<PAGE>
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) October 7, 1998
SYQUEST TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-19674 94-2793941
(Commission File Number) (IRS Employer Identification No.)
47071 Bayside Parkway, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 226-4000
Not Applicable
(Former name or former address, if changed since last report.)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
Approval of Reverse Stock Split
On October 7, 1998, registrant conducted a special meeting of
stockholders for the purpose of approving a proposal to effect a Reverse Stock
Split of the Company's issued and outstanding shares of common stock. The
proposal would authorize the Board of Directors to effect a reverse stock split
of one share of common stock for every five to ten shares of common stock that
are issued and outstanding, with the precise ratio of the split to be determined
by the Company's Board of Directors at a later time. The Company's shareholders
approved the proposal. The Board has not yet determined the precise split factor
to be used at this time.
Filing of Registration Statement on Form S-3
On October 8, 1998, SyQuest Technology, Inc. ("Registrant") filed a
Registration Statement on Form S-3 (the "Registration Statement") with respect
to the resale of up to 70,909,679 shares of Registrant's Common Stock by certain
Selling Stockholders (as described in the Registration Statement attached hereto
as Exhibit 99.1 and incorporated herein by this reference). As part of the
Registration Statement, Registrant updated the risk factors relevant to a
decision as to whether to invest in Registrant's Common Stock.
Item 7. Financial Statements and Exhibits
c) Exhibits
99.1 Registrant's Registration Statement on Form S-3, as filed with
the Securities and Exchange Commission on October 8, 1998.
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.
SYQUEST TECHNOLOGY, INC.
(Registrant)
Date: October 8, 1998 By /s/ Henry Lo
--------------------
Henry Lo
Chief Financial
Officer
DCN: 98654837
LANGUAGE: ENGLISH
LOAD DATE: October 8, 1998
<PAGE>
EXHIBIT 99.1
As filed with the Securities and Exchange Commission on October 8, 1998.
Registration No. 333-56597
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NUMBER 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
SYQUEST TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2793941
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation Number)
or organization)
47071 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 226-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
EDWIN L. HARPER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYQUEST TECHNOLOGY, INC.
47071 BAYSIDE PARKWAY
FREMONT, CA 94538
(510) 226-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:
ROBERT C. FRIESE, ESQ.
STEVEN O. GASSER, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP
ONE MARITIME PLAZA, EIGHTEENTH FLOOR
SAN FRANCISCO, CA 94111
(415) 421-6500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
-----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
<PAGE>
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered(1) Offering Price Aggregate Registration Fee
Per Share(2) Offering Price(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.0001 par value 70,909,679 $0.25 $17,727,420 $5,229.59
=========================================================================================================
</TABLE>
(1) Includes (i) a presently indeterminable number of shares issuable on
conversion of or otherwise in respect of 31,090 shares of Registrant's 5%
Cumulative Convertible Preferred Stock, Series 7, (ii) 221,880 shares issued
in exchange for debts owed to certain of the Company's creditors, and (iii)
5,503,947 shares issuable on exercise of certain outstanding stock purchase
warrants.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c), based on the average of the high
and low prices of the Common Stock reported on the Nasdaq National Market on
October 2, 1998.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed or to be filed with the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are hereby
incorporated by reference into this Prospectus:
1) The Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended September 30, 1997;
2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1997, March 31, 1998 and June 30, 1998;
3) The Company's Current Reports on Form 8-K dated October 4, 1997,
November 14, 1997, December 18, 1997, February 13, 1998, February 17,
1998, March 25, 1998, April 22, 1998, June 3, 1998, June 11, 1998 and
August 5, 1998;
4) The Company's Registration Statement on Form 8-A registering the
Common Stock under Section 12(g) of the Exchange Act;
5) The Company's Proxy Statement for its Special Meeting of Stockholders
held November 5, 1997;
6) The Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders filed May 11, 1998; and
7) The Company's Proxy Statement for its Special Meeting of Stockholders
filed September 22, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently-filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or into
such documents). Such request may be directed to SyQuest Technology, Inc.,
47071 Bayside Parkway, Fremont, California 94538, telephone (510) 226-4000,
Attn: Chief Financial Officer.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Exchange Act,
and, in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information may be
inspected and copied at the Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports and other information concerning
the Company may be inspected at the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The Commission also
maintains a World Wide Web site (http:/www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
A registration statement on Form S-3 relating to the Common Stock
offered hereby (the "Registration Statement") has been filed with the Commission
under the Securities Act. This Prospectus does not contain all of the
information contained in such Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and
3
<PAGE>
the exhibits and schedules thereto. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or document filed as an exhibit to the Registration Statement. The
Registration Statement, including exhibits thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Public Reference Section,
Securities and Exchange Commission, Washington, D.C. 20549, on payment of the
prescribed fees.
THE COMPANY
The Company designs, develops, manufactures and markets removable hard disk
cartridges, associated disk drives and free-standing storage systems. The
Company's products combine the advantages of fixed hard disk drives with the
benefits of removability, which include unlimited incremental expansion of data
storage capacity, transfer and sharing of data and software among personal
computers, backup, archival storage and physical security of data. The
Company's principal products have been 3.5 inch and 5.25 inch cartridges, drives
and storage systems used with personal computers and work stations. The
Company's products are typically purchased by distributors, mail order firms,
national retail chains, value added resellers, original equipment manufacturers
("OEMs") for integration into their equipment, government contractors and others
for resale to the end users.
The Company's principal executive offices are located at 47071 Bayside
Parkway, Fremont, California 94538, telephone (510) 226-4000.
4
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE FACT
THAT THE COMPANY IS IN A NEGATIVE CASH FLOW POSITION, AND, UNLESS IT IS ABLE TO
SELL ADDITIONAL EQUITY SECURITIES (WHICH WILL BE DILUTIVE) OR DEBT SECURITIES OR
OTHERWISE BORROW ADDITIONAL FUNDS IN THE IMMEDIATE FUTURE, THE COMPANY WILL BE
UNABLE TO CONTINUE FUNDING ITS OPERATIONS. PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THESE FACTS AND THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
THIS PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE CERTAIN
FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT, REGARDING THE INTENTIONS, PLANS,
STRATEGIES, BELIEFS OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT
WITH RESPECT TO, AMONG OTHER THINGS: (i) THE FINANCIAL PROSPECTS OF THE COMPANY;
(ii) THE COMPANY'S FINANCING NEEDS AND PLANS; (iii) MARKET ACCEPTANCE OF THE
COMPANY'S PRODUCTS; (iv) THE COMPANY'S MANUFACTURING CAPABILITIES; (v) PAYMENT
ARRANGEMENTS WITH SUPPLIERS; (vi) THE COMPANY'S ABILITY TO OBTAIN FROM CREDITORS
WAIVERS OF NON-COMPLIANCE WITH FINANCIAL COVENANTS IF NECESSARY; (vii) MARKET
CONDITIONS AFFECTING THE INDUSTRY IN WHICH THE COMPANY OPERATES, INCLUDING
PROJECTED DEMAND AND PRICES; AND (viii) THE SIZE AND STRENGTH OF THE MARKET FOR
THE COMPANY'S PRODUCTS. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SUGGESTED BY THE FORWARD-LOOKING STATEMENTS. SOME OF THE FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THE FOLLOWING RISK
FACTORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS AND THE
INFORMATION SET FORTH UNDER THE HEADINGS "RISK FACTORS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN THE
COMPANY'S FILINGS UNDER THE EXCHANGE ACT. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
CONTINUING LOSSES DUE TO ADVERSE MARKET CONDITIONS
For several months, the personal computer and data storage industries have
been experiencing significant oversupply and severe pricing pressures. The
SparQ and SyJet products continued to be favorably received during the fiscal
third quarter ended June 30, 1998, and into the fiscal fourth quarter, but the
Company has been shipping into a significantly smaller and more price
competitive market than anticipated. Management of the Company has revised
sharply downward its assumptions about the size of the market, growth rates
and competitive pricing for the SparQ and SyJet product lines to reflect
prevailing conditions. Management has also taken steps to bring costs into
alignment with demand by effecting a workforce reduction and closing a
Fremont, California manufacturing facility, among other things. The reductions
in revenues and margins and increases in excess inventory caused by the market
conditions have materially adversely affected the Company's current and
anticipated operating results and liquidity. Even with the cost-cutting
measures implemented by the Company, the Company will require additional cash
from outside sources to continue funding its operations. See "Risk Factors --
Immediate Financing Needs;" "-- Short-Term Investor Financing;" and "-- Future
Financing Needs."
IMMEDIATE FINANCING NEEDS
Adverse market conditions in the personal computer and data storage
industries have resulted in lower than anticipated unit shipments and sales
prices of the Company's products. As a result, the Company has experienced
significant revenue shortfalls, negative cash flow, a lack of liquidity and
excess inventory. The Company's existing capital resources are insufficient to
fund operations for the foreseeable future. The Company has satisfied its most
recent financing requirements through a series of short term overdrafts to its
existing credit line provided by its current lenders.
The Company is in discussions with its lenders and certain
of its investors to increase the Company's level of borrowing by $13,000,000
above its existing credit line. These transactions are described more fully in
"Risk Factors Short Term Investor Financing." If an agreement is not reached
or if the Company is not able to satisfy its obligations under such an
agreement, it would not have access to the increased credit facility. Without
such additional funding, the Company will not be able to continue funding
operations during its first fiscal quarter commencing October 1998.
If the short-term investor financing transaction closes, the Company
anticipates it will be able to fund operations into the second quarter of its
fiscal year beginning January 1, 1998, although there is no assurance that
these funds will be sufficient to fund operations into the second quarter.
Thereafter, unless market conditions improve significantly, the Company will
require additional short-term or longer-term financing. See "Risk Factors
Future Financing Needs."
In May 1998, the Company renegotiated its domestic line of credit with a
financial institution continuing the existing terms and extending the line
through May 31, 1999. The line provides for a limit on borrowing equal to the
lesser of $30 million and 80% of eligible accounts receivable. On June 30,
1998, approximately $13.7 million was outstanding under the line. Pursuant to
the agreement with its lender, the Company is required to meet or exceed
certain financial performance criteria on a quarterly basis (the "Financial
Covenants"). Although the Company did not satisfy the Financial Covenants for
the quarter ended June 30, 1998, the lender provided a written waiver of any
resulting default. The Company did not satisfy the Financial Covenants for the
quarter ended September 30, 1998, and will need to receive a similar waiver
for that quarter.
The Company's manufacturing subsidiary in Penang, Malaysia, has a banking
facility with a Malaysian financial institution. At June 30, 1998, the
outstanding balance of the line of credit under the facility was (RM) 9.6
million (approximately $2.3 million), and the outstanding balance of the term
loan under the facility was (RM) 9.6 million (approximately $2.3 million). The
subsidiary's building, equipment, inventory and eligible receivables secure the
facility. The limit of the line of credit has been reduced from (RM) 17.5
million (approximately $4.2 million) to (RM) 7.5 million (approximately $1.8
million), and no further drawdowns are permitted until the balance has been
reduced below (RM) 7.5 million. The financial institution has requested
immediate repayment of the line of credit and the Company expects to repay the
line upon successful completion of additional financing. However, there is no
guarantee of the successful completion of additional financing. No further
drawdowns under the term loan have been permitted since the factory in Malaysia
was completed.
SHORT-TERM INVESTOR FINANCING
As a condition to obtaining a $13,000,000 loan over and above its
available credit limit from its lenders (the "Overdraft Facility"), the
lenders are requiring that $8,000,000 of the Overdraft Facility be guaranteed.
The Company is in negotiations with certain of the holders of Series 7
Preferred Stock (the "Investors") to provide such guaranties. If an overall
agreement is reached, the Company will file a report on Form 8-K describing
the details of the transaction.
As is being discussed, the Investors are to provide a series of
guaranties totaling $8,000,000. One set of guaranties is to cover $4,000,000
and is to become effective after the latter of (i) three days following the
date this Prospectus is available for the resale of the Common Stock
registered herein, and (ii) the date the Company's lender makes $5,000,000 of
the Overdraft Facility available to the Company. The other set of guaranties,
for the remaining $4,000,000, is to become effective after the latter of (i)
seven days following the date a prospectus (the "Second Prospectus") is
available for the resale of Common Stock underlying a new series of preferred
stock to be issued to the Investors, (ii) the date the Company's lender makes
$5,000,000 of the Overdraft Facility available to the Company, and (iii) the
date the Company's proposed Reverse Stock Split (defined below, see "Risk
Factors Risk of Nasdaq Delisting") becomes effective. Each guaranty is to be
in place for a period of six months.
If an agreement is reached, the Company will be required to issue a new
series of 5% Cumulative Convertible Preferred Stock (the "Series 8 Preferred
Stock") to the Investors in exchange for all shares of the Series 7 Preferred
Stock the Investors hold on the date immediately prior to the Second Prospectus
becoming available for the resale of the Common Stock registered thereunder,
provided that the Reverse Stock Split has become effective. The Series 8
Preferred Stock will be convertible into shares of Common Stock, and is to
carry certain redemption rights, liquidation preferences and registration
rights. Those terms will be described in detail in the Second Prospectus.
As compensation for providing the $8,000,000 guaranty, the Investors are
to be issued, pro rata based on the number of shares of Series 7 Preferred
Stock held by each, an aggregate of 2,000,000 shares of Common Stock.
FUTURE FINANCING NEEDS
The Company anticipates continuing operating losses due primarily to
adverse market conditions which are expected to continue for the foreseeable
future. Other factors that could contribute to future losses include product
start-up costs, competitive price reductions and the risk that the Company's
products may not be accepted in the marketplace. See "Risk Factors Uncertain
Market Acceptance of New Products" and "--Competition." Continuing operating
losses will necessitate additional financings in the future which, to the extent
such financings involve the issuance of additional shares of Common Stock or
convertible securities, will continue to dilute the percentage ownership of the
Company's stockholders. See "Risk Factors Convertible Securities, Options and
Warrants; Dilution." Factors such as higher interest rates, the inability to
borrow without collateral, higher capital financing costs and limitations on
further equity funding without stockholder approval or the unavailability of
such funding will have a material adverse effect on the Company's cash
resources, cash flow and financial condition.
