<PAGE>
As filed with the Securities and Exchange Commission on August 5, 1996
Registration No. 333-.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
SPLASH TECHNOLOGY HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________
DELAWARE 3577 77-0418472
-----------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
______________________
555 DEL REY AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 328-6300
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
___________________________________
KEVIN K. MACGILLIVRAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SPLASH TECHNOLOGY HOLDINGS, INC.
555 DEL REY AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 328-6300
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
_________________________________
Copies to:
JEFFREY D. SAPER, ESQ. CARLA S. NEWELL, ESQ.
HOWARD S. ZEPRUN, ESQ. ANTHONY M. ALLEN, ESQ.
BRETT D. BYERS, ESQ. GUNDERSON DETTMER STOUGH
WILSON SONSINI GOODRICH & ROSATI, VILLENEUVE FRANKLIN & HACHIGIAN, LLP
PROFESSIONAL CORPORATION 600 HANSEN WAY, SECOND FLOOR
650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94304-1050 (415) 843-0500
(415) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 for the same Offering.[_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please 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. [_]
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, please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE
PER SHARE (2) PRICE (1) (2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value . shares $. $34,500,000 $11,896.64
============================================================================================================
============================================================================================================
</TABLE>
(1) Includes up to . shares of Common Stock ($4,500,000 aggregate offering
price) which may be purchased by the Underwriters to cover over-allotments,
if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.
Subject to Completion
August 5, 1996
. Shares
[SPLASH LOGO]
Common Stock
________________
Of the . of Common Stock offered hereby, . shares are being sold
by Splash Technology Holdings, Inc. ("Splash" or the "Company") and . shares
are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. Prior to the Offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $ . and $ . per
share. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price. The Company has applied to have
its Common Stock approved for quotation on the Nasdaq National Market under the
symbol "SPLH."
________________
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
================================================================================
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
================================================================================
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ 1,200,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
. additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer additional shares at the Price to Public shown above. If the option
is exercised in full, the total Price to Public, total Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
________________
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about , 1996.
ALEX, BROWN & SONS MONTGOMERY SECURITIES
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish to its stockholders annual reports audited
consolidated financial statements and quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
-2-
<PAGE>
________________________________________________________________________________
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and consolidated financial statements and
notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed in "Risk Factors." Unless the contexts otherwise
specifies, references in this Prospectus to "Splash" and the "Company" refer to
Splash Technology Holdings, Inc. and its subsidiaries, including its principal
operating subsidiary, Splash Technology, Inc.
THE COMPANY
Splash develops, produces and markets color servers that provide an
integrated link between desktop computers and digital color laser copiers and
enable such copiers to provide high quality, high speed, networked color
printing. These hybrid systems, consisting of color servers and digital color
laser copiers (referred to as connected or multifunction copiers), support
multiple uses including image scanning, image manipulation, printing and
photocopying. The Company's products feature advanced color correction, color
calibration and separations support, ease of use, time-saving workflow
functionality, simulation of many color monitors and printing presses, and
automatic correction for certain printing workflow problems.
Commercial color printing customarily involves multiple iterations of
complex, labor-intensive and costly steps, including design and composition,
color retouching and other manipulation, color separation, image setting and
proofing, and, finally, preparation of printing plates and printing on a large,
expensive commercial press. The process involves high fixed costs and
considerable time, and historically has been justified only for printing in
large volumes. The broader use of desktop color displays, desktop software, and
desktop-based color scanners, as well as the increased availability of digital
color copiers and networked and desktop color printers, has enabled a greater
amount of color design and print preparation to be performed more rapidly and at
lower costs than previously possible. Although the quality of both color copiers
and desktop color displays has improved in recent years, users hoping to take
advantage of such improvements have faced considerable difficulties due to the
complexities inherent in color technology, thus creating a need for advanced,
integrated, high quality, easy-to-use, and cost-effective color printing
solutions.
Splash servers turn a color copier into an effective network-based system
solution for a variety of color printer applications from commercial and short
run printing to office and desktop publishing. The Company's products utilize
open systems that can be readily integrated with corporate networks, enabling
easy access by a broad range of end users. The use of open systems enables the
Company to concentrate its development resources on value-added solutions for
end users, and provides greater flexibility by allowing use of standard
peripheral products and software. The Company believes it was the first among
its direct competitors to commercially offer a number of significant features
for multifunction copiers, including features in the areas of color calibration,
color corrections, color separations and scanning.
Splash sells its Professional Color Imaging ("PCI") Series color server
products to two of the leading providers of color copiers, Xerox Corporation
("Xerox") and Fuji Xerox Company Ltd. ("Fuji Xerox"). These original equipment
manufacturers ("OEMs") integrate the Company's color servers with their digital
color copiers and sell the connected systems to end users through a worldwide
direct distribution network. Users of the Company's color servers include
magazine publishers, advertising firms, graphic arts firms, publishing services
providers, prepress and printing firms, and Fortune 500 companies with in-house
graphics, marketing and advertising and publishing needs.
