruptcy Court and served upon the Distribution Agent, the Reorganized Debtor and the United States Trustee within thirty (30) days following the Effective Date (the "Administrative Bar Date") or by such earlier deadline as may apply to such claim pursuant to an earlier order of the Bankruptcy Court, or (b) such claim has been approved and allowed by the Bankruptcy Court pursuant to an order entered prior to the Administrative Bar Date. The Distribution Agent, the Reorganized Debtor, the United States Trustee and any other party in interest may object and request a hearing or hearings with respect to all such applications, requests and proofs as to which any disputes exist or as to which Bankruptcy Court approval is required by the Bankruptcy Rules and Local Rules, and shall provide notice of such hearings and any objections to the requesting claimants, the Reorganized Debtor, the Distribution Agent and the United States Trustee. As soon as practicable following the Effective Date, the Distribution Agent shall provide notice of the Administrative Bar 4 11 Date to all parties believed to hold or assert Administrative Expense Claims other than Ordinary Course Expenses. 3.3. Penalties and Interest. Except as may be expressly set forth in the Plan or by an order of the Bankruptcy Court, no holder of a Priority Tax Claim shall be entitled to payment on account of any postpetition interest or penalties arising with respect to such Claim. 3.4. Payment. Payment of Allowed Nonclassified Priority Claims shall occur as follows: 3.4.1. Generally. Except as set forth in the provisions of Section 3.4.2 hereinbelow, all payments on account of Allowed Nonclassified Priority Claims shall be made by the Distribution Agent, in Cash on the latest of the following dates, and the Reorganized Debtor shall have no responsibility, obligation or liability therefor: (a) on, or as soon as practicable after, the Administrative Bar Date, or on such later date as to which the holder of such Claim may have consented; (b) on the date when such Claim becomes due according to contractual, statutory or other terms applicable thereto; or (c) as soon as practicable after the order allowing such Claim becomes a Final Order, if the Claim is disputed or if applicable provisions of the Bankruptcy Code otherwise require Bankruptcy Court approval, provided that if such Claim is disputed in part, then the undisputed portion thereof shall be paid in accordance with subparts (a) and (b) hereof (or upon Bankruptcy Court approval if required by 5 12 applicable provisions of the Bankruptcy Code) and the balance of the Claim shall be paid to the extent and when allowed by a Final Order of the Bankruptcy Court determining the amount of such Claim. 3.4.2. Certain Ordinary Course Expenses. The Reorganized Debtor shall pay such portions of Allowed Nonclassified Priority Claims that are Ordinary Course Expenses, as defined in Exhibit "A" attached hereto, when and to the extent that such Claims become due according to contractual, statutory or other terms applicable thereto after the Effective Date, except for the following: (a) any rent and real property lease obligations, except to the extent provided by Section 8.3.5 hereinbelow; (b) any Professional Fees; and (c) any warranty, return, product defect or refund obligations other than the Hammer Contingent Claims. Without limiting the generality of the foregoing, the Reorganized Debtor shall pay such portions of Allowed Nonclassified Priority Claims as constitute Hammer Contingent Claims. The Distribution Estate shall have no responsibility, obligation or liability for any Ordinary Course Expenses. ARTICLE IV TREATMENT OF UNIMPAIRED CLASSES Classes of unimpaired Claims shall be treated as follows: 4.1. Class A (Priority Claims). Each holder of an Allowed Claim within Class A shall receive on account of such Claim Cash equal to the allowed amount of such Claim, unless such holder shall 6 13 have agreed to a less favorable treatment of such Claim. Payment or payments on account of such Claims shall be made by the Distribution Agent on or before the latest of the following dates: (a) on, or as soon as practicable after, the Effective Date, or on such later date as to which such holder has consented; (b) on the date that such Claim becomes due pursuant to contractual, statutory or other terms applicable thereto; or (c) as to Disputed Claims, as soon as practicable after the order allowing the Claim has become a Final Order. 4.2. Class B (Secured Claims). Each holder of an Allowed Claim within Class B, unless such holder shall have agreed with the Reorganized Debtor or the Distribution Agent, as the case may be, to other treatment of such Claim, shall be treated in one of the following alternative manners set forth in Subsections 4.2.1 through 4.2.3 hereinbelow. Selection of the treatment of each such Claim secured by Non-Hammer Assets shall be determined by the Debtor, as evidenced in a Schedule 4.2(A) (the "Schedule 4.2(A)") to be filed with the Bankruptcy Court, and served upon such holder, the Preletz Group, the Committee and the United States Trustee, no less than five Business Days prior to the commencement of the Confirmation Hearing. Selection of the treatment of each such Claim secured by Hammer Assets shall be determined by the Preletz Group, as evidenced in a Schedule 4.2(B) (the "Schedule 4.2(B)") to be filed with the Bankruptcy Court, and served upon such holder, the Debtor, the Committee and the United States Trustee, no less than five Business Days prior to the commencement of the 7 14 Confirmation Hearing. The treatment of any Allowed Claim within Class B that is not identified in said Schedules 4.2(A) or 4.2(B) shall be in the manner set forth in Section 4.2.3 hereinbelow. The alternative manners of treatment of such Claims are as follows: 4.2.1. Reinstatement. Any and all defaults shall be Cured, and any and all damages compensated, by the Reorganized Debtor (as to Claims secured by Hammer Assets) or by the Distribution Agent (as to Claims secured by Non-Hammer Assets), to the extent and in the manner required by the provisions of Section 1124(2) of the Bankruptcy Code, as soon as practicable after such defaults and damages, if any, have been determined by agreement among such holder and such curing party, or by Final Order if no such agreement is reached; the maturity and terms of such Claim, or such other terms as have been agreed upon between such holder and such curing party, shall be reinstated pursuant to the provisions of Section 1124(2) of the Bankruptcy Code and shall be the obligation of only the Reorganized Debtor as to Claims secured by Hammer Assets, or the Distribution Agent as to Claims secured by Non-Hammer Assets. 4.2.2. Full Satisfaction. Such Allowed Secured Claim shall be paid in full by the Reorganized Debtor (as to Claims secured by Hammer Assets) or by the Distribution Agent (as to Claims secured by Non-Hammer Assets), or in such lesser amount as may be agreed upon by the holder of such Claim, as soon as practicable after such Claim becomes an Allowed Secured Claim, 8 15 in exchange for which the holder of such Claim shall execute and deliver to the Reorganized Debtor or the Distribution Agent, as the case may be, all appropriate documentation reasonably necessary to evidence and effectuate a full release and discharge of all liens, security interests and obligations arising from such Claim. Notwithstanding anything to the contrary hereinabove, the Distribution Agent shall have no responsibility, obligation or liability pursuant to this Section 4.2.2 for the payment of any Claim secured by Hammer Assets, and the Reorganized Debtor shall have no responsibility, obligation or liability pursuant to this Section 4.2.2 for the payment of any Claim secured by Non-Hammer Assets. 4.2.3. Abandonment, Foreclosure and Deficiency. Such holder shall be permitted to remove, at its own cost and peril, and at a time mutually convenient to such holder and the Reorganized Debtor (as to Hammer Assets) or the Distribution Agent (as to Non-Hammer Assets), and foreclose upon, such property as to which it holds a perfected security interest in conformity with applicable provisions of the Uniform Commercial Code or other applicable law. ARTICLE V TREATMENT OF IMPAIRED CLASSES Classes of impaired Claims and Interests shall be treated as follows: 9 16 5.1. Class C (Convenience Claims). In lieu of treatment under Section 5.2 of the Plan, and in full satisfaction and discharge of all Allowed Claims within Class C, each holder of an Allowed Convenience Claim who does not make the election described in Section 5.1.1 hereinbelow, shall receive from the Distribution Agent, on or before sixty (60) days after the Effective Date, or such later date as such Claim becomes an Allowed Claim, Cash equal to ten percent (10%) of the amount of such Allowed Convenience Claim, provided: 5.1.1. Opt-Out Election. Any holder of a Convenience Claim may, by written election served upon, and actually received by, the Debtor's general bankruptcy counsel on or prior to the deadline for submission of Ballots, elect to be treated within Class D. 5.1.2. Opt-In Election. A holder of a Claim in excess of $3,000.00 may, by written election actually received by the Debtor's general bankruptcy counsel on or prior to the deadline for submission of Ballots, reduce such Claim to $3,000.00, in which case such Claim shall be treated as a Convenience Claim. In the event of such election, the Claim amount in excess of $3,000.00 shall be deemed fully released, waived and discharged. 5.2. Class D (General Unsecured Claims). All Allowed Claims within Class D shall be deemed fully satisfied and discharged by the distributions of Cash and Reorganized Shares pursuant to the provisions of Sections 5.2.1 and 5.2.4, respectively, as follows: 10 17 5.2.1. Cash Distributions. Subject to each of the provisions of Section 5.2 herein, each holder of an Allowed Claim within Class D shall receive pro-rata Cash payments from the Distribution Estate on account of such Claim, as follows: 5.2.1.1. Payments Commenced. No later than June 30, 1998 as directed by the Committee, and thereafter in accordance with the provisions of Section 7.8.6 hereinbelow, the Distribution Agent shall make Cash payments from the Distribution Estate upon all Allowed Claims within Class D, to the extent of available funds and based upon the calculations described in Section 5.2.2 hereinbelow. 5.2.1.2. Payments Ceased. Such Cash payments shall cease once all funds reasonably anticipated to be received into the Distribution Estate, have been exhausted. 5.2.2. Pro-Rata Calculations. Cash payments and stock distributions made pursuant to Sections 5.2.1 and 5.2.4, respectively, shall be made on a pro-rata basis to holders of all such Allowed Claims (with reserves for Disputed Claims). The aggregate of all such Cash payments made by the Distribution Agent at any one time shall be equal to all of the available Cash in the Distribution Estate, (i) less the amount of Cash reserves which the Distribution Agent determines may be required in order to satisfy the Distribution Agent's other obligations under the terms of the 11 18 Plan, including full distributions upon Allowed Nonclassified Priority Claims pursuant to Section 3.4.1 hereinabove, distributions upon Allowed Claims within Classes A, B and C pursuant to Sections 4.1, 4.2.1, 4.2.2 and 5.1 hereinabove, Cures with respect to executory contracts pursuant to Section 6.4.2 hereinbelow, and future anticipated expenses, such as postconfirmation administrative fees and costs and quarterly fees owing to the United States Trustee, pursuant to Section 7.10 hereinbelow; and (ii) less a reserve for Disputed Claims, equal to the aggregate amount of pro-rata distributions that would be made on Disputed Claims, if Allowed in full, or such lesser amounts as may be established by the Bankruptcy Court following notice and an opportunity for hearing; provided, however, that if the Distribution Agent determines that the amount of funds available for distribution, net of such reserves, is too small to be efficiently distributed, relative to the costs of distribution, such distribution may be deferred until the next distribution due. 5.2.3. Pari Passu Treatment. Notwithstanding anything to the contrary elsewhere in the Plan, all Claims arising from the Public Debt Securities (i.e., the Notes and the Debentures) shall be treated as Claims, to the extent Allowed, within Class D, and shall be treated on a pari passu basis, without subordination between them. Any claims between holders of Notes and holders of Debentures, including without 12 19 limitation any issues of subordination with respect to the obligations of the Debtor in connection with the Public Debt Securities, shall be deemed compromised and settled in accordance with the provisions of this Plan, which, among other things, shall be deemed to constitute sufficient consideration for the pari passu treatment of such Claims. 5.2.4. Stock Distribution. Subject to each of the provisions of this Section 5.2, the Distribution Agent shall distribute all Reorganized Shares received by the Distribution Estate pursuant to Section 8.1.1 hereinbelow as follows: 5.2.4.1. Pro Rata. Such Reorganized Shares shall be distributed on account of all Allowed Claims within Class D, based upon the pro-rata calculations described in Section 5.2.2 hereinabove. 5.2.4.2. Value. Each such Reorganized Share, when distributed, shall be deemed to have a value of $0.325 for purposes of calculating distributions upon, and satisfaction of, Allowed Claims within Class D. 5.2.4.3. Fractional and Remainder Shares. Notwithstanding the pro-rata calculation provided for in Section 5.2.2, only whole numbers of Reorganized Shares shall be distributed in accordance with Section 5.2 of this Plan. Whenever the Pro-Rata calculation provided for in said Section 5.2.2 would otherwise entitle a holder of an Allowed Class D Claim to a distribution of a number of Reorganized Shares that is not a whole 13 20 number, the actual number of Reorganized Shares to be distributed to such holder shall be rounded to the next higher or lower whole number as follows: (i) fractions of 4/5 or greater shall be rounded to the next higher whole number; and (ii) fractions of less than 4/5 shall be rounded to the next lower whole number. No consideration shall be provided in lieu of fractional shares that are rounded down. In the event that any Reorganized Shares remain in the Distribution Estate after the distribution in accordance with the terms of Section 5.2.4 hereof, the Distribution Agent shall dispose of such remaining Reorganized Shares as an asset of the Distribution Estate in accordance with the terms of Section 7.8.3 of this Plan. 5.2.5. Subordination. Except as expressly provided in Section 5.2.3 hereinabove, no provision of the Plan shall be construed to impair, prohibit or prejudice the right of any party, including without limitation the Distribution Agent, to seek the subordination of distributions upon any Allowed Claim within Class D, in whole or in part, to distributions upon some or all other Allowed Claims within Class D, whether pursuant to the provisions of Section 510(a) or (c) of the Bankruptcy Code or otherwise. 5.2.6. Provisions Affecting Public Debt Securities. The following provisions shall affect each of the Indentures and 14 21 all distributions made under the Plan on account of Claims arising from Public Debt Securities: 5.2.6.1. Record Date. The Bankruptcy Court, in the order approving the Disclosure Statement, shall designate a record date for the holders of Public Debt Securities (the "Record Date"). As of the Record Date, the transfer registers (the "Registers") in respect of each issue of Public Debt Securities shall be closed for purposes of determining the holders of such Public Debt Securities which are entitled to vote and receive distributions under the Plan, and neither the Indenture Trustees nor the Distribution Agent shall be under any obligation to recognize the transfer of any Public Debt Securities occurring after the Record Date for purposes of voting or distributions. The Distribution Agent and each Indenture Trustee shall recognize and deal for all purposes under the Plan and each respective Indenture only with holders of record of the Public Debt Securities as of the close of business on the Record Date. 5.2.6.2. Manner of Distributions; Surrender of Public Debt Securities. All distributions provided for under the Plan to holders of Public Debt Securities shall be distributed to the appropriate Indenture Trustee for application pursuant to the provisions of its respective Indenture, including, without limitation, those provisions which govern the priority of distribution and 15 22 the rights, duties, indemnification and compensation of such Indenture Trustee (subject to all other provisions of this Section 5.2.6). As of the Effective Date, all outstanding Public Debt Securities shall be deemed cancelled and exchanged for the right to receive distributions pursuant to the terms of the Plan, and the rights of holders of such Public Debt Securities shall thereafter be governed solely by the terms of the Plan and, subject to the provisions of Section 5.2.6.3 of the Plan, by applicable provisions of the Indentures. As a condition to receiving distributions provided for by the Plan in respect of Public Debt Securities, the holder of a Public Debt Security as of the Record Date must (a) surrender or cause to be surrendered to the appropriate Indenture Trustee the original Note or Debenture held by it, or (b) unless waived by the Indenture Trustee in writing, in the event that such holder is unable to surrender his original Note or Debenture because the same has been lost, destroyed, stolen or mutilated, furnish such Indenture Trustee with (i) an executed affidavit of loss and indemnity with respect thereto in a form customarily utilized for such purpose that is reasonably acceptable to the Indenture Trustee, or (ii) a bond in such amount and in form as such Indenture Trustee shall reasonably direct, sufficient to indemnify such Indenture Trustee against 16 23 any claim made against the Indenture Trustee on account of such alleged loss, destruction, theft or mutilation or the distribution of property hereunder. All Public Debt Securities surrendered to the appropriate Indenture Trustee shall be marked "Compromised and Settled only as provided in the Debtor's Plan of Reorganization" and surrendered to the Reorganized Debtor. 5.2.6.3. Compensation of Indenture Trustees. The Indenture Trustees, the Debtor, the Distribution Agent, holders of Public Debt Securities, other Claimants and all of their respective successors-in-interest shall be deemed to reserve all rights, claims and defenses with respect to any claims for compensation, reimbursement or indemnification which either Indenture Trustee may assert (whether or not pursuant to Section 503(b)(5) of the Bankruptcy Code), subject to the following: 5.2.6.3.1. From Estate. To the extent that either Indenture Trustee may seek, from time to time, payment of Claims for compensation, reimbursement or indemnification from the Distribution Estate, whether as Nonclassified Priority Claims or as Class D Claims, such Claims must be filed in accordance with applicable deadlines established by Section 3.2 hereinabove, other provisions of the Plan or orders of the Bankruptcy Court, and the Distribution Agent and 17 24 all other parties in interest shall be entitled to object thereto in accordance with applicable provisions of the Plan. 5.2.6.3.2. From Distribution. To the extent that either Indenture Trustee may seek, from time to time, payment of compensation, reimbursement or indemnification as a deduction from, or lien against, funds held or received by such Indenture Trustee for distribution upon Claims arising from the Public Debt Securities, in accordance with the terms of the respective Indenture, such payment shall be made only upon notice and opportunity for hearing given to all holders of such Claims. In the event that any such holder objects and requests a hearing thereon in writing within twenty (20) days following receipt of such notice, such payment shall not be made without an order of the Bankruptcy Court (or, if the Bankruptcy Court is determined to lack proper jurisdiction therefor, then a court with competent jurisdiction) approving or awarding such payment (upon such standards as such court determines proper). Nothing set forth herein shall in any manner prejudice any rights of holders of Public Debt Securities or the Distribution Agent to challenge the right of either Indenture Trustee to receive any compensation, 18 25 reimbursement or indemnification whatsoever, or to assert a lien or right of deduction therefor. 5.2.6.4. Unclaimed Distributions. If any holder of a Public Debt Security as of the Record Date cannot be located or fails to satisfy the conditions precedent to receipt of a distribution under the Plan within one year after the Effective Date, then the distributions in respect of such holder, or the proceeds thereof and interest thereon, shall be returned to the Distribution Agent for distribution in accordance with this Section 5.2. 5.3. Class E (Interests). All Interests within Class E, including without limitation Rescission Claims, shall be treated as follows: 5.3.1. No Distributions. All such Interests shall be deemed fully and finally released and discharged as of the Effective Date, and no distributions whatsoever shall be made upon such Interests from the Distribution Estate or by the Reorganized Debtor. 5.3.2. Cancellation. As of the Effective Date, all shares of stock, regardless of class or preference rights, and all options, warrants and other rights affecting stock, giving rise to any Interests shall be deemed fully and finally cancelled, annulled and extinguished and of no further force or effect whatsoever. 19 26 ARTICLE VI EXECUTORY CONTRACTS 6.1. Generally. Unexpired executory contracts, including without limitation unexpired leases, to which the Debtor is a party as of the Effective Date, entered into by the Debtor prior to the Petition Date, shall be treated in the manner set forth in this Article VI. 6.2. Assumption and Rejection. The assumption and rejection of executory contracts shall be determined as follows: 6.2.1. Schedule. No less than ten (10) days prior to the commencement of the Confirmation Hearing, the Debtor shall file with the Bankruptcy Court, and serve upon the United States Trustee, the Committee and each party to a contract identified therein, a schedule (the "Schedule 6.2.1") identifying the following: (a) each executory contract to be assumed by the Reorganized Debtor as of the Effective Date; (b) each executory contract to be assumed by the Distribution Estate as of the Effective Date; and (c) the amount of any monetary default that must be Cured in order to assume each such contract under the provisions of Section 365(b)(1) of the Bankruptcy Code. 6.2.2. Rejection. Except as otherwise provided elsewhere in the Plan or by the terms of the Confirmation Order, as of the Effective Date, all executory contracts, including without limitation all employment contracts and employee compensation or benefit plans or programs, shall be 20 27 deemed rejected as of the Effective Date, except for any executory contract (i) which is listed on Schedule 6.2.1 to be assumed, or (ii) which has been assumed by the Debtor pursuant to an order of the Bankruptcy Court entered prior to the Effective Date. 6.2.3. Assumption. As of the Effective Date: (a) all executory contracts that are assumed pursuant to the provisions of Section 6.2.1(a) hereinabove shall be deemed assumed by the Reorganized Debtor; (b) all executory contracts that are assumed pursuant to the provisions of Section 6.2.1(b) hereinabove shall be deemed assumed by the Distribution Estate; and (c) all executory contracts that are assumed pursuant to the provisions of Section 6.2.2(ii) hereinabove shall be deemed assumed by the Distribution Estate. 6.3. Cure Amounts. Within five (5) Business Days following the Confirmation Date, the Committee, the United States Trustee and any party to an executory contract listed therein may file, and serve upon the Debtor, the Committee, the United States Trustee and such contract party, an objection to Schedule 6.2.1 to the extent that it disputes the Cure amount stated for a particular contract. The amounts set forth in Schedule 6.2.1 shall be conclusively presumed to be the amounts of Cure, if any, for each contract identified therein, unless, and except to the extent, that an objection is timely filed and served in accordance with the provisions of this Section 6.3. Any amount of Cure in excess of 21 28 those set forth in the Schedule 6.2.1 or such timely filed objections shall be fully discharged and barred, and shall not be a liability of the Reorganized Debtor or the Distribution Estate to any extent. 6.4. Payment of Cure. Any and all cash payments necessary to Cure defaults existing under the executory contracts assumed pursuant to the provisions of Section 6.2 herein shall be paid as follows: 6.4.1. Payment by Reorganized Debtor. Such Cure amounts shall be paid by the Reorganized Debtor from its own funds with respect to any executory contract identified for assumption in Schedule 6.2.1 pursuant to the provisions of Section 6.2.1(a) hereinabove, and the Distribution Agent shall have no responsibility or liability therefor whatsoever. 6.4.2. Payment by Distribution Agent. Such Cure amounts shall be paid by the Distribution Agent from funds of the Distribution Estate with respect to any executory contract to be assumed other than those identified for assumption in Schedule 6.2.1 pursuant to the provisions of Section 6.2.1(a) hereinabove, and the Reorganized Debtor shall have no responsibility or liability therefor whatsoever. 6.4.3. Timing of Payment. All such payments of Cure amounts shall be paid by the later of the following dates: (a) on the Effective Date, or on such later date as to which the holder of the right to such Cure may have consented; or (b) on the date when such Cure of defaults becomes due 22 29 according to contractual, statutory or other terms applicable thereto, provided that if an objection timely filed and served pursuant to the provisions of Section 6.3 hereinabove identifies a larger amount for the Cure of a contract, the undisputed portion shall be paid in accordance with the foregoing sentence and the difference in amounts shall be paid to the extent and when allowed by a Final Order of the Bankruptcy Court determining the amount of such Cure. 6.5. Approval of Assumption or Rejection. Entry of the Confirmation Order shall constitute (i) the approval, pursuant to the provisions of Section 365(a) of the Bankruptcy Code, of the assumption of the executory contracts assumed pursuant to the provisions of Section 6.2 hereinabove; (ii) the extension of time pursuant to the provisions of Section 365(d)(4) of the Bankruptcy Code within which the Debtor may assume or reject the executory contracts specified in Section 6.2 hereinabove through the Effective Date; and (iii) the approval, pursuant to the provisions of Section 365(a) of the Bankruptcy Code, of the rejection of the executory contracts rejected pursuant to the provisions of Section 6.2 hereinabove. 6.6. Bar Date for Rejection Claims. Except to the extent that the Bankruptcy Court, the Bankruptcy Code or the Bankruptcy Rules may establish an earlier deadline with regard to the rejection of particular executory contracts, any Claims arising out of the rejection of executory contracts pursuant to the provisions of Section 6.2 herein must be filed with the Bankruptcy Court and 23 30 served upon all parties identified in the Postconfirmation List no later than thirty (30) days after the Effective Date. Any Claims not filed within such time will be forever barred from assertion against the Distribution Estate, and will not receive any distributions therefrom. Any Claims arising from the rejection of executory contracts (a) may be asserted only as Claims against the Distribution Estate; (b) may be asserted only to the extent permitted by Section 365(g) of the Bankruptcy Code; (c) shall be classified and treated within the treatment of Classes C or D, as the case may be; and (d) shall not be claims against the Reorganized Debtor to any extent. ARTICLE VII MEANS FOR EXECUTION OF THE PLAN 7.1. Plan Effectiveness. The Plan shall become fully effective and binding upon all parties on the Effective Date. 7.2. Vesting of Estate Property. As of the Effective Date, pursuant to the provisions of Section 1123(b) of the Bankruptcy Code and otherwise, the assets of the Debtor's estate shall vest as follows: 7.2.1. Vesting in Reorganized Debtor. Subject to the provisions of Section 7.2.3 hereinbelow, all title, ownership and interests of the Debtor's estate in all Hammer Assets, shall be deemed preserved and re-vested in, and fully owned and possessed by, the Reorganized Debtor, free and clear of all claims, liens, security interests and obligations other 24 31 than those that are expressly created or preserved by the provisions of this Plan or the Confirmation Order. 7.2.2. Vesting in Distribution Estate. All title, ownership and interests of the Debtor's estate in all Non- Hammer Assets shall be deemed preserved and retained in, and fully owned and possessed by, the Distribution Estate, free and clear of all claims, liens, security interests and obligations other than those that are expressly created or preserved by the provisions of this Plan or the Confirmation Order. 7.2.3. Preletz Group Withdrawal. In the event that the Preletz Group timely and properly withdraws its support and commitment to the Plan, following ten (10) days' written notice to the Debtor and to the Committee and prior to the Effective Date, due to a material adverse change in the operations of the Debtor's Hammer Product Line business prior to the Effective Date, then (a) the provisions of Section 7.2.1 hereinabove shall be inoperative, and as of the Effective Date all title, ownership and interests of the Debtor's estate in all Hammer Assets shall be deemed preserved and retained in, and fully owned and possessed by, the Distribution Estate, and (b) all such Hammer Assets shall thereafter be treated as Non-Hammer Assets for all purposes of the Plan. 25 32 7.3. Hammer and Non-Hammer Assets. The terms "Hammer Assets" and "Non-Hammer Assets" shall have the following respective meanings: 7.3.1. Hammer Assets. Subject to the provisions of Section 7.2.3 hereinabove, the "Hammer Assets" shall consist of each of the following assets, to the extent that such assets are property of the Debtor's estate immediately preceding the Effective Date: 7.3.1.1. All patents, trademarks and other intellectual property owned by the Debtor and relating to the Hammer Product Line, including without limitation the license of Raidion patents received from Farrington pursuant to the provisions of Section 2.3.2 of the Patent Sale Agreement, but without any representations or warranties on behalf of the Debtor or its estate as to the enforceability, validity or status of such intellectual property rights or that such rights are sufficient to operate the Reorganized Debtor's business; 7.3.1.2. All inventory of components, subassemblies and other material used to develop, assemble or manufacture any products or units within the Hammer Product Line; 7.3.1.3. The right to hire specified current employees of the Debtor, subject to agreement between the Reorganized Debtor and individual employees as to the particular terms and conditions of ongoing employment, 26 33 but without such agreements constituting conditions to the effectiveness of the Plan; 7.3.1.4. All goodwill, name, customer lists and other general intangibles supporting or related to the Hammer Product Line; 7.3.1.5. All executory contracts, including equipment leases, vendor contracts and license agreements, which are identified in Schedule 6.2.1 pursuant to the provisions of Section 6.2.1(a) of the Plan; 7.3.1.6. All cash and cash equivalents (excluding restricted accounts), other than the net proceeds of bulk sales of Non-Hammer Assets, owned or held by the Debtor immediately preceding the Effective Date; 7.3.1.7. All accounts and accounts receivable arising from sales by the Debtor within the Hammer Product Line, to the extent owned or held by the Debtor immediately preceding the Effective Date; 7.3.1.8. Specific units of equipment owned or leased by the Debtor, subject to the following: (a) if such equipment is unencumbered, it must be identified in writing by the Preletz Group to the Debtor and to the Committee at least ten (10) days prior to the Effective Date; (b) if such equipment is leased by the Debtor, it must be pursuant to an executory contract identified in Schedule 6.2.1 pursuant to the provisions of Section 27 34 6.2.1(a) of the Plan; and (c) to the extent that such equipment is encumbered by a lien, it must be identified in Schedule 4.2(B) pursuant to the provisions of Section 4.2 of the Plan; and 7.3.1.9. All causes of action owned by the Debtor immediately preceding the Effective Date other than those constituting Non-Hammer Assets pursuant to the provisions of Section 7.3.2.7 hereinbelow. 7.3.2. Non-Hammer Assets. Subject to the provisions of Section 7.2.3 hereinabove, the "Non-Hammer Assets" shall consist of all assets of the Debtor immediately preceding the Effective Date other than the Hammer Assets, and shall include without limitation the following: 7.3.2.1. All inventory within the Raidion Product Line and owned by the Debtor immediately preceding the Effective Date; 7.3.2.2. All accounts receivable arising from sales by the Debtor within the Raidion Product Line and existing immediately preceding the Effective Date; 7.3.2.3. All cash and cash equivalents constituting net proceeds of any bulk sales of assets within the Raidion Product Line and approved by the Bankruptcy Court pursuant to Section 363(b) of the Bankruptcy Code, including without limitation the net proceeds of the patent sale to Farrington and the net proceeds of the bulk sale to PTG; 28 35 7.3.2.4. All real property and improvements owned by the Debtor and located in Chatsworth, California; 7.3.2.5. The unsecured promissory note issued by Titanium Memory Systems, Inc. or an affiliate in the original principal amount of $500,000, and all related rights thereunder; 7.3.2.6. All shares of stock of Concentric Network Corporation, and any and all net proceeds from the sale thereof, owned by the Debtor immediately preceding the Effective Date; and 7.3.2.7. All causes of action arising from the avoidance powers set forth in Sections 544, 545, 546, 547, 548, 549, 550, 551, 552 and 553 of the Bankruptcy Code, and all other causes of action owned by the Debtor immediately preceding the Effective Date other than causes of action arising from, or necessary to the enforcement or benefit of, Hammer Assets. 7.4. Effective Date Actions. As of the Effective Date, the Debtor, the Committee, the Preletz Group, the Distribution Agent and others shall take the following actions, and execute and deliver the following documents; provided that if any such party fails to so act, the Reorganized Debtor or the Distribution Agent shall be authorized to so act on such party's behalf, pursuant to an order of the Bankruptcy Court issued on no less than five (5) Business Days' notice under the provisions of Section 1142(b) of the Bankruptcy Code; provided further that if Section 7.2.3 29 36 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, then none of the provisions of Sections 7.4.1, 7.4.3, 7.4.4, 7.4.5(b), 7.4.6 or 7.4.7 hereinbelow shall become effective; and provided finally that as to all payments and other actions required of the Distribution Agent on the Effective Date by the terms of this Section 7.4, the Distribution Agent may rely fully upon specific directions provided jointly by the Debtor and the Committee: 7.4.1. Revesting of Hammer Assets. As of the Effective Date, in exchange, among other things, for the issuance of Reorganized Shares to the Distribution Estate pursuant to Section 8.1.1 hereinbelow and the opportunity of creditors to acquire additional shares pursuant to Section 8.2 hereinbelow, all of the Hammer Assets shall revest in the Reorganized Debtor, free and clear of all liens, Claims, charges, interests and other encumbrances other than those expressly created or preserved by the terms of the Plan. 7.4.2. Retention of Non-Hammer Assets. As of the Effective Date, all of the Non-Hammer Assets shall be retained by the Distribution Estate, free and clear of all liens, Claims, charges, interests and other encumbrances other than those expressly created or preserved by the terms of the Plan. 7.4.3. Preletz Group Contribution. On the Effective Date, the Preletz Group shall contribute Cash to the Reorganized Debtor, in exchange for Reorganized Shares, as set forth in Section 8.1.3 hereinbelow. 