The precise amount and timing of the Company's future funding needs cannot
be determined accurately at this time, and will depend on a number of factors,
including the market conditions in the personal computer and data storage
industries, the demand for the Company's products, the quality of product
development efforts, availability of critical components, management of working
capital, and availability of normal payment terms and conditions for purchase of
materials and services.
Cash proceeds could be raised in the future from the exercise of the
Company's outstanding warrants. The outstanding warrants, however, do not
include any demand or call provisions, and the current exercise price is in
excess of the current market value of the Company's Common Stock. To induce
existing warrant holders to exercise their warrants, management may have to
offer discounts to the contractual exercise prices or provide other incentives.
From March through June 1998, the Company sold a total of 17,475,736 shares of
Common Stock to certain investors at par value as incentives for the investors
to exercise their outstanding warrants. The terms of the transactions are
described in the Company's Current Reports on Form 8-K dated March 25, 1998,
April 22, 1998 and June 3, 1998.
Cash proceeds could also be raised in the future from the sale of
convertible preferred stock or debt instruments such as convertible debentures.
There can be no assurance, however, that such financings would be available when
needed, if at all, or on favorable terms and conditions. The existence of the
outstanding convertible preferred stock, warrants and options is likely to
affect materially and adversely the terms on which the Company could obtain such
additional financing. Additional equity financings would cause further dilution
of the outstanding Common Stock and may require stockholder approval of each
such transaction as well as stockholder approval of an increase in the number of
shares of the Company's authorized stock.
PRIOR LOSSES AND PAST FINANCINGS
The Company incurred aggregated net losses during the 24-month period ended
June 30, 1998, totaling approximately $189.9 million, including a net loss of
approximately $110.8 million during the nine-month period ended June 30, 1998.
The lack of cash flow and available funds caused by the accumulated losses have,
among other things, adversely affected the Company's product delivery and
marketing efforts, restricted flexibility in payment terms required by suppliers
and manufacturers, limited access to credit, affected employee recruitment and
retention and diverted management time and attention. As a result of the
Company's net operating losses and dependence on additional financing, the
independent accountant's report on the Company's consolidated financial
statements for the year ended September 30, 1997, includes an explanatory
paragraph highlighting the substantial doubt concerning the Company's ability
to continue as a going concern.
During the second half of fiscal 1996, the Company began assembling a
turnaround management team in an attempt to address these and other difficult
issues. The Company funded its working capital requirements and capital
expenditures during the period October 1996 through June 1998 through a
combination of existing cash resources, asset-based borrowings and a series of
capital financing transactions. During this period, the Company raised gross
proceeds of approximately $220 million from sales to private investors of
convertible preferred stock, Common Stock and warrants. Of this amount,
approximately $122.3 million was raised during the nine months ended June 30,
1998. During the quarter ended June 30, 1998, the Company raised approximately
$40.0 million from the exercise of outstanding warrants to purchase Common
Stock. The proceeds received during the nine months ended June 30, 1998 were
used to fund operating losses and pay for the Company's sales and marketing
program aimed at stimulating demand for its new products.
As a result of the sustained losses, the Company had available significant
deferred tax assets at September 30, 1996 and 1997, and June 30, 1998.
Realization of these deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain. Management believes that it
is more likely than not that the Company will not realize these deferred tax
assets as there can be no assurances that the Company will not continue
incurring losses for U.S. income tax purposes. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax asset as of September 30,
1996 and 1997, and June 30, 1998, has been established to reflect these
uncertainties.
5
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At June 30, 1998, the Company had cash and short-term investments of $13.4
million, compared to $7.1 million at September 30, 1997. The increase in cash
resulted from the exercise of outstanding stock purchase warrants, the issuance
of convertible preferred stock and an increase in accounts payable. These
increases were partially offset by the net loss recorded for the nine months
ended June 30, 1998 and by increases in inventories, as well purchases of
property and equipment and the payments made against debt balances during the
period. The Company improved its net worth to $18.9 million at June 30, 1998,
compared to $5.6 million at September 30, 1997. The improvement resulted
primarily from proceeds related to the exercise of outstanding stock purchase
warrants, the issuance of convertible preferred stock and the reclassification
of mandatory redeemable warrants to equity, partially off-set by the net loss
for the nine months ended June 30, 1998.
Working capital improved from $1.4 million at September 30, 1997 to $17.6
million at June 30, 1998. This increase was primarily the result of an increase
in cash and short-term investments of $6.3 million, an increase in inventories
of $19.9 million, an increase in prepaid expenses of $1.6 million and a decrease
in short term borrowings and debt totaling $9.4 million. The increases in
working capital were partially offset by the increase in accounts payable of
$21.8 million. The increase in inventories and accounts payable was primarily
attributable to an increase in raw materials related to the new SparQ product
and a ramp up of SparQ finished goods in order to promptly meet estimated future
customer demand. Inventory turnover at June 30, 1998 was 4.1 times.
As a result of continuing losses for the three months ended September 30,
1998, the Company anticipates that its cash balances, working capital and net
worth at September 30, 1988, will be substantially lower than June 30, 1998,
putting into concern the Company's ability to satisfy the minimum net tangible
asset requirement of the Nasdaq National Market (see "Risk Factors--Risk of
Nasdaq Delisting").
RISK OF NASDAQ DELISTING
The Nasdaq Marketplace Rules require that issuers listed on the Nasdaq
National Market (the"NNM") maintain a minimum bid price of $1.00 per share for
the listed stock. The Company's Common Stock has continuously traded
below $1.00 since August 4, 1998, and will be delisted from the NNM unless the
Common Stock achieves a minimum bid price of $1.00 or more for ten consecutive
trading days between September 16, 1998 and December 14, 1998. If the Common
Stock is delisted, the delisting could adversely affect the ability of the
Company to attract new investors, may result in decreased liquidity of the
outstanding shares of Common Stock and, consequently, could reduce the price at
which such shares trade and the transaction costs inherent to trading such
shares. Moreover, investors could find it more difficult to dispose of or obtain
quotations for the Company's Common Stock because the bid and asked quotations
would be reported on an electronic bulletin board such as the OTC Bulletin Board
or a similar quotation medium.
In an effort to increase the per share trading price of its Common Stock,
the Company scheduled a Special Meeting of Stockholders to seek approval of a
proposal to effect a reverse stock split (the "Reverse Stock Split") of one
share of Common Stock for every five to ten shares of Common Stock that are
issued and outstanding, with the precise number of shares to be converted to be
determined by the Company's Board of Directors at a later time. The Stockholders
approved the proposal on October 7, 1998, and the Reverse Stock Split will occur
once the Company's Board of Directors determines the precise split ratio and
amends the Company's Certificate of Incorporation. The Company believes that
once the Reverse Stock Split occurs, there is a greater likelihood that the
minimum bid price of the Common Stock would be maintained at a level over $1.00
per share. There can be no assurance, however, that the Reverse Stock Split will
cause the bid price of the Company's Common Stock to increase above $1.00 per
share, or that such minimum price, if achieved, would be maintained.
Even if the minimum per share bid price of the Common Stock is maintained,
the Company must also satisfy other listing requirements of the NNM, such as
maintaining net tangible assets of at least $4 million. The Overdraft Facility,
coupled with the Company's losses in its forth fiscal quarter ended September
30, 1998 and potential claims by Fletcher International Limited (see, "Risk
Factors -- Securities Issuable to Fletcher International Limited") would cause
the Company to be out of compliance with the minimum net tangible asset
requirement. Failure to satisfy any of the maintenance requirements could result
in the Company's Common Stock being delisted from the NNM. The Company has been
asked to provide current financial documentation demonstrating compliance with
the net tangible asset requirement by the close of business on November 15,
1998. If the Company's submission does not demonstrate compliance, the formal
delisting process will commence, though the Company may seek further procedural
relief at that time.
6
<PAGE>
UNCERTAIN PROFITABILITY OR SUCCESSFUL TURNAROUND
Market acceptance of the Company's products and access to capital continue
to be paramount in ensuring a successful turnaround strategy. The Company's
products are subject to increasing competition from several other removable-
media data storage devices. To secure adequate market share, the Company must
ensure that the functionality and quality of its products are effectively
communicated to the marketplace. As a result, the Company needs sufficient
capital to implement a marketing strategy that will adequately address the
appropriate markets. The Company is also dependent on the successful production
and sale of the SyJet and SparQ product lines. See "Risk Factors-Uncertain
Market Acceptance of New Products," and "-Changing Assumptions About the Size
and Strength of the Market for the Company's Products" and "-Competition."
Additionally, the decline in volumes and pricing on mature products will
continue to have a negative impact on the Company's revenue. The Company
historically has not carried a significant backlog of customer orders. Its
customers tend to order product for immediate shipment and, consequently, the
Company does not have visibility on order rates or demand for its products
generally beyond thirty days. Critical to each of these factors is the Company's
ability to attract additional investment capital. There can be no assurances
that the Company will achieve these objectives.
CONVERTIBLE SECURITIES, OPTIONS AND WARRANTS; DILUTION; EFFECT ON FUTURE
FINANCINGS
The equity investments of purchasers of Common Stock in this offering will
be substantially diluted to the extent that shares of convertible preferred
stock issued in previous financings are converted to Common Stock and
outstanding options and warrants are exercised. Such dilution will be greater
if the Company issues additional shares of convertible preferred stock in lieu
of cash dividends payable on the outstanding preferred stock, if the future
market price of the Common Stock decreases because the number of conversion
shares to be issued varies inversely with the market price of the Common Stock
and thus would increase, or if the Company issues additional convertible
preferred stock or other securities in future financings or as incentives for
existing holders to exercise options or warrants. Securities issued in
connection with future financings may also have rights, privileges and
preferences senior to those of existing stockholders. Risks of significant
dilution also exist due to penalties that could be imposed on the Company if the
Company is unable to issue a sufficient number of shares of Common Stock in
response to conversions of outstanding Preferred Stock or exercises of related
warrants. See "Risk Factors--Need for Stockholder Approvals in Connection With
Financing; Penalties and Other Consequences of Failing to Obtain Such
Approvals."
The exact number of shares of Common Stock issuable on conversion of the
Series 3, Series 4 and Series 7 preferred stock (collectively, the
"Preferred Stock") cannot be estimated with certainty because, generally, such
issuances of Common Stock will vary inversely with the market price of the
Common Stock at the time of such conversion, and there is no maximum limit on
the number of shares of Common Stock that may be issuable. The number of shares
of Common Stock issuable on conversion of the Preferred Stock is also subject to
various adjustments to prevent dilution of the outstanding Preferred Stock
resulting from stock splits, stock dividends or similar transactions. Further,
the Company may issue additional shares of Series 3, Series 4 and Series 7
Preferred Stock in lieu of cash dividends due to the holders of such Preferred
Stock. In addition to the outstanding Preferred Stock, the Company had
outstanding on September 8, 1998, options and warrants to purchase
approximately 57.6 million shares of Common Stock.
The number of shares of Common Stock issuable on conversion of the
Company's convertible securities increases as the price of the Common Stock
decreases. As a result, holders of the Company's convertible securities benefit
from a decrease in the market price of the Common Stock because it increases the
number of shares of Common Stock issuable on the conversion of the convertible
securities. Short sales of the Company's Common Stock have depressed its market
price and increased its market volatility. Holders of the outstanding Series 4
and Series 7 Preferred Stock are not prohibited from engaging in short
sales of the Company's Common Stock, although they are subject to limitations on
their ability to use shares of Common Stock received on conversion to cover
short sales. Specifically, holders of Series 4 Preferred Stock are
prohibited from using the Common Stock issuable on the conversion of the
preferred stock or exercise of related warrants to cover any short sale position
in the Common Stock. Holders of the Series 7 Preferred Stock are prohibited
from using the Common Stock issuable on the conversion of the preferred stock or
exercise of related warrants to cover any short sale position in the Common
Stock existing prior to the issuance of the Series 7 Preferred Stock, but are
not prohibited from using such shares to cover short sale positions
established after the issuance of the Series 7 Preferred Stock. See "Risk
Factors--Volatility of Stock Price; Risk of Continued Short Selling."
The existence of the Company's outstanding warrants, options and
convertible securities is likely to affect, materially and adversely, the terms
on which the Company can obtain additional financing, and the holders of such
warrants, options and convertible securities can be expected to exercise them at
a time when the Company would otherwise, in all likelihood, be able to obtain
additional capital by an offering of its unissued capital stock on terms more
favorable to the Company than those provided by such warrants, options and
convertible securities.
The following table sets forth in summary form as of September 30, 1998,
the Company's material financings during the period June 1996 through June 30,
1998. The terms of these financings are described in the Company's reports on
Form 8-K dated, respectively, June 14, 1996; October 31, 1996; November 11,
1996; February 28, 1997;
7
<PAGE>
May 30, 1997; August 4, 1997; October 4, 1997; February 13, 1998; February 17,
1998; March 25, 1998; April 22, 1998; and June 3, 1998.
