-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QxjJVLZQEZH58BfOZoh5bOz5NX90Sx6ksRt9uRZ2oyIfyYeA77ZNNhFErXGXwGXK nozowgtrmbo3VbtZiaZtGg== 0000891618-97-000394.txt : 19970221 0000891618-97-000394.hdr.sgml : 19970221 ACCESSION NUMBER: 0000891618-97-000394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEEQ TECHNOLOGY INC CENTRAL INDEX KEY: 0000702756 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942711298 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11778 FILM NUMBER: 97523354 BUSINESS ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5102267400 MAIL ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 FORM 10-Q FOR QUARTERLY PERIOD ENDED 12/31/96 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended December 31, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____ to_____ Commission file number: 0-11778 -------------------- SEEQ TECHNOLOGY INCORPORATED ---------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2711298 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47200 Bayside Parkway Fremont, California 94538 (510) 226-7400 (Address, including zip code, of Registrant's principal executive offices and telephone number, including area code) -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 par value 30,288,379 (Class of common stock) (Shares outstanding at December 31, 1996) - -------------------------------------------------------------------------------- This report on Form 10-Q, including all exhibits, contains 14 pages. 1 2 SEEQ TECHNOLOGY INCORPORATED FORM 10-Q Table of Contents PART I. FINANCIAL INFORMATION Page Item 1. Condensed Financial Statements................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 12 Item 2. Changes in Securities............................................ 12 Item 3. Defaults upon Senior Securities.................................. 13 Item 4. Submission of Matters to a Vote of Security Holders.............. 13 Item 5. Other Information................................................ 13 Item 6. Exhibits and Reports on Form 8-K................................. 13 2 3 This Quarterly Report of Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1996 annual report on Form 10-K. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three months ended ------------------------- December 31, December 31, 1996 1995 -------- -------- Net revenues $ 6,624 $ 4,801 Cost of revenues 4,560 3,487 -------- -------- Gross profit 2,064 1,314 -------- -------- Operating expenses Research and development 780 786 Marketing, general and administrative 1,252 921 -------- -------- Total operating expenses 2,032 1,707 -------- -------- Income (loss) from operations 32 (393) Interest and other, net 3 100 -------- -------- Income (loss) before income taxes 35 (293) Provision for income taxes 1 -- -------- -------- Net income (loss) $ 34 $ (293) ======== ======== Net income (loss) per share: $ -- $ (0.01) Shares used in per share calculation: 31,885 29,873
See accompanying notes to condensed financial statements. 3 4 SEEQ TECHNOLOGY INCORPORATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
December 31, September 30, 1996 1996 ------- ------- ASSETS Current assets: Cash and cash equivalents $ 4,642 $ 3,974 Accounts receivable, less allowances 3,628 8,235 Inventories 5,145 5,352 Other current assets 201 368 ------- ------- Total current assets 13,616 17,929 Property and equipment, net 3,998 4,258 Other assets 4,300 4,248 ------- ------- Total assets $21,914 $26,435 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,167 $ 6,271 Accrued salaries, wages and employee benefits 442 586 Other accrued liabilities 905 1,024 Current portion of long-term obligations 857 895 ------- ------- Total current liabilities 4,371 8,776 Long-term obligations 3,234 3,466 Stockholders' equity: 14,309 14,193 ------- ------- Total liabilities and stockholders' equity $21,914 $26,435 ======= =======
See accompanying notes to condensed financial statements. 4 5 SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three months ended --------------------- Dec. 31, Dec. 31, 1996 1995 ------- ------- OPERATING ACTIVITIES: Net income/(loss) $ 34 $ (293) Adjustments to reconcile net income: Depreciation and amortization 421 184 Changes in assets and liabilities: Accounts receivable 4,607 40 Inventories 207 (316) Prepaid expenses and other assets 9 (407) Accounts payable (4,104) 634 Accrued liabilities and long term obligations (295) (508) ------- ------- Net cash provided by (used for) operating activities 879 (666) ------- ------- INVESTING ACTIVITIES: Capital expenditures (55) (131) Short-term investments in restricted account -- 3,000 ------- ------- Net cash provided by (used for) investing activities (55) 2,869 ------- ------- FINANCING ACTIVITIES: Payments on short term borrowings -- (3,000) Payments of capital lease obligations (238) (81) Proceeds from issuance of stock 82 308 ------- ------- Net cash used for financing activities (156) (2,773) ------- ------- Net increase (decrease) in cash and cash equivalents 668 (570) Cash and cash equivalents at beginning of period 3,974 3,682 ------- ------- Cash and cash equivalents at end of period $ 4,642 $ 3,112 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 83 $ 104 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY: Capital lease obligations incurred for the acquisition of equipment $ -- $ 127