30 37 7.4.4. Participating Creditors' Contribution. On the Effective Date, the Participating Creditors shall contribute Cash to the Reorganized Debtor, in exchange for Reorganized Shares, as set forth in Section 8.1.2 hereinbelow. 7.4.5. Cancellation and Issuance of Stock. On the Effective Date, (a) all Interests, including without limitation shares of stock of the Debtor and all warrants and options therefor, shall be deemed fully cancelled, terminated and of no further force or effect whatsoever, pursuant to the provisions of Section 5.3.2 hereinabove; and (b) the Reorganized Debtor shall then and thereafter issue the Reorganized Shares as set forth in Section 8.1 of the Plan. 7.4.6. Modification of Articles and By-Laws. As of the Effective Date, the Reorganized Debtor shall be deemed to have modified its charter, articles of incorporation and by-laws in accordance with the provisions of Section 8.3 hereinbelow. 7.4.7. Payments by Reorganized Debtor. On and after the Effective Date, the Reorganized Debtor shall make payments as and when required of it by the provisions of Sections 3.4.2, 4.2.1, 4.2.2, 6.4.1 and 7.13 of the Plan. 7.4.8. Payments by Distribution Agent. The Distribution Agent shall (a) pay such amounts to the holders of Allowed Priority Claims and Allowed Secured Claims as required by the provisions of Sections 4.1, 4.2.1 and 4.2.2 hereinabove, respectively; and (b) pay such Cure amounts as required by the provisions of Section 6.4.2 hereinabove. 31 38 7.4.9. Other Releases of Liens and Instruments. Holders of Secured Claims shall execute such documents as reasonably presented by the Reorganized Debtor or the Distribution Agent, as the case may be, in order to effectuate the release of liens and instruments contemplated by the provisions of Section 4.2.2 hereinabove, to the extent identified in Schedules 4.2(A) or 4.2(B) for treatment in accordance with the terms of Section 4.2.2 hereinabove. In addition, without limiting the generality of the foregoing, on and after the Effective Date, each holder of an instrument evidencing a Claim shall surrender such instrument to the Reorganized Debtor or the Distribution Agent, as the case may be, upon request. No distribution under the terms of the Plan shall be made to or on behalf of any holder of a lien or instrument unless and until the same has been surrendered, and the lien has been released pursuant to a document in recordable, acceptable form, as requested by the Reorganized Debtor or the Distribution Agent, as the case may be. 7.4.10. Distribution Estate Accounts. The Distribution Agent shall establish one or more bank accounts for the maintenance of funds on behalf of the Distribution Estate, and shall deliver to the Bankruptcy Court evidence of the issuance of a fidelity bond, consistent with the requirements of Sections 7.8.1 and 7.7.2, respectively, of the Plan. 7.4.11. Other Documents. The Reorganized Debtor and the Distribution Agent, as appropriate, shall execute and deliver 32 39 such documents, and take such actions, as reasonably necessary to complete and evidence the disposition of assets, vested in either the Reorganized Debtor or the Distribution Estate, as contemplated by the terms of the Plan. 7.5. Other Actions. The Debtor, the Committee, the Preletz Group, the Distribution Agent and all Claimants and other parties in interest shall take such other actions, and execute such other documents, as are reasonably necessary to consummate the transactions described in this Plan, and the Reorganized Debtor shall be free to operate its business and financial affairs, and to use the Hammer Assets as its own, as it deems appropriate at all times following the Effective Date, subject only to the express terms of the Plan. 7.6. Preservation and Vesting of Causes of Action. As of the Effective Date, each right, claim, avoiding power or cause of action arising under Sections 502, 506, 510, 541, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551, 552 and 553 of the Bankruptcy Code in favor of the Debtor's estate shall be deemed fully preserved. All such rights, claims, avoiding powers and causes of action shall vest as follows: 7.6.1. Vesting in Reorganized Debtor. As of the Effective Date, any such rights, claims and causes of action, but no such avoiding powers, that are Hammer Assets shall vest in the Reorganized Debtor; and 7.6.2. Vesting in Distribution Estate. As of the Effective Date, the Distribution Estate shall be vested with 33 40 all such avoiding powers, and all other such rights, claims and causes of action that are not Hammer Assets. 7.7. Distribution Agent. The Distribution Agent shall be selected, and shall serve, as follows: 7.7.1. Selection. As soon as practicable following the Confirmation Date, the Committee shall select the Distribution Agent, on compensation terms acceptable to the Distribution Agent, effective as of the Effective Date, and shall file with the Bankruptcy Court a notice of such selection. 7.7.2. Responsibility and Fidelity. At all times on and after the Effective Date, the Distribution Agent shall have sole responsibility for maintaining the Distribution Estate and in making disbursements thereof and disbursements therefrom in accordance with the terms of the Plan, pursuant to the provisions of Section 7.8 hereinbelow, and preserving, enforcing and otherwise disposing of the Distribution Estate's rights, entitlements, property and claims. Upon the Distribution Agent's employment, unless the Debtor and the Committee agree otherwise, the Distribution Agent shall furnish to the Bankruptcy Court and to the Debtor, the Committee and the United States Trustee evidence of the issuance of a fidelity bond covering all of the Distribution Agent's services under the Plan, in an amount agreed upon by the Debtor and the Committee, or else as established by the Bankruptcy Court, which amount may be adjusted from time to time after the Effective Date by the Bankruptcy Court on 34 41 motion by a party in interest served upon all parties listed in the Postconfirmation List. 7.7.3. Tenure and Replacement. The Distribution Agent shall serve at all times at the pleasure and direction of the Committee. The Committee may terminate the Distribution Agent's appointment at any time, with or without cause, in which case such termination shall become effective, and the Distribution Agent shall turn over all of his/her records, upon the Committee's appointment of a replacement Distribution Agent upon terms acceptable to the Committee and such replacement agent. 7.8. Distribution Estate. The Distribution Agent shall administer the Distribution Estate, subject to each of the following provisions: 7.8.1. Accounts. Immediately upon the Effective Date, the Distribution Agent shall establish one or more deposit accounts with financial institutions approved by the Office of the United States Trustee or the Bankruptcy Court or otherwise qualified pursuant to the provisions of Section 345 of the Bankruptcy Code, for the maintenance of funds of the Distribution Estate. Whenever possible and practical, the Distribution Agent shall arrange for the accrual and earning of interest upon funds held within the Distribution Estate. 7.8.2. Distribution Agent's Duty. It shall be the duty of the Distribution Agent to liquidate all of the assets of the Distribution Estate, and to resolve all Claims 35 42 thereagainst, in a manner reasonably intended and designed to maximize recoveries by recipients of distributions from such estate, consistent with sound and prudent principles of cash and asset management, subject to all applicable terms and conditions of Section 7.8.3 hereinbelow and upon instruction of the Committee. The Distribution Agent shall report regularly and in detail to the Committee, as frequently as events dictate or the Committee directs, as to the status of the administration of the Distribution Estate. 7.8.3. Administration. In disposing of the assets of the Distribution Estate, and in resolving Claims and other issues affecting the Distribution Estate, the Distribution Agent may dispose of assets, compromise controversies and otherwise administer the Distribution Estate in a manner determined by the Distribution Agent to be in the best interests of the Distribution Estate, subject to each of the following terms and conditions: 7.8.3.1. Smaller Sales. The Distribution Agent may sell any asset or set of assets of the Distribution Estate in a single sale or a related set of sales, with the express, written approval of the Committee but without the notice procedure as set forth in Section 7.8.3.2 hereinbelow, provided that the gross purchase price to be received by the Distribution Estate for such asset or set of assets does not exceed the sum of $50,000.00. 36 43 7.8.3.2. Other Dispositions. All dispositions of assets of the Distribution Estate, including without limitation sales of assets and compromises of disputes, other than those sales described in Section 7.8.3.1 hereinabove may be made by the Distribution Agent only: (a) with the express, written approval of the Committee; and (b) either (i) in the absence of a timely written objection received by the Distribution Agent within five (5) Business Days following written notice given to those parties listed in the Postconfirmation List, or (ii) in the event of such timely written notice, upon approval by the Bankruptcy Court on no less than five (5) Business Days' notice of a hearing thereon. 7.8.4. Deposits. All funds received by the Distribution Agent on behalf of the Distribution Estate on the Effective Date or thereafter, including all funds that constitute Non-Hammer Assets and all proceeds of other Non-Hammer Assets as sold, shall be deposited into the Distribution Estate. 7.8.5. Disbursements. Disbursements shall be made from the Distribution Estate only for the following purposes: (a) payment of reasonable fees and expenses of the Distribution Agent, his or her professionals, and the Committee's professionals, the Committee's members' reasonable out-of-pocket expenses (excluding members' professionals' fees and expenses), and quarterly fees of the United States Trustee, to the extent required by the provisions of Section 37 44 7.10 hereinbelow; (b) payment of all distributions to the extent required by the provisions of Sections 3.4.1 (Nonclassified Priority Claims), 4.1 (Priority Claims), 4.2.1 and 4.2.2 (Secured Claims), 5.1 (Convenience Claims) and 6.4.2 (Executory contract Cures); and (c) periodic distributions upon Allowed Claims within Class D as required by the provisions of Section 5.2 hereinabove, to the extent of available funds; provided that no payments need be made upon Claims, other than within Class C (Convenience Claims), under the amount of $10.00 (a "De Minimis Amount"). A De Minimis Amount due such Claimant may be retained by the Distribution Agent and disbursed to such Claimant only if and when the Claimant has accrued the right to a distribution of $10.00 or more. The Distribution Agent may also round off, up or down, on disbursement amounts. 7.8.6. Periodic Distributions. Beginning on or before June 30, 1998 and thereafter only as and when directed by the Committee, until the Distribution Estate has been exhausted and terminated, the Distribution Agent shall make distributions upon Allowed Claims within Class D as required by Section 5.2 hereinabove. 7.8.7. [INTENTIONALLY OMITTED]. 7.8.8. Unclaimed Payments to Claimants. Distributions made by the Distribution Agent that are unclaimed for six (6) months following attempted distribution, including without limitation distributions of Cash or Reorganized Shares, shall 38 45 be reinvested into the Distribution Estate, to be redistributed consistent with the terms of the Plan. 7.9. Committee. The Committee shall continue to serve and function following the Effective Date, with all of the duties, obligations, defenses and immunities provided by the Plan or applicable provisions of the Bankruptcy Code, for the purpose of directing and monitoring the administration and distribution of the Distribution Estate, subject to the following: 7.9.1. Membership. In the event that any member of the Committee assigns, releases, transfers or otherwise ceases to hold all or substantially all of its Allowed Claim within Class D, such assignment, release, transfer or other disposition shall be deemed to constitute such member's resignation from the Committee. In the event that any member of the Committee resigns, is removed or otherwise becomes ineligible to serve as a member of the Committee, a replacement may be selected by the remaining Committee members from the holders of Allowed Claims within Class D. 7.9.2. Retention of Professionals. The Committee shall be entitled to retain, employ and compensate professionals, in order to assist with its obligations and rights under the terms of the Plan, subject to the requirements of Section 327 of the Bankruptcy Code regarding Bankruptcy Court approval, provided that entry of the Confirmation Order shall be deemed to constitute the Bankruptcy Court's approval of the Committee's continued retention of the law firm of Murray & 39 46 Murray, A Professional Corporation, counsel for the Committee prior to the Effective Date, as the Committee's counsel on and after the Effective Date, to the extent that the Distribution Agent wishes to so retain such firm, without the necessity of formal application therefor. 7.10. Postconfirmation Fees and Expenses. The Distribution Agent shall be entitled, subject to the approval of the Committee, to retain, employ and compensate professionals, in order to assist with his or her obligations and rights under the terms of the Plan, and shall be entitled to receive compensation, subject to the following: 7.10.1. Court Approval. The requirements of Section 327 of the Bankruptcy Code regarding Bankruptcy Court approval of the retention of professionals shall pertain to professionals retained by the Distribution Agent, subject to the following: Entry of the Confirmation Order shall be deemed to constitute the Bankruptcy Court's approval of the Distribution Agent's retention of the law firms of Goldberg, Stinnett, Meyers & Davis, A Professional Corporation, and Murray & Murray, A Professional Corporation, counsel for the Debtor and the Committee, respectively, prior to the Effective Date, as the Distribution Agent's counsel on and after the Effective Date, to the extent that the Distribution Agent wishes to so retain such firms, without the necessity of formal application therefor. 40 47 7.10.2. Payment of Fees. All (a) fees and expenses of the Distribution Agent, his or her professionals, and the Committee's professionals, and out-of-pocket expenses of the Committee's members, earned or accrued on or after the Effective Date, and (b) quarterly fees owing to the United States Trustee and accruing for any period that includes any days occurring on or after the Effective Date, shall be payable from the Distribution Estate. All fees and expenses described in subpart (a) hereinabove shall be deemed allowed and approved, and shall be paid by the Distribution Agent from the Distribution Estate, upon ten (10) Business Days' notice to all parties listed in the Postconfirmation List, absent written objections within that period by a party in interest, or upon approval by the Bankruptcy Court in the event of such timely written objections. 7.10.3. Reporting to the United States Trustee. At all times on and after the Effective Date, the Distribution Agent shall comply with all applicable reporting and administrative regulations, including the payment of fees, if any, to the United States Trustee pursuant to the provisions of Section 1930 of Title 28 of the United States Code. Any such fees owing to the United States Trustee shall be measured solely by distributions or payments of Cash from the Distribution Estate, and not by any distributions, payments, transfers or other dispositions of funds or assets by the Reorganized Debtor on or after the Effective Date. 41 48 7.11. Objections to Claims. On and after the Effective Date, the Distribution Agent and any other party in interest may file and serve timely objections or requests for subordination as to any claim, except as otherwise provided in the Plan, provided that such objections or requests are filed with the Bankruptcy Court, and served upon the Distribution Agent (unless the Distribution Agent is the objecting party), the Committee and the holder of such claim, within ninety (90) days following the Effective Date (or within ninety (90) days following the filing of such claim, if later). 7.12. Term of Injunctions and Stays. Unless otherwise provided herein or by an order of the Bankruptcy Court, any injunctions or stays issued or effective as of the Confirmation Date in the Chapter 11 Case, whether under the provisions of Sections 105 or 362 of the Bankruptcy Code or otherwise, shall remain in full force and effect until the Effective Date. ARTICLE VIII CAPITALIZATION AND GOVERNANCE OF REORGANIZED DEBTOR 8.1. Capitalization of Reorganized Debtor. On and after the Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, the Reorganized Debtor shall be authorized to issue up to 20,000,000 shares of common stock, the Reorganized Shares, provided that of such amount, (a) 5,000,000 shares may be issued at any time at the discretion of the Reorganized Debtor's board of directors in its business judgment, in return for new capital investments by the 42 49 Preletz Group or by one or more third parties, at a per-share price that is not less than the greater of (i) $1.00 and (ii) current market value, to the extent that such market value can be reasonably ascertained; and (b) the other 15,000,000 shares may be issued only upon the following terms: 8.1.1. Estate's Shares. On the Effective Date, the Reorganized Debtor shall issue 3,500,000 Reorganized Shares to the Distribution Estate, in exchange for, among other things, the revesting of the Hammer Assets in the Reorganized Debtor. 8.1.2. Participating Creditors' Shares. On the Effective Date, the Reorganized Debtor shall issue the Subscription Reorganized Shares (2,000,000 Reorganized Shares) to Participating Creditors, in exchange for their aggregate contribution of Cash of $650,000.00, pursuant to the provisions of Section 8.2 hereinbelow. 8.1.3. Preletz Group Shares. On the Effective Date, the Reorganized Debtor shall issue 2,000,000 Reorganized Shares to the Preletz Group, or its nominees, in exchange for its contribution of Cash of $650,000.00, pursuant to the provisions of Section 7.4.3 hereinabove. 8.1.4. Stock Option Shares. At any time on and after the Effective Date, the Reorganized Debtor, at its management's discretion, may issue up to 2,500,000 Reorganized Shares pursuant to "Employee Stock Options," as defined hereinbelow, subject to the following terms and conditions: 43 50 8.1.4.1. Employee Stock Options. The term "Employee Stock Options" is defined as options granted by the Reorganized Debtor to employees (management and/or nonmanagement), directors and/or officers as incentive compensation, which options, to the extent issued to nonmanagement employees, shall not vest unless the grantee remains with the Reorganized Debtor (unless terminated without cause) for at least one year from the date of the option grant (or longer, if vesting in increments), and which options shall carry such other terms and conditions as are customary or as the Reorganized Debtor's management determines appropriate; 8.1.4.2. To Management. Not more than 1,000,000 such shares may be issued, without further conditions, to the Reorganized Debtor's management or to employees as determined by such management in its sole discretion; and 8.1.4.3. To Others. Not less than 1,500,000 such shares shall be available to be issued to nonmanagement employees staged over time pursuant to Employee Stock Options approved by a majority of the board of directors of the Reorganized Debtor. 8.1.5. Additional Shares. In addition to the foregoing, the Reorganized Debtor may issue up to an additional 5,000,000 Reorganized Shares at any time, at the discretion of the Reorganized Debtor's management in its business judgment, for 44 51 any or all of the following purposes (allocated among such purposes as the Reorganized Debtor's management chooses): 8.1.5.1. New Capital. In return for new capital investments by the Preletz Group or by one or more third parties, at a per-share price that is not less than the greater of (a) $1.00 and (b) current market value, to the extent that such market value can be reasonably ascertained; 8.1.5.2. Preletz Group Options. To grant options to the Preletz Group or their nominees exercisable upon the achievement of any of the following events, in the indicated share amounts: 8.1.5.2.1. Up to 2,000,000 Reorganized Shares in the event that the Reorganized Debtor remains operating, is generally paying its debts as they come due, and is not the subject of an order for relief under the provisions of the Bankruptcy Code, or an order for general receivership, as of the first anniversary of the Effective Date; 8.1.5.2.2. Up to 1,500,000 Reorganized Shares in the event that the Reorganized Debtor achieves a Market Value of at least $20,000,000; and 8.1.5.2.3. Up to 1,500,000 Reorganized Shares in the event that the Reorganized Debtor achieves a Market Value of at least $40,000,000; or 45 52 8.1.5.3. Additional Employee Options. To grant additional Employee Stock Options to nonmanagement employees of the Reorganized Debtor. 8.2. Creditors' Rights Offering. As of the Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, 2,000,000 Reorganized Shares shall be issued in accordance with the provisions of Section 8.1.2 hereinabove to creditors participating in the following Creditors' Rights Offering, which offering shall be available to all Claimants (the "Eligible Claimants") asserting Claims which, if Allowed, will be treated within Class D herein, upon the following terms: 8.2.1. Subscription Rights. Each Eligible Claimant shall be deemed to have been issued a number of nontransferable rights (the "Subscription Rights"), each such right representing the right to subscribe for and purchase one of the 2,000,000 Reorganized Shares to be issued pursuant to Section 8.1.2 hereinabove (the "Subscription Reorganized Shares") for the Cash purchase price of $0.325 ($650,000 in the aggregate for all Subscription Rights to purchase all Subscription Reorganized Shares). Each Eligible Claimant will be deemed to have been issued a number of Subscription Rights (rounded up to the nearest whole number) which is equal to the product obtained by multiplying (i) .06666 by (ii) the Eligible Claimant's Interim Claim (as defined hereinbelow). Each Eligible Claimant will be required to exercise all of its 46 53 Subscription Rights if it wishes to exercise any of its Subscription Rights at all; partial exercises will not be permitted. 8.2.2. Interim Claim. For purposes of calculations and distributions pursuant to the Creditors' Rights Offering solely, an Eligible Claimant's "Interim Claim" shall be the lesser of (a) the amount of the Eligible Claimant's timely filed Claim or the amount, if any, shown as undisputed, liquidated and noncontingent in the Schedules if no timely Claim has been filed; and (b) the estimated amount of the Claim, if such estimation has been made by the Bankruptcy Court pursuant to the provisions of Section 502(c) of the Bankruptcy Code prior to the Confirmation Date. The Debtor, the Committee or any other party in interest may seek such estimation of a Claim upon five (5) Business Days' notice and opportunity for a hearing provided to the Eligible Claimant holding such Claim. 8.2.3. Subscription Exercise. Subscription Rights must be exercised by duly completing, signing and dating the portion of the Ballot marked "Subscription Rights," and submitting such Ballot in a timely manner as stated on the Ballot. If the Subscription Rights portion of the Ballot is otherwise completed by an Eligible Claimant but states an amount of Subscription 47 54 Rights different from the amount to which such Eligible Claimant is entitled, such Ballot shall be deemed corrected to state the correct amount of Subscription Rights, as determined by the Committee. If the Subscription Rights portion of the Ballot is otherwise incomplete or incorrectly stated, it may be deemed to be corrected or void, as determined by the Committee. 8.2.4. Standby Commitment. United Equities, which is an Eligible Claimant, shall exercise the Subscription Rights which will be deemed to have been issued to it, based upon an Interim Claim of approximately $2,500,000. In addition, United Equities shall purchase any and all Subscription Reorganized Shares which are not purchased by any other Eligible Claimant pursuant to the exercise of Subscription Rights. 8.2.5. Notification and Deposit. As soon as practicable following the calculation of exercised Subscription Rights pursuant to the foregoing provisions, the Committee shall notify each Eligible Claimant which has exercised its Subscription Rights (a "Participating Creditor"), including United Equities as to its standby commitment amount, of the number of Subscription Reorganized Shares that such Eligible Claimant shall purchase and the amount of the Cash purchase price (the "Subscription Payment") therefor. Upon receipt of such notification, each such Participating Creditor shall tender its Subscription Payment in Cash to the Committee's counsel by the deadline set forth in the notification (which deadline shall be no earlier than seven (7) days following the date of mailing of such notification. 48 55 8.2.6. Segregated Account. The Committee's counsel shall hold all Subscription Payments in a segregated account (using the Debtor's tax identification number), in trust for the Participating Creditors, and shall not disburse such funds for any purposes other than the following: (a) on the Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, all such funds (including any interest that may have been earned thereon) shall be disbursed to the Reorganized Debtor in exchange for the issuance of the Subscription Reorganized Shares pursuant to Section 8.1.2 hereinabove; or (b) if the Effective Date does not occur or Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, all such funds (including any interest that may have been earned thereon) shall be returned to those Participating Creditors who tendered such funds, proportionate to the amounts of such tenders. 8.2.7. Determinations by Committee. All determinations made by the Committee as to the Creditors' Rights Offering, including without limitation calculations of proper amounts of Subscription Rights, Subscription Reorganized Shares, Interim Claims and Subscription Payments, and determinations of the timeliness of exercises of Subscription Rights and the adequacy and completeness of information provided in the Subscription Rights portion of the Ballots, shall be in the Committee's sole discretion and judgment and shall be final 49 56 and conclusive for all purposes, without an opportunity for challenge, appeal or dispute. 8.2.8. Untimely Contributions. In the event of untimely receipts, or lack of receipts, of Subscription Payments, the subscriptions to which they relate shall be automatically deemed void and such Subscription Rights shall be deemed reassigned to, and exercised by, United Equities, which shall deposit with the Committee's counsel such additional Subscription Payments immediately upon notification. 8.2.9. Distributions. Prior to the Effective Date, the Committee shall provide directions to the Debtor as to the final Subscription Payment, and amount of Subscription Reorganized Shares of each Participating Creditor in accordance with the foregoing provisions, and on the Effective Date, the Reorganized Debtor shall issue the 2,000,000 Subscription Reorganized Shares pursuant to such directions of the Committee. 8.2.10. Special Considerations. A purchase of the Subscription Reorganized Shares will involve a high degree of risk, and may result in the loss of the purchaser's entire investment. 8.3. Corporate Governance of Reorganized Debtor. As of the Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz Group, the Reorganized Debtor's corporate governance and operative parameters shall include the following, including modifications of its 50 57 charter, articles of incorporation and by-laws to the extent appropriate: 8.3.1. Operational Control. The Preletz Group shall maintain all operational control of the Reorganized Debtor, including the appointment, compensation, employment and retention of the Reorganized Debtor's senior management, for at least three years following the Effective Date. 8.3.2. Board of Directors. The Reorganized Debtor's board of directors shall consist of five (5) directors, and the Preletz Group shall be entitled to select, remove and replace three (3) of those five directors at all times during the first three years following the Effective Date. 8.3.3. Formalized Provisions. The control provisions set forth in Sections 8.3.1 and 8.3.2 hereinabove shall be formalized by contractual provisions of shareholder agreements that shall be deemed adopted and accepted by all shareholders as of the Effective Date, and by modification of the Reorganized Debtor's articles of incorporation and bylaws. 8.3.4. Extraordinary Actions. Consent of the holders of a majority of issued and vested Reorganized Shares shall be required for certain extraordinary nonoperational actions, including but not limited to merger or consolidation with another entity, sale of a substantial portion (at least twenty percent (20%)) of the Reorganized Debtor's assets, commencement of a case under the Bankruptcy Code or consent to 51 58 the appointment of a general receiver of the Reorganized Debtor's assets. 8.3.5. Relocation and Rent. Prior to the Effective Date, the Debtor shall relocate its operations and remaining assets and employees to new facilities, and shall vacate the premises occupied as of the Petition Date. On and after the Effective Date and until October 1, 1998, the Distribution Agent may use a portion of the new facilities rent-free for storage, and the Reorganized Debtor shall be solely responsible for all rent obligations arising from the occupancy of either the Distribution Agent or the Reorganized Debtor with respect to such facilities. 8.3.6. Free Services. Following the Effective Date until the first anniversary of the Effective Date, the Reorganized Debtor shall provide to the Distribution Agent, free of charge, the full-time services of Michael O. Preletz, and the services of other officers of the Reorganized Debtor on a part-time (20%) basis, in order to assist in the liquidation of the Raidion Product Line, as well as to review Claims based upon the Raidion Product Line. Notwithstanding the foregoing, the Distribution Agent shall not be required to retain Mr. Preletz or other officers of the Reorganized Debtor for any such services, and may release such individuals from continuation of such services at any time, at the Distribution Agent's sole discretion. 52 59 8.3.7. Public Market. The Reorganized Debtor shall use its best reasonable efforts to obtain or maintain registration and public listing of its shares at the earliest possible time, consistent with applicable securities laws, sound business judgment and prudent expenditures of funds, to permit holders of Reorganized Shares access to public markets to dispose of such shares if they so desire. 8.3.8. Prohibition. To the extent required by the provisions of Section 1123(a)(6) of the Bankruptcy Code, the Reorganized Debtor's charter shall be deemed amended as of the Effective Date so as to prohibit the issuance of nonvoting equity securities, and to provide, to the extent that more than one class of securities may exist, such distributions of voting power as are required by the provisions of said Section 1123(a)(6). ARTICLE IX ASSUMPTION, DISCHARGE AND EXCULPATION 9.1. Reorganized Debtor's Assumption of Liabilities. As of the Effective Date, the Reorganized Debtor shall be deemed to have assumed each of the following Claims and liabilities: (a) the Ordinary Course Expenses to the extent required by the provisions of Section 3.4.2 hereinabove; (b) any and all Hammer Contingent Claims; (c) rent obligations under the terms of the real property lease of the Debtor's new facilities, to the extent provided in Section 8.3.5 hereinabove; (d) obligations identified by the Preletz Group in Schedule 4.2(B) pursuant to the provisions of 53 60 Section 4.2 hereinabove, to the extent of reinstatement costs, reinstated obligations and full satisfaction costs; and (e) Cure payments and ongoing obligations with respect to those executory contracts identified in Schedule 6.2.1 pursuant to the provisions of Section 6.2.1(a) hereinabove. The Distribution Estate shall have no liability, responsibility or obligation with respect to any of the Claims or liabilities identified in subparts (d) or (e) herein. The Reorganized Debtor shall indemnify the Distribution Estate, and hold the Distribution Estate harmless, against any expenditures, damages, costs (including reasonable attorneys' fees and expenses) or distributions arising from the assertion against the Distribution Estate of any Claim or liability assumed by the Reorganized Debtor pursuant to the terms of this Section 9.1. 