<TABLE>
<CAPTION>
Resulting
Preferred Gross Common Warrants
Date Series/Transaction Shares Proceeds Shares Issued
- ---------- ------------------------------------------------------ ------------ --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
6/96 7% Cumulative Convertible Preferred Stock, Series 1 20,000(2) $ 20,000,000 10,301,708 ---
7/96 6% Convertible Subordinated Debenture (1) --- $ 7,700,000(7) --- ---
9/96-10/96 Various Debt to Equity Exchanges 440 24,440,000(7) 8,047,269 ---
2/97-4/97
10/96 Cumulative Convertible Preferred Stock, Series 1 5,500(2) $ 5,500,000 3,289,981 1,096,660
10/96 5% Cumulative Convertible Preferred Stock, Series 2 24,500(2) $ 24,500,000 12,440,447 4,146,816
11/96 Common Stock Sale --- $ 8,500,000 1,500,000 1,875,000
4/97 5% Cumulative Convertible Preferred Stock, Series 3 50,000(3) $ 5,000,000 2,485,070 5,000,000
5/97 5% Cumulative Convertible Preferred Stock, Series 4 280,000(4) $ 28,000,000 10,069,645 28,000,000
8/97 Common Stock Sale --- $ 3,500,000 1,382,716 3,500,000
9/97-10/97 Convertible Preferred Stock, Series 5 30,000(5) $ 30,000,000 --- 21,000,000
2/98-3/98 5% Cumulative Convertible Preferred Stock, Series 7 30,000(6) $ 30,000,000 124,360,000 5,059,010
3/98-6/98 Warrant Exercises --- $ 57,237,000 38,731,631(8) ---
Total 440,440 $244,377,000 213,608,467 69,677,486
======= ============ ========== ==========
</TABLE>
(1) The 6% Convertible Subordinated Debenture was issued to a supplier as part
of a debt-to-equity transaction in which $2,775,000 is convertible into up
to 400,000 shares of the Company's Common Stock at a conversion price of
$6.9375 per share.
(2) All preferred shares have been converted into Common Stock.
(3) 46 shares of Series 3 Preferred Stock remain unconverted. If those shares
were converted on October 1, 1998, an additional 18,400 shares of Common
Stock would be issued.
(4) 4,903 shares of the Series 4 Preferred Stock remain unconverted. If those
shares were converted on October 1, 1998, an additional 1,961,200 shares of
Common Stock would be issued.
(5) All shares of the Series 5 Preferred Stock have been converted.
(6) 31,090 shares of the Series 7 Preferred Stock remain unconverted. The
number of Resulting Common Shares is an estimate based on a hypothetical
conversion of all Series 7 Preferred Shares on October 1, 1998.
(7) No cash proceeds were received by the Company.
(8) Includes 17,475,736 shares of common stock issued as an incentive for
warrant holders to exercise warrants.
The exact number of shares of Common Stock issuable on conversion of the
Series 3, 4 and 7 Preferred Stock, the only series of preferred stock that
have not been fully converted, cannot be estimated with certainty because,
generally, such issuances of Common Stock will vary inversely with the market
price of the Common Stock at the time of such conversion, and there is no
maximum limit on the number of shares of Common Stock that may be issued. The
number of shares of Common Stock issuable on conversion of the Preferred Stock
is also subject to various adjustments to prevent dilution resulting from stock
splits, stock dividends or similar transactions. Further, the Company may, at
its election, choose to issue additional shares of Series 4 Preferred Stock in
lieu of cash dividends due to the holders of such stock, and will issue
additional shares of Series 7 Preferred Stock as dividends to the holders of
Series 7 Preferred Stock.
The Company has authorized the issuance of 40,000 shares of its 5%
Cumulative Convertible Preferred Stock, Series 6 (the "Series 6 Preferred
Stock"). The Company has not, however, issued any shares of the Series 6
Preferred Stock.
In addition to the dilution that could be caused by the conversion of the
Preferred Stock, the Company had outstanding at September 8, 1998, options and
warrants to purchase approximately 57.6 million shares of Common Stock.
8
<PAGE>
The Company has registered the Common Stock issuable on exercise of the
outstanding warrants and conversion of the Preferred Stock pursuant to
Registration Statement Nos. 333-7369, 333-17119, 333-28225 and 333-40329. On
August 26, 1998, the Company suspended the resale of Common Stock pursuant to
each of those registration statements. The Company expects to lift that
suspension on the effective date of this Registration Statement. Once the
suspension is lifted, the shares of Common Stock registered for resale under
those registration statements can be sold without any holding period or sales
volume limitations. In addition, the Company has filed Registration Statements
on Form S-8 under the Securities Act registering a total of 11,576,358 shares of
Common Stock reserved for issuance under the Company's employee stock option and
stock purchase plans. Options to purchase an aggregate of 8.4 million shares
were outstanding under the stock option plans as of June 30, 1998, and as of
that date, no shares remained available for purchase under the stock purchase
plan. Common Stock acquired by employees under such plans may be resold
immediately, subject to Rule 144 volume limitations applicable to affiliates of
the Company and vesting restrictions. At the 1998 Annual Meeting of
Stockholders, held on June 15, 1998, the Company's stockholders approved an
amendment to the employee stock purchase plan to increase by 2 million the
number of shares of Common Stock reserved for issuance thereunder. See the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders,
incorporated herein by reference.
At September 30, 1998, the Company did not have sufficient shares of Common
Stock authorized to satisfy all of its contractual commitments. In some cases,
the Company has the option of making cash payments in lieu of issuing stock; the
Company cannot take advantage of this option, however, because it does not have
sufficient funds to make such payments. If the Reverse Stock Split is approved
by the Company's stockholders, the Company would be able to reserve for issuance
sufficient shares of Common Stock to satisfy existing contractual requirements.
However, if the Company is required to issue the Common Stock before it is
available and registered for resale, the Company may incur substantial cash
penalties beyond its current ability to pay.
SECURITIES ISSUABLE TO FLETCHER INTERNATIONAL LIMITED
On April 1, 1998, the Company entered into an agreement with Fletcher
International Limited ("Fletcher") whereby Fletcher exercised a warrant to
purchase 5,000,000 shares of Common Stock at an exercise price of $2.34375 per
share for a total of $11,718,750. As an incentive for exercising the warrant,
Fletcher was issued 1,696,429 shares of Common Stock (the "Incentive Shares")
at par value. The written contract provides that significant penalties
(including the issuance of a substantial number of shares of Common Stock) may
be imposed on the Company if the Incentive Shares are not registered by
October 10, 1998, or if the Company has insufficient shares of Common Stock to
issue to Fletcher in accordance with the terms of the written contract.
SyQuest does not have sufficient shares of Common Stock available to issue to
Fletcher, although such shares will become available once the Reverse Stock
Split becomes effective. (See, "Risk Factors Risk of Nasdaq Delisting"). The
Company does not believe, however, that it will be able to register the shares
of Common Stock by October 10, 1998. The Company may have legal grounds to
dispute the imposition of such penalties, but if the Company did not prevail,
the size of the penalty would be sufficient to cause the Company to fail to
comply with the minimum $4,000,000 net tangible asset listing requirement of the
Nasdaq National Market.
NEED FOR STOCKHOLDER APPROVALS IN CONNECTION WITH FINANCINGS; PENALTIES AND
OTHER CONSEQUENCES OF FAILING TO OBTAIN SUCH APPROVALS
At the November 1997 Special Meeting of Stockholders, the Company's
stockholders approved an increase in the number of shares of authorized Common
Stock from 120 million shares to 240 million shares. Assuming the conversion
of all Preferred Stock outstanding as of July 31, 1998, and the exercise of all
options, warrants and other stock commitments outstanding as of that date, the
Company would have had approximately 230.8 million shares of Common Stock
issued and outstanding as of July 31, 1998, leaving approximately 9.2 million
shares of Common Stock available for future issuance. At September 30, 1998,
the Company did not have sufficient shares of Common Stock authorized to
satisfy all of its contractual commitments. In some cases, the Company has the
option of making cash payments in lieu of issuing stock; the Company cannot
take advantage of this option, however, because it does not have sufficient
funds to make such payments. If the Reverse Stock Split is approved by the
Company's stockholders, the Company would be able to reserve for issuance
sufficient shares of Common Stock to satisfy existing contractual
requirements. However, if the Company is required to issue the Common Stock
before it is available and registered for resale, the Company may incur
substantial cash penalties beyond its current ability to pay. Should
additional shares be needed for future financings, the Company will have to
obtain stockholder approval to increase the number of authorized shares of the
Company's Common Stock.
The rules of The Nasdaq Stock Market, Inc. ("Nasdaq"), to which the Company
is subject, require stockholder approval of certain transactions that involve
the sale or issuance of common stock in an amount equal to 20% or more of a
company's outstanding common stock if the consideration for the issuance is less
than the greater of book value or market value of the stock (the "20%
Limitation"). The Company has been notified by Nasdaq that, in its view,
stockholder approval would be necessary for the Company to issue shares of
Common Stock equal to 20% or more of its outstanding Common Stock in connection
with the conversion of the Series 7 Preferred Stock and the exercise of related
warrants.
9
<PAGE>
At the 1998 Annual Meeting of Stockholders held on June 15, 1998, the
Company sought and obtained from the Stockholders ratification of past financing
transactions and approval of the issuance of Common Stock in excess of the 20%
Limitation in connection with the conversion and exercise of outstanding
Preferred Stock and warrants sold in certain financing transactions, including
the conversions of Series 4, 5 and 7 Preferred Stock and the exercise of related
warrants. See the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders, incorporated by reference herein. If the Company issues additional
series of preferred stock, additional options or warrants for less than the
greater of book value or market value and the conversion or exercise of such
securities would exceed the 20% Limitation, the Company would be required to
obtain stockholder approval of such transactions or seek an exemption from
Nasdaq. There can be no assurance that the stockholders would approve any future
financing transactions or that Nasdaq would grant an exemption.
VOLATILITY OF STOCK PRICE; RISK OF CONTINUED SHORT SELLING
Trading prices of shares of high technology companies including the
securities of SyQuest have been volatile. In addition, the Company's Common
Stock has experienced substantial levels of short selling, which has depressed
its market price and increased its volatility. Short sales of the Company's
Common Stock could continue in the future, despite the Company's efforts to
curtail such trading practices. The terms of the Securities Purchase Agreements
for the Series 4 Preferred Stock require each purchaser to represent that
it will not cover any short sales with any shares of Common Stock received on
conversion of such Preferred Stock, as dividends on such Preferred Stock or on
exercise of warrants acquired in connection with the purchase of such Preferred
Stock. The terms of the Securities Purchase Agreements for the Series 7
Preferred Stock require each purchaser to represent that it will not cover short
sales entered into prior to its purchase of such Preferred Stock with any shares
of Common Stock received on conversion of such Preferred Stock, as dividends on
such Preferred Stock or on exercise of warrants issued in connection with the
purchase of such Preferred Stock. The terms of the Securities Purchase
Agreements, however, do not prohibit the holders of Series 4 or 7 Preferred
Stock from engaging in short sales or lending their Conversion Shares to Broker-
Dealers or others for the purpose of covering short sale positions. Because the
number of shares of Common Stock issuable on conversion of the Series 4 and 7
Preferred Stock increases as the price of the Common Stock decreases, short
selling prior to the conversion of shares of the Preferred Stock could, if the
short selling causes the price of the stock to drop, result in the issuance of a
substantially greater number of shares of Common Stock than would be issuable if
such short selling had not occurred. See "Risk Factors -- Convertible
Securities, Options and Warrants; Dilution" and "Plan of Distribution." The
trading price of the Common Stock could also be subject to wide fluctuations in
response to announcements of technological innovations or new products by the
Company or its competitors, variations in the Company's operating results,
continued high levels of short selling of the Common Stock, or general economic
or stock market conditions and other events and factors. These broad market
fluctuations may adversely affect the market price of the Common Stock.
Following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. In 1996, the Company was named as a defendant in four putative
class action lawsuits and as a nominal defendant in one stockholder derivative
lawsuit. Such litigation can result and has resulted in substantial costs and a
diversion of management attention and resources. See "Risk Factors-- Class
Action and Shareholder Derivative Lawsuits."
In addition, the Company believes that electronic bulletin board postings
regarding the Company on America Online and other similar services, some of
which have contained false information about Company developments, have
contributed to volatility in the market price of the Common Stock and may
continue to do so. Any information concerning the Company, including
projections of future operating results, appearing in such on-line bulletin
boards or otherwise emanating from a source other than the Company should not be
relied on as having been supplied or endorsed by the Company.
UNCERTAIN MARKET ACCEPTANCE OF NEW PRODUCTS
The Company's ability to reduce or eliminate future operating losses
depends in large part on the acceptance of its new products in the marketplace,
its ability to establish those products as industry standards, the price,
performance and other characteristics of competing products and the Company's
success in establishing OEM arrangements for its new products.
In December 1996, the Company began shipping its SyJet 1.5 Gigabyte
Removable Cartridge Hard Drive ("SyJet") product line. SyJet production and
shipments were initially constrained by industry-wide shortages of critical
components, manufacturing yield problems and late delivery of raw materials, and
revenues and profits
10
<PAGE>
attributable to SyJet products have been affected by competitive price cuts. On
November 3, 1997, the Company announced and began shipping its SparQ 1.0
Gigabyte Removable Cartridge Hard Drive ("SparQ") product line. Production
start-up and advertising costs attributable to the launch of SparQ contributed
to the net losses reported for the fiscal quarters ended December 31, 1997,
March 31, 1998 and June 30, 1998. Component shortages also constrained shipments
of SparQ products in the first and second fiscal quarters to meet current order
backlog. Sales of SparQ were strong during the second and third fiscal quarters
ended March 31, 1998, and June 30, 1998, however, and contributed to increased
net revenue during those quarters. On November 10, 1997, the Company announced
its Quest 4.7 Gigabyte Removable Cartridge Hard Drive, and beta shipments began
in December 1997. Management has since determined that the Company will not
bring the Quest drive to market in a 5 1/4" platform. Although production of the
Quest drive has been cancelled, the Company intends to utilize the unique MR
technology that was used for developing this product in future product
development efforts.