See notes to condensed financial statements. 5 6 SEEQ TECHNOLOGY INCORPORATED NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of SEEQ Technology Incorporated ("SEEQ" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1996. These financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments, except for those adjustments related to certain restructuring and other expenses) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three months ended December 31, 1996 are not necessarily indicative of the results expected for the year ending September 30, 1997. For purposes of presentation, the Company has shown its fiscal quarters as ending on December 31, March 31, June 30 and September 30; whereas, in fact, the Company operates on a 52/53- week fiscal year ending on the last Sunday in September of each year. The fiscal quarter ends are actually December 29, March 30, June 29 and September 28 for the year ending September 30, 1997 and December 31, March 31, June 30, and September 29 for the year ending September 30, 1996. NOTE 2. INVENTORIES Inventories were comprised of the following:
Dec. 31, Sep. 30, 1996 1996 ------ ------ (in thousands) Raw materials $ 5 $ 22 Work in process 1,576 3,147 Finished goods 3,564 2,183 ------ ------ $5,145 $5,352 ====== ======
NOTE 3. NON-RECURRING PRODUCTION TRANSFER COSTS Non-recurring costs such as tooling and engineering costs resulting from transferring production of current product to new foundries are capitalized and amortized to cost of revenues over the shorter of: the remaining life of the product, the term of the foundry agreement or two years. Non-recurring costs which are associated with the development of new products are expensed as research and development costs when incurred. During the three month periods ended December 31, 1996 and December 31, 1995 the Company capitalized $111,000 and $349,000 of non-recurring production transfer costs, respectively. The amortization of these costs for the three month periods ended December 31, 1996 and December 31, 1995 were $106,000 and $17,000, respectively. 6 7 NOTE 4. NET INCOME (LOSS) PER SHARE Primary and fully diluted net income (loss) per share for the three month periods ended December 31, 1996 and December 31, 1995 were determined using the treasury stock method. Net income (loss) per common and common equivalent share is computed using the weighted average number of shares outstanding during the respective periods, including dilutive stock options and warrants. NOTE 5. LITIGATION On March 30, 1994, the Company filed a lawsuit against HMC in which, among other things, the Company sought a declaration by the court that an alleged license agreement, pursuant to which HMC had allegedly been granted certain license rights to the EEPROM technology sold to Atmel, is invalid. In response to the Company's claims, HMC asserted affirmative defenses and counterclaims. On August 16, 1995, the Company and HMC entered into a Settlement Agreement, Release and Tolling Agreement. Under the terms of such Agreement, the Company agreed, among other things, that the claims asserted against HMC in respect of the alleged license agreement would be tolled for such time and on such terms as provided therein. As a result, the Company is not currently pursuing such claims. The Company is entitled to pursue such claims in the future, however, subject to the terms of the Settlement Agreement, Release and Tolling Agreement. In the event that the Company does not cause the alleged license agreement to be invalidated, Atmel may assert a claim against the Company under the Asset Purchase Agreement, including a claim for damages, if suffered by Atmel as a result of HMC's use of any of such technology, and, in the event any such claim by Atmel is determined to be valid, Atmel may recover any such damages. The Company believes that, in the event of any claim by Atmel, the amount of damages that may be payable by the Company upon a resolution thereof will not have a material adverse effect on the Company's cash flow, financial position or results of operations. However, there can be no assurance as to such matters. Under the terms of the settlement, the Company agreed to pay HMC $500,000 due in three consecutive monthly installments beginning in August 1995. The Company further agreed to issue to HMC 100,000 shares of SEEQ's common stock and reactivate and modify the 1990 Foundry and Co-Development Agreement. On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that the claims asserted by Level One are without merit and that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations, although there can be no assurance as to such matters. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources would not have a material adverse effect on the Company's business, financial condition and results of operations. On June 25, 1996, Praxair, Inc. ("Praxair") filed a complaint against the Company arising out of a nitrogen supply contract between the Company and the plaintiff. The Complaint purports to state causes of action for breach of contract and promissory estoppel. The Complaint alleges that as a result of purported breaches of the nitrogen supply contract, the Company is obligated to pay plaintiff approximately $1,300,000 plus cost of suit, not including attorney's fees. The Company intends to contest all of Praxair's claims vigorously. Based on the Company's limited review to date, management believes that the claims asserted by Praxair are without merit. However, there can be no assurance that Praxair will not obtain a favorable result in the lawsuit which could have a material adverse effect on the Company's business, financial condition and results of operations. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Interim Condensed Financial Statements and Notes thereto and the SEEQ Technology Incorporated Annual Report and Form 10-K for the fiscal year ended September 30, 1996. This Quarterly Report of Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1996 annual report on Form 10-K. RESULTS OF OPERATIONS Revenues Net revenues were $6,624,000 in the first quarter of fiscal 1997, representing an increase of $1,823,000 or 38% over net revenues of $4,801,000 for the first quarter of fiscal 1996. During the first quarter of fiscal 1996, production volumes were not sufficient to meet demand due primarily to issues relating to the transfer of products to new foundries. During the first quarter of fiscal 1997, the Company was obtaining adequate levels of product from its foundries and experienced demand for its' Fast Ethernet products. Products supporting the Fast Ethernet (100Mbps) market accounted for approximately 43% of net revenues for the first quarter of fiscal 1997 compared to approximately 6% in the first quarter of fiscal 1996. Three customers, Bay Networks, Serial Systems and Solectron accounted for approximately 18%, 11% and 10% of revenues in the quarter ended December 31, 1996, respectively. Serial Systems and Solectron accounted for approximately 14% and 10% of revenues for the three months ended December 31, 1995, respectively. No other customer accounted for more than 10% of revenues for the three month periods ended December 31, 1996 and December 31, 1995. Gross Product Margins The Company includes in cost of revenues all costs associated with subcontractor manufacturing, electrical testing, subcontractor assembly and final test of its integrated circuits and subsystems, warehousing, shipping, product returns and reserves for inventory obsolescence. Allowances for product returns are netted against revenues. Gross profit for the first quarter of fiscal 1997 was $2,064,000 or 31% of net revenues, an increase of $750,000 over the first quarter of fiscal 1995's gross profit of $1,314,000 or 27% of net revenues, primarily attributable to higher revenues and lower production costs. Gross margins in future periods will be affected primarily by revenue levels and product mix, average selling prices, wafer yields, the introduction of new products and changes in manufacturing costs. Research and Development Research and development expenditures decreased from $786,000 in the first quarter of fiscal 1996 to $780,000 in the first quarter of fiscal 1997 primarily due to a decrease in tooling costs for new product development and partially off set by an increase in payroll costs. As a percentage of net revenues, research and development expenditures decreased from 16% in the first quarter of fiscal 1996 to 12% in the first quarter of fiscal 1997 due to higher revenues. The Company expects that the level of research and development spending will increase in absolute dollars in the next several quarters as a result of increased development efforts on new LAN products, but may vary as a percentage of net revenues. 8 9 Marketing, General and Administrative Expenses Marketing, general and administrative expenses increased from $921,000 in the first quarter of fiscal 1996 to $1,252,000 in the first quarter of fiscal 1997, and remained constant as a percentage of revenues at 19% for the same periods. This dollar increase is primarily attributable to higher commissions payable to outside sales representatives due to the growth in net revenues and to increased expenses associated with legal proceedings. The Company anticipates that the level of marketing, general and administrative expenses will vary in future periods based on expected revenue growth. Interest and other, net Interest and other, net decreased from $100,000 in the first quarter of fiscal 1996 to $3,000 in the first quarter of fiscal 1997. Interest expense has resulted primarily from borrowings under the Company's credit facility and from capital lease obligations. Interest expense remained constant at $83,000 in both the first fiscal quarters of 1996 and 1997, primarily as a result of the lower average balances of borrowings on the Company's credit facility offset by increases in interest expense. Interest income decreased from $183,000 in the first quarter of fiscal 1996 to $86,000 in the first quarter of fiscal 1997, primarily due to lower cash balances and lower interest rates from investments of the cash balances in cash, restricted cash and cash held in escrow invested in short-term investment instruments. Income Taxes The Company's provision for income taxes is due primarily to expected alternative minimum state and federal income taxes. Factors Affecting Operating Results The Company's quarterly operating results have varied significantly in the past and are likely to vary significantly in the future, depending on a number of factors, many of which are outside the control of the Company. These factors include fluctuations in manufacturing yields, the timing of introduction of new products by the Company and its competitors, changes