9.2. Discharge. The rights afforded herein, and the treatment of all Claims and Interests set forth herein, shall be in full exchange for, and in complete satisfaction, discharge and release of, all Claims and Interests of any kind or nature whatsoever, whether known or unknown, matured or contingent, liquidated or unliquidated, existing, arising or accruing, whether or not yet due, prior to the Effective Date, including without limitation any Claims, or interest on Claims, accruing on or after the Petition Date, against the Debtor or its estate, or any assets or property thereof. Except as, and to the extent, expressly provided in the Plan or the Confirmation Order, at all times on and after the Effective Date, unless Section 7.2.3 hereinabove becomes operative due to a timely and proper withdrawal by the Preletz 54 61 Group, (a) all such Claims against, and Interests in, the Debtor or its estate shall be deemed fully and finally satisfied, discharged and released; (b) all persons shall be fully and finally barred, enjoined and precluded from asserting against the Reorganized Debtor, the Distribution Estate, or any of their respective successors or assets, any Claims or Interests based upon any act or omission, transaction, agreement, right, privilege, duty, entitlement, obligation or other event or activity of any kind or nature whatsoever that occurred prior to the Effective Date; and (c) all Claims and Interests shall be fully and finally discharged and deemed satisfied to the fullest extent permitted by the provisions of Section 1141 of the Bankruptcy Code. 9.3. Exculpation of Certain Persons. As of the Effective Date, the Plan shall be deemed to satisfy, waive and release in full any and all claims of the Debtor or its estate against the Debtor, the Preletz Group, the Committee, the members of the Committee and each of their present officers, directors, agents, advisors, attorneys or accountants from any claim arising out of or in connection with any act or failure to act in connection with their rights and duties arising under or related to the Chapter 11 Case from the Petition Date to and including the Effective Date, except any claims expressly created or preserved under the terms of the Plan or any documents executed, or to be executed, in connection with the Plan. Except as expressly provided in the Plan or any other document executed or to be executed in connection with the Plan, neither the Debtor, nor the Preletz Group, nor the 55 62 Committee, nor its members, nor any of their respective present officers, directors, agents, advisors, attorneys or accountants, shall have any liability to the Debtor, the Distribution Agent, the Distribution Estate or the Reorganized Debtor for actions taken or omitted to be taken under or in connection with the Plan or the Chapter 11 Case from the Petition Date to and including the Effective Date. 9.4 Immunity. (a) All actions taken before, on or after the Effective Date by the Distribution Agent, the Committee or any of their respective agents, representatives, attorneys, advisors or accountants, as contemplated under the terms of the Plan, shall be conclusively deemed to be actions within the scope of Sections 1103 and 1107 of the Bankruptcy Code; (b) except for willful misconduct or gross negligence, neither the Distribution Agent, the Committee, their respective professionals, the Committee's members nor United Equities shall be determined liable to the Distribution Estate or to any other person or party for any action or omission taken or made in connection with the Plan or its effectuation before, on or after the Effective Date, and such parties may in good faith exercise or refrain from exercising any right, duty or obligation contemplated hereunder without challenge or recourse; and (c) the Bankruptcy Court shall have and retain exclusive jurisdiction over any and all claims asserted against any party with respect to any act or omission taken or made in connection with the Plan or its effectuation at any time. 56 63 ARTICLE X RETENTION OF JURISDICTION 10.1. Generally. Until the Chapter 11 Case has been closed, and thereafter upon a motion to reopen the case, the Bankruptcy Court shall have exclusive jurisdiction of all matters concerning the allowance of Claims and Interests, and the interpretation and implementation of the Plan, pursuant to, and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code, including without limitation the following purposes: (a) to hear and determine applications for the assumption or rejection of executory contracts or unexpired leases, if any are pending on the Effective Date, and the allowance of Claims resulting therefrom; (b) to determine any and all claims, causes of action, adversary proceedings, applications and contested matters which are pending on the Effective Date or which are thereafter commenced by or related to the Distribution Estate; (c) to hear and determine any objection to Administrative Expense Claims or to Claims; (d) to enter and implement such orders as may be appropriate in the event that the Confirmation Order is for any reason stayed, revoked, modified, or vacated; (e) to issue such orders in aid of execution of the Plan, to the extent authorized by the provisions of Section 1142 of the Bankruptcy Code; 57 64 (f) to consider any modifications of the Plan, to cure any defect or omission, or reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order; (g) to hear and determine all applications for Professional Fees accrued through the Effective Date, and for Professional Fees accrued thereafter in the event of a timely objection; (h) to hear and determine disputes arising in connection with the interpretation, implementation or enforcement of the Plan; (j) to hear and determine matters concerning state, local and federal taxes in accordance with Sections 346, 505, and 1146 of the Bankruptcy Code; (k) to enter a final decree closing the Chapter 11 Case, and orders reopening the Chapter 11 Case as appropriate; and (l) to hear and determine claims described in Section 9.4(c) hereinabove. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Exemption from Transfer Taxes. Pursuant to the provisions of Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making or assignment of any lease or sublease, the sale or other transfer of any assets by the Distribution Agent to 58 65 a third party, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan, including any deeds, bills of sale or assignments executed in connection with any of the transactions contemplated under the Plan, shall not be subject to any stamp, real estate transfer, mortgage recording, sales or other similar tax. 11.2. Section 1145(a) Exemption from Registration. Pursuant to the provisions of Section 1145(a) of the Bankruptcy Code, and except with respect to underwriters as defined in Section 1145(b) of the Bankruptcy Code, the offer, sale, issuance and distribution of shares of stock of the Reorganized Debtor under the terms of Sections 5.2.4, 8.1.1, 8.1.2 or 8.2 of this Plan, are, and shall be deemed, fully exempt from, and unaffected by, any of the provisions of Section 5 of the Securities Act of 1933 and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security. The issuance of Reorganized Shares under the terms of Sections 8.1(a), 8.1.3, 8.1.4 or 8.1.5 of this Plan shall not be deemed to be exempt from registration or licensing pursuant to the terms of Section 1145(a) of the Bankruptcy Code. 11.3. Binding Effect. The Plan shall be binding upon and inure to the benefit of the Reorganized Debtor, the Preletz Group, the Committee, the Distribution Estate, the Distribution Agent and all holders of Claims (including without limitation all holders of 59 66 Debentures or Notes) and Interests and their respective successors and assigns, whether or not they have accepted the Plan. 11.4. Ratification. Subject to all of the terms of this Plan, the Confirmation Order shall be deemed to ratify all transactions effectuated by the Debtor during the pendency of its chapter 11 case to the extent either in the ordinary course of business or pursuant to an order of the Bankruptcy Court. 11.5. Notices. Any notice required or permitted to be provided under the terms of the Plan shall be in writing and shall be served by the quickest practical available method of delivery (which shall be conclusively presumed to be (a) by hand delivery or (b) by facsimile with hard copy to follow by overnight courier, as to the Debtor, the Committee, the Reorganized Debtor, the Preletz Group and the Distribution Agent). All notices to the Debtor, the Committee, the Reorganized Debtor, the Preletz Group or the Distribution Agent shall be delivered as follows (or as otherwise directed by such party by notice given pursuant hereto): If to the Debtor (prior to the Effective Date), to: StreamLogic Corporation 8450 Central Avenue Newark, California 94560 Attn: Michael O. Preletz, C.E.O. Telephone: (510) 608-4075 Telecopier: (510) 608-4012 60 67 With a copy to: Goldberg, Stinnett, Meyers & Davis A Professional Corporation 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Attn: Merle C. Meyers, Esq. Telephone: (415) 362-5045 Telecopier: (415) 362-2392 If to the Reorganized Debtor (on and after the Effective Date), to: StreamLogic Corporation 8450 Central Avenue Newark, California 94560 Attn: Michael O. Preletz, C.E.O. Telephone: (510) 608-4075 Telecopier: (510) 608-4012 With a copy to: Manatt, Phelps & Phillips, LLP 11355 West Olympic Boulevard Los Angeles, CA 90064-1614 Attn: T. Hale Boggs, Esq. Telephone: (310) 312-4000 Telecopier: (310) 312-4224 If to the Committee (prior to the Effective Date), to: Murray & Murray A Professional Corporation 3030 Hansen Way, Suite 200 Palo Alto, California 94304 Attn: Patrick M. Costello, Esq. Telephone: (415) 852-9000 Telecopier: (415) 852-9244 If to the Preletz Group, to: MBI Group 1334 Parkview Avenue, Suite 245 Manhattan Beach, CA 90266 Attn: Michael O. Preletz Telephone: (310) 545-3504 Telecopier: (310) 546-4206 61 68 With a copy to: Graven Perry Block Brody & Qualls 523 West Sixth Street, Suite 1130 Los Angeles, CA 90014 Attn: Kriston D. Qualls, Esq. Telephone: (213) 680-9770 Telecopier: (213) 489-1332 If to the Distribution Agent: As directed by notice provided by or on behalf of the Distribution Agent on or as soon as practicable after the Effective Date, with copies to: Goldberg, Stinnett, Meyers & Davis A Professional Corporation 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Attn: Merle C. Meyers, Esq. Telephone: (415) 362-5045 Telecopier: (415) 362-2392 and Murray & Murray A Professional Corporation 3030 Hansen Way, Suite 200 Palo Alto, California 94304 Attn: Patrick M. Costello, Esq. Telephone: (415) 852-9000 Telecopier: (415) 852-9244 11.6. Governing Law. Except to the extent that the Bankruptcy Code or Bankruptcy Rules are applicable, the rights and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of California, without giving effect to the conflict of laws provisions thereof. 11.7. Headings. Headings are used in the Plan for convenience and reference only, and shall not constitute a part of the Plan for any other purpose. 62 69 11.8. Exhibits. Any and all exhibits to the Plan are incorporated into and are a part of the Plan as if set forth in full herein. 11.9. Closing Case. At such point as the Court determines, upon a motion of the Distribution Agent, and following ten (10) Business Days' notice and an opportunity for hearing to all parties listed in the Postconfirmation List, that all pending claims objections, contested matters and adversary proceedings have been resolved, or that the Chapter 11 Case need remain open no longer despite the pendency of such objections, matters or proceedings, the Chapter 11 Case may be closed by the terms of a final decree of the Bankruptcy Court, provided that such case will be reopened thereafter if necessary in order to facilitate any of the actions contemplated by the terms of Section 10.1 hereinabove. 11.10. Expenses. In the event that any action, motion, contested matter, complaint, answer, counterclaim, cross-claim or other action is filed or taken by the Distribution Agent or the Reorganized Debtor after the Effective Date either in the Bankruptcy Court or otherwise, in order to enforce or interpret any terms of the Plan or the Confirmation Order, or any order or agreement made in implementation of the Plan, the prevailing party in such matter (as determined by a court of competent jurisdiction) shall be entitled to recover from any opposing party its expenses, including reasonable attorneys' fees and costs, incurred in such matter. 63 70 11.11. Modification and Enforcement. The following shall pertain, in addition to applicable provisions of the Bankruptcy Code and the Bankruptcy Rules, to the modification or enforcement of the Plan: 11.11.1. Modification. Following the Effective Date, the Reorganized Debtor or the Distribution Agent may jointly or separately institute a proceeding or motion in the Bankruptcy Court in order to remedy any defects or omissions, or to reconcile any inconsistencies, in the Plan, the Disclosure Statement or the Confirmation Order, upon no less than ten (10) Business Days' notice of such proceedings or motion shall be served on all parties listed in the Postconfirmation List, or upon such parties as authorized by the Bankruptcy Court. 11.11.2. Enforcement. The Reorganized Debtor or the Distribution Agent may jointly or separately take such actions, including the initiation of proceedings or the prosecution of a motion, as may be reasonably necessary in order to interpret or enforce the purposes and intent of the Plan. 64 71 DATED: January 15, 1998 STREAMLOGIC CORPORATION, a Delaware corporation By: /s/ CHAPMAN A. STRANAHAN ------------------------------------ Chapman A. Stranahan Assistant Chief Executive Officer Submitted By: GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation By: /s/ MERLE C. MEYERS, ESQ. --------------------------------- Merle C. Meyers, Esq. Attorneys for Debtor-in-Possession 65 72 EXHIBIT "A" SCHEDULE OF DEFINITIONS As used herein or in the Plan, the following terms have the meanings specified below, unless the context otherwise requires: A. Administrative Expense Claim means any Claim arising before the Effective Date under Sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without limitation, any actual and necessary expenses of preserving the Debtor's estate, any actual and necessary expenses of operating the business of the Debtor, all compensation or reimbursement of expenses allowed by the Bankruptcy Court under the provisions of Sections 330, 331 or 503 of the Bankruptcy Code, any fees or charges assessed against the Debtor's estate under the provisions of Section 1930 of chapter 123 of title 28 of the United States Code, and all Claims arising from employment with the Debtor on or after the Petition Date, except for Claims that are also Secured Claims. B. Allowed means: 1. With respect to a Claim, any Claim that is neither a Disputed Claim nor a Disallowed Claim, and proof of which was timely and properly filed or, if no proof of claim was filed, which has been or hereafter is listed by the Debtor on its Schedules as liquidated in amount and not disputed or contingent. "Allowed Administrative Expense Claim" or "Allowed Claim" shall not include interest on such Administrative Expense Claim or Claim from and after the Petition Date except as expressly specified in the Plan; 2. With respect to an Interest, any Interest as of the Effective Date, as defined elsewhere in this Exhibit "A." C. Allowed Claim means an Allowed Claim within the particular Class or category identified. D. Ballot means each of the voting forms to be distributed with the Plan and the Disclosure Statement to holders of Claims or Interests in Classes that are impaired under the terms of the Plan and are entitled to vote in connection with the solicitation of acceptances of the Plan. E. Bankruptcy Code means Title 11 of the United States Code, as amended from time to time, as applicable to the Chapter 11 Case. F. Bankruptcy Court means the United States Bankruptcy Court for the Northern District of California, San Francisco Division, or such other court having competent jurisdiction over the Chapter 11 Case. A-1 73 G. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended from time to time, as applicable to the Chapter 11 Case, including the Local Rules of the Bankruptcy Court. H. Business Day means any day on which commercial banks are generally open for business in San Francisco, California, other than a Saturday, Sunday or legal holiday in the State of California. I. Cash means the legal tender of the United States of America. J. Chapter 11 Case means the case under Chapter 11 of the Bankruptcy Code commenced by the Debtor, styled as In re StreamLogic Corporation, a Delaware corporation, formerly known as Micropolis Corporation, Case No. 97-32984 DM, currently pending in the Bankruptcy Court. K. Claim means (a) any right to payment from the Debtor, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, (b) any right to an equitable remedy for breach of performance if such breach gives rise to a right to payment from the Debtor, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured, or (c) any claim as defined by the provisions of Section 101(5) of the Bankruptcy Code. L. Claimant means a person asserting a Claim against the Debtor or the Debtor's estate. M. Class means a category of holders of Claims or Interests as established by the terms of Article II of the Plan. N. Committee means the Official Committee of Unsecured Creditors appointed in the Chapter 11 Case, as it may be constituted from time to time. O. Confirmation Date means the date on which the Clerk of the Bankruptcy Court enters the Confirmation Order. P. Confirmation Hearing means the hearing before the Bankruptcy Court for the purpose of determining whether the Plan will be confirmed by the Bankruptcy Court pursuant to the provisions of Section 1129 of the Bankruptcy Code. Q. Confirmation Order means the order of the Bankruptcy Court confirming the Plan pursuant to the provisions of Section 1129 of the Bankruptcy Code. A-2 74 R. Convenience Claims means any Allowed Unsecured Claim (other than a Subordinated Claim or Rescission Claim) of $3,000.00 or less, and all Allowed Unsecured Claims (other than Subordinated Claims and Rescission Claims) in excess of $3,000.00 whose holders exercise the "opt-in" election set forth in Section 5.1.1 of the Plan, but excluding Claims whose holders exercise the "opt-out" election set forth in Section 5.1.2 of the Plan. S. Creditor means any person that has a Claim against the Debtor that arose on or before the Petition Date, or a claim against the Debtor of any kind specified in sections 502(f), 502(g), 502(h) or 502(i) of the Bankruptcy Code. T. Creditors' Rights Offering means the offering of Reorganized Shares to Claimants as set forth in Section 8.2 of the Plan. U. Cure means the distribution of Cash as and to the extent required for the cure and assumption of an unexpired executory contract pursuant to the provisions of Section 365(b) of the Bankruptcy Code, or for the cure and reinstatement of a secured obligation pursuant to the provisions of Section 1124(2) of the Bankruptcy Code. V. Debentures means the 6% Convertible Subordinated Debentures due 2012 and issued pursuant to the Indenture dated as of March 15, 1987 between the Debtor and Harris Trust and Savings Bank, as successor indenture trustee. W. Debtor means StreamLogic Corporation, a Delaware corporation formerly doing business as Micropolis Corporation, the debtor-in-possession in the Chapter 11 Case and the proponent of the Plan. X. Debtor-in-Possession means the Debtor, as debtor-in-possession in the Chapter 11 Case. Y. Disallowed Claim means: 1. Any Claim, proof of which was not timely and properly filed and, in the case of a Claim other than an Administrative Expense Claim, which is listed in the Schedules as unliquidated, disputed or contingent, or is not listed in the Schedules; and 2. Any Claim that has not been allowed by an earlier order of the Bankruptcy Court or by the terms of the Plan and as to which the Debtor, the Reorganized Debtor or any other party with authority to file objections to Claims, has filed an objection or request for estimation within ninety (90) days following the Effective Date (or within ninety (90) days following the A-3 75 filing of such Claim, if later) or such other applicable limitation period fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, to the extent that such Claim is disallowed by a Final Order. Z. Disclosure Statement means the disclosure statement relating to the Plan, as approved by the Bankruptcy Court pursuant to the provisions of Section 1125 of the Bankruptcy Code. AA. Disputed Claim means any Claim that has not been allowed by an earlier order of the Bankruptcy Court or by the terms of the Plan and as to which the Debtor, the Reorganized Debtor, the Distribution Agent or any other party with authority to file objections to Claims, has filed an objection or request for estimation within ninety (90) days following the Effective Date (or within ninety (90) days following the filing of such Claim, if later) or such other applicable limitation period fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, except to the extent that such objection or request for estimation has been withdrawn or determined by a Final Order. AB. Distribution Agent means the individual, in his or her official capacity, selected to manage the Distribution Estate pursuant to the provisions of Section 7.7 of the Plan. AC. Distribution Estate means the remaining estate on and after the Effective Date maintained by the Distribution Agent for the benefit of holders of Allowed Claims and Allowed Interests, pursuant to the provisions of Section 7.8 of the Plan. AD. Effective Date means the effective date of the Plan, which shall be a date designated by the Debtor, the Committee and the Preletz Group, but which date shall be no less than 11 days, and no more than 30 days, following the Confirmation Date (or such later date as may be agreed upon by the Debtor and the Preletz Group, each in their sole and absolute discretion, in the event that effectuation of the Plan is enjoined or stayed by a court of competent jurisdiction for any period of time, provided that such later date is not later than 30 days following expiration of such stay or injunction). AE. Eligible Claimant shall have the meaning identified in Section 8.2 of the Plan. AF. ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all regulations issued pursuant thereto. AG. Farrington means Farrington Investments, Ltd., a Cayman Islands corporation with offices at P.O. Box 1092, Fort Street, Grand Cayman, Cayman Islands. A-4 76 AH. Filing Date means the Petition Date. AI. Final Order means an order of a court of competent jurisdiction as to which the time to appeal, petition for certiorari, or move for reargument or rehearing has expired and as to which no appeal, petition for certiorari, or other proceedings for reargument or rehearing shall then be pending or as to which any right to appeal, petition for certiorari, reargument or rehearing shall have been waived, or, in the event that an appeal, writ of certiorari, reargument or rehearing thereof has been sought, such order shall have been determined by the highest court to which such order was appealed, or certiorari, reargument or rehearing shall have been denied and the time to take any further appeal, petition for certiorari or move for reargument or rehearing shall have expired. AJ. Hammer Assets shall have the meaning identified in Section 7.3.1 of the Plan. AK. Hammer Contingent Claims means any Claim arising from the sale by the Debtor of products within the Hammer Product Line, including without limitation any and all Claims for refund, return, reimbursement, breach of warranty or product defects. AL. Hammer Product Line means the Debtor's business and product line based upon the "Hammer" products, together with all related products of the Debtor and all intellectual property rights owned by the Debtor immediately preceding the Effective Date. AM. Indenture means, with respect to the Debentures, the Indenture dated as of March 15, 1987 between the Debtor and Harris Trust and Savings Bank, as successor indenture trustee, and, with respect to the Notes, the Indenture dated as of November 29, 1996 between the Debtor and Norwest Bank Minnesota, N.A., as indenture trustee. AN. Indenture Trustee means Harris Trust and Savings Bank with respect to the Debentures and Norwest Bank Minnesota, N.A., with respect to the Notes, or its respective successor. AO. Interest means (a) any equity interest in the Debtor, and any option, warrant or other agreement requiring the issuance of any such equity interest to the extent fully exercised in accordance with applicable terms, that is a matter of the records of the Debtor's stock transfer agent as of the Effective Date; and (b) any Rescission Claim. AP. Interim Claim shall have the meaning identified in Section 8.2.1 of the Plan. AQ. Market Value means the total value of the Reorganized Debtor's issued and outstanding shares, as measured by pricing in A-5 77 a public market if the Reorganized Shares are publicly traded; or by an arm's-length purchase of all or substantially all of its assets, less liabilities, to a purchaser with whom the Preletz Group has no past, present or contemplated economic relationship; or by a sale by the Reorganized Debtor of no less than 1,000,000 Reorganized Shares to one or more parties that are not Affiliates (as defined within Section 101(2) of the Bankruptcy Code) of the Preletz Group or the Reorganized Debtor's management. AR. Nonclassified Priority Claim means a Priority Claim that is either a Priority Tax Claim or an Administrative Expense Claim. AS. Non-Hammer Assets shall have the meaning identified in Section 7.3.2 of the Plan. AT. Notes means the Increasing Rate Unsecured Promissory Notes due November 29, 1998 and issued pursuant to the Indenture dated as of November 29, 1996 between the Debtor and Norwest Bank Minnesota, N.A., as indenture trustee. AU. Ordinary Course Expenses means a liability incurred by the Debtor on or after the Petition Date in the ordinary course of its business, specifically excluding income tax liabilities, tort liabilities, environmental cleanup or indemnity claims, liabilities arising under ERISA, and other items not customarily incurred by the Debtor in the ordinary operation of its business. AV. Participating Creditor shall have the meaning identified in Section 8.2.5 of the Plan. AW. Patent Sale Agreement means the Agreement For The Sale Of Patents entered into as of September 2, 1997 between the Debtor and Farrington, for the sale of certain patents and other intellectual property rights, which sale was completed as of October 14, 1997. AX. Petition means the voluntary petition filed by the Debtor with the Bankruptcy Court in order to commence the Chapter 11 Case on June 26, 1997. AY. Petition Date means June 26, 1997, the date on which the Petition was filed with the Bankruptcy Court, commencing the Chapter 11 Case. AZ. Plan means this Debtor's First Amended Plan Of Reorganization (Dated January 15, 1998) (including all exhibits and schedules annexed hereto or filed separately), either in its present form or as it may be legally altered, amended, or modified from time to time. BA. Postconfirmation List means the United States Trustee, the Reorganized Debtor and its counsel, the Distribution Agent and his/her counsel, the Committee and its members and counsel, and A-6 78 those parties who, subsequent to the Confirmation Date, file with the Bankruptcy Court and serve upon the parties and counsel named above written requests for special notice as provided by the terms of the Plan, provided, that any such requesting party may be eliminated from such list from time to time by consent of such party or by order of the Bankruptcy Court on notice to the then- constituted Postconfirmation List, upon a showing that such party no longer holds material interests or claims in the Chapter 11 Case. BB. Preletz Group means Michael O. Preletz, and other investors as may be designated by Mr. Preletz, agreeing to invest in the Reorganized Debtor, conditioned upon the occurrence of the Effective Date according to the terms of the Plan. BC. Priority Claim means a Claim entitled to priority treatment under the provisions of Section 507(a) of the Bankruptcy Code. BD. Priority Tax Claim means a Priority Claim of a governmental unit entitled to priority treatment pursuant to the provisions of Sections 502(i) and 507(a)(8) of the Bankruptcy Code, other than Secured Claims. BE. Pro Rata means: 1. Regarding Claims, the ratio of the amount of an Allowed Claim in a particular Class to the aggregate amount of all Allowed Claims in such Class; and 2. Regarding Interests, the ratio of the amount of the Allowed Interest in a particular Class to the aggregate amount of all Allowed Interests in such Class. BF. Professional Fees means a Claim for compensation or reimbursement of expenses of a professional retained in the Chapter 11 Case in accordance with the provisions of Sections 327 et seq. of the Bankruptcy Code. BG. PTG means Peripheral Technology Group, Inc., a Minnesota corporation. BH. Public Debt Securities means the Notes and the Debentures. BI. Raidion Product Line means the business and products formerly supported by the Debtor with respect to "Raidion" products, all of the patents and patent applications which have been transferred to Farrington pursuant to the Patent Sale Agreement. A-7 79 BJ. Reorganized Debtor means the Debtor as reorganized pursuant to the terms of the Plan, on and after the Effective Date. BK. Reorganized Shares means all shares of common stock issued by the Reorganized Debtor on and after the Effective Date pursuant to the provisions of Section 8.1 of the Plan. BL. Rescission Claim means a Claim arising from the rescission of a purchase or sale of common stock of the Debtor or an affiliate of the Debtor, for damages arising from the purchase or sale of such stock, or for reimbursement or contribution allowed under Section 502 of the Bankruptcy Code on account of such a Claim. BM. Schedule 4.2(A) means the schedule described and defined as such in Section 4.2 of the Plan. BN. Schedule 4.2(B) means the schedule described and defined as such in Section 4.2 of the Plan. BO. Schedule 6.2.1 means the schedule to be filed and served pursuant to the provisions of Section 6.2.1 of the Plan. BP. Schedules means the schedules of assets and liabilities and the statement of financial affairs filed by the Debtor in the Chapter 11 Case as required by the provisions of Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007, and all amendments or modifications filed with respect thereto. BQ. Secured Claim means an Allowed Claim held by any entity to the extent of the value, as set forth in the Plan, as determined by a Final Order of the Bankruptcy Court pursuant to Section 506(a) of the Bankruptcy Code or as agreed upon by such entity, on the one hand, and the Reorganized Debtor (as to Claims secured by Hammer Assets) or the Distribution Agent (as to Claims secured by Non-Hammer Assets), on the other hand, of any duly perfected interest in property of the Debtor's estate validly and enforceably securing such Allowed Claim. BR. Secured Creditor means the holder of a Secured Claim. BS. Subscription Payment shall have the meaning identified in Section 8.2.5 of the Plan. BT. Subscription Reorganized Shares shall have the meaning identified in Section 8.2.1 of the Plan. BU. Subscription Rights shall have the meaning identified in Section 8.2.1 of the Plan. A-8 80 BV. United Equities means United Equities Company, a company holding Unsecured Claims of approximately $2,500,000 arising from the Debentures. BW. Unsecured Claim means any Claim that is not a Secured Claim or Priority Claim. Such Unsecured Claims include, without limitation, all Claims arising from the rejection of leases and other executory contracts, guarantee claims, all Claims held by the Debtor's trade vendors and suppliers. A-9 EX-99.2 3 DEBTOR'S 1ST AMENDED DIS. STMT. DATED 1,15,98 1 EXHIBIT 99.2 DEBTOR'S FIRST AMENDED DISCLOSURE STATEMENT (Dated January 15, 1998) (Without exhibits -- exhibits will be furnished upon request to the Company.) 2 GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation MERLE C. MEYERS, ESQ. #066849 KATHERINE D. RAY, ESQ. #121002 KENNETH G. DEJARNETTE, ESQ. #168074 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Telephone: (415) 362-5045 Attorneys for Debtor-in-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION In re ) Case No. 97-32984 DM ) STREAMLOGIC CORPORATION, ) Chapter 11 a Delaware corporation ) formerly known as ) Micropolis Corporation, ) ) Debtor. ) ) Tax I.D. No. 95-3093858 ) ________________________________) DEBTOR'S FIRST AMENDED DISCLOSURE STATEMENT (DATED JANUARY 15, 1998) THIS DISCLOSURE STATEMENT, AND ITS DISTRIBUTION TO CREDITORS AND OTHER PARTIES IN INTEREST, HAS BEEN APPROVED BY THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA AS CONTAINING ADEQUATE INFORMATION AS REQUIRED BY THE BANKRUPTCY CODE FOR SOLICITATION OF ACCEPTANCES OF THE PLAN OF REORGANIZATION DESCRIBED HEREIN. THE COURT HAS MADE NO INDEPENDENT INVESTIGATION OR DETERMINATION OF ANY FACTUAL STATEMENT OR DOLLAR VALUE SET FORTH IN THE PLAN OR IN THIS DISCLOSURE STATEMENT. 3 TABLE OF CONTENTS PAGE ---- I. INTRODUCTION..........................................................1 A. Generally...................................................1 B. Right to Vote on the Plan...................................4 II. OVERVIEW OF THE PLAN..................................................6 III. PREPETITION BACKGROUND................................................9 A. History of Business.........................................9 1. Generally.........................................9 2. Sale to Micropolis...............................10 3. Purchase from FWB................................11 B. Industry Segment and Market................................12 C. Products...................................................13 D. Discontinued Operations....................................14 1. Video Servers....................................14 2. Video Disk Recorder Technology...................15 3. Raidion Product Line.............................16 E. International Operations and Foreign Subsidiaries..........16 F. Competition................................................18 G. Patents and Know-How.......................................18 H. Employees..................................................19 I. Real Property..............................................19 J. Investments................................................20 1. Concentric Network Stock.........................20 2. Note from Titanium Memory Systems................21 K. Debentures and Notes.......................................22 1. Convertible Debentures...........................22 2. 1996 Exchange Offer; Increasing Rate Notes.......23 3. Remaining Debentures and Litigation..............24 4. Substitution of Indenture Trustee................25 L. Relocation and Consolidation...............................27 M. Change in Management.......................................28 N. Debt Repayment Plans.......................................29 O. Events Preceding Chapter 11 Case Commencement..............30 IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE........................31 A. Continuation of Business; Stay of Litigation...............32 B. Appointment of the Creditors' Committee....................32 C. Representation of the Debtor and the Committee.............34 D. Development and Implementation of Strategic Plan...........35 E. Bar Date for Filing Proofs of Claim........................36 F. Asset Sales Relating to Raidion Product Line...............36 G. Dispute with Newark Landlord...............................37 H. Remaining Assets...........................................39
i 4 V. THE PLAN OF REORGANIZATION...........................................40 A. Classification and Treatment of Claims and Interests..................................................41 1. Nonclassified Claims.............................41 2. Class A -- Other Priority Claims.................45 3. Class B -- Secured Claims........................46 4. Class C -- Convenience Claims....................48 5. Class D -- General Unsecured Claims..............49 6. Class E -- Stock Interests.......................52 B. Recapitalization of the Debtor.............................53 1. Revesting of Assets..............................53 2. Reorganized Shares...............................54 3. Creditors' Rights Offering.......................55 4. Corporate Governance.............................57 C. Distribution Estate........................................58 D. Discharge and Exculpation..................................60 E. Executory Contracts........................................61 F. Other Provisions...........................................62 VI. CONFIRMATION PROCEDURE...............................................63 A. Solicitation of Votes......................................63 B. The Confirmation Hearing...................................64 C. Confirmation...............................................65 1. Acceptance.......................................65 2. Nonconsensual Confirmation.......................66 a. Unsecured Creditors...................66 b. Equity Interests......................66 3. Feasibility......................................67 4. Best Interests Test..............................67 D. Consummation...............................................68 VII. MANAGEMENT OF THE REORGANIZED DEBTOR.................................68 A. Composition of the Board of Directors......................69 B. Identity of Officers.......................................69 C. Compensation of Executive Officers.........................71 D. Compensation of Directors..................................71 VIII. APPLICABILITY OF CERTAIN FEDERAL AND OTHER SECURITIES LAWS TO THE REORGANIZED SHARES DISTRIBUTED UNDER THE PLAN...........................................71 A. Initial Issuance of Reorganized Shares.....................72 B. Resale of Reorganized Shares...............................73 1. Controlling Persons..............................74 2. Accumulators and Distributors....................75 3. Syndicators......................................76 4. Dealers..........................................76 C. Liquidity in the Reorganized Shares........................77 1. Trading on the OTC...............................77 2. The Nasdaq Stock Market..........................77 D. Hart-Scott-Rodino Act Requirements.........................78