Splash Technology Holdings, Inc. was incorporated in Delaware in December
1995. The Company's business operated as the Color Server Group ("CSG") division
of SuperMac Technology from late 1992 to August 1994, and after the merger of
SuperMac Technology, Inc. ("SuperMac") into Radius, Inc. ("Radius") and as the
CSG division of Radius from August 1994 until January 1996. In January 1996, the
Company was acquired by an investor group consisting of certain funds affiliated
with Summit Partners, L.P. and Sigma Partners, L.P. and certain members of
management of the Company. The Company's executive offices are located at 555
Del Rey Avenue, Sunnyvale, CA 94086, and its telephone number is (408) 328-6300.
See "Acquisition" and "Certain Transactions."
________________________________________________________________________________
-3-
<PAGE>
________________________________________________________________________________
THE OFFERING
Common Stock offered hereby.......................... . shares
Common Stock to be outstanding after the Offering.... . shares(1)
Use of proceeds For repayment of
subordinated promissory
notes, redemption of
Series A Preferred Stock,
and general corporate
purposes including
working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... SPLH
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
------------------------------------------ --------------------
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------ --------------------------------
1994 1995 1995 1996(2)
-------------- -------------- ------------ -----------------
(PROFORMA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (UNAUDITED)
Net revenue................................. $ 16,354 $ 30,472 $ 20,343 $ 31,334
Cost of net revenue......................... 12,068 20,723 13,737 19,882
------- ------- ------- -------
Gross profit................................ 4,286 9,749 6,606 11,452
------- ------- ------- -------
Operating expenses: 1,999
Research and development................... 562 3,295 2,034 3,122
Sales and marketing........................ 377 2,076 1,505 1,494
General and administrative................. 891 667 955
Amortization of purchased technology and
write-off of in-process technology........ -- -- -- 22,729
------- ------- ------- -------
Total operating expenses.................. 2,938 6,262 4,206 28,300
------- ------- ------- -------
Income (loss) from operations............... 1,348 3,487 2,400 (16,848)
Interest expense, net....................... -- -- -- 406
------- ------- ------- -------
Income (loss) before provision for
income taxes................................ 1,348 3,487 2,400 (17,254)
Provision for (benefit from) income taxes... 99 1,395 960 (6,929)
------- ------- ------- --------
Net income (loss)........................... $ 1,249 $ 2,092 $ 1,440 $(10,325)
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY HOLDINGS, INC.
--------------------------------------
JUNE 30, 1996
--------------------------------------
ACTUAL AS ADJUSTED(3)
----------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................ $ 5,955 $ 9,229
Total assets................................................... 28,502 31,776
Long term debt................................................. 8,000 --
Total liabilities.............................................. 20,980 12,980
Stockholders' equity........................................... 7,522 18,796
</TABLE>
(1) Based on shares outstanding as of June 30, 1996. Excludes an aggregate of
approximately 70,000 shares of Common Stock issuable on exercise of options
and warrants outstanding as of June 30, 1996 at a weighted average exercise
price of $1.63 per share; approximately 4,000 shares of Common Stock
issuable on exercise of options granted after June 30, 1996; approximately
670,000 shares of Common Stock reserved for future grants under the
Company's 1996 Stock Option Plan; and 50,000 shares of Common Stock
reserved for issuance under the Company's 1996 Employee Stock Purchase
Plan. Also excludes 15,426 shares of Series A Preferred Stock to be
redeemed upon the closing of the Offering. See "Use of Proceeds,"
"Management--Compensation Plans" and Note 8 of Notes to Consolidated
Financial Statements.
(2) Represents the results of operations of CSG for the four months ended
January 31, 1996 plus the results of operations of the Company for the five
months ended June 30, 1996. There were no significant pro forma
adjustments.
(3) Adjusted to reflect the sale of $30,000,000 of Common Stock by the Company
after deducting estimated underwriting discounts and commissions and
estimated offering expenses and application of the net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
_______________________
This Prospectus includes trademarks and trade names of the Company and other
corporations.
_______________________
Except for the Consolidated Financial Statements and as otherwise noted,
all information in this Prospectus has been adjusted to give effect to (i) the
conversion of each outstanding share of Series B Preferred Stock into Common
Stock upon the closing of the Offering, (ii) adoption of the Company's 1996
Stock Option Plan and 1996 Employee Stock Purchase Plan in July 1996, and (iii)
the filing of a Restated Certificate of Incorporation on or prior to the closing
of the Offering to increase the authorized number of shares of Common Stock and
Preferred Stock. See "Capitalization," Description of Capital Stock" and
"Underwriting."
________________________________________________________________________________
-4-
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed below.