Initial market acceptance of the SyJet and SparQ product lines was
favorable. The SparQ drive set a new price-performance standard for removable
cartridge drives in its first two months on the market. There can be no
assurance, however, that the level of acceptance for the SparQ drive or any of
the Company's other new products will continue or grow or that the Company will
be successful in its efforts to increase manufacturing output to meet projected
demand. The inability to overcome these risk factors would materially adversely
affect the Company's financial performance and liquidity. See "Risk Factors --
Competition" and "-- Shortages of Critical Components; Absence of Supply
Contracts; Supplier Workouts."
SHORTAGES OF CRITICAL COMPONENTS; SUPPLIER WORKOUTS
Disruption in the supply of key components in prior quarters has had a
material adverse effect on the Company's ability to produce and sell product in
volumes necessary to meet demand. Many components incorporated in, or used in
the manufacture of, the Company's products are currently only available from
sole source suppliers. Moreover, the Company purchases all of its sole and
limited source components and equipment pursuant to purchase orders placed from
time to time and has no guaranteed supply arrangements. During the 1996 and
1997 fiscal years, the Company experienced disruption in its supply of certain
components for a number of reasons, including industry-wide shortages and the
shortage of cash to pay suppliers, which adversely affected the Company's
ability to produce EZ Flyer 230 and SyJet products. The Company may experience
difficulty in obtaining a sufficient supply of many key components from time to
time due to supplier shortages, the shortage of cash to pay suppliers or other
reasons.
On July 15, 1996, the Company issued a debenture to one of its suppliers
pursuant to which up to 400,000 shares of Common Stock could be issued to the
supplier at a conversion price of $6.9375 per share. Thereafter, the Company
conducted similar negotiations with other suppliers to extend the payment dates
on amounts owed and converted a total of approximately $43.1 million of accounts
payable and other obligations into notes payable to reflect extended repayment
terms. In September and October 1996, and February, March, April and December
1997, the Company exchanged some of the notes payable for an aggregate of
8,188,571 shares of Common Stock. As a result of the Company's completion of
financing transactions and other efforts by management to improve SyQuest's
financial condition, most of the Company's suppliers transitioned from doing
business with the Company on a C.O.D. basis and resumed selling to the Company
under more standard commercial terms.
The Company's current negative cash flow position and liquidity problems
could jeopardize existing terms under which SyQuest purchases key components
from suppliers. The Company has exceeded 60 days in its payables to several
suppliers, some of which have placed the Company on C.O.D. terms, and the
Company faces the risk that other suppliers may also require C.O.D. payments.
11
<PAGE>
The inability to obtain sufficient components and equipment, obtain or
develop alternative sources of supply at competitive prices and quality, or
avoid manufacturing delays could prevent the Company from producing sufficient
quantities of its products to satisfy market demand, result in delays in product
shipments, increase the Company's material or manufacturing costs, or cause an
imbalance in the inventory level of certain components. Moreover, difficulty in
obtaining sufficient components could cause the Company to modify the design of
its products to use more readily available components, and such design
modifications could result in increased costs and product performance problems.
Any or all of these problems could in turn result in the loss of customers,
provide an opportunity for competing products to achieve market acceptance or
increase market share and otherwise adversely affect the Company's business and
financial results.
COMPETITION
The data storage industry is highly competitive. The Company believes that
its products compete most directly with other removable-media data storage
devices, such as disk drives offered by Iomega Corporation and magneto optical
disk drives. Although the Company believes that its products offer performance
and certain other advantages over most other removable-media storage devices
available today, the price/performance levels of existing removable-media
products will likely improve and other companies will introduce new removable-
media storage devices. Accordingly, the Company believes that its products will
face increasingly intense competition from competitors, many of which have
significantly greater financial and marketing resources than the Company. In
particular, a consortium comprised of Compaq Computer, 3M, OR Technology and
Matsushita-Kotobuki Electronics Industries Ltd. has announced and is selling the
LS120, a high-capacity floptical drive that is compatible with conventional
floppy disks. Both Mitsubishi Electric Corp. and Mitsumi have also announced
plans to manufacture a high-capacity, floppy drive that is downwardly compatible
with existing floppy diskettes. Additionally, Avatar, Nomai, Imation and Caleb
have products that compete with SyQuest products. Sony Corporation and Fuji
Photo Film Co. have also announced a jointly developed "HiFD" 3.5 floppy disk
system with a 200 Megabyte storage capacity. If successfully marketed, these
drives would compete with the Company's SparQ products. The Iomega Zip drive, a
high-capacity floppy disk drive, also competes with the SparQ. The JAZ and JAZ
II drives are removable hard drives and compete directly with SyQuest's
products. To the extent that SyQuest drives are used for incremental primary
storage capacity, they also compete with conventional hard disk drives. In
addition, the leading suppliers of conventional hard disk drives could at any
time decide to enter the removable-media storage market.
As new and competing removable-media storage solutions are introduced, it
is possible that the first such solution to achieve a significant market
presence will emerge as an industry standard and achieve a dominant market
position. There can be no assurance that the Company's products would achieve
significant market acceptance under such conditions, particularly in light of
the Company's size and market position relative to that of its competitors.
RELIANCE ON MANUFACTURING RELATIONSHIPS
In addition to its own manufacturing facilities, the Company uses
independent parties to manufacture certain of its components and currently has
manufacturing relationships for cartridges and others for manufacture and
subassembly of components. The Company's manufacturing relationships are
generally not covered by binding contracts and may be subject to unilateral
termination by the Company's manufacturing partners. Moreover, the Company has
no assurances that its third-party manufacturers will continue to be willing or
able to meet the Company's quantity or quality requirements for manufactured
products. In January 1997, the Company filed a lawsuit against one such
manufacturer, Nomai, S.A., and certain related parties for patent and trademark
infringement, misrepresentation, breach of contract and related claims. The suit
has been resolved as to Nomai, S.A., although certain claims remain as to a co-
defendant distributor. See "Risk Factors -- Dependence on Proprietary
Technology; Intellectual Property Litigation."
DEPENDENCE ON STRATEGIC ALLIANCES
Many of the Company's competitors have formed cooperative strategic
alliances to, among other things, increase access to new technology,
distribution channels, markets, capital, manufacturing capacity or marketing
expertise. The Company's business strategy would be enhanced by establishing
strategic alliances with a variety of key companies within the computer, audio
and video industries. Among the types of alliances contemplated by the
12
<PAGE>
Company's business strategy are: OEM arrangements with personal computer, audio
and video product manufacturers that will include SyQuest products as a standard
feature or factory-installed option in personal computers; reseller arrangements
(including private and co-branding arrangements) with major vendors of computer
products covering the resale of the Company's products by such companies; and
licensing arrangements under which the Company grants certain computer
manufacturers on a royalty-bearing basis the right to manufacture and sell its
drives or media. The Company has retained CIBC Oppenheimer to assist in
identifying and establishing strategic alliances. The inability to establish
strategic alliances with such manufacturers and vendors, particularly OEM
arrangements, could put the Company at a competitive disadvantage. The Company's
existing strategic alliances are generally not covered by binding contracts, may
be subject to unilateral termination by the Company's strategic partners, and
may also require the Company to share control over its manufacturing and
marketing programs and technologies.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The Company operates in an industry that is subject to rapid technological
change and rapid change in consumer demands. For example, over the last 10
years the typical hard disk drive included in a new personal computer has
increased in capacity from approximately 40 megabytes (Mbs) to 3 gigabytes (GB)
or more, while the market price per megabyte of a hard disk drive has
dramatically decreased. The Company's future profitability, if any, will depend
in significant part on its ability continually to develop and introduce, in a
timely manner, new removable cartridge hard drive products with improved
features, and to develop and manufacture those new products within a cost
structure that enables the Company to sell such products at lower prices than
those of comparable products today. In addition, the Company depends on
technological developments from vendors for the components of its products (such
as heads, semiconductor devices and media). The Company's products are targeted
for sale to the Company's traditional customer base in the desktop publishing,
pre-press and service bureau segments, to computer, audio and video OEMs, to the
retail market, and to a broad array of users in the SOHO (Small Office/Home
Office) market segment. There can be no assurance that the Company will be
successful in developing, manufacturing and marketing cost effective products
that meet both the performance and price demands of the data storage market.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and may continue to experience significant
fluctuations in its quarterly operating results. Factors such as price
reductions, the introduction and market acceptance of new products, product
returns, availability of critical components, lower gross profits associated
with the Company's newer products and decreasing demand for the Company's older
products could contribute to quarterly fluctuation. Moreover, the Company's
expense levels are based in part on expectations of future sales levels, and a
shortfall in expected sales could therefore result in a disproportionate
decrease in the Company's financial performance. As a result of these and other
factors, it is likely that the Company's operating results in some future period
will be below the expectations of investors, which could cause a significant
reduction in the market price of the Common Stock. A decline in the market
price of the Common Stock would have an adverse effect on the Company's ability
to raise needed capital on terms acceptable to management.
The revenue, operating loss and loss per share for the last quarter of
the fiscal year ended September 30, 1997, and the first three quarters of fiscal
1998 are presented below to illustrate recent quarterly fluctuations.
<TABLE>
<CAPTION>
Q497 Q198 Q298 Q398
--------- -------- -------- ---------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue................... $ 25.9 $ 32.1 $ 47.0 $ 44.7
Net Loss.................. $ (17.5) $ (36.8) $ (31.5) $ (42.5)
Loss Per Share............ $ (0.33) $ (0.57) $ (0.43) $ (0.42)
Weighted average shares... 53.806 68.939 72.973 101.647
</TABLE>
13
<PAGE>
INTERNATIONAL OPERATIONS AND SALES
International sales generated 42% and 22%, respectively, of the Company's
revenues in fiscal year 1997 and the nine-month period ended June 30, 1998, and
the Company expects international sales to continue to constitute a significant
percentage of its total sales in the future. The international portion of the
Company's business is subject to a number of risks, including difficulties in
building and managing foreign operations and foreign reseller networks, the
differing product needs of foreign customers, fluctuations in the value of
foreign currencies, import-export duties and quotas, and regulatory, economic
and political changes. The Company's international sales are predominantly
denominated in U.S. dollars. Accordingly, a significant increase in the
valuation of the U.S. dollar and the resultant increase in the cost of the
Company's products to foreign purchasers could have a material adverse effect on
the Company's foreign sales and its profits. Moreover, the Company relies on
foreign companies for the supply of certain critical components and is
increasingly relying on foreign companies for the manufacture of certain of its
products, and these relationships may be subject to some of the same risks that
affect its international sales as well as the adverse effects of a significant
decrease in the valuation of the U.S. dollar. There can be no assurance that
these factors will not materially and adversely affect the Company's
international sales and its overall business and financial performance. The
Company currently does not enter into foreign currency exchange contracts to
hedge exposure related to foreign currency exchange risk, and it does not enter
into transactions involving derivative financial instruments to hedge such risks
or for trading purposes. At July 31, 1998, the Company had no forward exchange
contracts outstanding.
The financial systems in Japan, South Korea, Taiwan, Singapore and other
Asian nations have experienced significant turmoil. Recently announced
financial failures by leading Asian financial institutions have increased
concerns over Asian economic stability. Such turmoil in the financial markets
has caused companies and individual consumers in those countries to delay or
defer capital expenditures. Although the Company does not derive a significant
percentage of its revenues from sales in Asia, diminished economic growth in
Asia could adversely affect the Company's plan to expand sales of its new
products in Asia.
MANAGEMENT CHANGES; DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part on the capabilities of the
members of the management team, many of whom have been with the Company for
less than 24 months, to implement a successful turnaround strategy. The
Company's success will also depend in significant part on its ability to attract
and retain highly-skilled management and other personnel. Competition for such
personnel in the computer industry is intense. The Company has also experienced
turnover on its Board of Directors, and given the Company's current financial
crisis, if any of the existing board members resign, there can be no assurance
that the Company will be able to locate qualified replacements. The Company has
from time to time experienced difficulty in finding sufficient numbers of
qualified professional and production personnel and may experience similar
difficulties in the future. Effective August 10, 1998, the Company hired Henry
Lo as its new chief financial officer and treasurer, replacing Michael Clemens
who had been the acting chief financial officer since April 30, 1998.
CERTAIN MARKETING AND SALES RISKS
Consistent with industry practices, the Company's arrangements with its
customers generally allow customers, in the event of a price decrease, a credit
equal to the difference between the price originally paid and the reduced price
on units in the customers' inventories on the date of the price reduction. When
a price reduction is anticipated, the Company establishes reserves, based on the
return history experienced by the Company, for amounts it estimates will be
reimbursed to qualifying customers. Reserves may not always be sufficient if
the price cuts are greater than anticipated. Future returns or price protection
charges could adversely affect the Company's results of operations, particularly
because future results will depend on recently introduced products for which the
Company has little or no operating history. In addition, customers generally
have stock rotation rights permitting them to return slower-moving products in
inventory within specified time periods in exchange for compensating orders of
other products. Any buildup of inventory at the Company or in its distribution
channels that does not sell through to end users could have material adverse
effects on the Company's operating results and financial condition.
From time to time, and especially during periods of transition to new
products, the Company experiences product defects and returns. If the Company
experiences quality or reliability problems with its new products that result in
significant defects and returns, the Company's operating results could be
adversely affected.
14
<PAGE>
The Company markets its products primarily through computer product
distributors and retailers. Distribution channels for personal computers and
accessories have been characterized by rapid change, including consolidation and
financial difficulties of distributors. The loss or ineffectiveness of any of
the Company's major distributors could have a material adverse effect on the
Company's results of operations. In addition, because the Company grants credit
to its customers, a substantial portion of outstanding accounts receivable are
due from computer product distributors and certain large retailers. At June
30, 1998, the customers with the ten highest accounts receivable balances
totaled $15.7 million, or 64%, of gross accounts receivable at that date. The
Company has no reason to believe these receivable balances are uncollectible,
but the Company's results of operations and financial condition could be
materially adversely affected if any one or a group of these customers'
receivable balances should be deemed uncollectible.