ii 5 IX. CERTAIN RISK FACTORS TO BE CONSIDERED................................79 A. Overall Risks to Recovery Upon Claims......................79 B. Projected Financial Information............................79 C. Dividend Policy............................................80 D. Liquidity to Stockholders..................................80 E. Substantial Control by Officers, Directors and Certain Shareholders.........................82 F. Key Personnel..............................................82 X. PROJECTIONS AND LIQUIDATION ALTERNATIVES.............................83 A. Projected Performance......................................83 B. Liquidation Alternative....................................85 C. Projected Recoveries.......................................89 XI. CONCLUSION AND RECOMMENDATION........................................90
iii 6 EXHIBITS Exhibit A -- Statement of Support of Debtor's Plan Exhibit B -- Debtor's Monthly Operating Report for the Month of October 1997 Exhibit C -- Proforma Financial Summary Exhibit D -- Liquidation Analysis of Non-Hammer Assets Exhibit E -- Liquidation Analysis of Hammer Assets Exhibit F -- Projected Distributions in Class D iv 7 I. INTRODUCTION A. GENERALLY STREAMLOGIC CORPORATION, a Delaware corporation formerly known as Micropolis Corporation ("StreamLogic" or the "Debtor")(1), commenced this chapter 11 reorganization case on June 26, 1997, in the United States Bankruptcy Court for the Northern District of California, San Francisco Division, by the filing of a voluntary petition on that date. This Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (as hereafter amended, modified or supplemented, the "Disclosure Statement") has been prepared by the Debtor for distribution to creditors, equity interest holders and other parties in interest for the purpose of soliciting acceptances of the Debtor's First Amended Plan of Reorganization (Dated January 15, 1998) (as hereafter amended, modified or supplemented, the "Plan") proposed and served concurrently herewith by the Debtor. The Disclosure Statement is being provided to parties in interest in order to provide adequate information to enable such parties to make informed judgments about the Plan. This Disclosure Statement has been approved as containing adequate information by an order of the Bankruptcy Court, and its distribution to parties in interest has been authorized and directed by the Bankruptcy Court. NONETHELESS, THE DEBTOR IS - ---------- (1) Unless otherwise expressly defined herein, or unless the context requires otherwise, all capitalized terms used in this Disclosure Statement shall have the meanings assigned to them in the Plan, including the Schedule of Definitions that is attached to the Plan as Exhibit "A." 1 8 UNABLE TO WARRANT OR REPRESENT THAT ALL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT OR IN EXHIBITS ATTACHED HERETO IS WITHOUT ERROR, ALTHOUGH ALL REASONABLE EFFORTS UNDER THE CIRCUMSTANCES HAVE BEEN MADE TO BE ACCURATE. IN PARTICULAR, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE DEBTOR NOTES THAT THE ASSUMPTIONS AND PROJECTIONS OF FUTURE PERFORMANCE AND ALTERNATIVE SCENARIOS ARE ONLY PREDICTIONS OF FUTURE OR HYPOTHETICAL EVENTS, MOST OF WHICH ARE BEYOND THE DEBTOR'S CONTROL, AND THEREFORE THERE CAN BE NO ASSURANCES THAT THE ASSUMPTIONS WILL IN FACT MATERIALIZE OR THAT THE PROJECTIONS WILL IN FACT BE MET. IN ADDITION, THE DEBTOR NOTES: - - ANY DESCRIPTION OF THE TERMS OF THE PLAN CONTAINED HEREIN IS A SUMMARY ONLY, AND YOU ARE CAUTIONED TO REVIEW CAREFULLY THE TERMS OF THE PLAN ITSELF FOR SIGNIFICANT DETAILS. ALL CLAIMANTS AND EQUITY INTEREST HOLDERS ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER EXHIBITS ANNEXED HERETO AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE BANKRUPTCY COURT PRIOR TO OR CONCURRENT WITH THE FILING OF THIS DISCLOSURE STATEMENT. - - THERE CAN BE NO ASSURANCE: (A) THAT THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN ARE MATERIALLY ACCURATE; OR (B) THAT THIS DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION. FURTHER, ALL CLAIMANTS SHOULD READ CAREFULLY AND CONSIDER FULLY THE "RISK FACTORS" SECTION HEREINBELOW BEFORE VOTING FOR OR AGAINST THE PLAN. - - THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE AND NOT IN ACCORDANCE WITH ANY FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAW. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING SECURITIES OF THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT OF THE PURPOSE FOR WHICH THEY WERE PREPARED. - - THIS DISCLOSURE STATEMENT HAS BEEN NEITHER APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE 2 9 "SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF ANY OF THE STATEMENTS CONTAINED HEREIN. - - THIS DISCLOSURE STATEMENT SHALL NOT BE CONSTRUED TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE DEBTOR'S REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST, OR EQUITY INTERESTS IN, THE DEBTOR. - - THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY THE BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ACCEPTING OR REJECTING THE PLAN. NO REPRESENTATION CONCERNING THE DEBTOR, ITS BUSINESS OPERATIONS, THE VALUE OF ITS ASSETS OR THE VALUE OF ANY SECURITIES TO BE ISSUED OR BENEFITS OFFERED PURSUANT TO THE PLAN ARE AUTHORIZED BY THE BANKRUPTCY COURT, EXCEPT AS EXPLICITLY SET FORTH IN THIS DISCLOSURE STATEMENT OR IN ANY OTHER DOCUMENT APPROVED FOR DISTRIBUTION BY THE BANKRUPTCY COURT. Attached as exhibits to this Disclosure Statement are copies of the following, as referenced elsewhere herein: - A Support Statement evidencing the support of the Official Committee of Unsecured Creditors and of Michael O. Preletz for confirmation of the Plan (Exhibit "A"); - The Debtor's Monthly Operating Report for the Month of October 1997 (Exhibit "B"); - Proforma Financial Summary (Exhibit "C"); - Liquidation Analysis of Non-Hammer Assets (Exhibit "D"); - Liquidation Analysis of Hammer Assets (Exhibit "E"); and - Projected Distribution Results (Exhibit "F"). In addition, the Plan, a ballot for the acceptance or rejection of the Plan (the "Ballot") and other pertinent documents are enclosed with the Disclosure Statement submitted herewith. Further, copies of the most recent annual and quarterly reports filed by the Debtor with the Securities and Exchange Commission, up to the quarter ending December 31, 1996, are available upon written request to the 3 10 Debtor or from the Securities and Exchange Commission pursuant to customary procedures of such agency. B. RIGHT TO VOTE ON THE PLAN Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired under the terms and provisions of the Plan are entitled to vote to accept or reject the Plan. Holders of allowed claims in classes of claims that are unimpaired under the terms and provisions of the Plan are conclusively presumed to have accepted the Plan and therefore are not entitled to vote on the Plan. Further, holders of allowed claims or equity interests in classes which will receive nothing under the terms and provisions of the Plan are conclusively presumed to have rejected the Plan and therefore are not entitled to vote on the Plan. The Debtor believes that Classes A and B of the Plan are unimpaired, are conclusively presumed to have accepted the Plan, and therefore do not have the right to vote on the Plan. Holders of Claims in Classes C and D are impaired and therefore are entitled to vote to accept or reject the Plan. Holders of Interests in Class E will receive nothing under the terms of the Plan, are conclusively presumed to have rejected the Plan, and therefore do not have the right to vote on the Plan. The Bankruptcy Code defines "acceptance" of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount, and more than one-half in 4 11 number, of claims that cast ballots for acceptance or rejection of the plan. The Bankruptcy Code defines "acceptance" of a plan by a class of equity interests as acceptance by equity interest holders in that class that hold at least two-thirds in amount of the allowed interests that cast ballots for acceptance or rejection of the plan. If a Class of Claims or Interests rejects the Plan or is deemed to reject the Plan, the Debtor has the right, and does intend, to request confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code. Section 1129(b) permits the confirmation of a plan notwithstanding the nonacceptance of such plan by one or more impaired classes of claims or equity interests if the proponent thereof complies with the provisions of that section. Under that section, a plan may be confirmed by a bankruptcy court if it does not discriminate unfairly and is fair and equitable with respect to each nonaccepting class. The Debtor believes that through the Plan, creditors will obtain a greater recovery from the estate of the Debtor than the recovery which would be available if the assets of the Debtor were liquidated under the provisions of Chapter 7 of the Bankruptcy Code. THE DEBTOR BELIEVES THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTOR AND ITS CREDITORS AND EQUITY INTEREST HOLDERS. AS EVIDENCED IN THE SUPPORT STATEMENT ATTACHED HERETO AS EXHIBIT "A," THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS (THE "COMMITTEE") APPOINTED HEREIN TO REPRESENT THE INTERESTS OF 5 12 UNSECURED CREDITORS GENERALLY, HAS STATED THAT IT TOO SUPPORTS CONFIRMATION OF THE PLAN AS BEING IN THE BEST INTERESTS OF THE DEBTOR'S UNSECURED CREDITORS. ACCORDINGLY, THE DEBTOR URGES ALL PARTIES IN INTEREST, TO THE EXTENT ENTITLED TO VOTE, TO VOTE TO ACCEPT THE PLAN. An acceptance or rejection of the Plan may be voted by completing the Ballot which accompanies the Plan and this Disclosure Statement and mailing it to Merle C. Meyers, Esq. of Goldberg, Stinnett, Meyers & Davis, A Professional Corporation, 44 Montgomery Street, Suite 2900, San Francisco, California 94104, in the enclosed envelope, for actual receipt on or before the date set forth as the deadline in the Ballot or in other documents accompanying the Plan and the Disclosure Statement. II. OVERVIEW OF THE PLAN The Plan is the product of extensive negotiations over the course of several months among the Debtor, the Committee and the Preletz Group (Michael O. Preletz and affiliated investors) to design a plan which maximizes the recoveries to creditors and creates a sound capital structure for the reorganized entity. Under the Plan, the reorganized Debtor will emerge from bankruptcy recapitalized and prepared to implement a business plan that, if fulfilled, will result in increased value and profitability, to the benefit of both its new investors and the estate herein. Under the terms of the Plan, the reorganized Debtor will retain certain core assets of its Hammer business, the Hammer Assets, and the remaining estate will retain and sell all other 6 13 assets, the Non-Hammer Assets. The assets of the remaining estate (or, as defined in the Plan, the "Distribution Estate"), the Non- Hammer Assets, will be managed by a bonded Distribution Agent (acting on the instructions of the post-Effective Date Committee) and sold for the benefit of creditors. The sale proceeds thereof, net of administrative costs, together with a block of 3,500,000 shares of stock of the reorganized Debtor, will be distributed to creditors on a pro-rata basis. Former shareholders, consistent with the priority scheme set forth in the Bankruptcy Code and the present lack of equity in the Debtor, will receive nothing under the terms of the Plan. All existing shares of stock of the Debtor will be cancelled on the Plan's Effective Date, and the reorganized Debtor will issue new shares in favor of the estate, the company's new investors and others. In particular, the remaining estate will receive 3,500,000 shares; the Preletz Group will receive 2,000,000 shares in exchange for a cash investment of $650,000; 2,000,000 shares will be distributed to creditors in exchange for cash investments of $650,000 in the aggregate, pursuant to a creditors' rights offering, as explained below; and 2,500,000 shares will be available for distribution pursuant to stock options granted to management and nonmanagement employees. Thereafter, an additional 10,000,000 shares may be issued by the reorganized Debtor for various stock options or sales, within limitations described in the Plan. 7 14 The Plan designates various classes of Claims and Interests and provides for distribution rights for each such class, in a manner consistent with the priority system of the Bankruptcy Code. In essence, the net proceeds of sale of all assets in the Distribution Estate, after costs and full payment of priority expenses and claims, will be distributed on a pro-rata basis to holders of Allowed Claims, until all funds of the Distribution Estate have been exhausted. The Preletz Group, which will be a new investor in the reorganized Debtor, includes Michael O. Preletz and Chapman A. Stranahan, who presently serve as the Debtor's senior management. Those same individuals will continue in their senior management positions in the reorganized Debtor, and will receive valuable consideration in exchange for their investments in, and management of, the reorganized Debtor. Because of the Preletz Group's role in the matter, the Debtor has engaged the Committee in direct negotiations with respect to the terms of the Plan, and as a result, the terms of the Plan, particularly as they affect the Preletz Group and present management of the Debtor, are the product of extensive and good faith negotiations among the Preletz Group, the Debtor and the Committee. It is on the basis of those negotiations that both the Debtor and the Committee have concluded that the Plan is in the best interests of the estate herein, and in the view of the Debtor, the recoveries that will occur pursuant to the Plan are better than the likely recovery under any alternative reorganization or liquidation. 8 15 As stated, the Plan is supported by the Committee and by the Preletz Group. That support is evidenced by the statement of support that is attached hereto as EXHIBIT "A." III. PREPETITION BACKGROUND A. HISTORY OF BUSINESS 1. GENERALLY. The Debtor is a developer and manufacturer of information storage products and systems. StreamLogic sells its products and systems directly to original equipment manufacturers, or OEMs, and system integrators, and through independent distributors and valued-added resellers, or VARs, for resale to end users. The Debtor is headquartered in Newark, California and presently employs approximately 33 employees. The Debtor was initially incorporated in California in December 1976 under the name Micropolis Corporation, and was reincorporated in Delaware in April 1987. In April 1996, the Debtor changed its name from Micropolis Corporation to StreamLogic Corporation. Prior to April 1996, the Debtor's business was substantially larger than it is presently, with a large percentage of the company's business devoted to the design, manufacture and sale of disk drives. However, as a result of the sale of the disk drive business in early 1996, as described below, the Debtor's business became significantly smaller, with the number of employees decreasing from approximately 2,000 immediately prior to the sale to approximately 150 persons shortly after the sale. The company's stock was publicly traded on the NASDAQ National Market System, or 9 16 NASDAQ, until it was de-listed on June 25, 1997, the day preceding the Chapter 11 filing. 2. SALE TO MICROPOLIS. On January 24, 1996, the Debtor entered into an agreement with ST Chatsworth Pte. Ltd., a Singapore corporation which was later renamed "Micropolis (S) Pte. Ltd." ("Micropolis"), a wholly owned subsidiary of Singapore Technologies, to sell substantially all of the Debtor's assets (other than cash and accounts receivable) related to the Debtor's disk drive business, and the sale was consummated on March 29, 1996, following approval by the Debtor's shareholders. The transferred assets included the name "Micropolis" and the capital stock of Micropolis Thailand, the Debtor's manufacturing subsidiary in Thailand, a newly constructed manufacturing facility in Singapore, and five of the Debtor's European and Asian sales and marketing subsidiaries. In exchange for those assets, Micropolis paid the Debtor approximately $54 million in cash and assumed certain limited liabilities of the Debtor relating to the disk drive business. As a result of the sale of the disk drive business, the Debtor's revenues and ongoing expenses shrank considerably. As of June 28, 1996, for example, the book value of the Debtor's property, plant and equipment totalled approximately $6 million, as compared to approximately $47 million for the same period in 1995, and net sales decreased 84% to $11.2 million in the quarter ending June 30, 1996, as compared to sales of $70.1 million for the same quarter in 1995. 10 17 3. PURCHASE FROM FWB. Subsequent to the divestiture of its disk drive business, the Debtor acquired a new business: Effective as of July 1, 1996, the Debtor acquired certain assets and liabilities relating to the hardware business of FWB Software, Inc., a California corporation doing business as FWB, Inc. ("FWB"), a developer of performance computer storage products, including the "Hammer" line of products. In connection with the FWB hardware business acquisition, one of the Debtor's subsidiaries made an 11% equity investment in FWB Software, LLC, a limited liability company newly formed by FWB and the Debtor to operate the software business retained by FWB. In consideration for FWB's hardware business assets and the minority equity investment in the software business, the Debtor paid FWB cash in the approximate amount of $5.75 million and issued 1,256,123 shares of its common stock. Pursuant to the agreement between FWB and the Debtor, that number of shares was to be adjusted, by the Debtor's issuance of additional shares or FWB's return of delivered shares, to the extent necessary to provide FWB with a market value of stock equal to $7.5 million as of October 29, 1996. However, because of a drop in the Debtor's average stock prices, that adjustment would have required the issuance of over 3 million additional shares to FWB and would have contravened other terms of the parties' agreement and certain NASDAQ rules. Accordingly, the parties agreed on November 1, 1996 that instead, the Debtor would issue 1,380,000 additional shares to FWB, together with a $1,250,000 promissory note and cash of $500,000. The 11 18 transaction was then completed, with the note being issued by StreamLogic Software, Inc. ("SLC Software"), one of the Debtor's wholly owned subsidiaries, and secured by SLC Software's equity interest (reduced from 11% to 7.5%) in FWB Software LLC. The note is guaranteed by the Debtor. The aggregate consideration paid for the net assets related to the hardware business of FWB and investment in FWB Software LLC, including costs of acquisition, was approximately $7,900,000 and $3,400,000, respectively. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair market values. Approximately $1,400,000 of the total purchase price represented the value of in-process research and development that had not yet reached technological feasibility and was charged to the Debtor's operations. B. INDUSTRY SEGMENT AND MARKET The Debtor operates within the data storage technology industry and competes in the external storage market for high-end desktop PCs and workstations (host). An external storage subsystem will consist of one or more disk drives in an external enclosure that is attached to the host system via cables. The disk drives are configured for use by the host system through special software and hardware to meet the needs of the specific application being run on the host. External storage subsystems are popular choices for high-end desktop PCs and workstations to meet capacity, performance, or reliability needs not available in the host 12 19 systems. The market for this technology can be further segmented into categories for the specific application being run on the host and the operating systems employed by the end user. The Debtor is currently focused in two application market segments: professional desktop publishing known as "Prepress" and digital media creation or multimedia creation. Examples of digital media creation are digital video, two- or three-dimensional modeling, computer-aided design, animation, virtual reality and graphics. C. PRODUCTS The Debtor's development efforts are currently focused around the Hammer product line, historically used primarily with the Apple Macintosh ("MAC") operating system. The Debtor also offers limited products for use with the Silicon Graphics Irix and Microsoft Windows NT operating systems. The Debtor plans to continue developing its products for all three operating system marketing segments to broaden its market, especially the multimedia applications. The Debtor's products are sold in a wide variety of configurations of hardware and software addressing specific applications. A basic Hammer storage subsystem consists of three components: software, hardware controller, and enclosure with drive(s). The software is operating system-specific and consists of a graphical user interface (GUI), utilities to configure the disk drives, and a driver to facilitate data transfer between the host and storage subsystem. The controller can be either a 13 20 Jackhammer SCSI controller board for high-performance applications and/or a RAID controller used for high-reliability applications. The enclosures range from the single-drive Pockethammer, to the multi-drive Sledgehammer, to the removable-drive Sledgehammer Pro. (A hardware-based RAID controller is currently available for only the MAC and Windows NT operating systems.) D. DISCONTINUED OPERATIONS In addition to the Debtor's former disk drive business, other discontinued operations and product lines of the Debtor include the following: 1. VIDEO SERVERS. Video servers are used to play back video material that has been previously digitally encoded and compressed. Video servers, which can replace video-cassette recorder systems, use hard disk drives to store and retrieve audio and full motion video signals. The Debtor previously marketed its line of video server products to hospitality, multimedia and cable television markets. Video server applications in the hospitality and related markets included displaying digitally encoded and compressed movies to guests in hotels, aircraft and cruise ships. Multimedia applications included corporate training, campus training and video libraries. In 1995, the Debtor entered into a development agreement with Matsushita Avionics System Corporation ("MASC") regarding the development of the Debtor's video server technology for aircraft use and the sale of products using that technology to MASC. However, financial difficulties arose in the implementation of that 14 21 agreement, and in March 1997, the parties entered into a termination agreement pursuant to which, among other things, the relationship was curtailed and the Debtor transferred various inventory, equipment and other assets to MASC, including a nonexclusive license of its video server technology.(2) As a result, the Debtor is not presently developing any of its video server technology. Also, in March 1997 the Debtor entered into an agreement with Sumitomo Corporation or an affiliate ("Sumitomo") pursuant to which the Debtor sold excess inventory and a license relating to the Debtor's video server products to Sumitomo. The inventory was sold on an "as is" basis for cash consideration in the approximate amount of $300,000. 2. VIDEO DISK RECORDER TECHNOLOGY. Prior to the commencement of the Chapter 11 Case, the Debtor had been developing a line of low cost digital video disk recorders using hard disk drives to store and retrieve audio and full motion video signals. In 1995, the Debtor entered into a development agreement with BTS Broadcast Television Systems GmBH ("BTS") for the joint development design, development and manufacture of a family of video disk recorders. Under the agreement, BTS was to provide funding to the Debtor in the total amount of $1,000,000, payable in specified increments upon the Debtor achieving certain milestones in the - ---------- (2) The Debtor is presently in the process of reviewing its previous transactions with MASC and its 1997 transfers to MASC in order to determine the present status of any claims or rights of either the Debtor or MASC against each other. 15 22 development of certain technology and products, and in exchange, BTS was granted certain rights in the technology developed. The Debtor received an aggregate amount of $650,000 from BTS under the agreement, but prior to the commencement of the Chapter 11 Case, disputes arose between the parties regarding the extent and nature of BTS' rights in and to the technology developed. Both parties ceased any further significant activities or payments under the terms of their development agreement, although neither party has given formal notice of termination of the agreement. The Debtor is presently reviewing its legal options with respect to its relationship with BTS. 3. RAIDION PRODUCT LINE. During the last several months, beginning prior to the commencement of the Chapter 11 Case, the Debtor has restructured its operations so as to discontinue its support of its Raidion line of products. The Raidion product line consists of data storage products and systems using the RAID (redundant array of independent disk drives) technology. Since the commencement of the Chapter 11 Case, the Debtor has sold most of the assets that comprised the Raidion product line, consisting primarily of patents, inventory and equipment, as more fully described hereinbelow. E. INTERNATIONAL OPERATIONS AND FOREIGN SUBSIDIARIES The Debtor sells its products into European, as well as domestic, markets. Historically, the Debtor's foreign sales originated primarily from the company's Singapore facility, which was sold to Micropolis as part of the divestiture of the disk drive 16 23 business. Based on the Debtor's most recent Forms 10-K and 10-Q reportings, export sales (sales originating in the United States to customers in foreign countries) have most recently represented less than ten percent (10%) of total sales for consolidated operations. Following the sale of its disk drive business, the Debtor has served foreign markets primarily through two European operating subsidiaries, located in the United Kingdom (StreamLogic Ltd.) and Germany (StreamLogic GmBH). StreamLogic Ltd. has served as the distribution and repair center for all of the Debtor's European sales. StreamLogic GmBH has served as a sales facility for European markets. In addition, other wholly owned foreign subsidiaries of the Debtor include StreamLogic Pty Ltd. (Australia), Micropolis BV (Netherlands) and StreamLogic (Cayman Islands), each of which is inactive. None of the Debtor's subsidiaries is a debtor under the provisions of the Bankruptcy Code, but StreamLogic Ltd. and StreamLogic GmBH ceased operations following the commencement of the Debtor's Chapter 11 Case. The Debtor believes that it has no material financial obligations owing with respect to the operations or affairs of any of its subsidiaries, and as of June 1997, the Debtor's books and records reflected net intercompany accounts receivable owing to the Debtor. However, the Debtor estimates that intercompany accounts receivable are largely uncollectible. It is anticipated that under the Plan, all of the Debtor's subsidiaries will be wound down or liquidated, and will cease to exist. 17 24 F. COMPETITION The data storage industry is competitive and characterized by price erosion over the life of a product. The Debtor believes that being first to market with new products is a critical element in the achievement of desired gross margins. Being first to market provides initial price advantages to the Debtor and the opportunity to accelerate learning and cost reduction curves due to increased production volumes. In the high-performance market in which the Debtor competes, the principal dimensions of competition are generally data storage capacity, data transfer rate, average access time, form factor, timely delivery in quantity, reliability and price. Some of the Debtor's competitors are much larger in size and have access to greater financial and other resources than the Debtor. The Debtor believes that its future success hinges on its ability to bring cost and feature-competitive products to market on a timely basis. Competitors in the high-performance desktop computers and workstation external storage subsystems market include Megadrive, Micronet and Eurologic. G. PATENTS AND KNOW-HOW The Debtor's management believes that the ability to develop and manufacture products is dependent upon the know-how and special skills within the Debtor. In addition, the Debtor has obtained and presently owns a number of patents, patent applications, and patent and technology licenses. It is the Debtor's policy to enforce its proprietary rights. The Debtor's management believes that the 18 25 patents and know-how rights currently owned, which are exclusive of patents relating to the Raidion business which were sold during the Chapter 11 Case, are adequate for the conduct of its Hammer business. In the opinion of the Debtor's management, however, no individual patent or license is of critical importance. H. EMPLOYEES As of October 31, 1997, the Debtor employed approximately 33 full-time employees. Of those employees, eight were engaged in manufacturing, seven were engaged in sales and marketing, six were engaged in research and engineering, six were engaged in customer service and operations and the remaining six were administrative and clerical personnel. The Debtor believes that labor relations in the Company are generally satisfactory. I. REAL PROPERTY The Debtor owns real property in the City of Chatsworth, Los Angeles County, California where its operations and corporate headquarters were formerly located. The Chatsworth property, commonly known as 21329 Nordhoff Street, consists of a 75,650 square foot, light manufacturing facility situated on a 2.29-acre site. According to the Debtor's books and records, the land and improvements cost the Debtor approximately $7.6 million. Based on a February 1997 appraisal of the property, the property had a fair market value of $3,500,000 at that time. Since the commencement of this Chapter 11 Case, the Debtor has received several offers to purchase the property, and the Debtor has formally listed the 19 26 property with Beitler Commercial Real Estate Services, a licensed real estate broker. The Debtor was recently in negotiations with a prospective purchaser to sell the property for approximately $3.5 million, net of commissions, but those negotiations have been discontinued by the purchaser. The property is not encumbered by any security interests securing any Claims of significant amounts. J. INVESTMENTS 1. CONCENTRIC NETWORK STOCK. In September 1996, the Debtor purchased $2.5 million of shares of preferred stock of Concentric Network Corporation ("Concentric") from Sattel Communications ("Sattel"). Founded in 1991 and headquartered in Cupertino, California, Concentric is a provider of virtual private networks and intranet customized consumer applications. Sattel acquired the Concentric stock pursuant to a Preferred Stock Purchase Agreement dated August 21, 1996 among Concentric, Sattel and others (the "Stock Purchase Agreement"). At the time the Debtor acquired the Concentric stock from Sattel, Concentric was a privately held corporation. On July 30, 1997, Concentric was reincorporated in Delaware and effected a 1-for-15 reverse stock split. On July 31, 1997, Concentric made an initial public offering (the "IPO") of 4,300,000 shares of its common stock at an initial price of $12 per share, and public aftermarket trading began on August 1, 1997 in the Nasdaq National Market stock listings under the symbol "CNCX." As a result of the reincorporation and reverse split and completion of the IPO, the Debtor's 1,838,235 shares of Concentric 20 27 preferred stock have been exchanged for 128,272 shares of Concentric common stock, and by virtue of the terms of the Stock Purchase Agreement, the Debtor is restricted from selling the shares for a period of 180 days from the date of the IPO. As of December 27, 1997, the Concentric shares were trading at a price of $8.00 per share. The Debtor estimates that the approximate market value of the Concentric shares as being $1,026,176 as of December 27, 1997, subject to the trading restrictions identified above and the effect that those restrictions may have upon value. 2. NOTE FROM TITANIUM MEMORY SYSTEMS. In 1992, the Debtor purchased an equity interest of approximately 27% of the stock of Titanium Memory Systems, Inc., formerly known as Tulip Memory Systems, Inc. ("TMS"), a start-up company formed to develop substrates used in the manufacture of computer disk drives. During 1994, the Debtor increased its ownership to approximately 60%, pending anticipated outside investment. In connection with its original investment, the Debtor agreed to guarantee the obligations of TMS to pay the acquisition cost of equipment. In order to consummate the sale of its disk drive business, the Debtor paid its $1.3 million guaranty obligation under the agreement with TMS. The Debtor discontinued funding of TMS in early 1996. In June 1996, TMS was recapitalized, and in connection therewith the Debtor agreed to accept 1,498,645 shares of preferred stock of TMS, having a book value of approximately $0.14 per share, and a promissory note issued by TMS in the principal amount of 21 28 $500,000, all in exchange for cancellation of TMS's debt to the Debtor in an aggregate, approximate amount of $10 million. In May 1997, the Debtor sold all of its TMS stock, as follows: Approximately 749,322 shares were repurchased by TMS at a price of $0.20 per share, or $149,864.40, and the remaining 749,322 shares were sold to Titanium Metals Corporation, another investor in TMS, in exchange for cash in the amount of $149,864.40. At the present time, the Debtor holds the $500,000 note issued by TMS, which is payable in ten annual installments of approximately $50,000, beginning in 1998. K. DEBENTURES AND NOTES 1. CONVERTIBLE DEBENTURES. In 1987 the Debtor entered into an Indenture dated as of March 15, 1987 (the "Indenture") between the Company and First Interstate Bank of California, as trustee, later replaced by Harris Trust and Savings Bank, as trustee (the "Trustee"). Pursuant thereto, the Debtor issued debentures in an aggregate principal amount of $75 million, bearing 6 percent interest and due in the year 2012. The debentures were convertible to stock under certain circumstances, were subordinated to certain indebtedness of the Debtor and carried various other terms, conditions and other features. Subject to adjustments set forth in the Indenture, the conversion price for the Debentures was $48.50 per share. In particular, the Debentures were subordinated in right of payment to certain indebtedness of the Debtor, including indebtedness arising from money borrowed or notes or similar 22 29 instruments given in connection with the acquisition of businesses, properties or other assets, obligation arising under capital leases and indebtedness arising from the renewals, extensions or refundings of such obligations. In light of the specific wording and terms of the Indenture, the Debtor does not believe that it owes any indebtedness to which the Debentures are presently subordinated. 