Short Period of Independent Operations; No Assurance of Future
Profitability. Prior to the Acquisition in January 1996, the business of the
Company had been operated as a division of Radius and, prior to the merger of
SuperMac into Radius, as a division of SuperMac. Moreover, Splash was dependent
on Radius through May 1996 for certain financial and administrative services and
related support functions. Accordingly, the Company has had limited experience
operating as an independent entity, and there can be no assurance that the
Company will be able to operate effectively as an independent company. Moreover,
the Company only began implementing independent accounting systems, financial,
operational and management controls, and reporting systems and procedures in
February 1996. The Company believes that further improvements in management and
operational controls will continue to be needed to manage any expansion of the
Company's operations. The failure to implement such improvements could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Although the Company's net revenue has increased each year since fiscal
1994, the Company's limited history of operations as an independent entity make
reliable predictions of future operating results difficult or impossible. In
particular, the Company's recent revenue growth should not be considered
indicative of future results. There can be no assurance that any of the
Company's business strategies will be successful or that the Company will be
able to sustain growth on a quarterly or annual basis. Although the Company was
profitable for the first nine months of fiscal 1996 (pro forma) and the first
five months of independent operations through June 30, 1996 (before purchase
accounting adjustments), there can be no assurance that the Company will
continue to be profitable on an annual or quarterly basis in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Fluctuations in Operating Results; Seasonal Purchasing Patterns. The
Company's operating results have fluctuated and will likely continue to
fluctuate in the future on a quarterly and annual basis as a result of a number
of factors, many of which are outside the Company's control. These fluctuations
are in part due to the purchasing patterns of the Company's two customers, Xerox
and Fuji Xerox. These customers have historically made, and are expected to
continue to make, a significant portion of their purchases of the Company's
products in the second half of the Company's fiscal year. As a result, the
Company's sales have historically been significantly lower, and are expected to
continue to be lower, in the first quarter of the Company's fiscal year than the
immediately preceding fourth quarter. In addition, any increases in inventories
by the Company's customers could also result in variations in the timing of
purchases by such customers. For example, in May 1996, as the Company
transitioned from its Power Series line of products to its PCI Series line of
products, Xerox informed Splash that it held in its inventory a substantial
quantity of Power Series products accumulated since January 1996. As a result of
the Company's product transition and Xerox's accumulation of inventory of these
products, sales of Power Series products shipped to Xerox between January 1996
and April 1996 are recorded as net revenue when Xerox sells these products to
end users. All other Power Series and PCI Series product sales are recorded upon
shipment to the OEM customer. There can be no assurance that the Company will
receive sufficient inventory information from its OEM customers over time or
that the Company will be able to prevent recurrence of a similar problem in the
future. In addition, announcements by the Company or its competitors of new
products and technologies could cause customers to defer purchases of the
Company's existing products. In the event that anticipated orders from end users
fail to materialize,
-5-
<PAGE>
or delivery schedules are deferred or canceled as a result of the above factors
or other unanticipated factors, it would materially and adversely affect the
Company's business, operating results and financial condition.
Results in any period could also be affected by changes in market demand,
competitive market conditions, sales promotion activities by the Company, its
OEM customers or its competitors, market acceptance of new or existing products,
sales of color copiers with which the Company's products are compatible, the
cost and availability of components, the mix of the Company's customer base and
sales channels, the amount of any third party funding of development expenses,
the mix of products sold, the Company's ability to effectively expand its sales
and marketing organization, the Company's ability to attract and retain key
technical and managerial employees, and general economic conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicative of future performance. Due to all of the foregoing factors, the
Company's operating results in one or more future periods may be subject to
significant fluctuations. In the event this results in the Company's financial
performance being below the expectations of public market analysts and
investors, the price of the Company's Common Stock would be materially and
adversely affected.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, and manufacturing and component costs. The Company
may be required to reduce prices in response to competitive pressure or increase
spending to pursue new market opportunities. In this regard, in the event of
significant price competition in the market for color copier servers or
competitive systems, the Company could be at a significant disadvantage compared
to its competitors, many of which have substantially greater resources (and, in
the case of the Company's principal competitor, Electronics for Imaging, Inc.
("EFI"), lower product costs) than the Company and therefore could more readily
withstand an extended period of downward pricing pressure. Any decline in
average selling prices of a particular product which is not offset by a
reduction in production costs or by sales of other products with higher gross
margins would decrease the Company's overall gross margin and adversely affect
the Company's operating results. The Company establishes its expenditure levels
for product development and other operating expenses based on projected sales
levels and margins, and expenses are relatively fixed in the short term.
Moreover, the Company's overall expense level is expected to increase as the
Company builds corporate infrastructure to replace services previously provided
by Radius and to support expansion of operations. Accordingly, if sales are
below expectations in any given period, the adverse impact of the shortfall on
the Company's operating results may be increased by the Company's inability to
adjust spending in the short term to compensate for the shortfall. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Emerging Color Server Market. The market for the Company's color server
products has only recently begun to develop. Because the markets for digital
color copiers and connected color servers are relatively new, and because
current and future competitors are likely to continue to introduce competing
solutions, it is difficult to predict the rate at which these markets will grow,
if at all. If the color server market fails to grow, or grows more slowly than
anticipated, the Company's business, operating results and financial condition
will be adversely affected. The Company intends to continue to spend resources
educating potential customers about color servers. However, there can be no
assurance that such expenditures will enable the Company's products to achieve
any additional degree of market acceptance. Moreover, the Company has
historically focused on certain segments of the market (the prepress and graphic
arts segments) and has had only limited penetration to date into the broader
office segment or other market segments. There can be no assurance the Company
will be able to maintain or increase its presence in its existing market
segments or to successfully penetrate such additional market segments. See
"Business--Industry Background" and "--Competition."