ABSENCE OF DIVIDENDS
The Company's policy is to retain its earnings to finance future growth.
The Company has not paid any cash dividends in the last three fiscal years and
it does not anticipate declaring cash dividends on its Common Stock in the
foreseeable future. In addition, the payment of cash dividends is restricted by
certain of the Company's borrowing arrangements. See Note 4 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K,
as amended, for the year ended September 30, 1997.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Board of Directors of the Company is authorized by its Certificate of
Incorporation to issue up to 4,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of those shares, which,
under certain circumstances, could be issued without any vote or action by the
Company's stockholders. To date, the Company has issued approximately 440,440
shares of preferred stock. Several of the Company's financings have included
significant warrant coverage, which, when exercised, will result in the issuance
of additional shares of Common Stock. See "Risk Factors -- Convertible
Securities, Options and Warrants; Dilution." Future issuances of preferred
stock and warrants could further dilute the equity investments of the purchasers
of Common Stock in this offering, and the rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of the issued and outstanding Preferred Stock and any preferred stock and
warrants that may be issued in the future. Moreover, issuances of preferred
stock and warrants in the future could be used to impede an acquisition of the
Company that the Board of Directors does not approve. The Company is also
subject to the anti-takeover provisions of section 203 of the Delaware General
Corporation Law, which prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person first became an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of section 203 could also have the effect of delaying
or preventing a change of control in the Company.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively in its markets depends heavily
on the establishment and maintenance of proprietary technologies. The Company
relies on a combination of patent, copyright and trade secret law to protect the
technology in its drives and cartridges. The Company holds numerous U.S. and
foreign patent applications and patents relating to its drives and hard disk
cartridges. Many of these patents and applications, however, do not pertain to
the Company's recent product generations, and there can be no assurance as to
the degree of protection afforded by these patents or the likelihood that
additional patents will issue pursuant to pending patent applications.
Furthermore, there can be no assurance that third parties will not independently
develop the same or similar technology, develop around the patented aspects of
any of the Company's products or proposed products, or otherwise obtain access
to the Company's proprietary technology. In particular, the Company's sales
would be materially adversely affected if any unlicensed parties develop
removable cartridges compatible with the Company's disk drives.
INTELLECTUAL PROPERTY LITIGATION
Patent and similar litigation is complex and expensive and its outcome can
be difficult to predict. There can be no assurance that the Company will prevail
in any proceedings that have been or may be commenced
15
<PAGE>
by or against the Company. The Company is currently involved in the
intellectual property lawsuits summarized below.
On December 3, 1997, SPARC International, Inc. filed a lawsuit against the
Company in the United States District Court for the Northern District of
California. The lawsuit alleges that the Company's use of the trademark SparQ
in connection with its recently introduced SparQ removable cartridge hard drive
product constitutes an infringement of the SPARC trademark owned by SPARC
International, Inc. The complaint requests money damages and preliminary and
permanent injunctions enjoining the Company from further infringement. On
December 19, 1997, SPARC International, Inc. filed a motion seeking a
preliminary injunction enjoining the Company from using the SparQ trademark on
its removable cartridge hard drive products and requesting a hearing which was
held on March 23, 1998. Subsequently, the court denied Sparc International's
motion for a preliminary injunction. The Company believes that it does not
infringe any valid trademarks of SPARC International, Inc., and intends to
defend the case vigorously.
On July 29, 1997, Iomega Corporation ("Iomega") initiated an action for
patent and trademark infringement against SyQuest in the United States District
Court for the District of Delaware. The suit alleges that SyQuest's SyJet and
EZFlyer 230 products infringe United States Utility Patent No. 5,644,444,
entitled "Read/Write Protect Scheme for a Disk Cartridge and Drive," and that
the cartridges sold by SyQuest for use with its SyJet and EZFlyer 230 products
infringe United States Design Patent No. Des. 378,518, entitled "Computer
Storage Disk Cartridge." The suit further alleges that SyQuest has infringed
Iomega's claimed "Jet" trademark and engaged in unfair competition through the
use of the "SyJet" name for one of its products. Iomega seeks a judgment of
infringement, monetary damages, injunctive relief, disgorgement of profits, and
trebled actual damages on the disputed products. Iomega also seeks exemplary
damages and attorney's fees based on SyQuest's alleged willful infringement of
Iomega's patents and claimed trademark. SyQuest has filed an answer and
counterclaim denying infringement and requesting a declaratory judgment that the
patents-in-suit are invalid and not infringed. The case is in the discovery
stage. In interrogatory responses served December 3, 1997, Iomega asserted that
SyQuest's recently introduced SparQ and Quest products infringe Iomega's design
patent and that it is investigating whether it believes that the SparQ or Quest
products infringe Iomega's utility patent. The Court has set a trial date of
January 11, 1999. SyQuest believes it has meritorious defenses to Iomega's
allegations and intends to defend the case vigorously.
On March 3, 1998, Iomega filed suit in France in the Paris Court of First
Instance against the Company, its French subsidiary, SyQuest Technology SARL
("SyQuest SARL"), and a distributor of the Company's products in France
alleging, among other things, that the Company's SyJet cartridges infringe
Iomega's cartridge design rights and a recently issued patent. The complaint
requests money damages and an injunction against the Company from further
infringement. Iomega subsequently requested summary proceedings in which it
made a motion to enjoin the Company from selling SyJet cartridges in France
based on the alleged infringement and to block sales of certain of the Company's
products in France. A hearing was held in Paris on April 3, 1998, and the
French court issued an order on April 30, 1998, denying Iomega's motion to
enjoin sales of SyJet cartridges. The Company believes that no valid patent
claims or designs of Iomega are infringed by its SyJet product and will continue
to defend the action vigorously.
On April 29, 1998, Iomega filed suit in France in the Paris Court of First
Instance against the Company, its French subsidiary, SyQuest SARL, and a
distributor of the Company's products in France. The suit alleges that the
Company's SparQ 1.0 gigabyte cartridge infringes Iomega's design for its Jaz
cartridge and Iomega's European patent application number 956002B.4 relating to
an anti-rattle mechanism. Iomega subsequently requested summary proceedings in
which it made a motion to enjoin the Company and its French subsidiary from
selling SparQ cartridges in France, Italy, Germany and the United Kingdom based
on the alleged patent infringement. A hearing was held in Paris on June 25,
1998, and the French court issued an order on July 3, 1998, granting Iomega's
motion to enjoin sales of SparQ cartridges in France while rejecting Iomega's
motion to enjoin sales of SparQ cartridges in Italy, Germany and the United
Kingdom. The Company plans to appeal the July 3 order enjoining sales in France
to the French court of appeals. The Company believes that no valid patent claims
or designs of Iomega are infringed by its SparQ product and intends to defend
the action vigorously.
On or about June 10, 1997, the Company initiated litigation against
Castlewood Systems, Inc. and eleven former Company employees in the Superior
Court of the State of California for the County of Santa Clara, entitled SyQuest
-------
Technology, Inc. v. Castlewood Systems, Inc., et al. (Case No. 766757),
- ----------------------------------------------------
asserting ten (10) causes of action, including claims for misappropriation of
trade secrets, unfair competition, and breach of fiduciary duty. The complaint
seeks money damages and an injunction from engaging in such conduct. On or
about July 16, 1997, Castlewood filed a cross-complaint against the Company,
alleging three causes of action (interference with prospective economic
advantage, unfair competition and trade libel) and seeking damages and
injunctive relief. Since that time, the parties have engaged primarily in
hearings before Thomas E. Schatzel, Esq., the Court-appointed Discovery Referee,
to finalize the Company's identification of trade secrets in accordance with the
requirements of
16
<PAGE>
the California Code of Civil Procedure section 2019 (d), which was deemed
acceptable by such Referee on October 20, 1997, and to adjudicate the discovery
matters between the parties. Discovery is under way, and there can be no
assurance as to what financial effect this litigation may have on the Company.
On January 27, 1997, the Company filed a lawsuit in the United States
District Court for the Northern District of California, entitled SyQuest
-------
Technology, Inc. v. Nomai. S.A. et al. (Case No. C97-0271 FMS) (the "Nomai
- --------------------------------------
Action"). The lawsuit named as defendants Nomai, S.A., Nomus, Inc. (Nomai, S.A.
and Nomus, Inc. sometimes hereinafter referred to as "Nomai") Marc Frouin, Herve
Frouin, Electronique d2 and La Cie Ltd., certain competitors and/or
manufacturers and their shareholders. The Nomai Action alleged patent,
trademark and copyright infringement, unfair competition, breach of contract and
other claims arising out of the use by Nomai and others of the Company's
proprietary technology in certain of Nomai's competing products. The suit seeks
to block further sales of such products and damages deriving from harm done to
the Company by this conduct. During April through June 1997, Nomai, S.A., Marc
Frouin and Herve Frouin (collectively the "Nomai Parties") filed certain cross-
complaints against the Company. The Company, Nomai, S.A. and the Nomai Parties
have resolved their respective claims in the Nomai Action, pursuant to a
settlement agreement. In accordance with that settlement agreement, the parties
filed a Stipulation to Dismiss with prejudice the Company's complaint and the
Nomai Parties' cross-complaints on December 16, 1997. The Nomai Action remains
pending against defendants Electronique d2 and La Cie Ltd.
On March 7, 1997, RKS Design, Inc. ("RKS") filed a suit against the Company
in the Superior Court of the State of California for the County of Los Angeles,
entitled RKS Design, Inc. v. SyQuest Technology, Inc., et al., alleging that the
----------------------------------------------------
Company failed to pay $48,394.21 of interest charges on fees charged for design
services rendered to its EZ Flyer and SyJet products. The suit requests damages
including profits associated with these products, interest and attorneys' fees.
The Company has filed a counterclaim asserting, among other things, that no
amount is owing to RKS, and that the Company is entitled to a refund of certain
overpayments made to RKS. The Company does not believe that this claim will
have a material adverse effect on the Company's financial position or results of
operations.
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Companies that have contacted the
Company include one company that has recently alleged that the Company's
products infringe three U.S. patents. The Company is in the process of reviewing
and analyzing the infringement allegations. Another company has notified the
Company that it believes a number of the Company's removable cartridge hard
drive products infringe several of that company's patents relating to the use of
spin motors in disc drives. The Company believes that its removable cartridge
hard drive products do not infringe the claims of these patents and that some or
all of the asserted patents are invalid. Resolution of whether the Company's
manufacture of products has infringed valid rights held by others could have a
material adverse effect on the Company's financial position and results of
operations, and may require material changes in production processes and
products. It may be necessary for the Company to enter into license agreements
to avoid protracted disputes over patent infringement. The Company is unable to
predict whether license agreements can be obtained on terms acceptable to the
Company or the magnitude of the costs associated with such terms. Failure to
obtain such license could have a material effect on the Company's financial
position or results of operations.
SECURITIES CLASS ACTION AND DERIVATIVE LITIGATION
The Company has been named as a defendant in four putative class action
lawsuits. Two of the actions, Ravens, et al. v. Iftikar, et al. (filed April 2,
---------------------------------
1996) and Belleza, et al. v. Iftikar, et al. (filed May 24, 1996) were brought
----------------------------------
in the United States District Court for the Northern District of California
(collectively, the "Federal Lawsuits"). The other two purported class actions,
Kaufman v. SyQuest Technology, Inc., et al. (filed on March 25, 1996) and
- -------------------------------------------
Ravens, et al. v. Iftikar, et al. (filed on October 11, 1996) were filed
- ---------------------------------
in the Superior Court of the State of California for the County of Alameda (the
"State Court Lawsuits").
Plaintiffs in all the above-described class actions purport to represent a
class of all persons who purchased the Company's Common Stock between October
21, 1994, and February 1, 1996, and allege that certain current and former
officers and directors of the Company engaged in illegal insider trading of the
Company's Common Stock and made certain material misrepresentations and
omissions regarding, among other things, the Company's SQ3270 drive and EZ135
drive. The Federal Lawsuits assert that the alleged wrongdoing violated the
federal securities laws, and the State Court Lawsuit assert claims for damages
under the California securities statutes and common law.
The Federal Lawsuits have been assigned to the Honorable Vaughan Walker. In
January, 1997, the Court denied the motion of certain plaintiffs to be appointed
lead plaintiffs under the Private Securities Litigation Reform Act of 1995 (the
"Reform Act") on the ground, inter alia, that the plaintiffs' published notice
----------
to the class did not constitute adequate notice of the litigation under the
Reform Act. In July 1997, the Court denied a motion for reconsideration of its
prior order and directed the plaintiffs to issue a revised notice and/or amend
their complaint by August 22, 1997, or be subject to a motion to dismiss or for
summary judgment. Plaintiffs have informed the Court that they elect to stand on
the existing notice and complaint.
On May 14, 1996, the Company was served with a shareholder derivative
action filed in the Superior Court of the State of California for the County of
Alameda, entitled John Nitti, et al. v. Syed Iftikar, et al. (the "Derivative
------------------------------------------
Lawsuit"). The Derivative Lawsuit contains allegations of wrongdoing that are
essentially the same as those in the putative class actions and seeks to recover
unspecified damages and punitive damages on behalf of the Company from current
and former officers and directors of the Company for alleged breaches of
fiduciary duty, unjust enrichment and waste of corporate assets.
The Company has entered a Stipulation of Settlement with the parties to the
State Court Lawsuits and a separate Stipulation of Settlement with the parties
to the Derivative Lawsuit. Hearing for final approval of both Stipulations of
Settlement have been scheduled for October 14, 1998, before the Alameda Superior
Court. Each Stipulation of Settlement [which can be obtained from the Company on
request] contains a number of conditions including but not limited to the
dismissal with prejudice of the Federal Lawsuits, and will not be fully
effective until all such conditions have been met.