2. 1996 EXCHANGE OFFER; INCREASING RATE NOTES. In early 1996, the Debtor evaluated several alternatives with respect to a restructuring of the Debentures, and Loomis Sayles & Company, L.P. ("Loomis Sayles"), an entity which advises investors that collectively held approximately 79% of the aggregate principal amount of the outstanding Debentures, indicated to the Debtor its potential interest in reaching an agreement with respect to a restructuring of the Debentures after the sale of the disk drive business had been completed. Therefore, in October 1996, the Debtor commenced a tender offer for the Debentures, pursuant to which the Debentures were to be exchanged for cash, increasing rate unsecured promissory notes, common stock and warrants of the Debtor. Of the $75 million of the Debentures originally issued, holders of approximately 94% of the outstanding Debentures accepted the exchange, representing approximately $70.2 million in aggregate principal amount. The Debtor subsequently exchanged the tendered Debentures for approximately $8.5 million in cash, $8 million in unsecured promissory notes due in 1998, 15.2 million shares of common stock, 23 30 and warrants to purchase an additional 2.8 million shares of common stock. As a result, among the Debtor's present obligations are approximately $8 million in increasing-rate unsecured promissory notes (the "Notes") issued in exchange for approximately $70.2 million in formerly outstanding Debentures, as well as approximately $4.8 million in Debentures that were not tendered in the exchange. 3. REMAINING DEBENTURES AND LITIGATION. Following the exchange, there remained Debentures of approximately $4.8 million in aggregate principal balance that had not been exchanged or extinguished. With respect to those remaining Debentures, issues arose as to whether the Debtor had failed to make interest payments thereon in a timely fashion and whether, as a consequence, the holders of the Debentures had properly and timely declared an acceleration of all amounts owing under the Debentures. As a result of those disputes, litigation ensued in the United States District Court for the Southern District of New York between the Debtor and United Equities Company ("United Equities"), an entity which owns or represents the holders of a majority of the outstanding aggregate principal balance of the remaining Debentures. As of the date of commencement of the Chapter 11 Case herein, that litigation, which began in December 1996, remained pending, although neither party to the action is presently pursuing the matter actively. Given the present bankruptcy context, the matter of acceleration of the Debentures has become moot. 24 31 4. SUBSTITUTION OF INDENTURE TRUSTEE. Subsequent to the Petition Date, United Equities, which owns or represents the holders of a majority of the outstanding aggregate principal balance of the remaining Debentures, has served as a voting member of the Committee. Notwithstanding United Equities' active involvement in the Chapter 11 Case, Harris Trust and Savings Bank ("Harris"), the trustee under the Indenture, has at its insistence served as a non-voting member of the Committee. United Equities has assumed a very active role in the Chapter 11 Case by, among other things, participating in negotiations of the Plan on behalf of the Committee (which negotiations have inured directly to the benefit of the estate and its creditors, including Debenture holders), assisting in revising the Plan and committing to effectively "backstop" the Creditors' Rights Offering (described elsewhere herein) by agreeing to purchase whatever Subscription Reorganized Shares are not purchased by other existing creditors. During the pendency of the Chapter 11 Case, it became apparent that a significant overlap or duplication existed with respect to the efforts and expenses of United Equities and Harris. Therefore, in order to avoid unnecessary effort and expense, a majority of the Debenture holders sought to replace Harris with a trustee that would be more acceptable to, and work in concert with, the Debenture holders (i.e., the real parties in interest). Thereafter, numerous discussions and negotiations ensued between and among the interested parties with respect to the resolution of the matter. In this regard, Harris raised concerns 25 32 with respect to its compensation for services rendered and its asserted lien rights with respect thereto. Ultimately, the parties reached an agreement whereby the Indenture would be amended to reduce the capital requirements of the trustee from $50 million to $10 million, Harris would be replaced as trustee by American Stock Transfer & Trust Company, and Harris' pre- and post-Petition Date fees and expenses would be settled and fixed at $25,000 payable by the Debtor as an administrative expense claim (as reduced from an amount asserted by Harris to be in excess of $60,000). Consistent with this settlement, the Indenture will be amended as described above, and a letter agreement fixing Harris' claim has been executed. The Debtor has filed a motion seeking Bankruptcy Court approval of the settlement and authority to amend the Indenture, which motion is scheduled to be heard by the Bankruptcy Court on January 13, 1998. United Equities has advised the Debtor that, based upon its services rendered on behalf of the Debenture holders for the benefit of the estate (including the efforts of its counsel, Tenzer Greenblatt LLP, which will also serve as counsel for the replacement indenture trustee), United Equities and the replacement trustee may seek payment or reimbursement of its counsel fees incurred both prior and subsequent to the replacement of Harris as trustee. In that regard, United Equities and the replacement trustee may assert, among other things, that they are entitled to (i) charge the Debenture holders' distributions under the Plan; (ii) a hold a claim for substantial contribution; and/or (iii) hold 26 33 an administrative expense claim for services rendered subsequent to the appointment of the replacement trustee. The Debtor has not yet taken any position supporting or opposing any such assertions or claims. L. RELOCATION AND CONSOLIDATION In late 1996, the Debtor announced its plans to consolidate and relocate its operations and corporate headquarters from Chatsworth, California to Northern California. In conjunction therewith, on November 7, 1996, the Debtor entered into a long-term lease of commercial real property located at 7015 Gateway Boulevard, Newark, California, consisting of office, manufacturing and warehouse space of approximately 56,000 square feet. Pursuant to the terms of the lease, the Debtor delivered to the landlord an irrevocable standby letter of credit in the amount of $252,288, issued by Wells Fargo Bank, to secure its performance of obligations under the lease, and also provided a deposit of one month's rent of approximately $50,000. In order to provide collateral for the issuance of the letter of credit, the Debtor deposited cash funds with Wells Fargo Bank in exchange for a certificate of deposit in the amount of the letter of credit. Once the lease was executed, tenant improvements were undertaken by the landlord, and those improvements were completed in or about April 1997, at a cost of approximately $963,533, of which the landlord had agreed to pay $839,985. In early 1997, the Debtor proceeded with the closure of its Chatsworth facility and relocated its corporate headquarters and 27 34 administrative offices to Menlo Park, California on an interim basis, in the offices previously occupied by FWB prior to the Debtor's acquisition of FWB's assets. Thereafter, as planned, the Debtor completed its relocation to the Newark premises, on or about June 30, 1997. Concurrent with its relocation efforts, the Debtor also reduced its staffing and administrative expenses substantially, through the discontinuation of certain of the Debtor's product lines, including the Raidion product line and video server and video disk recorder technologies. That downsizing effort began prior to the commencement of the within Chapter 11 Case and continued thereafter and even to the present time. M. CHANGE IN MANAGEMENT As of the end of 1996, the Debtor's board of directors consisted of five directors, namely J. Larry Smart, Greg Reyes, Jr., Chriss W. Street, Ericson M. Dunstan and Elliott D. James. Executive officers of the company at that time included Mr. Smart, as the Debtor's president and chief executive officer, and Barbara V. Scherer, as the company's senior vice president and chief financial officer. In January 1997, the Debtor's board of directors was expanded from five members to seven members, pursuant to the terms of the November 1996 debenture exchange, and two additional directors, Jack S. Kenney and Mark M. Glickman, were designated by Loomis Sayles. During the first half of 1997, all of the aforementioned directors other than Mr. Glickman resigned from the board, and 28 35 Michael O. Preletz, a turnaround expert with many years' experience in assisting troubled technology companies, was named to the board. In particular, Mr. Dunstan resigned as of January 22, 1997; Mr. Smart resigned from all positions with the Debtor as of March 23, 1997; and following the remaining directors' appointment of Mr. Preletz as an additional director and as chief executive officer as of March 24, 1997, Messrs. James, Reyes, Street and Kenney resigned as directors, and Ms. Scherer resigned as an officer, in April and May 1997. Mr. Glickman was elected to replace Ms. Scherer as chief financial officer, upon her resignation. Following the commencement of the Debtor's chapter 11 case, and effective as of August 5, 1997, Mr. Glickman resigned as an officer and director of the Debtor, and as a result, Mr. Preletz is presently the sole director and chief executive officer of the Debtor. N. DEBT REPAYMENT PLANS During the three to six months immediately preceding the commencement of the Debtor's chapter 11 case, the Debtor experienced extreme cash flow difficulties and as a result, found itself unable to pay invoices as they became due. In order to maintain essential working relationships with important trade creditors, the Debtor entered into a variety of informal, largely undocumented arrangements with trade creditors to pay past-due amounts and to continue to receive services and products. Those arrangements included extending invoice terms of past-due 29 36 receivables, paying past-due invoices pursuant to negotiated payment schedules while keeping current invoices paid, and making partial payments on past-due invoices depending on the Debtor's needs and cash flow. Trade creditors with whom the Debtor entered into such payment arrangements included Mountain Gate, Seagate Technology, Inc., Sony Electronics, Wyle Electronics, Elliott Laboratories, Federal Express, Micron Electronics, Andataco, Nakasuji Associates, Q Logic, Bell Microproducts and Rational Technology, Inc. At present, the Debtor is investigating the extent and circumstances of such payments in order to determine whether any such payments may be avoidable under the preference provisions of Section 547 of the Bankruptcy Code. Based upon a preliminary analysis, the Debtor believes that a significant amount of such payments may be recoverable under applicable preference statutes. O. EVENTS PRECEDING CHAPTER 11 CASE COMMENCEMENT Operations of the Debtor in 1996 and early 1997 produced operating losses, draining the Company of its operating funds. In addition, after the Debtor's new management was installed, it found the books and records of the Debtor to be in substantial disarray, and determined that ongoing revenues were materially less than had been projected by prior management, resulting in further losses. The Debtor estimated its net losses for the quarter ending March 28, 1997 to be approximately $20.8 million, and for the full year ending March 28, 1997, the Debtor estimated that it lost $16.1 million (net of certain extraordinary gains within the fiscal 30 37 year, including a substantial gain arising from the cancellation of debt integral to the debenture exchange described in Section III(K)(2) above). As those losses translated themselves into negative cash flow, the Debtor found itself in a substantial cash crisis, causing it to suspend payments on many accounts and to respond to various collection actions initiated and threatened against it. Whereas in the spring of 1997, the Debtor attempted various means to solve its cash crisis, including refinancings, recapitalizations and negotiated settlements and payout schedules with creditors, the Debtor ultimately determined that none of those efforts would avoid the necessity of a full and formal reorganization of its operations and finances, which could not be accomplished without the protections and benefits of chapter 11 of the Bankruptcy Code. Finally, in mid-June 1997, a creditor obtained an attachment order against assets of the Debtor, threatening to paralyze all of the Debtor's operations, and the Debtor was compelled to commence the present Chapter 11 Case in order to remove the lien arising from that attachment order and to preserve the company's ongoing operations. IV. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE Since the Debtor commenced its Chapter 11 Case, it has continued to operate as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The following is a brief 31 38 description of some of the major events that have occurred during the Chapter 11 Case. A. CONTINUATION OF BUSINESS; STAY OF LITIGATION Following the commencement of its Chapter 11 Case, the Debtor has continued to operate its business and manage its properties as a debtor-in-possession, no trustee having been appointed. The Bankruptcy Court has certain supervisory powers over the Debtor's operations during the Chapter 11 Case, particularly as to proposed transactions outside of the ordinary course of business. In addition, Bankruptcy Court approval is required for certain other transactions, such as the borrowing of money on a secured basis or the employment of attorneys, accountants and other professionals. Most importantly, the Bankruptcy Court must confirm a reorganization plan for the plan to become effective. An immediate effect of the filing of the Chapter 11 Case was the imposition of the automatic stay under the provisions of Section 362(a) of the Bankruptcy Code which, with limited exceptions, enjoins the commencement or continuation of all prepetition litigation against, and efforts to collect funds from, the Debtor. This injunction remains in effect unless modified or lifted by order of the Bankruptcy Court. B. APPOINTMENT OF THE CREDITORS' COMMITTEE On July 18, 1997, the United States Trustee appointed an official committee of unsecured creditors (the "Committee") to represent the collective interests of all unsecured creditors of the Debtor, pursuant to Section 1102 of the Bankruptcy Case. The 32 39 membership of the Committee has been supplemented twice since then, and two members, CDI Corporation and Micropolis Inc., have since resigned. Since its formation, the Committee has consulted extensively with the Debtor concerning the administration of the Chapter 11 Case, and the Debtor has kept the Committee informed about its operations and has sought the concurrence of the Committee for actions and transactions taken outside of the ordinary course of the Debtor's business, wherever possible. In particular, as described elsewhere, the Committee has participated actively and extensively, together with the Debtor's management and professionals, in negotiating a consensual plan of reorganization. The Committee currently consists of six voting members and two nonvoting members, and includes representatives of each of the principal constituencies of unsecured creditors of the Debtor. The current members of the Committee are as follows: VOTING MEMBERS: FWB SOFTWARE, INC. Attn: Steven Gibbs, C.F.O. 2750 El Camino Real Redwood City, CA 94061-3911 NETWORK STORAGE SOLUTIONS Attn: Joseph Pisula 600 Herndon Parkway Herndon, VA 22070 NORWEST BANK MINNESOTA, N.A. Attn: Gavin Wilkinson Corporate Trust Department 6th and Marquette Minneapolis, MN 55479-0069 33 40 SEAGATE TECHNOLOGY Attn: Bill Hayward, Senior Director 920 Disc Drive Scotts Valley, CA 95066 UNITED EQUITIES COMPANY Attn: Philippe D. Katz 160 Broadway New York, NY 10038 NON-VOTING MEMBERS: LOOMIS, SAYLES & COMPANY, LP Attn: Frederick Vyn, V.P. One Financial Center Boston, MA 02111 HARRIS TRUST AND SAVINGS BANK Attn: Kevin Healey, V.P. 311 W. Monroe Street, 12th Floor Chicago, IL 60606 C. REPRESENTATION OF THE DEBTOR AND THE COMMITTEE Since the commencement of the Debtor's Chapter 11 Case, the law firm of Goldberg, Stinnett, Meyers & Davis, A Professional Corporation, whose offices are located at 44 Montgomery Street, Suite 2900, San Francisco, California 94104, has acted as StreamLogic's general bankruptcy counsel, with Bankruptcy Court approval. In addition, the Debtor has retained the following special counsel and advisors with Bankruptcy Court approval: Firm Purpose Manatt, Phelps & Phillips, Special Counsel LLP (Corporate and Securities) Hickey and Hill, Inc. Financial Advisor Oppenheimer, Poms, Smith, Special Counsel Lande & Rose (Intellectual Property Rights) 34 41 The Committee has retained the law firm of Murray & Murray, located at 3030 Hansen Way, Suite 200, Palo Alto, California 94304- 1009 to act as its counsel in the Chapter 11 Case, and the accounting firm of Price Waterhouse LLP to act as its financial advisor, with Bankruptcy Court approval. D. DEVELOPMENT AND IMPLEMENTATION OF STRATEGIC PLAN Since the commencement of the Debtor's Chapter 11 Case, through the auspices and direction of the company's new senior management, the Debtor has continued its efforts to restructure its operations and develop and implement its strategic plan. First, as stated earlier, the Debtor restructured its operations so as to focus on one of its product lines. Until that restructuring, the Debtor supported two distinct lines of products, its Raidion product line and its Hammer product line. The Raidion line consists of data storage products and systems using the RAID (redundant array of independent disk drives) technology, which renders the system fault-tolerant through either hardware or software. The Raidion products are used in applications in which the integrity of large amounts of data is of paramount concern. The Hammer product line, on the other hand, while also a data storage product, is more targeted to uses in which data transfer speed, rather than total capacity, is the primary concern. Typical uses of Hammer products involve desktop digital video and color publishing. During the last several months, the Debtor has restructured its operations so as to discontinue its support of the Raidion 35 42 product line and focus its efforts on the Hammer product line. In May 1997, the Debtor began outsourcing the production of certain of its Raidion line of products pursuant to an arrangement with JMR Electronics, Inc., a Chatsworth company which had provided assembly services to the Debtor in the past for its Raidion products. As part of its restructuring of operations and discontinuance of parts of those operations, the Debtor has also continued its downsizing in order to reach a level of expenses consistent with its revenue base. As a result of present management's restructuring efforts, the head count has been reduced by approximately 78%, from approximately 150 at the end of the Debtor's fiscal 1996 year (i.e., March 29, 1996) to 33 at present. E. BAR DATE FOR FILING PROOFS OF CLAIM The Bankruptcy Court set November 3, 1997 as the deadline for the filing of proofs of claim, other than claims of governmental entities. Since that deadline passed, the Debtor has begun its review of filed proofs of claim in order to determine whether, and to what extent, objections to disputed claims will be necessary. F. ASSET SALES RELATING TO RAIDION PRODUCT LINE In the process of restructuring its operations, the Debtor has sold most of the assets relating to its Raidion product line, consisting primarily of patents, inventory and tooling. On October 1, 1997, the Court issued its order granting the Debtor's motion and approving a sale of the Raidion patents to Farrington Investments, Ltd. ("Farrington") for the purchase price of 36 43 $1,020,000, and that sale was consummated on or about October 14, 1997. The proceeds of the sale are maintained by the Debtor in a segregated, interest-bearing account and have not been treated as part of the Debtor's general operating funds. Disbursements from that account, such as for Court-approved professional fees, have been made only upon order of the Bankruptcy Court or consent of the Debtor and the Committee. As of September 25, 1997, the Debtor entered into an agreement to sell most of the rest of its Raidion assets, namely inventory, molding and tooling equipment and certain licenses relating to the Raidion product line, to Peripheral Technology Group, Inc. ("PTG") for the purchase price of $263,000, subject to Court approval and certain contractual adjustments. Two creditors, JMR Electronics, Inc. ("JMR") and A&S Mold And Die Corporation ("A&S"), have asserted liens against the assets sold to PTG, which liens are disputed by the Debtor. On November 21, 1997, the Bankruptcy Court issued orders granting the Debtor's motions seeking approval of sale free and clear of the disputed liens of JMR and A&S, and the sale was consummated on December 2, 1997. At present, the Debtor maintains the net proceeds of sale, in the approximate amount of $135,000, in a separate, segregated account, pending resolution of JMR's and A&S's disputed liens. G. DISPUTE WITH NEWARK LANDLORD As stated above, in late 1996 the Debtor executed a long-term lease for commercial premises in Newark, California and in June 1997, the Debtor moved into the facility. Shortly before the 37 44 commencement of its Chapter 11 Case, the Debtor reached oral agreements with the landlord, WHLNF Real Estate Limited Partnership ("Lincoln"), and Decibel Instruments, Inc. ("Decibel") to sublet approximately one-half of the premises to Decibel, a start-up company in the business of developing and manufacturing hearing aid and diagnostics products. However, as of the Petition Date, no written agreements had been executed with either Lincoln or Decibel in order to implement the oral sublease agreement. After the Petition Date, on July 25, 1997, the Debtor filed a motion seeking Bankruptcy Court approval of the assumption of the master lease with Lincoln and execution of the sublease with Decibel. From the Debtor's perspective, the transactions would allow the Debtor to preserve a master lease carrying a rental rate below current market rates, while defraying one-half of the monthly obligation by subleasing unused space. However, once the motion had been filed, Lincoln indicated its intention to oppose the Debtor's motion and imposing discovery demands upon the Debtor. At the same time, the Committee concluded that assumption of the master lease would be premature until reorganization prospects were better defined, and requested that the Debtor withdraw its motion. Accordingly, the Debtor withdrew its motion and advised Decibel that it would be unable to complete the sublease arrangement. After the motion was withdrawn, the Landlord filed a motion to compel the Debtor to assume or reject the Newark lease on an expedited basis. The Debtor opposed the motion and filed a cross- 38 45 motion for extension of assumption deadlines, and in a hearing on September 12, 1997, the Bankruptcy Court granted the Debtor's motion on an interim basis and deferred Lincoln's motion. Meanwhile, the Debtor found alternative premises within Newark, approximately two miles from its first premises. The new premises, approximately 8,500 square feet, more closely fit the Debtor's space needs and cost much less (approximately $9,000 per month versus approximately $51,000). Accordingly, in early November 1997, the Debtor rejected its lease with Lincoln, vacated that lease's premises and relocated to its new, smaller Newark premises. As stated, Lincoln holds more than $300,000 of deposits in order to offset any damages arising from the Debtor's rejection of its lease. However, the Debtor believes that the lease's contractual rental rate is significantly below current market rates and that Lincoln will in fact suffer no such damages in any event (and may in fact be benefitted by the Debtor's rejection). Therefore, the outcome of the deposits held by Lincoln, and any claims for damages which it may assert, are undetermined, and the Debtor intends to review the matter closely for the estate's benefit. H. REMAINING ASSETS As of early December 1997, following the sales and dispositions of assets referenced hereinabove, the Debtor owned the following remaining significant assets (excluding assets of nonmaterial or highly speculative value): the building and related 39 46 real property in Chatsworth, California referred to in Section III(I) hereinabove; the Hammer product line and related technology and inventory; cash proceeds of the sale of Raidion patents, net of Court-approved disbursements for interim professional fees, in the approximate net amount of $800,000; cash proceeds from the sale of Raidion inventory and related assets in the approximate amount of $135,000, subject to disputed lien claims of JMR and A&S; 128,272 shares of common stock of Concentric, as described in Section III(J)(1) hereinabove; a promissory note in the principal amount of $500,000 from Titanium Memory Systems, as described in Section III(J)(2) hereinabove; miscellaneous office furnishings and equipment of undetermined value; possible preference causes of action related to debt repayments prior to the commencement of the Chapter 11 Case, as described in Section III(N) hereinabove; a certificate of deposit maintained with Wells Fargo Bank in the approximate principal amount of $252,000, subject to the bank's lien thereagainst in conjunction with the letter of credit issued to the Debtor's former Newark landlord; restricted funds of approximately $250,000 against which former officers and directors assert interests; a directors' and officers' liability policy; and possible causes of action against third parties with respect to prepetition events and transactions. V. THE PLAN OF REORGANIZATION The following is a limited summary of the terms of the Plan, served concurrently with this Disclosure Statement and the Ballot. The summary is qualified in its entirety, however, by reference to 40 47 the more detailed provisions set forth in the Plan itself, which control for all purposes. A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS 1. NONCLASSIFIED CLAIMS. Applicable provisions of the Bankruptcy Code provide that certain claims, namely, administrative expenses incurred during the Chapter 11 Case and priority tax claims incurred before the commencement of the Chapter 11 Case, are not to be classified in a plan, but instead treated in the manner required by the Bankruptcy Code. In particular, all administrative expenses must be paid upon the Plan's effectiveness, and priority tax claims can be paid over a defined period of time. Under the Plan, all such nonclassified claims will be paid in full on the latest of the following dates: (a) on, or as soon as practicable after, the Administrative Bar Date (which is thirty days following the Effective Date), or such later date as to which the claimant may consent; (b) on the date when the claim becomes due, according to applicable contractual, statutory or other terms; or (c) once an order of the Bankruptcy Court allowing the claim becomes final, if the claim is disputed or requires Bankruptcy Court approval (such as is the case with Professional Fees). Proofs of claim for nonclassified expenses which consist of priority tax claims must be filed by the deadline already established by the Bankruptcy Court for governmental claims generally, to wit, December 23, 1997. With respect to nonclassified expenses which consist of administrative expenses (that is, claims incurred by the Debtor after the Petition Date and 41 48 before the Effective Date), other than certain Ordinary Course Expenses (see the definition of "Ordinary Course Expenses" below), proofs of such claims, or requests for payment, must be filed with the Bankruptcy Court and served upon the Distribution Agent, the reorganized Debtor and the United States Trustee by the thirtieth day (the "Administrative Bar Date") following the Effective Date, absent which such claims will not be allowed and no distribution or payment will by made on such claims. As defined and used in the Plan, the term "Ordinary Course Expenses" means liabilities incurred by the Debtor on or after the commencement of the Chapter 11 Case in the ordinary course of its business, specifically excluding income tax liabilities, tort liabilities, environmental cleanup or indemnity claims, liabilities arising under the Employee Retirement Income Security Act of 1974 (as amended), and any other items not customarily incurred by the Debtor in the ordinary operation of its business. The reorganized Debtor will be responsible for paying all allowed Ordinary Course Expenses other than Professional Fees, certain lease obligations and warranty, return, product refund or defect claims relating to products other than Hammer products. The Distribution Agent will be responsible for payment of all other allowed nonclassified claims. The Debtor estimates that Ordinary Course Expenses for which the reorganized Debtor will be responsible will be approximately $270,000, representing approximately one month's general and 42 49 administrative expenses, plus a variable amount representing costs of goods. Professional Fees, that is, compensation and expense reimbursements earned by attorneys, advisors, accountants and other professionals retained in the Chapter 11 Case by the Debtor or the Committee, are estimated as follows: For services rendered through September 30, 1997, the following fees and expenses have been approved by the Bankruptcy Court, and paid by the Debtor or credited against retainer balances, on an interim basis:
Professional: Interim Amount: ------------- --------------- Goldberg, Stinnett, Meyers & Davis $ 190,254.99 Murray & Murray 47,514.13 Manatt, Phelps & Phillips(3) 32,978.47 Oppenheimer, Smith, Poms, Lande & Rose 8,871.14 Price Waterhouse LLP 13,872.00 -------------- TOTAL: $ 293,490.73