-6-
<PAGE>
Dependence on Xerox and Fuji Xerox. The Company's products operate only
with certain color laser copiers offered by Xerox and Fuji Xerox, and the
Company currently sells its products solely to Xerox and Fuji Xerox. Sales to
Xerox in fiscal 1994 and 1995 and the nine months ended June 30, 1996 accounted
for approximately 40%, 41% and 49%, respectively, of the Company's net revenue,
and sales to Fuji Xerox in such periods accounted for approximately 60%, 59% and
51%, respectively, of net revenue. As a result, sales of the Company's products
have been and will continue to be heavily influenced by the market acceptance of
the Xerox and Fuji Xerox color copiers with which the Company's products operate
and the sales efforts of Xerox and Fuji Xerox with respect to Splash products.
Xerox and Fuji Xerox face substantial competition from other manufacturers of
color copiers, including Canon Inc., which the Company believes has the largest
share of the worldwide market for color copiers. If sales of the color copiers
of Xerox and Fuji Xerox with which Splash's products are compatible decrease,
the Company's business, operating results and financial condition would be
materially and adversely affected. Similarly, if Xerox or Fuji Xerox were to
introduce color copiers that are not compatible with the Company's products, or
if Xerox or Fuji Xerox were to introduce color copiers that already contain a
significant portion of the functionality of the Company's products so as to
render the Company's products unnecessary, the Company's business, operating
results and financial condition would be materially and adversely affected. In
addition, Fuji Xerox color copiers are produced in a single location in Japan,
and any disruption of production at such facility could materially and adversely
affect the Company's business, operating results and financial condition.
The Company has historically sold color servers only to Xerox and Fuji
Xerox, which resell the Company's products on an OEM basis to their color copier
end users. As a result, the Company currently has a very small sales and
marketing organization and has limited experience with direct sales efforts. Any
change in the sales and marketing efforts of Xerox or Fuji Xerox with respect to
Splash's products, including any reduction in the size or effectiveness of the
Xerox or Fuji Xerox sales and marketing forces, or changes in incentives for
Xerox or Fuji Xerox salespersons to sell Splash products or color servers
produced by competitors of Splash, could have a material adverse effect on the
Company's business, operating results and financial condition.
Xerox currently sells a substantial number of color servers made by
companies other than Splash, including those of the Company's principal
competitor, EFI, and Fuji Xerox has recently commenced sales of EFI color
servers. Either Xerox or Fuji Xerox may choose to promote the use of color
servers manufactured by competitors of the Company to the detriment of sales of
the Company's products, may choose to manufacture color servers themselves, may
choose to manufacture only color copiers that are not compatible with Splash
products, or may otherwise reduce or cease purchases and sales of Splash color
servers. The Company does not have contracts with Xerox and Fuji Xerox with
respect to its PCI Series products and is currently operating on a purchase
order basis with these customers. Although the Company is currently negotiating
an agreement with Xerox and Fuji Xerox for its PCI products, there can be no
assurance that any such agreement will be completed or that the Company will
continue to receive orders from Xerox or Fuji Xerox. Any change in the level of
sales to Xerox or Fuji Xerox would have a material adverse effect on the
Company's business, operating results and financial condition.
Inventory Risks. Xerox and Fuji Xerox may from time to time carry an
excess inventory of Splash color servers, inaccurately project future demand for
Splash products or fail to optimally manage their ordering of Splash products,
any of which could result in a significant decrease in orders from such
customers in subsequent periods. For example, in May 1996, as the Company
transitioned from its Power Series line of products to its PCI Series line of
products, Xerox informed Splash that it held in its inventory a substantial
quantity of Power Series products accumulated since January 1996. Xerox has
indicated to Splash that, to eliminate this inventory and to permit Xerox to
introduce the new PCI Series products, Xerox dramatically reduced the selling
prices of the Power Series products beginning in June 1996. Sales by Xerox of
the Power Series products at a discount may have resulted or could result in
reduced sales of the Company's PCI Series products. Further, the reduced margin
that Xerox will experience as a result of its efforts to sell off its inventory
of the Power Series products may impair Splash's relationship with
-7-
<PAGE>
Xerox and thus could result in reduced future sales of Splash products by Xerox.