17
<PAGE>
The Company has defended the Federal Lawsuits, the State Court Lawsuits and
the Derivative Lawsuit vigorously, but there can be no assurance as to the
outcome or the financial effect, if any, the litigation may have on the Company.
If there is an adverse result, the Company does not expect any particular
product line to be affected as the plaintiffs seek monetary damages rather than
injunctive relief. Nevertheless, a materially unfavorable outcome could have an
adverse effect on the Company's financial condition and cash flow. No loss
contingency has been established for these lawsuits as the amount of losses, if
any, are not yet determinable or reasonably estimable.
18
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby are
solely for the accounts of the Selling Stockholders. Accordingly, the Company
will not receive any proceeds from this offering. However, certain of the
shares of Common Stock offered hereby are issuable in the future on the exercise
of warrants, and the Company will receive the exercise prices payable on any
exercise of such warrants. There can be no assurance that all or any part of
the warrants will be exercised.
SELLING STOCKHOLDERS
The Selling Stockholders are (i) certain persons who provided (or helped
facilitate) equity financing to the Company or assignees of such persons, and
(ii) certain persons who provided (or are providing) certain services to the
Company. The shares of Common Stock covered by this Prospectus are being
registered so that the Selling Stockholders may offer the shares for resale from
time to time. See "Plan of Distribution." Except as described below, none of
the Selling Stockholders has had a material relationship with the Company within
the past three years other than as a result of the ownership of the Common Stock
and other securities of the Company.
The following table sets forth the names of the Selling Stockholders, the
number of shares of Common Stock owned beneficially by each of the Selling
Stockholders as of October 1, 1998, and the number of shares that may be offered
for resale pursuant to this Prospectus. The number of shares of Common Stock
beneficially owned by the Selling Stockholders holding Series 7 Preferred Stock
is based on a hypothetical conversion of the Series 7 Preferred Stock on October
1, 1998. A conversion price of $0.25 was used, which price is the closing sale
price of the Common Stock for October 1, 1998. The use of such hypothetical
conversion prices is not intended, and should in no way be construed, as a
prediction of the future market price of the Common Stock. Based on the closing
sale price per share of the Common Stock on October 1, 1998, the Company would
not have sufficient shares of Common Stock available for issuance to the holders
of the Series 7 Preferred Stock if all the shares of the Series 7 Preferred
Stock were converted. Accordingly, the number of shares of Common Stock to be
offered by holders of the Series 7 Preferred Stock is limited to an aggregate of
60,239,068 shares, allocated pro rata based on the number of shares of Series 7
Preferred Stock held by each Selling Stockholder.
The information included below is based on information provided by the
Selling Stockholders. Because the Selling Stockholders may offer all, some or
none of their Common Stock, no definitive estimate as to the number of shares of
Common Stock that will be held by the Selling Stockholders after this offering
can be provided. The following table has been prepared on the assumption that
all shares of Common Stock offered by this Prospectus will be sold.
19
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
Common Stock Common Stock
Beneficially Shares of Beneficially
Owned Prior to Common Stock Owned After
Name Offering/(1)(2)/ Being Offered Offering/(3)/
- ---- --------------- ------------- -------------
<S> <C> <C> <C>
CC Investments, LDC/(4)(7)(8).......................... 6,776,372 15,752,090 0
Southbrook International Investments, Ltd./(4)(8)...... 6,776,372 16,107,650 0
RGC International Investors, LDC/(4)(8)(9)............. 6,776,372 20,990,494 0
Nelson Partners/(4)(8)(10)............................. 6,776,372 1,869,884 0
Olympus Securities, Ltd./(4)(8)(10).................... 6,776,372 3,450,350 0
Rutgers Casualty Insurance Company/(4)................. 414,343 414,343 0
Kentucky National Insurance Company(4)................. 414,343 414,343 0
HSI Partnership/(4).................................... 207,171 207,171 0
Blumfield Investment, Inc./(4)......................... 621,515 621,515 0
Burnstein & Lindsay Securities Corp./(4)............... 414,343 414,343 0
Maslo Fund, Ltd./(4)................................... 1,561,651 1,561,651 0
Star High Yield Investment Management Corp./(4)........ 1,561,651 1,561,651 0
Bain & Company, Inc./(4)............................... 5,037,300 2,868,500 0
Multiple Import Export, Ltd./(5)....................... 3,833,516 333,516 0
Combination, Inc./(6)(8)............................... 6,776,372 3,000,000 0
Capital Ventures International/(5)..................... 3,142,393 283,486 0
The Silakahn Route/(11)................................ 273,120 18,692 0
Wharton Capital Partners/(12).......................... 3,358,543 1,040,000 0
--------- ----------
TOTAL.................................................. 61,498,121 70,909,679 0
</TABLE>
____________________
(1) Unless otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) As required by regulations of the Securities and Exchange Commission, the
number of shares shown as beneficially owned includes shares which can be
purchased within 60 days after September 30, 1998. The actual number of
shares of Common Stock beneficially owned is subject to adjustment and
could be materially less or more than the estimated amount depending on
factors which cannot be predicted by the Company at this time, including,
among others, the market price of the Common Stock prevailing at the actual
date of conversion of Preferred Stock, and whether or to what extent
dividends to the holders of certain Preferred Stock are paid in Common
Stock.
(3) Assumes the sale of all shares offered hereby, and all shares otherwise
registered for resale under other registration statements.
(4) The Selling Stockholders hold shares of Series 7 Preferred Stock of the
Company, which are convertible into shares of Common Stock. Each share of
Series 7 Preferred Stock may be converted into a number of shares of Common
Stock at a conversion price which is the greater of (a) the arithmetical
average of the closing sale prices of the Common Stock for the five
consecutive trading days preceding the conversion, and (b) 90% of the
closing
20
<PAGE>
sale price the day before the conversion, but in any event not greater
than $3.00. The number of shares shown as being offered in the table is
based on each Selling Stockholder's pro rata portion of the 64,367,323
shares of Common Stock being registered for resale, assuming a
hypothetical conversion as of September 30, 1998, except that (i) with
regard to the shares of Common Stock being registered in the name of
Southbrook International Investments, Ltd. ("Southbrook"), the Company is
also registering the 1,264,755 shares of Common Stock underlying the
warrant issued to Southbrook in connection with its acquisition of the
Series 7 Preferred Stock, and (ii) with regard to the shares of Common
Stock being registered in the name of Bain & Company ("Bain"), the
Company is registering 150% of the shares into which Bain's 441 shares of
Series 7 Preferred Stock are convertible plus 180,500 shares of Common
Stock underlying the warrant issued to Bain in connection with its
acquisition of Series 7 Preferred Stock.
Except for Southbrook and Bain, no shares of Common Stock underlying
warrants issued to each of the Selling Stockholders are being registered
for resale pursuant to the Prospectus. The Company will undertake to
register for resale the Common Stock underlying such warrants if the
Reverse Stock Split is approved and the Company has sufficient authorized
shares. Those shares of Common Stock are not being registered for resale
underlying such warrants in order to register for resale as many shares
of Common Stock as possible underlying the Series 7 Preferred Stock. To
the extent that such holders had shares of Common Stock underlying other
warrants registered for resale, those holders authorized the Company to
deregister such shares and register them in connection with the
conversion of the Series 7 Preferred Stock. In exchange, the Company
agreed to adjust downward the exercise price of such warrants to 120% of
the five day average closing sale price at a date to be determined. In
addition, the maximum number of shares of Common Stock available pursuant
to the warrants was reduced by 50%. The Company also agreed to register
the Common Stock underlying the adjusted warrants in the next
registration statement it files.
Each Selling Stockholder can convert Series 7 Preferred Stock into Common
Stock only to the extent that the number of shares issued thereby,
combined with the number of shares of Common Stock already held by such
Selling Stockholder and its affiliates, would not exceed 5.0% of the
number of then outstanding shares of Common Stock, as determined in
accordance with Section 13(d) of the Exchange Act (the "5.0% Limit"). The
Selling Stockholders may use the shares of Common Stock offered hereby to
cover short sales of the Common Stock if such short sales occurred on or
after the date of their purchase of the Series 7 Preferred Stock. For a
further description of the rights of the holders of Series 7 Preferred
Stock, see the Certificate of Designations, Preferences and Rights of 5%
Cumulative Convertible Preferred Stock, Series 7, filed as an exhibit to
the Company's Current Reports on Form 8-K dated February 13, 1998, and
February 17, 1998, and the related Securities Purchase Agreements (with
exhibits) attached thereto.
The Company may not be required to register for resale a significant
number of additional shares of Common Stock underlying the Series 7
Preferred Stock because the Company is in negotiations with a majority of
the holders of the Series 7 Preferred Stock holders to exchange all
shares of Series 7 Preferred Stock that remain unconverted as of a future
date for an equal number of shares of Series 8 Preferred Stock. The
exchange of the shares of Series 7 Preferred Stock for shares of Series 8
Preferred Stock is to occur on the day before the registration statement
registering for resale the Common Stock underlying the Series 8 Preferred
Stock is to become effective. The Company intends to file a certificate
of designations, rights and preferences with respect to the Series 8
Preferred Stock if the Reverse Stock Split is approved. Until the Company
reaches an agreement with such holders to exchange their Series 7
Preferred stock for Series 8 Preferred Stock, and a registration
statement registering for resale Common Stock underlying the proposed
Series 8 Preferred Stock becomes effective, the holders of Series 7
Preferred Stock are permitted to convert their Series 7 Preferred Stock
into Common Stock. Thus, the number of shares of Series 7 Preferred Stock
that will be exchanged for Series 8 Preferred Stock, and the number of
shares of Common Stock that will be issuable on conversion of the Series
8 Preferred Stock are presently indeterminable.
Each Selling Stockholder can convert Series 7 Preferred Stock into Common
Stock only to the extent that the number of shares issued thereby, combined
with the number of shares of Common Stock already held by such Selling
Stockholder and its affiliates, would not exceed 5.0% of the number of then
outstanding shares of Common Stock, as determined in accordance with
Section 13(d) of the change Act (the "5.0% Limit"). The Selling
Stockholders may use the shares of Common Stock offered hereby to cover
short sales of the Common Stock if such short sales occurred on or after
the date of their purchase of the Series 7 Preferred Stock. For a further
description of the rights of the holders of Series 7 Preferred Stock. For a
further description of the rights of the holders of Series 7 Preferred
Stock, see the Certificate of Designations, preferences and Rights of 5%
Cumulative Convertible preferred Stock, Series 7, filed as an exhibit to
the Company's Current Reports on Form 8-K dated February 13, 1998, and
February 17, 1999, and the related Securities Purchase Agreements (with
exhibits) attached thereto.
(5) The shares of Common Stock being registered include shares of Common
Stock underlying certain warrants and shares of Common Stock issued in
lieu of a cash payment. The Common Stock and warrants were issued as a
penalty for the late registration of shares of Common Stock issuable in
connection with the sale of the Series 5 Preferred Stock. The number of
additional warrants each Selling Stockholder received was calculated by
multiplying 6.67% of the total number of warrants each Selling
Stockholder received in connection with the sale of the Series 5
Preferred Stock by the number of months for which the Company was late in
its registration obligations. The warrants may be exercised at a price
equal to 130% of the greater of (a) the arithmetical average of the
closing sales price per share of Common Stock on the five consecutive
trading days preceding the delivery of the exercise notice and (b) such
closing sale price on the day immediately prior to the delivery of the
exercise notice, but in any event not greater than $3.0469. The warrants
issued to the Selling Stockholders are immediately exercisable, subject
to ownership limitations set forth in the Series 5 Security Purchase
Agreement each Selling Stockholder executed with the Registrant. The
number of shares of Common Stock issued was calculated by multiplying
1.0% of the purchase price each Selling Stockholder paid for its Series 5
Preferred Stock by the number of months for which the Company was late in
its registration obligations, and dividing that amount by the market
value of the Common Stock. For a further description of the Series 5
Preferred Stock transaction, see the Company's Reports on Form 8-K dated
August 11, 1997, and October 4, 1997, and the related Securities Purchase
Agreement (with exhibits) attached thereto.
(6) The shares of Common Stock being registered include Common Stock underlying
warrants issued to the Selling Stockholder as an incentive for exercising
certain warrants during the first quarter of fiscal 1998. The exercise
price of the warrants is 130 percent of the greater of (a) the arithmetical
average of the closing sale prices per share of Common Stock on the five
consecutive trading days preceding the delivery of a notice of exercise and
(b) such closing sale price on the day immediately preceding the delivery
of the notice of exercise, provided that in no event shall the exercise
price exceed $2.375. Unless waived by the Company, each warrant is not
exercisable until the lapse of a period ending on the sixty-fifth day
after such Selling Stockholder
21
<PAGE>
delivers a notice to the Company designating an aggregate number of warrant
shares to be purchased. Once such notice is given and the 65-day period
has passed, the Selling Stockholder may exercise its warrant up to the
number of shares designated in the 65-day notice by providing further
notice to the Company that the Selling Stockholder is exercising the
warrant.
(7) Castle Creek Partners, LLC is the investment adviser to CC Investments,
LDC, and consequently may have voting control and investment discretion
over securities held by CC Investments, LDC. Castle Creek Partners, LLC
disclaims beneficial ownership of any securities owned by CC Investments,
LDC. The address of Castle Creek Partners, LLC is 333 West Wacker Drive,
Chicago, IL 60606.
(8) Because the Selling Stockholders are subject to the 5.0% Limit, the number
of shares of Common Stock shown to be beneficially owned by each Selling
Stockholder is 5.0% of the number of outstanding shares of Common Stock
as of October 2, 1998. If the Selling Stockholders were not subject to
the 5.0% Limit, the shares of Common Stock beneficially owned by them
would be substantially greater.