For services rendered after September 30, 1997 and until the Effective Date, and for remaining unpaid amounts for services rendered up to September 30, 1997, the Debtor estimates that the estate will incur additional fees and expenses (with the caution that it is an estimate only, and subsequent events may cause the - -------- (3) Fees and expenses awarded to the Manatt firm are for services rendered through October 24, 1997. 43 50 estimated amounts to increase or decrease significantly) in the approximate amount of $350,000. In addition to the foregoing, the Debtor estimates that as of the Effective Date, there may be owed approximately $4,000 in unpaid quarterly fees owing, but not yet due, to the United States Trustee, and that there may be owed an undetermined amount in reimbursements of expenses to members of the Committee. Also, Section 503(b) of the Bankruptcy Code provides for payment of compensation to creditors, indenture trustees and other persons making a "substantial contribution" to a reorganization case, and to attorneys for, and other professional advisors to, such persons. The amounts, if any, which may be sought by entities for such compensation are not known by the Debtor at this time. Requests for compensation must be approved by the Bankruptcy Court after a hearing on notice at which the Debtor and other parties in interest may participate and, if appropriate, object to the allowance of any compensation and reimbursement of expenses. Priority tax claims are those claims for taxes entitled to priority in payment under Section 507(a)(8) of the Bankruptcy Code. The aggregate amount of priority tax claims as reflected in proofs of claim filed by taxing authorities, or, in the event that no proof of claim was filed, in the Debtor's Schedules, is approximately $1,050,000 (excluding duplications). That amount, however, may later increase by virtue of claim amendments following the completion and filing of delinquent tax returns for years preceding the Petition Date, particularly for the year ending 44 51 December 31, 1996. The Debtor estimates that of all such amounts, approximately between $200,000 and $400,000 will be allowed, based upon its preliminary analysis of the claims.(4) The difference between the aggregate amount of asserted tax claims and the Debtor's estimated range of those claims that will eventually be allowed arises largely from disputes regarding claims filed by the California Franchise Tax Board in the amount of $580,165.60, by the Comptroller for the State of Texas in the amount of $344,848.45 and by the Internal Revenue Service in the amount of $115,873.20. The Debtor believes most filed priority tax claims will be disallowed or reduced substantially, resulting in the estimated range of allowable tax claims mentioned above. 2. CLASS A -- OTHER PRIORITY CLAIMS. Priority claims within Class A are certain non-tax claims incurred by the Debtor prior to the commencement of the Chapter 11 Case which are entitled to priority in accordance with Sections 507(a)(2), (3), (4), (5), (6) or (7) of the Bankruptcy Code. Such claims include (i) unsecured claims for accrued employee compensation earned within ninety days prior to commencement of the Chapter 11 Case to the extent of $4,000.00 per employee and (ii) contributions to employee benefit plans arising from services rendered within 180 days prior to the commencement of the Chapter 11 Case, but only for each such plan to the extent of (x) the number of employees covered by such plan - ---------- (4) The increment between the high and low ends of that range depends largely upon potential income tax liabilities for the year 1996, which are as yet undetermined, but which may ultimately equal as much as $200,000. 45 52 multiplied by $4,000.00, less (y) the aggregate amount paid to such employees from the estates for priority wages, salaries and commissions. The Debtor estimates that the allowed amount of Class A priority claims will be approximately $35,000, all arising from employee wage and benefit obligations incurred by the Debtor shortly before the Petition Date. Actual claims filed by creditors asserting priority status are in an aggregate, approximate amount of $150,000, but of that amount, the Debtor believes that at least $100,000 is either overstated or not entitled to priority treatment, resulting in the lesser estimated amount mentioned above. Pursuant to the Plan, allowed Class A priority claims will be paid in full, and, in the Debtor's view, are thus unimpaired. As such, the holders of Class A claims are conclusively presumed to have accepted the Plan. Payment of such claims, to the extent allowed, will occur on the latest of the following dates: (a) on, or as soon as practicable after, the Effective Date, or such later date as to which the claimant may consent; (b) on the date when the claim becomes due, according to applicable contractual, statutory or other terms; or (c) once an order of the Bankruptcy Court allowing the claim becomes final, if the claim is disputed. 3. CLASS B -- SECURED CLAIMS. Class B consists of all secured claims, that is, claims secured by valid, perfected and enforceable liens or security interests encumbering assets of the Debtor. To the best of the Debtor's knowledge, the only secured 46 53 claims, if there are any at all, consist of (a) the claim of Wells Fargo Bank in the approximate principal amount of $252,000, secured by the bank's certificate of deposit issued in conjunction with the Debtor's former Newark real property lease, described hereinabove; and (b) warehouse, mechanics' or other possessory liens asserted by certain of the Debtor's suppliers, vendors or materialmen, including the disputed liens asserted by JMR and A&S. In all, exclusive of claims of equipment lessors, claims have been filed by creditors asserting security interests in an aggregate, approximate amount of $670,000. However, secured creditors are not required to file claims in order to preserve their lien rights, and in particular, Wells Fargo Bank, holding a lien against $252,000 of funds of the Debtor, has not filed a claim. The Debtor estimates that the only secured claims that will be ultimately allowed are those of Wells Fargo Bank in the above-stated amount and the lien claims of JMR and A&S, but only to the extent that those claims survive challenge by the Debtor. By an order of the Bankruptcy Court issued on November 21, 1997 at the Debtor's request, the disputed lien claims of JMR and A&S have been limited to sale proceeds in the aggregate, approximate amount of $135,000, subject to the Debtor's challenges; the Debtor believes that the actual amounts of JMR's and A&S's valid liens may be considerably less, and may in fact be zero. Nonetheless, as a matter of conservative estimation for purposes of this Disclosure Statement, and without waiving any rights with respect thereto, the Debtor estimates aggregate allowed secured 47 54 claims within Class B to be approximately $390,000, based upon the foregoing. All secured claims within Class B, to the extent allowed, will be unimpaired, in accordance with the provisions of Section 1124 of the Bankruptcy Code, as follows: As to each such claim, the reorganized Debtor or the Distribution Agent (depending upon whether the collateral is a Hammer Asset or a Non-Hammer Asset) will either (a) cure any defaults and reinstate the obligations, going forward on normal contractual terms; (b) pay the claim in full in exchange for a full release of liens; or (c) abandon to the creditor the collateral securing the claim. The particular treatment of each such claim will be set forth in Schedules 4.2(A) and 4.2(B) to be filed and served by the Debtor and the Preletz Group, respectively, no less than five Business Days prior to the commencement of the Confirmation Hearing. Any holder of a Secured Claim that is not reinstated may assert an unsecured deficiency claim, if any, within Class C or D by filing and serving a claim therefor no later than 30 days following the Effective Date, subject to any timely objections that may be asserted by parties in interest. 4. CLASS C -- CONVENIENCE CLAIMS. Class C claims are impaired by the Plan, and therefore are entitled to vote to accept or reject the Plan. Class C claims consist of allowed claims that are equal to, less than, or reduced to, $3,000.00, which the Plan treats separately for administrative convenience. Claimants may elect to be within or without Class C by the following procedure: 48 55 Claims of $3,000.00 or less will automatically be classified within Class C unless the holder of such claim elects in writing to opt out of the class, in which case such claim will be within Class D; holders of claims greater than $3,000.00 may elect in writing to reduce their claims to the amount of $3,000.00 and be treated within Class C, in which event the claim amount in excess of $3,000.00 will be deemed fully waived. In either case, written elections must be made by completing the appropriate information and box within the Ballot and returning the Ballot in the manner and within the deadline stated thereon. Under the terms of the Plan, each holder of an allowed claim within Class C will receive a payment from the Distribution Estate in an amount equal to ten percent (10%) of the allowed amount of the claim. The payment will be made within 60 days following the Effective Date, or upon final resolution of any disputes as to the claim, whichever is later. The Debtor anticipates that holders of approximately 340 allowed claims, in an aggregate amount of approximately $360,000 (before required reductions), will elect to be within Class C, and that the distributions thereon will be approximately $34,000. Those amounts assume that holders of claims of up to $4,000.00 will elect to reduce their claims to be within Class C. 5. CLASS D -- GENERAL UNSECURED CLAIMS. Class D consists of all allowed claims that are unsecured and not in any other designated class. Such claims include claims of the Debtor's trade vendors and suppliers, claims arising from product warranties and 49 56 related obligations of the Debtor with respect to the purchase and use of Non-Hammer products, claims arising from the rejection of leases of equipment or other real or personal property and other executory contracts. Class C claims also include claims arising under the Debentures and Notes described above. The Debtor estimates that the aggregate amount of all allowed claims within Class D, including the aforementioned Debentures and Notes, will be approximately $30,000,000 (after elimination of Class C claims), although the amount may be higher or lower once all proofs of claim are filed, reviewed and resolved. The aggregate amount of all claims asserted in Class D, as reflected in proofs of claim filed by creditors, or, in the event no proof of claim was filed, in the Debtor's Schedules, is approximately $40,000,000, excluding claims for which no amounts were specified and otherwise unliquidated claims. The Debtor's estimates of allowed claims is based only upon its preliminary analysis of the claims, and may change as further analysis is made. Claims within Class D will be impaired by the Plan, and thus Class D claimants are entitled to vote to accept or reject the Plan, based upon the following treatment: Holders of Allowed Claims within Class D will receive pro-rata distributions of funds from the Distribution Estate on a periodic basis, as funds become available for such distributions, beginning no later than June 30, 1998. Each distribution will be made from available funds after accounting for reserves for disputed claims, anticipated administrative costs and any other payments not yet 50 57 made but required by the terms of the Plan. Some of the particular provisions of the Plan affecting those distributions are as follows: - Notwithstanding certain subordination terms set forth in the Debentures (which the Debtor believes are inoperative), there will be no subordination between claims arising from Notes and claims arising from Debentures, all of which claims will be treated as Class D claims, to the extent allowed, on a pari passu basis (Plan, Sec. 5.2.3). - A portion of the stock of the reorganized Debtor, the Reorganized Shares as described in Section V(B)(2) hereinbelow, will be distributed among holders of allowed claims within Class D on a pro-rata basis, with each share deemed to have a value of $0.325 for purposes of calculating distributions. No fractional shares will be issued, and the Plan provides for rounding to whole numbers and disposition of any remainder shares held by the Distribution Estate after stock distributions have been completed (Plan, Sec. 5.2.4). - Some claims within Class D may be subject to subordination to other claims within Class D, either in part or in whole, by order of the Bankruptcy Court. All parties will be deemed to have preserved their right to assert rights to such subordination within Class D, other than as follows: Any right to subordination between claims under Debentures and Notes as described above shall be deemed to have been waived and released, and all such claims shall be deemed to be within Class D on a pari passu basis as between each other. All such claims of subordination will be settled by the Plan's terms (Plan, Secs. 5.2.3 and 5.2.5). - Certain specific provisions, set forth in Section 5.2.6 of the Plan, pertain specifically to claims arising from Debentures or Notes, which provisions provide for the cancellation of such securities in exchange for distribution rights under the Plan, a record date for purposes of voting and distributions, and procedures for claims that may be asserted by indenture trustees for compensation, indemnification and reimbursement (Plan, Sec. 5.2.6). The Debtor estimates that distributions upon allowed claims within Class D will be in an aggregate amount that is approximately 51 58 17.10 percent of the total amount of such allowed claims, based upon the analysis set forth in EXHIBIT "F" attached hereto. That estimate is of course subject to change based upon events and claims resolutions that cannot be accurately predicted at this time, including the outcome of causes of action against third parties on behalf of the Distribution Estate, resolution of disputes regarding claims asserted against the Distribution Estate, the effect of assumptions or rejections of executory contracts for which claims have not yet been asserted and the like. Also, the Debtor believes that distributions upon such allowed claims will occur over a period of time, spanning at least one to two years, and no attempt has been made to determine the present value of such distributions. 6. CLASS E -- STOCK INTERESTS. Class E consists of all Interests in the Debtor, meaning all shares of the Debtor's common stock and all options, warrants and other rights affecting the Debtor's stock or equity interests. On the Effective Date, all existing shares of the Debtor will be cancelled and all options, warrants and other rights affecting such stock will be terminated. All Interests (including Rescission Claims, which are primarily claims arising from the rescission or breach of contracts for purchase or sale of stock, together with related claims) shall be deemed fully and finally released and discharged entirely. No distributions will be made upon any Interests, either by the Distribution Estate or by the reorganized Debtor. Thus, holders of Interests within Class E are deemed to 52 59 have rejected the Plan, because they will receive and retain nothing under the Plan's terms. The Plan provides for no distribution to holders of Interests because the Debtor has determined, through review of its assets and liabilities and in consultation with its advisors, that the aggregate value of the Debtor's assets is exceeded, by a large amount, by the sum of allowable claims against the Debtor. As a result, there is no present equity in the Debtor and, in the Debtor's view, all present shares of stock of the Debtor are worthless. B. RECAPITALIZATION OF THE DEBTOR On the effective date of the Plan (which will occur within 30 days following the Plan's confirmation), the Debtor will be reorganized and will emerge from bankruptcy with a new capital structure and working capital which its management believes is sufficient to return the company to profitability, through support of its Hammer product line and related operations. The recapitalization necessary for that reorganization will occur as follows: 1. REVESTING OF ASSETS. On the Plan's effective date, all assets related to the Hammer product line, as defined in detail in Section 7.3.1 of the Plan and known as the "Hammer Assets," will be revested in the reorganized Debtor as the core of its ongoing business. All other assets of the Debtor will vest in the Distribution Estate, as described below. In exchange for the Hammer Assets, the reorganized Debtor will issue a portion of its 53 60 stock to the Distribution Estate, for distribution to creditors, as described below. As defined within the Plan, "Hammer Assets" include essentially all of the Debtor's intellectual property rights remaining after disposing of the Raidion product line (including the Debtor's Hammer technology, its Gandiva technology, the video disk recorder technology described in Section III(D)(2) above and all other intellectual property rights related to the Hammer product line, but not including the video server technology described in Section III(D)(1) above), all inventory and equipment used in the Hammer product line, all cash (other than restricted funds) as of the Plan's effective date, certain executory contracts and secured assets which the reorganized Debtor elects to assume and cure, any and all causes of action necessary to preserve the benefit and protection of other Hammer Assets,(5) and other related assets. As used in the Plan, the term "Non-Hammer Assets" refers to all assets of the Debtor immediately preceding the Plan's effective date other than Hammer Assets. 2. REORGANIZED SHARES. On the Plan's effective date, the reorganized Debtor will issue the following new shares of common stock, or "Reorganized Shares": 3,500,000 Reorganized Shares to the Distribution Estate for distribution to creditors; 2,000,000 Reorganized Shares to participating creditors in the Creditors' - ---------- (5) As of the date of this Disclosure Statement, the Debtor is unaware of any events or actions that would give rise to any such causes of action. 54 61 Rights Offering described below, in exchange for cash contributions of $650,000; and 2,000,000 Reorganized Shares to the Preletz Group in exchange for a cash contribution of $650,000. Also, as set forth in detail in the Plan, the reorganized Debtor may issue additional Reorganized Shares, up to a total of 20,000,000 outstanding Reorganized Shares, for new cash consideration or as employee stock options or incentive bonuses, all within the limitations and restrictions set forth in the Plan. In this manner, existing creditors of the Debtor will collectively own a substantial portion of the equity of the reorganized Debtor, and will have an opportunity to benefit from any appreciation in value of the reorganized Debtor, if it occurs, while the Debtor, as reorganized, will be newly capitalized, with working capital which the Debtor believes will be sufficient to return its operations to profitability. 3. CREDITORS' RIGHTS OFFERING. As set forth in Section 8.2 of the Plan, a portion of the Reorganized Shares (the "Subscription Reorganized Shares") will be issued in conjunction with a Creditors' Rights Offering available to all existing creditors of the Debtor that are within Class D of the Plan. Through the procedures set forth in said Section 8.2, existing creditors will have an opportunity to acquire Reorganized Shares for new cash contributions at the same per-share price as the Preletz Group, and on a pro-rata basis among them. United Equities, holding claims of approximately $2.5 million arising from Debentures, has agreed to participate in the offering subject to the terms and conditions 55 62 described in the Plan, by committing to purchase its allocable portion of the Subscription Reorganized Shares plus whatever Subscription Reorganization Shares are not purchased in accordance with the terms of the Creditors' Rights Offering by any other creditors. In order to participate in the Creditors' Rights Offering, each creditor must elect to do so in the space provided therefor in the Ballot which accompanies this Disclosure Statement and the Plan and returning the Ballot within the time frame, and in the manner, stated on the face of the Ballot. Each eligible claimant will be entitled to subscribe for a proportionate share of 2,000,000 Reorganized Shares based upon all, but not less than all, of such claimant's claim, all as set forth more fully in Section 8.2 of the Plan. All determinations of eligibility, proportionate share, timeliness of election and share calculations will be made by the Committee and shall not be subject to challenge. As stated, in order to participate in the offering, eligible creditors must timely elect to do so by completing the appropriate space on the Ballot and returning the Ballot in a timely manner. Thereafter, those participating claimants will be required to timely deposit their subscription payments in cash with the Committee's counsel, upon notification of the timing and amount thereof, and such counsel will hold all such deposits in trust in a segregated account pending the effectiveness of the Plan. All creditors who are interested in so subscribing should read the details of Section 8.2 carefully in all respects. 56 63 4. CORPORATE GOVERNANCE. Following the Plan's effective date, the reorganized Debtor will be free of the constraints of the chapter 11 process, but will be subject to certain rules of corporate governance set forth in Section 8.3 of the Plan. In particular, the Preletz Group will be allowed to maintain full operational control over the reorganized Debtor for at least three years following the Plan's effective date, and will have full control over the appointment, compensation, employment and retention of the reorganized Debtor's senior management. In addition, the Preletz Group will be entitled to select, remove and replace three of the reorganized Debtor's five directors for the first three years following the Plan's effective date, but no extraordinary nonoperational actions, such as mergers or consolidations, sale of substantial portions of assets or commencement of a succeeding bankruptcy case, will be permitted without the consent of the holders of a majority of issued and vested Reorganized Shares. Among other details of corporate governance, the reorganized Debtor will provide rent-free space for storage of assets, books and records of the Distribution Estate at least until October 1, 1998; certain officers of the reorganized Debtor will provide services to the Distribution Estate free of charge in order to assist in the disposition of remaining assets within such estate, at the discretion of the Distribution Agent; and the reorganized Debtor will use its best reasonable efforts to maintain 57 64 registration and public listing of its shares, within certain constraints set forth in the Plan. C. DISTRIBUTION ESTATE As of the Plan's effective date (or, as defined in the Plan, the "Effective Date"), all assets that will not be revested in the reorganized Debtor, that is the "Non-Hammer Assets," will be retained and vested in a Distribution Estate created for the benefit of creditors. The Distribution Estate will be maintained and administered by a Distribution Agent, under the monitoring and governance of the Committee, which will continue to operate after such effective date. The Distribution Agent will be selected by the Committee, and shall manage the Distribution Estate subject to the following provisions of the Plan, among others: - The Distribution Agent will serve at the pleasure and direction of the Committee, which will be entitled to terminate and replace the Distribution Agent at any time (Plan, Sec. 7.7.3). - It shall be the Distribution Agent's duty to dispose of all assets of the Distribution Estate and to resolve all claims against that estate, at the instruction of the Committee and in a manner reasonably intended and designed to maximize recoveries by creditors, and the Distribution Agent shall report regularly and in detail to the Committee with regard to the status of the administration of such estate (Plan, Sec. 7.8.2). - The Distribution Agent will be authorized to sell assets with the Committee's approval but without other notice, provided that the gross purchase price of each such sale does not exceed the sum of $50,000. For other dispositions, including larger sales and any compromises of disputes, the Distribution Agent will be authorized to implement such dispositions only with the approval of the Committee and either (a) in the absence of a timely written objection received within five Business Days following written notice to certain parties within a 58 65 "Postconfirmation List,"(6) or (b) in the event of such timely written notice, upon approval by the Bankruptcy Court on no less than five Business Days' notice of a hearing thereon (Plan, Sec. 7.8.3). - Disbursements will be made to creditors by the Distribution Agent from time to time as directed by the Committee, with appropriate reserves for existing and anticipated administrative expenses as well as reserves for disputed claims (Plan, Secs. 7.8.5 and 7.8.6). - Both the Distribution Agent and the Committee will be authorized to retain professionals in order to assist in their respective obligations and rights under the terms of the Plan, with the Committee's approval, and in particular, the Distribution Agent will be entitled to retain the Debtor's present bankruptcy counsel and the Committee's present counsel without further order of the Bankruptcy Court, and the Committee will be authorized to continue to retain its counsel without further order of the Bankruptcy Court. Fees and expenses of the Distribution Agent, the Committee and their respective professionals earned or accrued on or after the Plan's effective date, together with quarterly fees owing to the United States Trustee, will be paid periodically from the Distribution Estate (Plan, Secs. 7.9.2 and 7.10). - Fees and expenses other than those owing to the United States Trustee will be paid only upon ten Business Days' notice to parties within the Postconfirmation List, either absent written objections or upon approval by the Bankruptcy Court in the event of timely objections (Plan, Sec. 7.10.2). - ---------- (6) For these purposes and for all other purposes under the Plan, the term "Postconfirmation List" refers to the United States Trustee, the Reorganized Debtor and its counsel, the Distribution Agent and his or her counsel, the Committee and its members and counsel, and those parties who, subsequent to the Plan's confirmation, file with the Bankruptcy Court and serve upon the aforementioned parties and counsel requests for special notice; provided that some parties may be removed from the list from time to time either by consent or by order of the Bankruptcy Court on notice, based upon a showing that such parties no longer hold material interests or claims in the Chapter 11 Case. 59 66 D. DISCHARGE AND EXCULPATION Under the terms of the Plan, the reorganized Debtor will be fully discharged of all debts accruing prior to the Plan's effective date, and the effectiveness of the Plan shall operate as a permanent injunction against asserting such obligations against the reorganized Debtor, except for those obligations which the reorganized Debtor expressly assumes under the terms of the Plan. Such assumed obligations will include the following: (a) certain Ordinary Course Expenses, as described hereinabove; (b) all claims for warranty, return, refund, product defect and the like, to the extent arising from the purchase of Hammer products; (c) rent obligations with respect to the Debtor's new Newark office lease, to the extent set forth in the Plan; (d) any obligations which the Preletz Group elects to assume with respect to the cure and reinstatement or satisfaction of secured claims; and (e) any cure payments and ongoing obligations which the reorganized Debtor elects to assume with respect to executory contracts affecting Hammer Assets. In all other respects, the effectiveness of the Plan shall operate as a complete and final discharge, release and satisfaction of all claims that might be asserted against the Debtor at any time prior to the Plan's effective date, whether those claims are known or unknown, matured or contingent, liquidated or unliquidated. In addition, the Plan's effectiveness will operate to release any claims which the Debtor's estate may have against the Debtor, the Preletz Group, the Committee, members of the Committee and each 60 67 of their present officers, directors, agents, advisors, attorneys or accountants or any claim arising out of or in connection with an act or failure to act in connection with rights and duties related to the Chapter 11 Case, except any claims expressly created or preserved under the terms of the Plan or related documents. The Debtor knows of no claims against such parties at the present time. Also, the Plan provides that actions taken by the Committee or by the Distribution Agent, or their respective representatives, agents and counsel, in implementing the terms of the Plan following the Plan's effective date will be deemed to be within the scope of duties and functions set forth in Sections 1103 and 1107 of the Bankruptcy Code. As such, and absent willful misconduct or gross negligence, each of such parties will be immune from challenge or liability for actions taken or not taken during the course of such Plan implementation. E. EXECUTORY CONTRACTS Article VI of the Plan provides for treatment of executory contracts, including unexpired leases, to which the Debtor is a party as of the Plan's effective date and which were entered into by the Debtor prior to the commencement of the Chapter 11 Case. In summary form, all such executory contracts will be deemed rejected unless they are assumed by specific provision of the Plan, by a separate order of the Bankruptcy Court or by a schedule of assumed contracts (the "Schedule 6.2.1") to be filed by the Debtor no later than ten days prior to the commencement of the Confirmation Hearing. To the extent that executory contracts are rejected, 61 68 claims arising from such rejection must be filed no later than 30 days following the Plan's effective date (or earlier if the Bankruptcy Court or Bankruptcy Code establishes an earlier deadline), and all such rejection claims will be classified and treated within Classes C or D, to the extent allowed. To the extent that Schedule 6.2.1 identifies a contract to be assumed, such schedule will indicate whether the contract is to be assumed by the reorganized Debtor (with respect to Hammer Assets) or by the Distribution Estate (with respect to Non-Hammer Assets), and will identify the amount of any monetary default that must be cured in order to effectuate such assumption. Any party to a contract identified in such schedule who disputes the cure amount set forth therein will be required to file and serve an objection thereto within five Business Days following the Plan's confirmation, absent which any amount of cure in excess of the amount set forth in said Schedule 6.2.1 will be deemed discharged and barred. Payment of all allowed cure amounts will be made by the assuming party (the reorganized Debtor or the Distribution Agent) on the Plan's effective date, on such later date as such cure becomes due under applicable terms, or when a final order determining the cure amount is entered, as to any disputed portions of such cure amounts. F. OTHER PROVISIONS Parties in interest are urged to review the entire Plan fully and carefully, particularly with respect to many details not fully addressed herein. The following is a summary, but not a 62 69 comprehensive listing, of some of the remaining details of the Plan not described hereinabove: - All causes of action owned by the Debtor prior to the Plan's effective date shall be deemed fully preserved, and except as to those causes of action relating to the benefit or protection of Hammer Assets, all such causes of action shall vest in the Distribution Agent as of the Plan's effective date. It will be the Liquidation Agent's responsibility, in consultation with the Committee, to prosecute all such causes of action to the extent beneficial to the Distribution Estate (Plan, Sec. 7.6). - The Preletz Group has agreed to invest in the reorganized Debtor as described elsewhere herein with the proviso that it may withdraw from that commitment, upon ten days' notice, in the event of a material adverse change in the operations or business of the Debtor's Hammer product line prior to the Plan's effective date. The Plan provides, in Section 7.2.3 and elsewhere, that in the event of such withdrawal, the Plan will nonetheless become effective and all assets of the estate, including those that would otherwise have constituted Hammer Assets, will vest in the Distribution Estate and will be liquidated for the benefit of creditors (Plan, Sec. 7.2.3). - Section 11.5 of the Plan provides for noticing of certain parties, including the Debtor, the Preletz Group, the Committee and the Distribution Agent, and any notices required by other provisions of the Plan will not be considered complete unless the notice procedures of such Section 11.5 have been satisfied (Plan, Sec. 11.5). - Exhibit "A" attached to the Plan sets forth the meaning of a number of defined terms of the Plan, and it is important to review such definitions in order to fully understand the ramifications of terms and conditions set forth in the Plan (Plan, Ex. "A"). VI. CONFIRMATION PROCEDURE A. SOLICITATION OF VOTES In accordance with Section 1124 of the Bankruptcy Code, the Claims and Interests in Classes C, D and E of the Plan are impaired. The holders of Claims in Classes C and D are entitled to 63 70 vote to accept or reject the Plan, and the holders of Interests are deemed to have voted to reject the Plan. The holders of Allowed Claims in Classes A and B are unimpaired, and are deemed to have accepted the Plan. As to classes of claims entitled to vote on a plan, the Bankruptcy Code defines acceptance of a plan by a class of creditors as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that class that have timely voted to accept or reject a plan. A vote may be disregarded if the Bankruptcy Court determines, after notice and a hearing, that such acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. Any creditor within Classes C or D (i) whose claim has been listed by the Debtor in the Schedules filed with the Bankruptcy Court (provided that such claim has not been scheduled as disputed, contingent or unliquidated), or (ii) who filed a proof of claim within any other applicable period of limitations, or with leave of the Bankruptcy Court, which claim or vote is not the subject of an objection, is entitled to vote. B. THE CONFIRMATION HEARING The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has been scheduled before the Honorable Dennis Montali, United States Bankruptcy Judge at the United States Bankruptcy Court, 235 Pine Street, Courtroom 22, San Francisco, 64 71 California, at a date and time identified in a notice accompanying this Disclosure Statement. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing. Any objection to confirmation must be made in writing and specify in detail the name and address of the objector, all grounds for the objection and the amount of the Claim or number of shares of stock of the Debtor held by the objector. Any such objection must be filed and served in the manner and timing set forth in a notice accompanying this Disclosure Statement. C. CONFIRMATION At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of Section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and equity interests or, if rejected by an impaired class, that the plan "does not discriminate unfairly" and is "fair and equitable" as to such class, (ii) feasible, and (iii) in the "best interests" of creditors and stockholders which are impaired under the plan. 1. ACCEPTANCE. Classes C and D of the Plan are impaired under the Plan and are entitled to vote to accept or reject the Plan. The Debtor reserves the right to seek nonconsensual confirmation of the Plan under Section 1129(b) of the Bankruptcy Code with respect to either such Class if it rejects the Plan. In 65 72 addition, as stated, Class E is deemed to have voted to reject the Plan, and the Debtor will seek nonconsensual confirmation of the Plan under Section 1129(b) of the Bankruptcy Code with respect to that Class. 2. NONCONSENSUAL CONFIRMATION. In order to obtain nonconsensual confirmation of the Plan, the Debtor must demonstrate to the Bankruptcy Court that the Plan "does not discriminate unfairly" and is "fair and equitable" with respect to each impaired, nonaccepting Class. The Bankruptcy Code provides nonexclusive definitions of the term "fair and equitable," including the following: a. UNSECURED CREDITORS. For a class of unsecured claims, either (i) each impaired unsecured creditor within the dissenting class receives or retains under the plan property of a value equal to the amount of its allowed claim, or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive or retain any property under the plan. b. EQUITY INTERESTS. For classes of equity interests, either (i) each holder of an equity interest will receive or retain under the Plan the value or fixed preference or redemption price, whichever is higher, or (ii) no classes of claims or interests junior to such equity interests receive or retain any property under the plan. 66 73 The Debtor believes that the Plan and the treatment of all Classes of Claims and Interests under the Plan satisfy the foregoing requirements for nonconsensual confirmation of the Plan. 3. FEASIBILITY. The Bankruptcy Code also requires that, as a prerequisite to confirmation of a plan, the plan proponent demonstrate that confirmation is not likely to be followed by a liquidation or the need for further financial reorganization, unless such liquidation or reorganization is contemplated by the plan. As set forth in Section X(A) hereinbelow, the Debtor believes that no liquidation or further reorganization, other than that which is expressly contemplated by the Plan, will be required, and that the Plan therefore satisfies the feasibility requirements of the Bankruptcy Code. 4. BEST INTERESTS TEST. The Bankruptcy Code also requires, as a prerequisite to confirmation of a plan, that with respect to each impaired class of claims or interests, each holder of a claim or interest either (i) accepts the plan or (ii) receives or retains under the plan property of a value, as of the effective date, that is not less than the amount that such holder would receive or retain if the Debtor were liquidated under chapter 7 of the Bankruptcy Code. With respect to the Plan, Classes C, D and E are impaired, and the Debtor believes that the Plan satisfies the foregoing "best interests" test as to each such class. As set forth in Section X(B) hereinbelow, the Debtor believes that in a chapter 7 liquidation of the Debtor's estate, there would be no recovery at 67 74 all for holders of equity interests (shareholders), and that the net distribution to unsecured creditors would be less than is contemplated under the terms of the Plan. Therefore, the Debtor believes that holders of Allowed Claims within Classes C and D will likely receive greater distributions under the Plan than they would in a chapter 7 liquidation, and that shareholders within Class E will do no worse under the Plan than they would in a chapter 7 liquidation, because they would receive no distribution in either event. D. CONSUMMATION Under the terms of the Plan, its provisions will become binding and effective as of an Effective Date, as defined within Exhibit "A" attached to the Plan. Pursuant to that definition, the Plan's effective date will occur within 30 days following the Plan's confirmation (or later in the event of a Court-imposed stay of implementation), on a date jointly selected by the Debtor, the Committee and the Preletz Group. The Debtor presently anticipates that the Effective Date will occur prior to June 30, 1998. VII. MANAGEMENT OF THE REORGANIZED DEBTOR As of the Plan's effective date, the management, control and operation of the reorganized Debtor will become the general responsibility of its Board of Directors, subject to the governance provisions summarized in Section X(B)(4) hereinabove. Senior management of the reorganized Debtor will be subject to the following: 68 75 A. COMPOSITION OF THE BOARD OF DIRECTORS The Board of Directors of the reorganized Debtor will consist of five directors, including Michael O. Preletz (the Chief Executive Officer of the Debtor), Chapman A. Stranahan (the Debtor's Assistant C.E.O.) and other individuals to be selected. As stated, the Preletz Group will be entitled to select, remove and replace three of those five directors at all times during the first three years following the Plan's effective date. B. IDENTITY OF OFFICERS It is currently anticipated that the present officers of the Debtor will continue in their current positions as the officers of the reorganized Debtor, at least initially. Set forth below is the name and position with the Debtor of each current officer, together with a brief description of each officer's employment history: MICHAEL O. PRELETZ, CHIEF EXECUTIVE OFFICER. Mr. Preletz joined the Debtor as a director and chief executive officer on March 24, 1997, following the resignation of J. Larry Smart. Mr. Preletz has over 35 years of experience as a successful turnaround expert for companies in the high technology industry. He has held senior management positions with a number of companies and has overseen the restructuring of Redcor (which later became Silicon General), Magnuson Computer (which was later acquired by Storage Technologies), Zymed Medical, Rexon Corporation, ADAC Laboratories, Visual Technology and Read-Rite Corporation. CHAPMAN A. STRANAHAN, PRESIDENT AND CHIEF OPERATING OFFICER. Mr. Stranahan joined the Debtor in August 1997 as part of the 69 76 restructuring team. Mr. Stranahan has over 20 years' experience in helping small and mid-sized high technology companies grow and expand. He has held management positions in the areas of sales and marketing, operations and quality control. Prior to joining the Debtor, Mr. Stranahan held various positions with TRW Semiconductors, Silicon General, Wangtek, Read-Rite Corporation, and most recently with Technistar. MARK R. KOZIOL, EXECUTIVE VICE PRESIDENT. Mr. Koziol joined the Debtor in June 1997 as part of the turnaround team. Mr. Koziol currently is responsible for sales and marketing, service and engineering. Mr. Koziol has nearly 20 years' experience in the storage subsystem market. He has held management positions in sales, marketing and engineering. Prior to joining the Debtor, Mr. Koziol held various senior management positions with Unisys, Memorex Telex, Storage Dimensions, and most recently with Sandisk Corporation. GEORGE D. OLIVA, VICE PRESIDENT OF FINANCE AND ADMINISTRATION. Mr. Oliva joined the Debtor in August 1997 as part of the turnaround team. Mr. Oliva has over 10 years of experience in high growth, high technology public companies. He has held a variety of senior financial positions, several of which were within the disk drive or data storage industry. Prior to joining the Debtor, Mr. Oliva held positions with Conner Peripherals, Read-Rite Corporation, KLA Instruments, DSC Communications and Arthur Andersen & Company. 