Xerox may have difficulty selling color server kits for the Power Series
products, which do not include a computer platform, because these units require
the use of an Apple Power Macintosh based upon the NuBus architecture no longer
used in Apple Power Macintosh computers. Thus, a purchaser of the earlier
generation color server kit must either already possess a NuBus based Apple
Power Macintosh or purchase one used. Xerox may not be able to continue to sell
Splash products at historic levels once it returns to a policy of not
discounting Splash products. Moreover, although Xerox has no commercial right of
return with respect to the Company's products, there can be no assurance that
the Company will not elect to make accommodations to Xerox in light of its
status as a significant customer. Reduced sales of Splash products by Xerox or
any financial accommodation made to Xerox could have a material adverse effect
on the business, operating results and financial condition of Splash. There can
be no assurance that the Company will receive sufficient inventory information
from Xerox or other customers over time or that the Company will in any event be
able to prevent recurrence of a similar problem in the future, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Adobe Systems Incorporated. The Company's products depend on
the PostScript page description language software developed by Adobe Systems
Incorporated ("Adobe") and licensed by the Company from Adobe on a non-exclusive
basis. Any delay in the release of future versions of PostScript by Adobe or in
the upgrade of the Company's products to be compatible with future versions of
PostScript, or any material defects in any future versions of PostScript
software, could have a material adverse effect on the Company's business,
operating results and financial condition. The Company is required to pay a
royalty for each copy of PostScript that is incorporated in Splash products,
which royalty constitutes a substantial portion of the total manufactured cost
of the Company's products. In addition, the Company is required to permit
testing by Adobe of the beta release version of the Company's products, and the
Company cannot begin shipping any version until such version meets Adobe's
quality standards. The Company's license agreement with Adobe expires in
September 1997, subject to renewal upon mutual consent. There can be no
assurance that Adobe will continue to enjoy its leadership position in the
market, renew the current license at the end of its term or license future
versions of PostScript to Splash on terms favorable to Splash or at all. If the
Adobe License Agreement is for any reason terminated or the Company's
relationship with Adobe is impaired, the Company could be required to change to
an alternative page description language which would require the expenditure of
significant resources and time and could significantly limit the marketability
of the Company's products. Any increase in royalties payable to Adobe also could
have a material adverse effect on the Company's operating results. In addition,
the Adobe PostScript software is incorporated in the products of certain of the
Company's competitors. The Company's business could be materially and adversely
affected if Adobe were to make available to the Company's competitors future
versions of Adobe PostScript software that include enhancements to the
PostScript software that were originally developed or implemented by Splash. See
"Business--Competition" and "-- Intellectual Property."
Dependence on Apple Computer, Inc. All of the Company's current products
require the use of an Apple Power Macintosh computer as a computer platform.
Apple has recently experienced significant financial difficulties and losses in
market acceptance, and its products have particularly low levels of market
acceptance in the office color printing market into which the Company is seeking
to expand. If Apple were to discontinue production of the Power Macintosh models
with which Splash products operate or were unable to provide or otherwise cease
to provide an acceptable level of end user customer support, the Company's
business, operating results and financial condition would be materially and
adversely affected. For example, Apple phased out the manufacture of Power
Macintosh products based on the NuBus architecture in the second half of
calendar 1995 in favor of Power Macintosh products based on the PCI bus
architecture. As a result, the Company had to expend significant resources and
faced substantial risk of technological failure or lack of market acceptance in
developing and introducing its PCI-based products. Any efforts of the Company to
migrate its products to a non-Apple computer platform would require a
-8-
<PAGE>
substantial expenditure of resources and time, and there can be no
assurance that any such products can be successfully developed or introduced in
a timely fashion and at competitive cost or otherwise achieve widespread market
acceptance. See "Business--Manufacturing."
Dependence on Single Product Line. Substantially all of Splash's current
shipments consist, and are expected to continue to consist, of the Company's PCI
Series of color server products. Because of this product concentration, a
decline in demand or pricing of these products would have a material adverse
effect on the Company's business, operating results and financial condition,
whether as a result of a decline in sales of complementary Xerox and Fuji Xerox
copiers; a further decline in the market for Apple Power Macintosh computers;
increased sales by Xerox or Fuji Xerox of color servers offered by competitors
of the Company or developed internally by Xerox or Fuji Xerox; new product
introductions by competitors; price competition; and technological change. Any
decline in the market for this product line or any failure to timely produce new
and enhanced products would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Products
and Technology."
Rapid Technological Change; Dependence on New Product Introductions. The
graphics and color reproduction, color processing and personal computing markets
are characterized by rapid changes in customer requirements, frequent
introductions of new and enhanced products, and continuing and rapid
technological advancement. To compete successfully, the Company must continue to
design, develop, manufacture and sell new products that provide increasingly
higher levels of performance and reliability, take advantage of technological
advancements and changes and respond to new customer requirements. The Company's
success in designing, developing, manufacturing and selling new products will
depend on a variety of factors, including the identification of market demand
for new products, product selection, timely implementation of product design and
development, product performance, cost-effectiveness of current products and
products under development, effective manufacturing processes and the success of
promotional efforts.
The Company has recently transitioned its product offerings from its Power
Series products to its PCI Series products, and there can be no assurance that
the PCI Series or any future products will achieve widespread market acceptance.
In addition, the Company has in the past experienced delays in the development
of new products and the enhancement of existing products, and such delays may
occur in the future. If the Company is unable, due to resource constraints or
technological or other reasons, to develop and introduce new products or
versions in a timely manner, or if such new products or releases do not achieve
timely and widespread market acceptance, it would have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Products and Technology" and "--Research and Development."
Competition. The markets for the Company's products are characterized by
intense competition and rapid change. The Company competes directly with other
independent manufacturers of color servers and with copier manufacturers, and
indirectly with printer manufacturers and others. The Company has a number of
direct competitors for color server products, the most significant of which is
EFI. Splash also faces competition from copier manufacturers that offer
internally developed color server products, such as a non-PostScript color
server offered by Fuji Xerox, or that incorporate color server features into
their copiers. In addition, the Company faces competition from desktop color
laser printers that offer increasing speed and color server capability. As
component prices decrease and the processing power and other functionality of
copiers, printers and computers increases, it becomes more likely that copier,
printer and computer manufacturers will continue to add color server
functionality to their systems, which could reduce the market for the Company's
existing line of products.