(9) The number of shares of Common Stock beneficially owned by RGC
International Investors, LDC ("RGC") includes 27,248 shares of Common Stock
underlying warrants issued to Rose Glen Funding, Inc. ("Rose Glen"), an
affiliate of Rose Glen Capital Management, L.P. (the investment manager of
RGC), from October 1996 through February 1997 as part of a financing
separate from the Company's sale of Series 7 Preferred Stock. Such shares
of Common Stock have been previously registered by the Company pursuant to
Registration Statement No. 333-17119.
(10) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson") and the trading manager of Olympus Securities, Ltd.
("Olympus"), and has voting control and investment discretion over
securities held by both Nelson and Olympus. Information provided for
Nelson does not include the shares owned by Olympus, and information
provided for Olympus does not include the shares owned by Nelson.
(11) The Selling Stockholder has the right to acquire Common Stock pursuant to
certain Stock Purchase Warrants granted as part of the Selling
Stockholder's compensation for providing certain consulting services to the
Company. The exercise price of the warrants is equal to 130 percent of the
greater of (a) the arithmetical average of the closing sale prices per
share of Common Stock, as reported by The Nasdaq National Market on the
five consecutive trading days preceding the delivery of a notice of
exercise, and (b) the closing sale price on the day preceding the delivery
of the notice of exercise, provided that in no event shall the exercise
price exceed $3.0469 per share. Unless waived by the Company, the warrants
issued to the Selling Stockholder are not exercisable until the lapse of a
period ending on the sixty-fifth day after such Selling Stockholder
delivers a notice to the Company designating an aggregate number of warrant
shares to be purchased. Once such notice is given and the 65-day period
has passed, the Selling Stockholder may exercise its warrant up to the
number of shares designated in the 65-day notice by providing further
notice to the Company that such Selling Stockholder is exercising the
warrant.
(12) The Selling Stockholder has the right to acquire Common Stock pursuant to a
certain warrant granted as part of the Selling Stockholders' compensation
for facilitating certain financings for the Company. The exercise price of
the warrant is $2.25.
22
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered by the
Selling Stockholders (the "Shares") pursuant to contractual registration rights.
There is no assurance that the Selling Stockholders will sell any or all of the
Shares.
The Shares may be sold from time to time by the Selling Stockholders, or,
if allowed pursuant to the terms of the respective Selling Stockholders'
agreements with the Company, by pledgees, donees, transferees or other
successors in interest. Such sales may be made on The Nasdaq National Market or
on any exchange on which the Common Stock is listed for trading or in the over-
the-counter market or otherwise at prices and on terms then prevailing or
related to the then current market price, or in negotiated transactions. The
Shares may be sold to or through one or more broker-dealers, acting as agent or
principal in underwritten offerings, block trades, agency placements, exchange
distributions, brokerage transactions, option transactions or otherwise, or in
any combination of transactions. The Shares may be used to settle sales of
Common Stock effected on or after the date Preferred Stock is converted into
Common Stock, including, in some cases, short sales of the Common Stock. See
"Risk Factors --Volatility of Stock Price; Risk of Continued Short Selling."
In connection with sales of the Shares, or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the Shares in the course of hedging in
positions they assume. The Selling Stockholders may also sell Shares short and
deliver Shares to close out short positions, or loan or pledge Shares to
broker-dealers that in turn may sell such securities. In such instances, this
Prospectus may be delivered in connection with such short sales. See "Risk
Factors -- Volatility of Stock Price; Risk of Continued Short Selling."
To the extent required under the Securities Act or the rules of the SEC, a
supplemental prospectus will be filed, disclosing (a) the name of any brokers or
dealers, pledgees, donees, transferees or other successors in interest, (b) the
number of Shares involved, (c) the price at which such Shares are to be sold,
(d) the commissions paid or discounts or concessions allowed, where applicable,
(e) that such brokers or dealers or other parties did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, as supplemented, and (f) other facts material to the
transaction.
In connection with any transaction involving the Shares, broker-
dealers or others may receive from the Selling Stockholders, and may in turn pay
to other broker-dealers or others, compensation in the form of commissions,
discounts or concessions in amounts to be negotiated at the time (which
commissions, discounts or concessions as to particular underwriters, brokers,
dealers or agents may be in excess of those customary in the types
of transactions involved). Broker-dealers and any other persons participating
in a distribution of the Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such distribution,
and any such commissions, discounts or concessions may be deemed to be
underwriting discounts or commissions under the Securities Act.
Any or all of the sales or other transactions involving the Shares
described above, whether effected by the Selling Stockholders, any broker-
dealer or others, may be made pursuant to this Prospectus. In addition, any
Shares that qualify for sale pursuant to Rule 144 under the Securities Act may
be sold under Rule 144 rather than pursuant to this Prospectus.
To comply with the securities laws of certain states, if applicable, the
Shares may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, Shares may not be sold unless they have been
registered or qualified for sale or an exemption from such registration or
qualification requirements is available and complied with under applicable
state securities laws.
The Company and the Selling Stockholders have agreed, and hereafter may
further agree, to indemnify each other and certain persons, including broker-
dealers or others, against certain liabilities in connection with any offering
of the Common Stock, including liabilities arising under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed on for the Company by Shartsis, Friese
& Ginsburg LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of Syquest Technology, Inc. as of
September 30, 1997 and for the year then ended are incorporated in this
Prospectus by reference to the following: (1) the Current Report on Form 8-K
dated August 5, 1998 and (2) the Annual Report on Form 10-K, as amended, for the
year ended September 30, 1997. Such consolidated financial statements have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The report of PricewaterhouseCoopers LLP included in
the Form 8-K dated August 5, 1998 contains an explanatory paragraph relating to
the Company's ability to continue as a going concern as described in Notes 1 and
14 to the related financial statements. The report of PricewaterhouseCoopers LLP
included in the Annual Report on Form 10-K, as amended, for the year ended
September 30, 1997, contains an explanatory paragraph highlighting the Company's
continuing operating losses, as described in Note 14 to the related financial
statements.
The consolidated financial statements and schedules of SyQuest Technology,
Inc. at September 30, 1996, and for each of the two years in the period ended
September 30, 1996, incorporated by reference in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated herein by reference,
and are included herein in reliance on such report given upon the authority of
such firm as experts in accounting and auditing.
23
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
TABLE OF CONTENTS
PAGE
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE............... 3
ADDITIONAL INFORMATION............... 3
THE COMPANY.......................... 4
RISK FACTORS......................... 5
USE OF PROCEEDS...................... 19
SELLING STOCKHOLDERS................. 19
PLAN OF DISTRIBUTION................. 23
LEGAL MATTERS........................ 23
EXPERTS.............................. 23
70,909,679 SHARES
SYQUEST TECHNOLOGY, INC.
COMMON STOCK
__________________________
PROSPECTUS
__________________________
===========================================
24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All amounts shown are estimates except
for the registration fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee $ 5,229.59
Blue sky qualification fees and expenses -0-
Printing and engraving expenses 1,000.00
Legal fees and expenses 50,000.00
Accounting fees and expenses 15,000.00
Miscellaneous 1,000.00
----------
Total $72,229.59
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by section 102(b)(7) of the Delaware General Corporation Law
("DGCL"), the Restated Certificate of Incorporation (the "Certificate") of the
Registrant provides that the personal liability of the directors of the
Registrant for monetary damages for breach of fiduciary duty as a director shall
be eliminated to the fullest extent permissible under Delaware law, except (i)
for any breach of the director's duty of loyalty to the Registrant, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for negligent payment of any unlawful dividend
or any unlawful stock purchase agreement or redemption, or (iv) for any
transaction from which the director derived an improper personal benefit.
Although the Certificate provides protection from awards of monetary damages for
breaches of the duty of care, it does not eliminate a director's duty of care,
nor does the Certificate affect the availability of equitable remedies, such as
injunctions, based on a director's breach of the duty of care. These provisions
apply to officers of the Registrant only if they are also directors of the
Registrant acting in their capacity as directors, and do not apply to officers
who are not directors of the Registrant.
The Certificate also provides that the Registrant is authorized to
indemnify its directors, officers, employees and agents for breach of duty to
the Registrant and its stockholders through By-law provisions or agreements with
such persons or both, in excess of the indemnification otherwise permitted by
section 145 of the DGCL, but subject to the limitations set forth above in
section 102(b)(7) of the DGCL. Pursuant to the authority provided in the
Certificate, the Registrant has adopted By-laws that require the Registrant to
indemnify its directors, officers, employees and agents to the fullest extent
permitted by applicable law. The Registrant has also entered into agreements to
indemnify its directors and executive officers. These agreements, among other
things, require the Registrant to indemnify the directors and executive officers
to the fullest extent not expressly prohibited by applicable law or the
Certificate and to advance legal expenses to such persons in connection with any
action or proceeding or any threatened action or proceeding, whether civil or
criminal, arising out of such person's service as a director, officer, employee
or agent of the Registrant or any subsidiary of the Registrant, so long as such
person is entitled to indemnification as determined in the manner provided in
the agreement. The burden is on the Registrant to establish that the individual
is not entitled to indemnification.
The Registrant's Certificate and By-laws and the indemnification agreements
with its directors and executive officers authorize indemnification to directors
and officers in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act.
In addition, the Registrant has purchased and maintains an insurance policy
covering its directors and officers with respect to certain liabilities arising
under the Securities Act or otherwise. Under the terms of their registration
rights agreements, certain of the Selling Stockholders may be obligated to
indemnify the Registrant and its directors and officers under certain
circumstances for liabilities under the Securities Act.
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<PAGE>
ITEM 16. EXHIBITS.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
3.1 Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K/A for
the fiscal period ended September 30, 1996.
3.2 Amendment to Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-3 filed December 2, 1996 (File No. 333-17119), as
amended.
3.3 By-Laws of the Company. Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the Quarter ended December 31, 1996.
4.1 Corrected Certificate of Designations, Preferences and Rights of 7%
Cumulative Convertible Preferred Stock, Series 1. Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated
June 14, 1996 (the "June 14, 1996, Form 8-K").
4.2 Securities Purchase Agreement, dated as of May 31, 1996, by and among the
Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1.
Incorporated by reference to Exhibit 10.1 to the June 14, 1996, Form 8-K.
4.3 Registration Rights Agreement dated as of May 31, 1996, by and among the
Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1.
Incorporated by reference to Exhibit 10.2 to the June 14, 1996, Form 8-K.
4.4 6% Convertible Subordinated Debenture dated July 15, 1996. Incorporated by
reference to Exhibit 10.3 to the Company's Form S-3 Registration Statement
No. 333-7369 ("Registration 333-7369").
4.5 Registration Agreement dated July 15, 1996, among the Company and WISRS
(Malaysia) SDN.BHD. Incorporated by reference to Exhibit 10.4 to
Registration 333-7369
4.6 Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 1, as amended and agreed to be amended.
Incorporated by Reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K/A dated October 31, 1996 (the "October 31, 1996, Form 8-K/A").
4.7 Certificate of Designations, Preferences and Rights of 5% Cumulative
Preferred Stock, Series 2. Incorporated by reference to Exhibit 3.2 to the
October 31, 1996, Form 8-K/A.
4.8 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and the buyers of the Convertible Preferred Stock, Series 1
including the following exhibits: Form of Warrant, Form of Registration
Rights Agreement, Form of Escrow Agreement and certain Schedules to the
representations. Incorporated by reference to Exhibit 10.1 to the October
31, 1996, Form 8-K/A.
4.9 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.2 to the October 31, 1996, Form 8-
K/A.
4.10 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.3 to the October 31, 1996, Form 8-
K/A.
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<PAGE>
4.11 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.4 to the October 31, 1996, Form 8-
K/A.
4.12 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.5 to the October 31, 1996, Form 8-
K/A.
4.13 Securities Purchase Agreement dated as of September 27, 1996, between the
Company and Atmel Corporation, including the exhibit Form of Registration
Rights Agreement. Incorporated by reference to Exhibit 10.6 to the October
31, 1996, Form 8-K/A.
4.14 Securities Purchase Agreement dated as of October 18, 1996, between the
Company and Petronic International, Inc., including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.7
to the October 31, 1996, Form 8-K/A.
4.15 Securities Purchase Agreement dated as of October 24, 1996, between the
Company and SAE Magnetics (HK) Ltd., including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.8
to the October 31, 1996, Form 8-K/A.
4.16 Securities Purchase Agreement dated as of October 25, 1996, between the
Company and Freight Solutions International, including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.9
to the October 31, 1996, Form 8-K/A.
4.17 Subscription Agreement dated March 31, 1997, between the Company and
Fletcher International Limited, including as Annex B thereto the form of
Warrant Certificate issued pursuant thereto. Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 28,
1997 (the "February 28, 1997, Form 8-K").
4.18 Securities Purchase Agreement dated as of February 28, 1997, between the
Company and A-Com Enterprises Company, Ltd., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.2
to the February 28, 1997, Form 8-K.
4.19 Securities Purchase Agreement dated as of March 19, 1997, between the
Company and Seksun Precision Engineering Limited, including the exhibit
form of Registration Rights Agreement. Incorporated by reference to
Exhibit 10.3 to the February 28, 1997, Form 8-K.
4.20 Securities Purchase Agreement dated as of March 26, 1997, between the
Company and Tongkah SDN.BHD., including the exhibit form of Registration
Rights Agreement. Incorporated by reference to Exhibit 10.4 to the
February 28, 1997, Form 8-K.
4.21 Securities Purchase Agreement dated as of March 26, 1997, between the
Company and Silicon Systems, Inc., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.5
to the February 28, 1997, Form 8-K.
4.22 Securities Purchase Agreement dated as of April 15, 1997, between the
Company and Jardine Matheson & Company, Ltd., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 15, 1997 (the
"April 15, 1997, Form 8-K").