in the markets addressed by the Company's products, market acceptance of the Company's and it's customers' products, the volume and timing of orders received, changes in the Company's product mix and customer base, the timing and extent of research and development expenditures, the availability and cost of semiconductor wafers from outside foundries, product obsolescence, price erosion, competitive factors, litigation expenses, cyclical semiconductor industry conditions and general economic conditions. The Company's net revenue and cost of revenues vary depending upon the mix of products sold. Any unfavorable change in manufacturing yields or product mix, delays in new product introductions, underutilization of manufacturing capacity, increased price competition or other factors could have a material adverse effect on the Company's operating results and financial condition. Historically, average selling prices in the semiconductor industry have decreased over the life of any particular product. There can be no assurance that the average selling prices of the Company's current or future products will not be subject to significant pricing pressures. In addition, the Company's business is characterized by short-term orders and shipment schedules, and customer orders typically can be canceled or rescheduled without significant penalty to the customer. Due to the absence of significant noncancellable backlog, the Company typically plans its production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. In addition, the Company is limited in its ability to reduce costs quickly in response to any revenue shortfalls, which could have a material adverse effect on the Company's business, operating results and financial condition. Due to all of the foregoing factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. LIQUIDITY AND CAPITAL RESOURCES 9 10 The Company has satisfied its cash requirements principally through cash flow from operations, borrowings under bank lines of credit, capital lease financing and the public and private sale of securities. The Company believes that existing sources of liquidity, anticipated cash flow from operations, and borrowings under the Company's credit facility will be adequate to satisfy its cash requirements at least through the end of fiscal 1997. However, there can be no assurance that the Company will have adequate resources to satisfy such requirements. It may become necessary for the Company to raise funds from debt and/or equity financing. There can be no assurance that such funds will be available on terms acceptable to the Company, if at all. Issuance of additional equity securities could result in dilution to stockholders. The inability to fund capital requirements would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's cash and cash equivalents balance increased from $3,974,000 as of September 30, 1996 to $4,642,000 as of December 31, 1996, primarily from cash provided by operating activities, partially offset by capital expenditures and payments of capital lease obligations. Operating Activities Cash flows provided by operating activities were $879,000 in the three months ended December 31, 1996 compared to cash flows used for operating activities of $666,000 in the three months ended December 31, 1995. This reflects higher income and collections of accounts receivable, offset in part by the decrease in accounts payable and other liabilities. Investing Activities Cash flows provided by investing activities of $2,869,000 during the first three months of fiscal 1996 includes $3,000,000 from the maturity of short term investments of restricted cash, the proceeds of which were used to pay off the Company's short term borrowings. Capital expenditures were $131,000 during the three month period ended December 31, 1995 and $55,000 for the same period ended December 31, 1996. Financing Activities Cash flows used for financing activities were $156,000 in the three month period ended December 31, 1996 compared to $2,773,000 in the three month period ended December 31, 1995. During the three month period ended December 31, 1995, the Company paid off short term borrowings of $3,000,000 with restricted cash. Net proceeds from the issuance of stock pursuant to the exercise of warrants and stock options and the Company's employee periodic stock purchase plan was $308,000 for the first three months of fiscal 1995 compared to $82,000 during the first three months of fiscal 1996. Principal payments against capital lease obligations were $81,000 in the quarter ended December 31, 1995 compared to $238,000 for the quarter ended December 31, 1996. In November 1993, the Company entered into a two-year line of credit agreement, subject to renewal, with the CIT Group ("CIT"). Although the Company was not required to make use of the bank line of credit, during the second quarter of fiscal 1994 it used cash resources to reduce its effective short-term credit borrowings interest rate by borrowing the minimum required borrowings of $3,000,000 under a secured bank line of credit with CIT, and investing the proceeds in a short-term certificate of deposit (restricted cash). Effective November 22, 1995, the Company renewed the credit facility with CIT for a two year term. Under the renewed credit agreement, the minimum borrowing requirement was reduced to $1,500,000 and was only applicable in the event the Company had a loan balance outstanding with CIT. Thus the Company liquidated its restricted cash and repaid the note payable to bank in November 1995. The credit agreement with CIT was terminated by the Company in August 1996. 