The Company also competes indirectly with manufacturers of electronic color
prepress systems, which offer similar functionality for the short-run and
commercial printing market as is provided by the Company's products.
-9-
<PAGE>
The Company also competes indirectly with manufacturers of electronic color
prepress systems, which offer similar functionality for the short-run and
commercial printing market as is provided by the Company's products. The
Company also competes indirectly with providers of color separation, color
editing and page layout software. While such software typically is
complementary to the Company's systems, such software can also be competitive
with the Company's systems and may become increasingly competitive to the extent
that the providers of such software extend the functionality of their products
in future releases.
Many of the Company's current and potential direct and indirect competitors
have longer operating histories, are substantially larger, and have
substantially greater financial, technical, manufacturing, marketing and other
resources than Splash. A number of these current and potential competitors also
have substantially greater name recognition and a significantly larger installed
base of products than the Company, which could provide leverage to such
companies in their competition with Splash. The Company expects competition to
increase to the extent the color server market grows, and such increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, operating results and financial condition. As a result of their
greater resources, many of such competitors are in a better position than Splash
to withstand significant price competition or downturns in the economy. There
can be no assurance that Splash will be able to continue to compete effectively,
and any failure to do so would have a material adverse effect upon the Company's
business, operating results and financial condition. See "Management Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Competition."
Management of Expanding Operations. The growth in the Company's business
has placed, and any further expansion would continue to place, a significant
strain on the Company's limited personnel, management and other resources. The
Company's ability to manage any future expansion effectively will require it to
attract, train, motivate and manage new employees successfully, to integrate new
management and employees into its overall operations and to continue to improve
its operational, financial and management systems. In this regard, the Company's
Chief Financial Officer and Vice President, Finance and Administration joined
the Company on March 29, 1996, and the Company currently does not have and has
been searching for a Vice President, Sales and Marketing. Moreover, the Company
expects to increase significantly the size of its domestic and international
sales support staff and the scope of its sales and marketing activities, and to
hire additional research and development personnel. The Company's failure to
manage any expansion effectively, including any failure to integrate new
management and employees or failure to continue to implement and improve
financial, operational and management controls, systems and procedures, could
have a material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Third Party Manufacturers. The Company outsources the
manufacture of its products to third party subcontract manufacturers including
Manufacturing Services, Ltd. ("MSL"), located in Sunnyvale, California and
Logistix Incorporated ("Logistix") located in Fremont, California. MSL
purchases the components used in Splash boards from its component suppliers and
performs double-sided active surface mount assembly, in-circuit test, functional
test and system test of the printed circuit boards used in the Splash PCI Series
products, on a turnkey basis. MSL also performs in-warranty and out-of-warranty
repair of failed boards for the Splash PCI Series products. The Company
directly purchases Apple Power Macintosh computers, monitors and memory, and
furnishes these components, as well as the MSL-assembled boards, to Logistix for
final assembly. Logistix directly purchases a small portion of the components
used in Splash color servers and does all final assembly and system
configuration. Other subcontract manufacturers perform similar services with
respect to the Splash Power Series product line.
While the Company's subcontract manufacturers conduct quality control and
testing procedures specified by the Company, the Company has from time to time
experienced manufacturing quality problems. Although the Company does not
believe any such problem had a material adverse effect on the Company's
business, there can be
-10-
<PAGE>
no assurance that quality problems will not occur again in the future or that
any such problem would not have a material adverse effect on the Company's
business, operating results and financial condition.
If the Logistix, MSL or other third party manufacturing facilities utilized
by the Company become unavailable to the Company, or if the manufacturing
operations at these facilities are slowed, interrupted or terminated, the
Company's business, operating results and financial condition could be adversely
affected. Although the Company believes that there are a variety of companies
available with the capability to provide the Company with such services, there
can be no assurance that the Company would be able to enter into alternative
third party manufacturing arrangements on terms satisfactory to the Company, in
a timely fashion, or at all. See "Business--Manufacturing."
Dependence on Component Availability and Cost. The Company purchases
components comprising a significant portion of the total cost of its color
servers. The balance of the inventory required to manufacture the Company's
products is purchased by Logistix. The Company currently sources most of its
Power Macintosh computers that serve as the platforms for its color servers
exclusively from Apple. The Company is currently operating on a purchase order
basis with Apple.
Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers. These include
Apple Power Macintosh computers, certain ASICs and other semiconductor
components. The Company does not maintain any long-term agreements with any of
its suppliers of components. Because the purchase of certain key components
involves long lead times, in the event of unanticipated increases in demand for
the Company's products, the Company could be unable to manufacture certain
products in a quantity sufficient to meet end user demand. The Company also
purchases memory modules from a single supplier. Although other sources are
available, a change in memory supplier could require time to effect and could
impact production. This risk would be exacerbated in times of short memory
supply. Any inability to obtain adequate deliveries of any of the components or
any other circumstance that would require the Company to seek alternative
sources of supply could affect the Company's ability to ship its products on a
timely basis, which could damage relationships with current and prospective
customers and could therefore have a material adverse effect on the Company's
business, financial condition and operating results. Moreover, there can be no
assurance that alternative sources of supply would be available on reasonably
acceptable terms, on a timely basis, or at all. The Company has from time to
time experienced shortages in deliveries of ASICs from Toshiba Corporation,
which shortages have impacted production volume capabilities. In order to
attempt to mitigate the risk of such shortages in the future, the Company
intends to increase its inventory of components for which the Company is
dependent upon sole or limited source suppliers. As a result, the Company may be
subject to an increasing risk of inventory obsolescence in the future, which
could materially and adversely affect the operating results and financial
condition.