4.23 Securities Purchase Agreement dated May 1, 1997, between the Company and
New Enterprises Associates VII L.P., including as Annex A thereto the
Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 4, as Annex B thereto the form of
Warrant Certificate issued
II-3
<PAGE>
pursuant thereto, as Annex C thereto the form of Delivery Letter, and as
Annex D thereto the corrections to be made to the Certificate of
Designations. Incorporated by reference to the April 15, 1997, Form 8-K.
4.24 Securities Purchase Agreement dated August 4, 1997, between the Company and
Jayhawk Investments, L.P., including as Exhibit A thereto the form of
Warrant Certificate issued pursuant thereto. Incorporated by reference to
the August 4, 1997, Form 8-K.
4.25 Securities Purchase Agreement dated September 3, 1997, between the Company
and Olympus Securities, Inc., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 5, as Exhibit B thereto the form of Warrant
Certificate issued pursuant thereto, as Exhibit C thereto the form of
Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the August 4, 1997, Form 8-K.
4.26 Securities Purchase Agreement dated October 3, 1997, between the Company
and Olympus Securities, Inc., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 5, as Exhibit B thereto the form of Warrant
Certificate issued pursuant thereto, as Exhibit C thereto the form of
Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the August 4, 1997, Form 8-K.
4.27 Securities Purchase Agreement dated October 13, 1997, between the Company
and Bain & Company, Inc., including as Annex A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 4, and as Annex B thereto the form of Warrant Certificate
issued pursuant thereto. Reference is made to Exhibit 4.27 of the
Company's Registration Statement on Form S-3 filed on November 14, 1997
(Registration No. 33-40329).
4.28 Warrant Certificates dated as of June 27, 1997, issued to Silicon Valley
Bank. Incorporated by reference to the June 27, 1997, Form 8-K.
4.29 Warrant Certificates dated as of June 27, 1997, issued to Greyrock Business
Credit. Incorporated by reference to the June 27, 1997, Form 8-K.
4.30 Warrant Certificates dated as of July 23, 1997, August 15, 1997, September
15, 1997, and October 15, 1997, issued to The Silakhan Route. Incorporated
by reference to the June 27, 1997, Form 8-K.
4.31 Warrant Certificate dated as of November 10, 1997, issued to Wharton
Capital Partners. Incorporated by reference to the June 27, 1997, Form 8-K.
4.32 Securities Purchase Agreement dated February 13, 1998, between the Company
and CC Investments, LDC, including as Exhibit A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 7, as Exhibit B thereto the form of Warrant Certificate
issued pursuant thereto, as Exhibit C thereto the form of Delivery Letter,
and as Exhibit D thereto the form of conversion notice. Incorporated by
reference to the February 13, 1998, Form 8-K.
4.33 Securities Purchase Agreement dated February 13, 1998, between the Company
and Olympus Securities, Ltd., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 7, as Exhibit B thereto the form of
Warrant Certificate issued pursuant thereto, as Exhibit C thereto the form
of Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the February 13, 1998, Form 8-K.
4.34 Warrant Exchange Agreement dated April 1, 1994, between the Company and
Fletcher International Limited Incorporated by reference to the Company's
Current Report on Form 8-K dated March 25, 1998.
4.35 Securities Purchase Agreement dated May 7, 1998, between the Company and
Bain & Company, Inc., including as Exhibit A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 7, as Exhibit B thereto the form of Warrant Certificate
issued pursuant thereto, as Exhibit C thereto the form of Delivery Letter,
and as Exhibit D thereto the form of conversion notice. Incorporated by
reference to the April 22, 1998, Form 8-K.
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<PAGE>
4.36 Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 6. Incorporated by reference to
Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the fiscal
period ended March 31, 1998.
5.1 Opinion of Shartsis, Friese & Ginsburg LLP attached hereto.
23.1 Consent of Ernst & Young LLP, independent auditors attached hereto.
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants attached
hereto.
23.3 Consent of Shartsis, Friese & Ginsburg LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney of certain officers and directors (included in Part II of
the Registration Statement).
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post effective amendment by these
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
intial bona fide offering thereof.
II-5
<PAGE>
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fremont, State of California, on the eighth day of
October, 1998.
SYQUEST TECHNOLOGY, INC.
By: /s/ Edwin L. Harper
-----------------------------
Edwin L. Harper,
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Edwin L.
Harper and Henry Lo, and each of them, his true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution in each of
them, for him and in his name, place and stead, and in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-3 of SyQuest Technology, Inc., and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitutes or substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ---- ----
<S> <C> <C>
/s/ Edwin L. Harper President, Chief Executive Officer and Director October 8, 1998
- -------------------------- (Principal Executive Officer)
Edwin L. Harper
/s/ Henry Lo Chief Financial Officer (Executive Vice October 8, 1998
- -------------------------- President)
Henry Lo
/s/ Edward L. Marinaro Chairman of the Board and Director October 8, 1998
- --------------------------
Edward L. Marinaro
/s/ C. Richard Kramlich Director October 8, 1998
- --------------------------
C. Richard Kramlich
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
------ ----------------------- --------
================================================================================
3.1 Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K/A for
the fiscal period ended September 30, 1996.
3.2 Amendment to Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-3 filed December 2, 1996 (File No. 333-17119), as
amended.
3.3 By-Laws of the Company. Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the Quarter ended December 31, 1996.
4.1 Corrected Certificate of Designations, Preferences and Rights of 7%
Cumulative Convertible Preferred Stock, Series 1. Incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated
June 14, 1996.
4.2 Securities Purchase Agreement, dated as of May 31, 1996, by and among the
Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1.
Incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated June 14, 1996.
4.3 Registration Rights Agreement dated as of May 31, 1996, by and among the
Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1.
Incorporated by reference to Exhibit 10.2 to the Company's Current Report
on Form 8-K dated June 14, 1996.
4.4 6% Convertible Subordinated Debenture dated July 15, 1996. Incorporated by
reference to Exhibit 10.3 to the Company's Form S-3 Registration Statement
No. 333-7369.
4.5 Registration Agreement dated July 15, 1996, among the Company and WISRS
(Malaysia) SDN.BHD. Incorporated by reference to Exhibit 10.4 to the
Company's Form S-3 Registration Statement No. 333-7369.
4.6 Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 1, as amended and agreed to be amended.
Incorporated by Reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K/A dated October 31, 1996.
4.7 Certificate of Designations, Preferences and Rights of 5% Cumulative
Preferred Stock, Series 2. Incorporated by reference to Exhibit 3.2 to the
October 31, 1996, Form 8-K/A.
4.8 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and the buyers of the Convertible Preferred Stock, Series 1
including the following exhibits: Form of Warrant, Form of Registration
Rights Agreement, Form of Escrow Agreement and certain Schedules to the
representations. Incorporated by reference to Exhibit 10.1 to the October
31, 1996, Form 8-K/A.
4.9 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to
I
<PAGE>
the representations. Incorporated by reference to Exhibit 10.2 to the
October 31, 1996, Form 8-K/A.
4.10 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.3 to the October 31, 1996, Form 8-
K/A.
4.11 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.4 to the October 31, 1996, Form 8-
K/A.
4.12 Securities Purchase Agreement dated as of October 8, 1996, among the
Company and certain buyers of the Series 2 Preferred Stock, including the
following exhibits: Form of Escrow Agreement, Form of Warrant, Form of
Registration Rights Agreement and certain Schedules to the representations.
Incorporated by reference to Exhibit 10.5 to the October 31, 1996, Form 8-
K/A.
4.13 Securities Purchase Agreement dated as of September 27, 1996, between the
Company and Atmel Corporation, including the exhibit Form of Registration
Rights Agreement. Incorporated by reference to Exhibit 10.6 to the October
31, 1996, Form 8-K/A.
4.14 Securities Purchase Agreement dated as of October 18, 1996, between the
Company and Petronic International, Inc., including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.7
to the October 31, 1996, Form 8-K/A.
4.15 Securities Purchase Agreement dated as of October 24, 1996, between the
Company and SAE Magnetics (HK) Ltd., including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.8
to the October 31, 1996, Form 8-K/A.
4.16 Securities Purchase Agreement dated as of October 25, 1996, between the
Company and Freight Solutions International, including the exhibit Form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.9
to the October 31, 1996, Form 8-K/A.
4.17 Subscription Agreement dated March 31, 1997, between the Company and
Fletcher International Limited, including as Annex B thereto the form of
Warrant Certificate issued pursuant thereto. Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 28,
1997 (the "February 28, 1997, Form 8-K").
4.18 Securities Purchase Agreement dated as of February 28, 1997, between the
Company and A-Com Enterprises Company, Ltd., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.2
to the February 28, 1997, Form 8-K.
4.19 Securities Purchase Agreement dated as of March 19, 1997, between the
Company and Seksun Precision Engineering Limited, including the exhibit
form of Registration Rights Agreement. Incorporated by reference to
Exhibit 10.3 to the February 28, 1997, Form 8-K.
II
<PAGE>
4.20 Securities Purchase Agreement dated as of March 26, 1997, between the
Company and Tongkah SDN.BHD., including the exhibit form of Registration
Rights Agreement. Incorporated by reference to Exhibit 10.4 to the
February 28, 1997, Form 8-K.
4.21 Securities Purchase Agreement dated as of March 26, 1997, between the
Company and Silicon Systems, Inc., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.5
to the February 28, 1997, Form 8-K.
4.22 Securities Purchase Agreement dated as of April 15, 1997, between the
Company and Jardine Matheson & Company, Ltd., including the exhibit form of
Registration Rights Agreement. Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated April 15, 1997 (the
"April 15, 1997, Form 8-K").
4.23 Securities Purchase Agreement dated May 1, 1997, between the Company and
New Enterprises Associates VII L.P., including as Annex A thereto the
Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 4, as Annex B thereto the form of
Warrant Certificate issued pursuant thereto, as Annex C thereto the form of
Delivery Letter, and as Annex D thereto the corrections to be made to the
Certificate of Designations. Incorporated by reference to the April 15,
1997, Form 8-K.
4.24 Securities Purchase Agreement dated August 4, 1997, between the Company and
Jayhawk Investments, L.P., including as Exhibit A thereto the form of
Warrant Certificate issued pursuant thereto. Incorporated by reference to
the August 4, 1997, Form 8-K.
4.25 Securities Purchase Agreement dated September 3, 1997, between the Company
and Olympus Securities, Inc., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 5, as Exhibit B thereto the form of Warrant
Certificate issued pursuant thereto, as Exhibit C thereto the form of
Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the August 4, 1997, Form 8-K.
4.26 Securities Purchase Agreement dated October 3, 1997, between the Company
and Olympus Securities, Inc., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of Convertible
Preferred Stock, Series 5, as Exhibit B thereto the form of Warrant
Certificate issued pursuant thereto, as Exhibit C thereto the form of
Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the August 4, 1997, Form 8-K.
4.27 Securities Purchase Agreement dated October 13, 1997, between the Company
and Bain & Company, Inc., including as Annex A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 4, and as Annex B thereto the form of Warrant Certificate
issued pursuant thereto. Reference is made to Exhibit 4.27 of the
Company's Registration Statement on Form S-3 filed on November 14, 1997
(Registration No. 33-40329).
4.28 Warrant Certificates dated as of June 27, 1997, issued to Silicon Valley
Bank. Incorporated by reference to the June 27, 1997, Form 8-K.
4.29 Warrant Certificates dated as of June 27, 1997, issued to Greyrock Business
Credit. Incorporated by reference to the June 27, 1997, Form 8-K.
III
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4.30 Warrant Certificates dated as of July 23, 1997, August 15, 1997, September
15, 1997, and October 15, 1997, issued to The Silakhan Route. Incorporated
by reference to the June 27, 1997, Form 8-K.
4.31 Warrant Certificate dated as of November 10, 1997, issued to Wharton
Capital Partners. Incorporated by reference to the June 27, 1997, Form 8-K.
4.32 Securities Purchase Agreement dated February 13, 1998, between the Company
and CC Investments, LDC, including as Exhibit A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 7, as Exhibit B thereto the form of Warrant Certificate
issued pursuant thereto, as Exhibit C thereto the form of Delivery Letter,
and as Exhibit D thereto the form of conversion notice. Incorporated by
reference to the February 13, 1998, Form 8-K.
4.33 Securities Purchase Agreement dated February 13, 1998, between the Company
and Olympus Securities, Ltd., including as Exhibit A thereto the
Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 7, as Exhibit B thereto the form of
Warrant Certificate issued pursuant thereto, as Exhibit C thereto the form
of Delivery Letter, and as Exhibit D thereto the form of conversion notice.
Incorporated by reference to the February 13, 1998, Form 8-K.
4.34 Warrant Exchange Agreement dated April 1, 1998, between the Company and
Fletcher International Limited Incorporated by reference to the Company's
Current Report on Form 8-K dated March 20, 1998.
4.35 Securities Purchase Agreement dated May 7, 1998, between the Company and
Bain & Company, Inc., including as Exhibit A thereto the Certificate of
Designations, Preferences and Rights of 5% Cumulative Convertible Preferred
Stock, Series 7, as Exhibit B thereto the form of Warrant Certificate
issued pursuant thereto, as Exhibit C thereto the form of Delivery Letter,
and as Exhibit D thereto the form of conversion notice. Incorporated by
reference to the April 22, 1998, Form 8-K.
4.36 Certificate of Designations, Preferences and Rights of 5% Cumulative
Convertible Preferred Stock, Series 6. Incorporated by reference to
Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for the fiscal
period ended March 31, 1998.
5.1 Opinion of Shartsis, Friese & Ginsburg LLP attached hereto.
23.1 Consent of Ernst & Young LLP, independent auditors attached hereto.
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants attached
hereto.
23.3 Consent of Shartsis, Friese & Ginsburg LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney of certain officers and directors (included in Part II of
the Registration Statement).
IV