10 11 In August 1996, the Company entered into a one-year revolving line of credit agreement with Silicon Valley Bank. Under the terms of the bank revolving line of credit, the Company could borrow the lesser of $7,000,000 or an amount determined by a formula applied to eligible accounts receivable, at a variable interest rate equal to the prime rate plus 0.75%. The revolving line of credit is secured by a security interest in the Company's assets, including intellectual property and expires August 18, 1997. The loan agreement requires the Company to maintain a profit each fiscal year and to maintain certain financial ratios. The loan agreement also requires the Company to maintain a level of tangible net worth which, in effect, limits the ability of the Company to make payments of cash dividends. There were no borrowings outstanding under this revolving line of credit as of December 31, 1996. 11 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 30, 1994, the Company filed a lawsuit against HMC in which, among other things, the Company sought a declaration by the court that an alleged license agreement, pursuant to which HMC had allegedly been granted certain license rights to the EEPROM technology sold to Atmel, is invalid. In response to the Company's claims, HMC asserted affirmative defenses and counterclaims. On August 16, 1995, the Company and HMC entered into a Settlement Agreement, Release and Tolling Agreement. Under the terms of such Agreement, the Company agreed, among other things, that the claims asserted against HMC in respect of the alleged license agreement would be tolled for such time and on such terms as provided therein. As a result, the Company is not currently pursuing such claims. The Company is entitled to pursue such claims in the future, however, subject to the terms of the Settlement Agreement, Release and Tolling Agreement. In the event that the Company does not cause the alleged license agreement to be invalidated, Atmel may assert a claim against the Company under the Asset Purchase Agreement, including a claim for damages, if suffered by Atmel as a result of HMC's use of any of such technology, and, in the event any such claim by Atmel is determined to be valid, Atmel may recover any such damages. The Company believes that, in the event of any claim by Atmel, the amount of damages that may be payable by the Company upon a resolution thereof will not have a material adverse effect on the Company's cash flow, financial position or results of operations. However, there can be no assurance as to such matters. Under the terms of the settlement, the Company agreed to pay HMC $500,000 due in three consecutive monthly installments beginning in August 1995. The Company further agreed to issue to HMC 100,000 shares of SEEQ's common stock and reactivate and modify the 1990 Foundry and Co-Development Agreement. On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that the claims asserted by Level One are without merit and that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. There can be no assurance, however, that Level One will not obtain a favorable determination in judicial proceeding, which could have a material adverse effect on the Company's business, financial condition and results of operations. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources would not have a material adverse effect on the Company's business, financial condition and results of operations. On June 25, 1996, Praxair, Inc. ("Praxair") filed a complaint against the Company arising out of a nitrogen supply contract between the Company and the plaintiff. The Complaint purports to state causes of action for breach of contract and promissory estoppel. The Complaint alleges that as a result of purported breaches of the nitrogen supply contract, the Company is obligated to pay plaintiff approximately $1,300,000 plus cost of suit, not including attorney's fees. The Company intends to contest all of Praxair's claims vigorously. Based on the Company's limited review to date, management believes that the claims asserted by Praxair are without merit. However, there can be no assurance that Praxair will not obtain a favorable result in the lawsuit which could have a material adverse effect on the Company's business, financial condition and results of operations. ITEM 2. CHANGES IN SECURITIES Not applicable. 12 13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the period for which this report is being filed. 13 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. SEEQ TECHNOLOGY INCORPORATED (Registrant) Dated: February 11, 1996 By: /s/ Phillip J. Salsbury -------------------------------- Phillip J. Salsbury President and Chief Executive Officer Dated: February 11, 1996 By: /s/ Robert O. Hersh -------------------------------- Robert O. Hersh Vice President, Finance, Chief Financial Officer and Secretary 14 15 Exhibit Index Ex 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1997 DEC-31-1996 4,642 0 3,628 0 5,145 13,616 12,056 8,058 21,914 3,514 3,234 0 0 303 14,006 21,914 6,624 6,624 4,560 4,560 0 0 83 35 1 34 0 0 0 34 0 0
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