The market prices and availability of certain components, particularly
memory and other semiconductor components and, to a lesser extent, Apple Power
Macintosh computers, which collectively represent a substantial portion of the
total manufactured cost of the Company's products, have fluctuated significantly
in the past. Significant fluctuations in the future could have a material
adverse effect on the Company's operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Manufacturing."
Dependence on Proprietary Technology. The Company relies in part on
trademark, copyright and trade secret law to protect its intellectual property
in the United States and abroad. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Splash software included as a part of
the Company's products is sold pursuant to "shrink wrap" licenses that are not
signed by the end user and, therefore, may be unenforceable under the laws of
certain
-11-
<PAGE>
jurisdictions. The Company does not own any issued patent. There can be no
assurance that any trademark or copyright owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Further, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology, duplicate the Company's technology or design around any
patent of the Company. Moreover, effective intellectual property protection may
be unavailable or limited in certain foreign countries. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights as fully as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology. Moreover, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of management time and resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
There have been substantial amounts of litigation in the computer and
related industries regarding intellectual property rights, and there can be no
assurance that third parties will not claim infringement by the Company of their
intellectual property rights. In particular, EFI filed suit against Radius in
November 1995, alleging infringement of an EFI patent by Splash's predecessor,
CSG. The technology which is the subject of the patent claim was acquired by
Splash in the Acquisition, and EFI could add Splash as a defendant to this suit
at any time. Although a portion of the purchase price in the Acquisition was
placed in escrow pending resolution of the EFI litigation, there can be no
assurance that any such litigation against Splash would not have a material
adverse effect on the Company's business, operating results and financial
condition. Any claims that the Company is infringing on proprietary rights of
EFI or others, with or without merit, could be time consuming to defend, result
in costly litigation, divert management's attention and resources, and cause
product shipment delays. If the Company were found to be infringing on the
intellectual property rights of any third party, the Company could be subject to
liabilities for such infringement, which could be material, and could be
required to seek licenses from other companies or to refrain from using,
manufacturing or selling certain products or using certain processes. Although
holders of patents and other intellectual property rights often offer licenses
to their patent or other intellectual property rights, no assurance can be given
that licenses would be offered or that the terms of any offered license would be
acceptable to the Company. Any need to redesign the products or enter into any
royalty or licensing agreement could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company relies upon certain software licensed from third parties. There
can be no assurance that the software licensed by the Company will continue to
provide competitive features and functionality or that licenses for software
currently utilized by the Company or other software which the Company may seek
to license in the future will be available to the Company on commercially
reasonable terms. The loss of, or inability to maintain, existing licenses could
result in shipment delays or reductions until equivalent software or suitable
alternative products could be developed, identified, licensed and integrated,
and the inability to license key new software that may be developed, on
commercially reasonable terms, would have a material adverse effect on the
Company's competitive position. Any such event would materially adversely affect
the Company's business, operating results and financial condition. See
"Acquisition," "Business--Intellectual Property" and "Certain Transactions."
Need for Additional Capital. The Company believes that in order to remain
competitive it may require additional financial resources over the next several
years for working capital, research and development, expansion of sales and
marketing resources, and capital expenditures. The Company believes that it
will be able to fund planned expenditures for at least the next twelve months
from a combination of the proceeds of the Offering, cash
-12-
<PAGE>
flow from operations and existing cash balances. Assuming completion of the
Offering and the application of $23.4 million the net proceeds therefrom for
repayment of the subordinated notes and redemption of the Series A Preferred
Stock, as of June 30, 1996 the Company would have had approximately $9.2 million
in working capital, including approximately $9.9 million in cash and cash
equivalents. In addition, the Company's operations generated cash flow of $6.8
million during the nine months ended June 30, 1996. Accordingly, upon completion
of the Offering, the Company will continue to have limited capital resources and
expects that it will require additional capital to support future growth, if
any. The Company may not be able to obtain additional financing as needed on
acceptable terms or at all. See "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
Risk of Product Defects. The Company's products consist of hardware and
software developed by Splash and others. Products such as those of the Company
may contain undetected errors when first introduced or when new versions are
released, and the Company has in the past discovered software and hardware
errors in certain of its new products after their introduction. Although the
Company has not experienced material adverse effects resulting from any errors
to date, there can be no assurance that errors would not be found in new
versions of Splash products after commencement of commercial shipments, or that
any such errors would not result in a loss of or delay in market acceptance and
have a material adverse effect upon the Company's business, operating results
and financial condition. In addition, errors in the Company's products
(including errors in licensed third party software) detected prior to new
product release could result in delay in the introduction of new products and
incurring of additional expense, which also could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Business--Products and Technology."