70 77 C. COMPENSATION OF EXECUTIVE OFFICERS Whereas no final determination has yet been made, it is presently contemplated by the Debtor that the reorganized Debtor's executive officers will receive the following annual salaries, exclusive of incentive bonuses and stock option plans that may be implemented in accordance with the terms of Sections 8.1.4 and 8.1.5 of the Plan: Michael O. Preletz $300,000 Chapman A. Stranahan $120,000 Mark R. Koziol $185,000 George D. Oliva $120,000 D. COMPENSATION OF DIRECTORS Whereas no final determination has yet been made, it is presently contemplated by the Debtor that the reorganized Debtor's outside directors (i.e., those directors who are not also officers or employees of the Debtor), will receive compensation equal to $1,500 for each meeting of the Board of Directors which they attend, plus compensation at the rate of $100 per hour for other services rendered, and that inside directors will receive no compensation therefor other than the compensation agreed upon by the Debtor with respect to their roles as officers or employees. VIII. APPLICABILITY OF CERTAIN FEDERAL AND OTHER SECURITIES LAWS TO THE REORGANIZED SHARES DISTRIBUTED UNDER THE PLAN The issuance of the Reorganized Shares under the Plan raises certain securities law issues under the Bankruptcy Code and federal and state securities laws which are discussed generally in this 71 78 Section. This Section should not be considered applicable to all situations. ANY RECIPIENT OF SECURITIES PURSUANT TO THE PLAN SHOULD SATISFY ITSELF THROUGH CONSULTATION WITH ITS OWN LEGAL ADVISORS AS TO WHETHER OR NOT RESALES OR OTHER TRANSACTIONS WITH RESPECT TO SECURITIES ISSUED PURSUANT TO THE PLAN ARE LAWFUL UNDER THE FEDERAL AND STATE SECURITIES LAWS. A. INITIAL ISSUANCE OF REORGANIZED SHARES Section 1145 of the United States Bankruptcy Code ("Section 1145") provides that the securities registration and/or licensing requirements of federal and state securities laws do not apply to the offer or sale under a plan of reorganization of a security of the debtor, or its successor (i) in exchange for a claim against the debtor; or (ii) principally in such exchange and partly for cash or property. Section 11.2 of the Plan provides that the 3,500,000 Reorganized Shares to be issued to the Distribution Estate pursuant to Section 8.1.1 of the Plan (the "Creditors' Estate Shares"), as well as the subsequent distribution from the Distribution Estate to various creditors pursuant to Section 5.2.4, and the 2,000,000 Reorganized Shares to be issued to Participating Creditors pursuant to Sections 8.1.2 and 8.2 of the Plan (the "Subscription Reorganized Shares"), will be issued and distributed principally in exchange for the discharge of, and in exchange for, claims against the Debtor and partly for cash. Accordingly, the issuance of the Creditors' Estate Shares and the Subscription Reorganized Shares 72 79 will be exempt from the registration and/or licensing requirements of federal and state securities laws pursuant to Section 1145. However, the Plan provides that the other proposed issuances of Reorganized Shares, as set forth in Sections 8.1(a), 8.1.3, 8.1.4 and 8.1.5 of the Plan (namely, 2,000,000 shares to be issued to the Preletz Group (the "Preletz Group Shares"), 2,500,000 shares to be issued to recipients of "Employee Stock Options (the "Option Shares") and up to 10,000,000 additional Reorganized Shares to be issued as options or in connection with new capital investments by the Preletz Group or third parties (the "Additional Shares")) will not be deemed to be exempt from registration and/or licensing pursuant to Section 1145. The Debtor believes that alternative exemptions from registration are available for the proposed issuance of the Preletz Group Shares and the Option Shares under the Plan. Furthermore, prior to issuance, the Reorganized Debtor intends to confirm the availability of appropriate exemptions from registration for the Additional Shares or seek registration of such Additional Shares, in the discretion of management. B. RESALE OF REORGANIZED SHARES THE FOLLOWING DISCUSSION APPLIES TO THE RESALE OF REORGANIZED SHARES THE INITIAL ISSUANCE OF WHICH WAS EXEMPT FROM REGISTRATION AND/OR LICENSING PURSUANT TO SECTION 1145. ALL OTHER CATEGORIES OF RECIPIENTS OF REORGANIZED SHARES WILL BE SUBJECT TO THE RESALE LIMITATIONS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND/OR APPLICABLE STATE SECURITIES LAWS, AND 73 80 SHOULD CONSULT THEIR OWN ADVISORS REGARDING THEIR ABILITY TO RESELL REORGANIZED SHARES ISSUED BY THE REORGANIZED DEBTOR. Any person who is not an underwriter within the meaning of Section 1145 of the Bankruptcy Code and who resells Reorganized Shares issued under the Plan need not comply with the registration requirements of the Securities Act or any state registration requirements. The term "underwriter," as used in Section 1145, includes four categories of persons, which are referred to in this Section as (i) "controlling persons;" (ii) "accumulators;" (iii) "distributors;" and (iv) "syndicators." The treatment of the four types of underwriters and the treatment of dealers is discussed below. 1. CONTROLLING PERSONS. "Controlling persons" are persons who, after the Effective Date, will have the power, directly or indirectly and formally or informally, to control the management and policies of the Reorganized Debtor. Whether a person has such power is a question of fact which depends on a number of factors, including the person's equity in the Reorganized Debtor relative to other equity holders, and whether the person, acting alone or in concert with others, has a contractual or other relationship to the Reorganized Debtor giving that person power over management policies and decisions. Any stockholder who holds less than 10,000 shares or 1% of the shares of Reorganized Shares outstanding or options to purchase less than 10,000 shares or 1% of the aggregate amount of shares of Reorganized Shares outstanding upon exercise of an option, as calculated in accordance with Rule 13d-3 of the 74 81 Securities Exchange Act of 1934, as amended (the "Exchange Act"), generally would not be deemed to control the Reorganized Debtor solely by reason of those holdings. If any stockholder's ownership percentage of the Reorganized Shares calculated in this manner is between 1% and 10%, that stockholder may be deemed to control the Reorganized Debtor, depending upon the facts and circumstances of his or her particular situation. Such stockholder should seek the advice of his or her own counsel before reselling any Reorganized Shares. Controlling persons are permitted to resell or otherwise dispose of Reorganized Shares only by complying with the registration requirements of the Securities Act, and state "blue sky" laws or pursuant to an exemption therefrom. In order to resell the Reorganized Shares without registration under the Securities Act and without being deemed "underwriters," controlling persons may rely on Rule 144 of the Securities Act ("Rule 144"), which provides a "safe harbor" for the resale of restricted securities. To fall within the "safe harbor," controlling persons must comply with the requirements, including the holding period requirement, set forth in Rule 144. 2. ACCUMULATORS AND DISTRIBUTORS. "Accumulators" are persons who purchase a claim against the debtor with a view to distribution of any Reorganized Shares to be received under the Plan in exchange for such claim. "Distributors" are persons who offer to sell Reorganized Shares for the holders of such Reorganized Shares. In prior bankruptcy cases, the staff of the 75 82 Securities and Exchange Commission (the "SEC") has taken the position that resales by accumulators and distributors of securities distributed under a plan are exempt from the registration requirements of the Securities Act if made in ordinary trading transactions.(7) 3. SYNDICATORS. "Syndicators" are persons who offer to buy Reorganized Shares from the holders with a view to distribution, under an agreement made in connection with the Plan, with consummation of the Plan or with the offer or sale of Reorganized Shares under the Plan. Resales by syndicators of securities distributed under a plan may or may not be exempt from the registration requirements of the Securities Act if made in ordinary trading transactions. All syndicators should seek the advice of their own counsel before reselling any Reorganized Shares received in the reorganization. 4. DEALERS. "Dealers" are persons who engage either for all or part of their time, directly or indirectly, as agent, broker, or - ---------- (7) A transaction is an ordinary trading transaction if it involves none of the following: (1) concerted action by recipients of plan securities in connection with the sale of plan securities, or concerted action on behalf of one or more such recipients in connection with sales by distributors; (2) use of informational documents concerning plan securities prepared or used to assist in the resale of plan securities, other than a disclosure statement, supplements thereto, if any, and documents filed with the SEC pursuant to the Exchange Act, such as annual and quarterly reports on Form 10-K and Form 10-Q; and (3) special compensation to brokers and dealers in connection with the sale of plan securities designed as a special incentive to resell plan securities, other than the compensation that would be paid pursuant to arm's length negotiations between a seller and a broker or dealer, each acting unilaterally, not greater than the compensation that would be paid for a routine sale of similar securities of a similar issuer. 76 83 principal in the business of offering, buying, selling or otherwise dealing or trading in securities. The Debtor's market-makers typically would be considered "Dealers" for this purpose. Section 4(3) of the Securities Act exempts transactions in the Reorganized Shares by Dealers taking place more than 40 days after the Effective Date. Within the 40-day period after the Effective Date, transactions by Dealers who are stockbrokers are exempt from the Securities Act pursuant to Section 1145(a)(4) of the Bankruptcy Code, as long as the stockbrokers deliver a copy of the Debtor's Disclosure Statement at or before the time of the transactions. C. LIQUIDITY IN THE REORGANIZED SHARES 1. TRADING ON THE OTC. Currently, the Debtor believes it has approximately ten market makers who have registered the Debtor's securities for trading in the Over-the-Counter Market (the "OTC") on the "pink sheets" or the electronic bulletin board of the National Association of Securities Dealers, Inc. Although the securities that currently are trading on the OTC will be canceled pursuant to the Plan, it is possible that market makers could request that the Reorganized Shares be listed for trading on the OTC. Trading on the OTC may provide limited liquidity to stockholders. 2. THE NASDAQ STOCK MARKET. The Debtor was delisted from the Nasdaq National Market (the "NMS") as of the opening of the market on June 25, 1997. Consequently, the Debtor must submit an application and meet the initial listing criteria to be re-listed on the Nasdaq Stock Market. 77 84 For listing on the NMS or the Nasdaq SmallCap Market, the Debtor must meet various requirements, including, but not limited to: market capitalization, total assets, total revenue test, net tangible assets, market value of public float, minimum bid price, market maker and corporate governance requirements. Additionally, Nasdaq generally will not allow a delisted company to be re-listed without having filed at least one Annual Report on Form 10-K and two Quarterly Reports on Form 10-Q. Currently, the Debtor does not meet one or more of the NMS listing criteria, and it is likely that the Reorganized Debtor will fail to meet one or more of the listing criteria for the foreseeable future. Until such time as the Reorganized Debtor meets such listing criteria and its shares are approved for listing on a national securities exchange or the Nasdaq Stock Market, stockholders will have limited liquidity. D. HART-SCOTT-RODINO ACT REQUIREMENTS Those that are to receive equity securities under the Plan may have to observe the filing and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Holders required to make HSR Act filings cannot receive any such distribution of equity securities until the expiration or early termination of the waiting periods under the HSR Act. Such holders should consult their own counsel regarding their potential responsibilities under the HSR Act. 78 85 IX. CERTAIN RISK FACTORS TO BE CONSIDERED HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION. A. OVERALL RISKS TO RECOVERY UPON CLAIMS The ultimate recoveries under the Plan to holders of claims (other than those holders who are paid in cash under the Plan) depend upon the realizable value of the Non-Hammer Assets to be sold pursuant to the Plan and the Distribution Estate's Reorganized Shares, as well as the ultimate amount of claims allowed. The securities to be issued pursuant to the Plan are subject to a number of material risks, including, but not limited to, those specified below. Prior to voting on the Plan, each holder of a claim entitled to vote should carefully consider the risk factors specified or referred to below, the exhibits annexed hereto, and all of the information contained in the Plan and exhibits thereto. B. PROJECTED FINANCIAL INFORMATION The projected financial information included in this Disclosure Statement is dependent upon the successful implementation of the business plan upon which the projections are based, and upon the validity of other assumptions contained 79 86 therein. Those projections reflect numerous assumptions, including confirmation and consummation of the Plan in accordance with its terms, the anticipated future performance of the reorganized Debtor, industry performance, certain assumptions with respect to competitors of the Debtor, the development of the reorganized Debtor's products, general business and economic conditions, and other matters, most of which are beyond the full control of the Debtor. In addition, unanticipated events and circumstances occurring subsequent to the preparation of the projections may affect the actual financial results of the operations of the reorganized Debtor. C. DIVIDEND POLICY The reorganized Debtor does not anticipate that the reorganized Debtor will pay any dividends upon the Reorganized Shares in the foreseeable future. Certain institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions which may prohibit or limit their ability to invest in the Reorganized Shares. D. LIQUIDITY TO STOCKHOLDERS It is unlikely that an active public market for the Reorganized Shares will develop or be sustained upon emergence from bankruptcy. There is no assurance that the company's market makers will request that the Reorganized Shares be listed for trading on the OTC. In addition, there is no assurance as to if or when the Reorganized Debtor will qualify for listing on the NMS or the Nasdaq SmallCap Market. 80 87 Even if the Reorganized Debtor were to meet listing criteria for the NMS or the Nasdaq SmallCap Market, the Reorganized Shares would not be approved for re-listing on the Nasdaq Stock Market without the Reorganized Debtor having filed at least one Annual Report on Form 10-K and two Quarterly Reports on Form 10-Q in accordance with the Exchange Act. Due to the Debtor's financial condition and the unavailability of certain financial information, the company may be unable to complete an audit for the fiscal year ended March 28, 1997. As a result, the Reorganized Debtor would be unable to file its Annual Report on Form 10-K, and consequently would be ineligible for re-listing on the Nasdaq Stock Market until such time as it were able to provide audited financial statements covering at least two full fiscal years. In addition, the Reorganized Debtor would be ineligible for short form registration under Form S-2 or Form S-3, and unable to satisfy the current public information requirement of Rule 144. There is no assurance that the Reorganized Debtor will be able to obtain an audit for the 1997 fiscal year, or that the Reorganized Debtor will be able to obtain relief from the financial statement requirements of the Exchange Act. Furthermore, there is no assurance that the SEC will not take enforcement action against the Reorganized Debtor for failure to comply with financial statement obligations under the Exchange Act. Even if the Reorganized Shares were to become publicly traded, the trading price could be subject to wide fluctuations in response to variations in actual or anticipated quarterly operating results, 81 88 announcements of technological innovations or new products by the Reorganized Debtor or its competitors. In addition, the stock market has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price of many high technology companies and which often have been unrelated to the operating performance of these companies. E. SUBSTANTIAL CONTROL BY OFFICERS, DIRECTORS AND CERTAIN SHAREHOLDERS Based upon the number of Reorganized Shares that will be outstanding upon the Reorganized Debtor's emergence from bankruptcy, certain officers and directors of the Reorganized Debtor, who may be deemed to be affiliates,(8) will beneficially own in the aggregate approximately 35% of the outstanding Reorganized Shares upon emergence from bankruptcy. As a result, the officers, directors and affiliates of the Reorganized Debtor will retain substantial voting power. F. KEY PERSONNEL The Debtor believes that its success will depend in large part upon its ability to attract and retain highly skilled technical, managerial and sales and marketing personnel, and to retain personnel with expertise in turnaround companies. Competition for such personnel is intense, and the services of qualified personnel are difficult to obtain or replace. The Debtor has from time to time experienced difficulty in locating candidates with appropriate - ---------- (8) An affiliate of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer. 82 89 qualifications. There can be no assurance that the Debtor will be successful in attracting and retaining the personnel required to conduct its operations successfully. X. PROJECTIONS AND LIQUIDATION ALTERNATIVES Based upon the Debtor's best estimates of the future performance of the reorganized Debtor's business, the prospects for liquidation proceeds of the Debtor's various assets and review of claims asserted against the estate herein, and in consultation with its financial advisors and counsel, the Debtor makes the following estimates of future results of liquidation alternatives: A. PROJECTED PERFORMANCE The Debtor believes that the recapitalization and restructuring of the reorganized Debtor's finances and operations under the terms of the Plan will enable the company to achieve profitability and enhanced revenue over the course of the first few years following the Plan's effective date. In particular, the Debtor believes, based upon what it believes to be reasonable assumptions of future events, that it will achieve revenues of approximately $12 million in 1998, $21 million in 1999, $36 million in 2000 and $82 million in 2001. During those same periods, the Debtor projects a net loss of $154,000 in 1998, and net income of $447,000 in 1999, $1,647,000 in 2000 and $9,011,000 in 2001. For the same periods, and based upon a beginning net equity of $1,300,000, the Debtor projects net equity of $1,146,000 at the end of 1998, $6,594,000 at the end of 1999 (assuming an infusion of 83 90 approximately $5 million in additional capital in that year), $8,250,000 at the end of 2000 and $17,261,000 at the end of 2001. All such projections and estimates, together with the primary assumptions upon which the projections are based, are set forth in EXHIBIT "C" attached hereto, which has been prepared by the Debtor's financial advisors, Hickey & Hill, Inc., in consultation with the Debtor's senior management. Hickey & Hill, Inc. have advised the Debtor that in the event that the Debtor is able to achieve the projected revenues and margins forecast by the Debtor's senior management, and otherwise achieve the assumptions set forth in the projections, such advisors believe that the reorganized Debtor will be able to accomplish the aforementioned projections. The advisors have noted that the revenue growth rates included in the projections are very aggressive and will require the successful introduction of new products by the year 2000 in order to be achieved, together with substantially improved profitability derived from the growth in revenues. In contrast to those projections, the Debtor's current operations are not profitable, and produce revenues substantially below those forecast for the reorganized Debtor. For example, as set forth in EXHIBIT "B" attached hereto, the company's results for the month of October 1997 indicate gross revenues of $979,128, and a net loss for the month of $166,335. The company's results for the month of September 1997 indicate gross revenues of only $555,317, and a net loss for the month of $228,584. Thus, on an annualized basis, the company's two most recent months' results 84 91 indicate annual gross revenues of only $9,206,670, and a net annual loss of $2,369,514. Nonetheless, the Debtor believes that its projected performance following its reorganization is reasonable, and that the benefit that will be derived from reorganization and recapitalization will permit the company to achieve the milestones forecast therein. Therefore, to the extent that the reorganized Debtor's future performance is a factor in determining the feasibility of the Plan, the Debtor believes that the Plan is fully and demonstrably feasible. B. LIQUIDATION ALTERNATIVE The Debtor believes that the only practical alternative for resolving the Debtor's finances, other than reorganization under the Plan, is a liquidation of all assets pursuant to the provisions of Chapter 7 of the Bankruptcy Code. The Debtor believes that such an alternative would produce a far less favorable outcome for creditors and other parties in interest. In a Chapter 7 liquidation, a trustee would be appointed by the United States Trustee in order to liquidate all of the estate's assets for a fee, and creditors would receive the proceeds of that liquidation, on a pro-rata basis, net of the costs of liquidation. In the view of the Debtor, the gross proceeds of that liquidation would be less, and the costs of liquidation would be greater, than under the terms of the Plan. Under the Plan, the Non-Hammer Assets will be sold by the Distribution Agent for the benefit of creditors, much as they would 85 92 be liquidated by a Chapter 7 trustee. However, the Debtor believes that a Chapter 7 trustee's fees would be substantially greater than those of the Distribution Agent, inasmuch as the trustee would likely receive a percentage (up to approximately 3 or 4 percent of gross proceeds), whereas a Distribution Agent is expected to receive more modest fees based upon an hourly rate and actual services rendered. In addition, the Chapter 7 trustee would liquidate the Hammer Assets, rather than receive stock in the reorganized Debtor as will the Distribution Agent, and that substitution would diminish ultimate recoveries by creditors, in the Debtor's view. As set forth in EXHIBIT "E," the Debtor's financial advisors, Hickey & Hill, Inc., have opined that the liquidation of the Hammer Assets is approximately $771,000, net of costs directly attributable to that liquidation. Under the Plan, creditors will receive 3,500,000 shares of stock of the reorganized Debtor; using the same per-share valuation at which the Preletz Group and United Equities have agreed to purchase that stock, $0.325, those 3,500,000 shares have an imputed value of $1,137,500. Further, whereas the shares may ultimately diminish in value, they may also increase substantially in value, thereby providing to creditors an opportunity for appreciation. Based upon the Debtor's projections of future performance, and assuming achievement of such results, the Debtor believes that the reorganized Debtor's stock will have a value materially higher than the aforementioned imputed value. 86 93 Also, in a Chapter 7 liquidation, the claims against the estate would likely be greater. Under the Plan, the reorganized Debtor will assume potentially large warranty and product return rights with respect to the Hammer product line, but in a liquidation, those claims would be asserted against the estate, thereby increasing the overall claims against limited assets. In addition, to the extent that the reorganized Debtor assumes and cures any executory contracts or secured claims under the Plan, such assumption and cure will reduce claims against the estate, whereas in a Chapter 7 liquidation, there would be no offsetting assumptions. Further, under the Plan, the Distribution Estate will benefit from free rent for a limited period of time and the free services of management officials of the reorganized Debtor in order to assist in disposing of estate assets, none of which would be available to the Trustee in a Chapter 7 liquidation. Finally, the Debtor believes that recoveries for creditors would be delayed by a Chapter 7 liquidation, inasmuch as (a) new personnel, including the trustee and professionals whom the trustee retained, would require some time to familiarize themselves with the assets and circumstances of the Debtor's estate, and (b) the necessity of liquidating the Hammer Assets as well as the Non- Hammer Assets would increase the burden and slow the timing of the administration of the Debtor's estate. Attached as EXHIBITS "D" and "E" hereto are liquidation analyses of the Non-Hammer Assets and the Hammer Assets, respectively, prepared by Hickey & Hill, Inc. Together, the 87 94 analyses indicate probable liquidation proceeds of all of the assets of the estate herein in an aggregate amount of approximately $5,569,000, net of costs directly attributable to liquidation efforts, but before the general administrative expenses and other priority claims of the estate. Assuming the same preference recoveries, administrative expenses and priority claims as projected under the Plan, those liquidation proceeds would be reduced by approximately $1,100,000, producing net funds available for unsecured creditors of approximately $4,900,000 (including an estimated $400,000 in net preference recoveries). The Debtor believes that in a Chapter 7 liquidation, allowable claims would exceed $33 million, having been increased by additional warranty and product defect and return claims, as well as additional executory contract rejection claims. Assuming those amounts, the Debtor believes that unsecured creditors would receive distributions of between 14 and 15 percent of their allowable claims, and that shareholders would receive no distributions at all. As set forth hereinbelow, the Debtor estimates recoveries available for general unsecured creditors under the Plan to be approximately $5,216,500, to be divided among a pool of a smaller amount of claims. Thus, the Debtor believes that distributions to creditors under the Plan, estimated to be approximately 17.10% of claims (without accounting for any depreciation or appreciation in value of the reorganized Debtor's stock), will be greater than distributions in a Chapter 7 liquidation would be. 88 95 For all of the reasons set forth above, the Debtor believes that recoveries for creditors under the Plan will be more favorable than that outcome, and accordingly, the Debtor believes that the "best interests" test described in Section VI(C)(4) hereinabove is satisfied by the terms of the Plan. C. PROJECTED RECOVERIES Attached hereto as EXHIBIT "F" are the Debtor's best estimates and projections for recoveries available for distribution to creditors within Class D, under the terms of the Plan. As set forth therein and in the notes which accompany the projections, the Debtor believes that creditors will receive approximately $5,216,500 in cash and shares of the reorganized Debtor (assuming an imputed present value for the shares without accounting for any depreciation or appreciation in the value of the reorganized Debtor's equity). Based thereon, the Debtor believes that holders of allowed claims within Class D will receive distributions equal to approximately 17.10 percent of their claims. Those estimates do not include any amounts attributable to causes of action that may be asserted against third parties, other than estimated preference causes of action, and do not assume any costs in pursuing such causes of action. Also, the projections are subject to all of the cautionary statements contained elsewhere herein, including the prospect of material changes in assumed facts and events. Finally, the projections do not take into account the time value of money, or interest that may be earned, with respect to funds held by the Distribution Estate. Nonetheless, the Debtor 89 96 believes that the projections constitute reasonable estimates of recoveries for creditors under the terms of the Plan. XI. CONCLUSION AND RECOMMENDATION The Debtor believes that confirmation and implementation of the Plan is preferable to any alternative because it will provide the greatest recoveries, in the shortest possible time, to creditors. The Debtor therefore urges creditors entitled to vote on the Plan to vote to accept the Plan and to evidence such acceptance by returning their ballots in a timely manner. DATED: January 15, 1998 STREAMLOGIC CORPORATION, a Delaware corporation By: /s/ CHAPMAN A. STRANAHAN ------------------------------------- Chapman A. Stranahan Assistant Chief Executive Officer Submitted By: GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation By: /s/ MERLE C. MEYERS, ESQ. ----------------------------------- Merle C. Meyers, Esq. Attorneys for Debtor-in-Possession 90 EX-99.3 4 ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION 1 EXHIBIT 99.3 ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION 2 GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation MERLE C. MEYERS, ESQ. #66849 KATHERINE D. RAY, ESQ. #121002 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Telephone: (415) 362-5045 Attorneys for Debtor-in-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION In re ) Case No. 97-32984 DM ) STREAMLOGIC CORPORATION, ) Under Chapter 11 a Delaware corporation ) formerly known as ) Micropolis Corporation, ) ) Debtor. ) ) Tax I.D. No. 95-3093858 ) _____________________________) ORDER CONFIRMING DEBTOR'S PLAN OF REORGANIZATION The Debtor's First Amended Plan Of Reorganization (Dated January 15, 1998) (the "Plan"), was filed on January 15, 1998 by STREAMLOGIC CORPORATION, a Delaware corporation formerly known as Micropolis Corporation and the debtor-in-possession herein ("StreamLogic"), together with the Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (the "Disclosure Statement"). The Disclosure Statement was approved by this Court under the provisions of Section 1125 of the Bankruptcy Code, pursuant to an order of this Court filed on January 15, 1998 (the "Disclosure 3 Statement Order"), and was transmitted together with the Plan, ballots, a notice and other documents (collectively, the "Plan Package") to StreamLogic's creditors and equity security holders on January 23, 1998 in accordance with the directives of such order. Pursuant to the terms of the Disclosure Statement Order, and based upon the mailing of the Plan Package on January 23, 1998, the deadline for the filing of ballots and objections to confirmation of the Plan was established as February 17, 1998. The only such objection filed by any party, either before or after such deadline, was an objection filed by the United States Trustee. Both StreamLogic and the Committee have filed responses to the United States Trustee's objection. On February 25, 1998, StreamLogic filed with this Court all ballots timely received, as well as a summary and analysis of such ballots and a statement setting forth the Plan's compliance with all provisions of Section 1129 of the Bankruptcy Code. During the course of the hearing regarding confirmation of the Plan, StreamLogic has modified the Plan, in the manner set forth paragraph no. 2 hereinbelow. The Plan as so modified is referred to herein as the "Modified Plan." The Official Committee of Unsecured Creditors appointed herein (the "Committee") has stated its support for the Modified Plan, as it also did with respect to the Plan. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings assigned to them in the Modified Plan. A hearing was held before this Court on March 3, 1998 to consider confirmation of the Modified Plan. Based thereon, upon the record of this Court and upon this Court's findings of fact and 2 4 conclusions of law set forth in the Findings Of Fact And Conclusions Of Law Regarding Plan Of Reorganization filed by this Court concurrently herewith (the "Findings and Conclusions"), and for good cause shown, and after due consideration and deliberation, NOW, THEREFORE, IT IS HEREBY ORDERED, DETERMINED, ADJUDGED AND DECREED as follows: 1. To the extent that any objection to confirmation of the Plan has not been withdrawn as to the Modified Plan prior to the date of the entry of this Order, each such objection to the Modified Plan, including without limitation the objection filed by the United States Trustee, is overruled. 2. The Plan is hereby deemed modified, so as to become the Modified Plan, in each of the following respects: A. Section 9.4 of the Plan is modified so as to read in its entirety as follows: 9.4 Immunity. (a) All actions taken before, on or after the Effective Date by the Distribution Agent, the Committee or any of their respective agents, representatives, attorneys, advisors or accountants, as contemplated under the terms of the Plan, shall be actions within the scope of Sections 1103 and 1107 of the Bankruptcy Code; (b) except for willful misconduct or gross negligence, neither the Distribution Agent, the Committee, their respective professionals, nor the Committee's members (including United Equities, FWB Software, Inc., Network Storage Solutions, Norwest Bank Minnesota, N.A., Seagate Technology, Loomis, Sayles & Company, L.P. and Harris Trust And Savings Bank) shall be determined liable to the Distribution Estate or to any other person or party for any action or omission taken or made in connection with the Plan or its effectuation before, on or after the Effective Date, and such parties may in good faith exercise or refrain from exercising any right, duty or obligation contemplated hereunder without challenge or recourse; and (c) the Bankruptcy Court shall have and retain exclusive jurisdiction (or non-exclusive jurisdiction to the extent that the Bankruptcy Court permits such claims to be maintained in other courts or tribunals) over any and all claims asserted against any party with respect to any act or omission taken or made 3 5 in connection with the Plan or its effectuation at any time. B. Section 10.1 of the Plan (before subparts) is modified so as to read in its entirety as follows: 10.1. Generally. Until the Chapter 11 Case has been closed, and thereafter upon a motion to reopen the case, the Bankruptcy Court shall have exclusive jurisdiction (or non-exclusive jurisdiction, as to (i) matters initiated by or on behalf of the Distribution Estate, and (ii) matters which the Bankruptcy Court on request permits to be maintained in other courts or tribunals) of all matters concerning the allowance of Claims and Interests, and the interpretation and implementation of the Plan, pursuant to, and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code, including without limitation the following purposes: . . . . C. Section 10.1(b) of the Plan is modified so as to read in its entirety as follows: (b) to determine any and all claims, causes of action, adversary proceedings, applications and contested matters which are pending on the Effective Date or which are thereafter commenced by or related to the Distribution Estate, and to order the examination of any entity in connection with the property, claims, causes of action, adversary proceedings, applications and contested matters of the Distribution Estate in accordance with Rule 2004 of the Federal Rules of Bankruptcy Procedure; D. In all other respects, the Plan remains unchanged and without modification. 3. Notwithstanding any language of the Modified Plan to the contrary, (a) the United States Trustee need not file a claim for quarterly fees which accrue under the provisions of Section 1930 of Title 28 of the United States Code, which fees shall be paid in accordance with the provisions of the Modified Plan notwithstanding the absence of such a claim filing; and (b) any quarterly fees due and owing to the United States Trustee pursuant to Section 1930 of Title 28 of the 4 6 United States Code as of the Effective Date shall be paid by the Reorganized Debtor on the Effective Date. 4. Pursuant to the provisions of Section 1129 of the Bankruptcy Code, the Modified Plan shall be, and it hereby is, confirmed. 5. Except as otherwise provided herein or in the Modified Plan, in accordance with the provisions of Section 1141(d) of the Bankruptcy Code, subject to the occurrence of the Effective Date, the Reorganized Debtor is hereby discharged of and from any and all debts and claims that arose or hereafter arise before the Effective Date, including, without limitation, any debt or claim of a kind specified in Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a proof of claim based on such a debt is filed or deemed filed under the provisions of Section 501 of the Bankruptcy Code, (b) such claim is allowed under the provisions of Section 502 of the Bankruptcy Code, or (c) the holder of such claim has accepted the Modified Plan. 6. As of the Effective Date, except as otherwise provided in the Modified Plan, in accordance with the provisions of Sections 1141(b) and 1141(c) of the Bankruptcy Code, subject only to the occurrence of the Effective Date, all Hammer Assets shall be, and they hereby are, fully revested in the Reorganized Debtor and are free and clear of all liens, debts, claims and interests of any person or entity and holders of equity security interests, arising before the Effective Date, except as set forth in the Modified Plan. 7. Except as otherwise provided in the Modified Plan 5 7 and subject only to the occurrence of the Effective Date, any judgment at any time obtained, to the extent that such judgment is a determination of personal liability of StreamLogic with respect to any debt or claim discharged hereunder shall be, and it hereby is, rendered null and void. 8. Unless otherwise provided herein, all injunctions or stays provided for in the chapter 11 case herein pursuant to Sections 105 or 362 of the Bankruptcy Code or otherwise extant on the date of entry of this order shall remain in full force and effect until the Effective Date of the Modified Plan. 9. The rights afforded in the Modified Plan, and the treatment of all Claims and Interests set forth therein, shall be in full exchange for, and in complete satisfaction, discharge and release of, all Claims and Interests of any kind or nature whatsoever, whether known or unknown, matured or contingent, liquidated or unliquidated, existing, arising or accruing, whether or not yet due, prior to the Effective Date, including without limitation any Claims, or interest on Claims, accruing on or after the Petition Date, against StreamLogic or its estate, or any assets or property thereof. Except as, and to the extent, expressly provided in the Modified Plan or in this order, at all times on and after the Effective Date, unless Section 7.2.3 of the Modified Plan becomes operative due to a timely and proper withdrawal by the Preletz Group, (a) all such Claims against, and Interests in, StreamLogic or its estate shall be deemed fully and finally satisfied, discharged and released; (b) all persons shall be fully and finally barred, enjoined and precluded from 6 8 asserting against StreamLogic, the Distribution Estate, or any of their respective successors or assets, any Claims or Interests based upon any act or omission, transaction, agreement, right, privilege, duty, entitlement, obligation or other event or activity of any kind or nature whatsoever that occurred prior to the Effective Date; and (c) all Claims and Interests shall be fully and finally discharged and deemed satisfied to the fullest extent permitted by the provisions of Section 1141 of the Bankruptcy Code. 10. Except as otherwise provided in the Modified Plan and subject only to the occurrence of the Effective Date, the commencement or continuation of any action, the employment of any process, or any act to collect, recover or offset any debt discharged hereunder as a personal liability of the estate herein or of StreamLogic, or from or against any property of the estate herein or of StreamLogic, is hereby permanently enjoined, stayed and restrained. The Bankruptcy Court shall have jurisdiction to determine and award damages for any violation of the injunction provided for in the Modified Plan or in this Order. Notwithstanding the foregoing, nothing in this Order shall operate to enjoin any person from the commencement of an action or doing of an act to enforce the liabilities or obligations to be paid or performed under the Modified Plan, or to otherwise preserve or protect its prospective rights and benefits under the Modified Plan. 11. Subject only to the occurrence of the Effective Date, pursuant to the provisions of Article VI of the Modified Plan and Sections 365 and 1123(b)(2) of the Bankruptcy Code, 7 9 and without further motion to or order of the Bankruptcy Court, (i) the assumption and rejection of executory contracts and unexpired leases as and to the extent provided by Section 6.2 of the Modified Plan is hereby approved; (ii) the time pursuant to Section 365(d)(4) of the Bankruptcy Code within which StreamLogic may assume or reject the executory contracts specified in Section 6.2 of the Modified Plan is hereby extended to the Effective Date; and (iii) all claims for cure amounts arising from contracts and leases assumed prior to or as a result of the Effective Date, other than cure amounts established pursuant to the provisions of Section 6.3 of the Modified Plan, are hereby disallowed. 12. Proof of any claim for breach of an executory contract or unexpired lease rejected pursuant to Section 6.2 of the Modified Plan be, and it hereby is, required to be served and filed with the Court in the manner set forth in Section 6.6 of the Modified Plan, or it shall then be barred and discharged. Objections to proofs of claim for breach of an executory contract or unexpired lease rejected under Section 6.2 shall be determined by the Bankruptcy Court as a core proceeding under 28 U.S.C. Section 157(b). 13. All distributions of cash or other consideration required to be made by the Distribution Agent pursuant to the terms of the Modified Plan shall be made within the time provided by the Modified Plan and, in the case of distributions of cash, shall be timely and proper if (i) mailed by first class mail or delivered by hand on or before the distribution dates set forth in the Modified Plan to the 8 10 last known address of the persons entitled thereto, or (ii) payment is made by wire transfer on or before the distribution dates set forth in the Modified Plan. 14. StreamLogic, the Reorganized Debtor, the Committee, and the Distribution Agent, and each of their respective officers, agents, attorneys and representatives, shall be, and they hereby are, authorized and empowered to issue, execute, deliver, file or record any agreement, document or security, and take any action necessary or appropriate, to implement, effectuate and consummate the Modified Plan in accordance with its terms, including, without limitation, any agreement, release or other document referenced in the Modified Plan, without further application to, or order of, this Court. 15. StreamLogic, the Reorganized Debtor, the Committee, the Distribution Agent, and each of their respective officers, agents, attorneys and representatives, shall be, and they hereby are, authorized to execute and file any and all documents necessary or appropriate to effectuate or evidence any or all actions authorized to be taken pursuant to the terms of the Modified Plan, and any or all such documents shall be accepted by each of the respective State filing offices and recorded in accordance with applicable State law, and shall become effective in accordance with their terms and the provisions of State law as of the Effective Date. 16. Subject to the occurrence of the Effective Date, the Modified Plan and this Order shall bind StreamLogic, the Reorganized Debtor, the Committee, the Distribution Agent, and all of their successors and assigns, and shall bind any person 9 11 or entity asserting a Claim against the Reorganized Debtor or StreamLogic, or an Interest in the Reorganized Debtor, or StreamLogic, whether or not such Claim or Interest is impaired under the Modified Plan, whether or not the Claim or Interest arose before or after the Petition Date and prior to the Effective Date, and whether or not such person or entity has accepted the Modified Plan. 17. The Committee and the Distribution Agent are hereby authorized, subject to the terms of the Modified Plan and without further order of the Bankruptcy Court, to investigate, commence, enforce, compromise, adjust, and prosecute certain claims, causes of action, and objections to claims, as set forth in the Modified Plan, as to which matters this Court shall retain jurisdiction under the Modified Plan and this Order. 18. This Order shall constitute all approvals and consents required, if any, by the laws, rules or regulations of any State or any other governmental authority with respect to the implementation or consummation of the Modified Plan, and any other documents, instruments or agreements, and any amendments or codifications thereto, and any other act referred to in or contemplated by the Modified Plan, the Disclosure Statement and any other documents, instruments or agreements, and any amendments or modifications thereto. 19. Pursuant to the provisions of Section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of notes or equity securities under the Modified Plan, the creation of any mortgage, deed or trust or other security interest, the 10 12 making or assignment of any lease or sublease, the sale or other transfer of any assets by the Distribution Agent to a third party, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Modified Plan, including any deeds, bills of sale or assignments executed in connection with any of the transactions contemplated under the Modified Plan, shall be, and they hereby are, exempt from any stamp, real estate transfer, mortgage recording, sales or other similar tax. 20. Pursuant to the provisions of Section 1145(a) of the Bankruptcy Code, and except with respect to underwriters as defined in Section 1145(c) of the Bankruptcy Code, the offer, sale, issuance and distribution of shares of stock of the Reorganized Debtor under the terms of Sections 5.2.4, 8.1.1, 8.1.2 or 8.2 of the Modified Plan, are hereby deemed and determined to be fully exempt from, and unaffected by, any of the provisions of Section 5 of the Securities Act of 1933 and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security. 21. The issuance of Reorganized Shares under the terms of Sections 8.1(a), 8.1.3, 8.1.4 or 8.1.5 of the Modified Plan shall not be deemed to be exempt from registration or licensing pursuant to the terms of Section 1145(a) of the Bankruptcy Code. 22. Until the chapter 11 case herein is closed and a final decree is entered pursuant to Bankruptcy Rule 3022, StreamLogic, the Reorganized Debtor, the Committee, the 11 13 Distribution Agent, any creditor or any other party in interest may commence an adversary proceeding, contested matter or application in this Court with respect to any matter as to which jurisdiction has been retained. 23. Until the entry of a final decree in this chapter 11 case, and thereafter in the event of a reopening of the case, this Court shall retain jurisdiction over this chapter 11 case for all purposes, including those listed in Article X of the Modified Plan and to enforce compliance with any orders of the type referred to in Section 1142 of the Bankruptcy Code. 24. The Effective Date shall occur on a date designated by StreamLogic, the Committee and the Preletz Group, as set forth in Paragraph AD of Exhibit "A" attached to the Modified Plan. 25. In accordance with Bankruptcy Rule 3020(c), as soon as practicable after the Effective Date, the Distribution Agent shall mail to all creditors, shareholders and other parties in interest who received the Plan Package pursuant to the directives of the Disclosure Statement Order, notice of (a) entry of this Order, (b) the occurrence of the Effective Date, and (c) the deadlines established by Sections 3.2 and 6.6 of the Modified Plan. 26. All Interests (including all shares of stock of StreamLogic, warrants, options, Rescission Claims or other interests related thereto) existing immediately before the Effective Date shall be, and are hereby, deemed cancelled, terminated, released, discharged, void and of no further force or effect as of the Effective Date. No distribution shall be 12 14 made upon any Interests, and the holders of Interests shall receive nothing under the terms of the Modified Plan. DATED: March 3, 1998 /s/ Dennis Montali ------------------------------ THE HONORABLE DENNIS MONTALI United States Bankruptcy Judge * * * * * * * * * The undersigned parties consent to the form of the foregoing order: OFFICE OF THE UNITED STATES TRUSTEE By: /s/ Stephen L. Johnson ------------------------------ Stephen L. Johnson, Esq. Attorney-Advisor MURRAY & MURRAY, A Professional Corporation By: /s/ Patrick M. Costello ------------------------------- Patrick M. Costello, Esq. Attorneys for the Committee 13 EX-99.4 5 FINDINGS OF FACT AND CONCLUSIONS 1 EXHIBIT 99.4 FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING PLAN OF REORGANIZATION 2 GOLDBERG, STINNETT, MEYERS & DAVIS A Professional Corporation MERLE C. MEYERS, ESQ. #66849 KATHERINE D. RAY, ESQ. #121002 44 Montgomery Street, Suite 2900 San Francisco, California 94104 Telephone: (415) 362-5045 Attorneys for Debtor-in-Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION In re ) Case No. 97-32984 DM ) STREAMLOGIC CORPORATION, ) Under Chapter 11 a Delaware corporation ) formerly known as ) Micropolis Corporation, ) ) Debtor. ) ) Tax I.D. No. 95-3093858 ) ____________________________) FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING PLAN OF REORGANIZATION On March 3, 1998, this Court heard testimony and argument (the "Confirmation Hearing") with respect to the Debtor's First Amended Plan Of Reorganization (Dated January 15, 1998) (the "Plan"), filed on January 15, 1998 by STREAMLOGIC CORPORATION, a Delaware corporation formerly known as Micropolis Corporation and the debtor-in-possession herein ("StreamLogic"), together with the Debtor's First Amended Disclosure Statement (Dated January 15, 1998) (the "Disclosure Statement"), filed by StreamLogic and approved by this Court under the provisions of Section 1125 of the Bankruptcy Code in an order filed on January 15, 1998 (the 1 3 "Disclosure Statement Order"). During the course of the Confirmation Hearing, StreamLogic modified the Plan by making the modifications (the "Modifications") set forth in Exhibit "A" attached hereto. Such Modifications produce the modified form of the Plan, referred to herein as the "Modified Plan." The Official Committee of Unsecured Creditors appointed herein (the "Committee") has stated its support for the Modified Plan, as it also did with respect to the Plan. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings assigned to them in the Modified Plan. Only one objection to confirmation of the Plan has been filed, to wit, the objection of the United States Trustee. Due notice of the Confirmation Hearing and the time for filing ballots and objections to confirmation of the Plan has been given to all parties in interest in accordance with the directives of the Disclosure Statement Order and other applicable orders of this Court. The Court has found that the form and scope of the notice of the Confirmation Hearing were appropriate under the circumstances, that all parties in interest had an opportunity to appear and be heard at the Confirmation Hearing, and that the procedures by which ballots for acceptance or rejection of the Plan were distributed and tabulated were fair and were properly conducted in accordance with the directives of the Disclosure Statement Order and other applicable orders of this Court. During the course of the Confirmation Hearing, among other appearances made as set forth in the record of this Court, the following appearances were made: Merle C. Meyers, Esq. of Goldberg, Stinnett, Meyers & Davis, A Professional Corporation 2 4 appeared on behalf of StreamLogic; Patrick M. Costello, Esq. of Murray & Murray, A Professional Corporation appeared on behalf of the Committee; Michael Z. Brownstein, Esq. of Tenzer Greenblatt LLP appeared telephonically on behalf of United Equities Company; and Stephen L. Johnson, Esq. appeared on behalf of the United States Trustee. The Court has considered the United States Trustee's objection to the confirmation of the Plan and the Modified Plan, the responses thereto, and the evidence offered at the Confirmation Hearing. Based thereon and on a review of pertinent documents within the Court's record, and for the reasons stated in open Court as well as the reasoning set forth hereinbelow, and for good cause shown, this Court hereby makes the following findings of fact and conclusions of law pursuant to the provisions of Rules 7052 and 9014 of the Federal Rules of Bankruptcy Procedure.(1) FINDINGS OF FACT The Court hereby finds that: FINDING NO. 1. On June 26, 1997, StreamLogic filed its voluntary petition under chapter 11 of the Bankruptcy Code. During the chapter 11 case, StreamLogic has been engaged in the development and manufacture of information storage products and systems. StreamLogic's executive office is located in Newark, California. FINDING NO. 2. Each person who has the right to receive - -------- (1) To the extent that any stated finding of fact is more suitably a conclusion of law, or a stated conclusion of law is more suitably a finding of fact, it shall be deemed to be so. 3 5 notice of the hearing on the adequacy of the Disclosure Statement and/or notice of hearing on confirmation of the Modified Plan has received due, proper and adequate notice thereof. Based upon the proofs of service filed herein and the declarations filed in connection therewith, the Court finds that notices to creditors, equity interest holders and other parties in interest were appropriate under the particular circumstances of the case. FINDING NO. 3. In proposing the Modified Plan, StreamLogic has modified the Plan in the manner set forth in Exhibit "A" attached hereto, which Modifications are incorporated into and made part of the Modified Plan. FINDING NO. 4. Those modifications set forth in Exhibit "A" do not adversely change the treatment of the claim of any creditor or the interest of any equity security interest holder, and such modifications otherwise comply with the provisions of Sections 1127(a), (c) and (d) of the Bankruptcy Code. In particular, with reference to the provisions of Section 1127(d) of the Bankruptcy Code, there is no need to require or allow creditors to change their votes for acceptance or rejection based on the Modifications contained in the Modified Plan. FINDING NO. 5. The Modified Plan complies with all 4 6 applicable provisions of the Bankruptcy Code, including Section 1123(a), as set forth herein and in the Debtor's Statement Of Satisfaction Of Section 1129 Requirements And Request For Confirmation, filed with this Court on February 25, 1998. FINDING NO. 6. The Plan and the Modified Plan have been proposed in good faith and not by any means forbidden by law. StreamLogic solicited acceptances of the Plan in good faith and in accordance with the requirements of the Disclosure Statement Order, the Bankruptcy Code and the Bankruptcy Rules. There was no evidence presented that solicitation of acceptances occurred by any means inconsistent with the Bankruptcy Code or Bankruptcy Rules or the Disclosure Statement Order. FINDING NO. 7. All payments made or to be made by StreamLogic, or by any person issuing securities or acquiring property under the terms of the Modified Plan, for services or for costs and expenses in or in connection with the chapter 11 case herein (the "Chapter 11 Case"), or in connection with the Modified Plan and incident to the Chapter 11 Case, have been approved, have been fully disclosed to the Court and are reasonable or, if to be fixed after confirmation of the Plan, will be subject 5 7 to approval of the Court. FINDING NO. 8. The identity, qualifications and affiliations of the persons who are to be directors and officers of StreamLogic after confirmation of the Modified Plan have been fully disclosed, and the appointment or continuance of such persons in such offices is consistent with the interests of creditors and equity security holders of StreamLogic and with public policy. The terms of such appointment or employment as disclosed to the Court are reasonable. FINDING NO. 9. The identity of any insider that will be employed or retained by the reorganized debtor following the effectiveness of the Modified Plan (the "Reorganized Debtor"), and the nature of such insider's compensation, has been fully disclosed. FINDING NO. 10. No governmental regulatory commission has jurisdiction, after confirmation of the Modified Plan, over the rates of StreamLogic. FINDING NO. 11. With respect to each impaired class of claims or equity security interests under the terms of the Modified Plan, each holder of a claim or equity security interest of such class has accepted the Modified Plan or will receive or retain under the Modified Plan property of a value, as of the effective date of the Modified 6 8 Plan (the "Effective Date"), that is not less than the amount that such holder would receive or retain if StreamLogic were liquidated under chapter 7 of the Bankruptcy Code on such date. FINDING NO. 12. No holder of an allowed secured claim has made an election under Section 1111(b)(2) of the Bankruptcy Code. FINDING NO. 13. Claims within Classes A and B are not impaired by the terms of the Modified Plan. FINDING NO. 14. Claims and equity security interests within Classes C, D and E are impaired by the terms of the Modified Plan. Of those classes, holders of claims within Classes C and D have voted to accept the Plan, and, pursuant to the provisions of Section 1127 of the Bankruptcy Code, are deemed to have voted to accept the Modified Plan. FINDING NO. 15. The equity security interest holders within Class E are deemed to have rejected the Modified Plan under the provisions of Section 1126(g) of the Bankruptcy Code, because they will receive or retain no property under the terms of the Modified Plan. Pursuant to the provisions of Section 1129(b)(1) of the Bankruptcy Code, the Modified Plan may be confirmed, as requested by StreamLogic, notwithstanding rejection by Class E, because the Modified Plan does not discriminate 7 9 unfairly, and is fair and equitable, with respect to claims within Class E. FINDING NO. 16. All holders of claims and interests impaired under the Modified Plan have been given adequate opportunity to vote to accept or reject the Modified Plan. FINDING NO. 17. As set forth in the provisions of Section 1129(b)(2)(C)(ii) of the Bankruptcy Code, the Modified Plan is fair and equitable with respect to its treatment of interests within Class E, because no holders of interests junior to Class E interests will receive or retain any property under the terms of the Modified Plan. FINDING NO. 18. The Modified Plan satisfies the provisions of Section 1129(a)(9) by providing for full payment of all administrative and priority claims on, or shortly after, the Effective Date or when due, except as to disputed claims, which will be paid as soon as practicable after an order allowing the claim becomes a final order. FINDING NO. 19. At least one class of claims that is impaired under the terms of the Modified Plan has accepted the Modified Plan, determined without including any acceptance of the Modified Plan by any insider. FINDING NO. 20. Confirmation of the Modified Plan is not 8 10 likely to be followed by the liquidation, or the need for further financial reorganization, of the Reorganized Debtor. FINDING NO. 21. All fees payable under Section 1930 of title 28 of the United States Code have been paid or the Modified Plan provides that they will be paid in full under the terms of the Modified Plan. FINDING NO. 22. StreamLogic is not obligated to pay any retiree benefits, as that term is defined by the provisions of Section 1114(a) of the Bankruptcy Code. FINDING NO. 23. The Court finds that it is not the principal purpose of the Modified Plan to avoid taxes or to avoid the application of section 5 of the Securities Act of 1933. FINDING NO. 24. Additional findings of fact were stated orally by the Court and recorded in open court, and those findings are incorporated by reference as though each of them were set forth in full herein. FINDING NO. 25. Section 8.3.8 of the Modified Plan provides that the Reorganized Debtor's charter shall be revised so as to prohibit the issuance of nonvoting equity securities to the extent required by the provisions of Section 1123(a)(6) of the Bankruptcy Code. 9 11 CONCLUSIONS OF LAW The Court hereby concludes that: CONCLUSION NO. 1. This Court has jurisdiction to approve and confirm the Modified Plan pursuant to the provisions of 28 U.S.C. Section 1334 and 157(a). CONCLUSION NO. 2. Venue in the Northern District of California is proper under 28 U.S.C. Section 1408. CONCLUSION NO. 3. Confirmation of the Modified Plan is a core proceeding pursuant to the provisions of 28 U.S.C. Section 157(b). CONCLUSION NO. 4. The Modified Plan complies with all applicable provisions of the Bankruptcy Code, and particularly all applicable provisions of Sections 1129(a) and (b) of the Bankruptcy Code, including without limitation the requirements of Section 1129(b)(2)(C)(ii) of the Bankruptcy Code. CONCLUSION NO. 5. StreamLogic has complied with all applicable provisions of the Bankruptcy Code, including the disclosure and solicitation requirements of Section 1125 of the Bankruptcy Code, in proposing the Plan and the Modified Plan. CONCLUSION NO. 6. Notice of the hearing to consider confirmation of the Modified Plan was reasonably calculated to reach affected parties, and was fair, reasonable and appropriate under the circumstances of this case. CONCLUSION NO. 7. The procedures used in receiving and tabulating acceptances and rejections of the Plan and the Modified Plan comply with the Disclosure Statement Order, the Bankruptcy 10 12 Code and the Bankruptcy Rules. DATED: March 3, 1998 /s/ Dennis Montali ------------------------------- THE HONORABLE DENNIS MONTALI United States Bankruptcy Judge * * * * * * * * * * The undersigned parties consent to the form of the foregoing findings and conclusions: OFFICE OF THE UNITED STATES TRUSTEE By: /s/ Stephen L. Johnson ----------------------------- Stephen L. Johnson, Esq., Attorney-Advisor MURRAY & MURRAY, A Professional Corporation By: /s/ Patrick M. Costello ------------------------------ Patrick M. Costello, Esq. Attorneys for the Committee 11 13 EXHIBIT "A" The Modifications, as referenced in the preceding Findings Of Fact And Conclusions Of Law Regarding Plan Of Reorganization (the "Findings"), are as follows: 1. Section 9.4 of the Plan is modified so as to read in its entirety as follows (with strike-outs reflecting deletions and underscoring reflecting additions): 9.4 Immunity. (a) All actions taken before, on or after the Effective Date by the Distribution Agent, the Committee or any of their respective agents, representatives, attorneys, advisors or accountants, as contemplated under the terms of the Plan, shall be actions within the scope of Sections 1103 and 1107 of the Bankruptcy Code; (b) except for willful misconduct or gross negligence, neither the Distribution Agent, the Committee, their respective professionals, nor the Committee's members (including United Equities, FWB Software, Inc., Network Storage Solutions, Norwest Bank Minnesota, N.A., Seagate Technology, Loomis, Sayles & Company, L.P. and Harris Trust And Savings Bank) shall be determined liable to the Distribution Estate or to any other person or party for any action or omission taken or made in connection with the Plan or its effectuation before, on or after the Effective Date, and such parties may in good faith exercise or refrain from exercising any right, duty or obligation contemplated hereunder without challenge or recourse; and (c) the Bankruptcy Court shall have and retain exclusive jurisdiction (or non-exclusive jurisdiction to the extent that the Bankruptcy Court permits such claims to be maintained in other courts or tribunals) over any and all claims asserted against any party with respect to any act or omission taken or made in connection with the Plan or its effectuation at any time. 2. Section 10.1 of the Plan (before subparts) is modified so as to read in its entirety as follows (with underscoring reflecting additions): 10.1. Generally. Until the Chapter 11 Case has been closed, and thereafter upon a motion to reopen the case, the Bankruptcy Court shall have exclusive jurisdiction (or non- exclusive jurisdiction, as to (i) matters initiated by or on behalf of the Distribution Estate, and (ii) matters which the Bankruptcy Court on request permits to be maintained in other courts or tribunals) of all matters concerning the allowance of Claims and Interests, and the interpretation and implementation of the Plan, pursuant to, and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code, including without limitation the following purposes: . . . . i 14 3. Section 10.1(b) of the Plan is modified, in order to clarify that the Bankruptcy Court shall retain full jurisdiction in order to direct examinations under Rule 2004 of the Federal Rules of Bankruptcy Procedure, in the following manner (with underscoring reflecting additions): (b) to determine any and all claims, causes of action, adversary proceedings, applications and contested matters which are pending on the Effective Date or which are thereafter commenced by or related to the Distribution Estate, and to order the examination of any entity in connection with the property, claims, causes of action, adversary proceedings, applications and contested matters of the Distribution Estate in accordance with Rule 2004 of the Federal Rules of Bankruptcy Procedure; 4. In all other respects, the Plan remains unchanged and without modification. ii EX-99.5 6 PRESS RELEASE DATED MARCH 4, 1998. 1 EXHIBIT 99.5 Press Release dated March 4, 1998 2 STREAMLOGIC'S PLAN OF REORGANIZATION CONFIRMED NEWARK, California (March 4, 1998)--StreamLogic Corporation ("StreamLogic" or the "Company"), today announced that the U.S. Bankruptcy Court for the Northern District of California has confirmed StreamLogic's plan of reorganization on March 3, 1998. Commenting on the Bankruptcy Court's decision, Michael O. Preletz, chief executive officer of the Company, said: "We are delighted by the decision of the Bankruptcy Court. The confirmation of our plan marks an important step in our financial restructuring and a new beginning for our company." Chapman Stranahan, President of the Company, added, "We are pleased that this event is behind us and we look forward to proceeding with the Company's core business and improved sales and profitability." Confirmation of the plan came at the conclusion of a hearing to assure that all of the reorganization requirements had been met under the Bankruptcy Code. The confirmation procedure included approval of the plan by the requisite votes of creditors. The confirmed plan will bring new capital to the Company through the purchase of equity interests by senior management and certain creditors. In addition, the Company will issue a portion of its new shares on behalf of creditors in exchange for a release of claims. The plan also provides for the distribution of proceeds from the sale of non-core assets and establishes a distribution estate to pay claims. It is expected that the plan of reorganization will become effective on March 31, 1998 subject to, among other things, contributions of capital contemplated by the plan. StreamLogic filed for Chapter 11 bankruptcy protection on June 26, 1997. Upon effectiveness, all existing shares of StreamLogic's stock will be canceled and new shares will be issued. Because the Company's liabilities significantly exceeded its assets, current StreamLogic shareholders will not receive any equity or other interest in the reorganized entity. Certain of the matters discussed in this press release constitute forward-looking statements within the meaning of the securities laws. Actual results could differ materially from those projected in such forward-looking statements as a result of a variety of risks and uncertainties. Among others, these risks and uncertainties include whether the plan is successfully implemented, including the requisite contributions to capital; whether, if implemented, the plan will enable the Company to become profitable and to achieve the timely development and acceptance of its products; and the impact of competitive products and pricing. -----END PRIVACY-ENHANCED MESSAGE-----