International Sales. All sales to Fuji Xerox are international sales. As a
result, international sales accounted for approximately 60%, 59% and 51% of net
revenue in fiscal 1994 and 1995 and in the nine months ended June 30, 1996,
respectively. In addition, although all sales to Xerox are U.S. sales, Xerox has
a significant international customer base, and the Company believes that a
significant portion of Splash products purchased by Xerox are resold outside the
United States. The Company expects that direct and indirect international sales
will continue to represent a substantial portion of its net revenue for the
foreseeable future. While the Company's international sales are presently
denominated in U.S. dollars, fluctuations in currency exchange rates could cause
the Company's products to become relatively more expensive to end users in a
particular country, leading to pressure to reduce the U.S. dollar denominated
price to the Company's OEM customers, which could in turn result in a reduction
in net revenue and profitability. The Company's business, operating results and
financial condition would be materially adversely affected if foreign markets do
not continue to develop. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Financial Difficulties of a Major Shareholder; Potential Sales of Common
Stock. Radius, which will beneficially own approximately .% of the outstanding
shares of the Common Stock immediately following the Offering, has faced
significant financial difficulties in recent periods, including the period
before the Acquisition and continues to face such difficulties. Radius has
certain rights to demand that the Company register Radius' shares of Common
Stock under the Securities Act of 1933, as amended (the "Securities Act"), which
registration would permit the sale by Radius of the shares registered in the
public market. If Radius were to enter bankruptcy, Radius would have the
ability to sell a substantial portion of its holdings of Common Stock in the
public market without regard to requirements for registration of such shares
under the Securities Act and for the requirements of Rule 144 promulgated under
the Securities Act. A sale of substantial amounts of the shares of Common Stock
held by Radius in the public market or the prospect of such a sale could
adversely affect the market price of the Company's Common Stock.
-13-
<PAGE>
Dependence on Key Personnel. Because of the nature of the Company's
business, the Company is highly dependent on the continued service of, and on
its ability to attract and retain, qualified technical, marketing, sales and
managerial personnel, including senior members of management. The competition
for such personnel is intense, and the loss of any of such persons, as well as
the failure to recruit additional key technical and sales personnel in a timely
manner, would have a material adverse effect on the Company's business and
operating results. There can be no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development of its business. The Company currently does not have employment
contracts with any of its employees and does not maintain key person life
insurance policies on any of its employees. See "Business--Employees" and
"Management."
Control By Principal Stockholders, Officers and Directors; Anti-Takeover
Effects of Certificate of Incorporation and Delaware Law. Immediately following
the Offering, the Company's principal stockholders, officers, directors and
their affiliates will beneficially own approximately .% of the outstanding
shares of the Common Stock. As a result, such persons, acting together, would
have the ability to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, effective upon the closing of the Offering, the Board
of Directors will have the authority to issue up to 5,000,000 shares of
undesignated Preferred Stock, to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any unissued series of undesignated Preferred Stock, and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. The Company's Certificate
of Incorporation also provides for a classified board of directors such that
only approximately one-third of the board is selected at each annual meeting of
stockholders. A classified board may have the effect of deferring or
discouraging a charge in control of the Company. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The Company's Certificate of Incorporation also
eliminates cumulative voting in the election of directors. The concentration of
ownership and the issuance of Preferred Stock under certain circumstances could
have the effect of delaying or preventing a change in control of the Company.
See "Principal and Selling Stockholders" and "Description of Capital Stock."
Benefit of Transaction to Existing Stockholders. The Offering will provide
substantial benefits to existing stockholders of the Company, particularly
certain affiliates of Summit Partners, L.P. and Sigma Partners, L.P. The Company
will use approximately $15.4 million of the proceeds of the Offering to redeem
all outstanding shares of the Company's Series A Preferred Stock, which are held
by funds affiliated with Summit Partners, L.P. and Sigma Partners, L.P., and
approximately $8.0 million of the proceeds to repay all outstanding subordinated
notes, which are held by funds affiliated with Summit Partners. See "Use of
Proceeds" and "Principal and Selling Stockholders."
Shares Eligible for Future Sale. Sale of substantial amounts of shares in
the public market or the prospect of such sales could adversely affect the
market price of the Company's Common Stock. Upon completion of the Offering, the
Company will have outstanding . shares of Common Stock. Of these shares, with
the exception of the . shares offered hereby, all shares of Common Stock held by
current stockholders are subject to lock-up agreements under which the holders
of such shares have agreed not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this Prospectus without the
prior written consent of the Representatives of the Underwriters. After the 180-
day period, approximately 320,000 shares will be eligible for sale under Rules
144 and 701 promulgated pursuant to the Securities Act. The remaining
approximately 2,350,000 shares held by existing stockholders will become
eligible for sale from time to time in the future under Rule 144. In addition,
the Company intends to file a registration statement under the Securities Act,
upon the effectiveness of the Offering or shortly thereafter, covering the sale
of shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan and 1996 Employee Stock Purchase Plan. As of June 30, 1996, there
were options outstanding to purchase a total of approximately 70,000 shares of
the Company's Common Stock, all of which are subject to 180-
-14-
<PAGE>
day lock-up agreements and approximately 670,000 additional shares reserved for
future option grants. Approximately 70,000 shares issuable upon exercise of such
options will be eligible for purchase and resale into the public market 180 days
after the date of this Prospectus in reliance upon Rule 701. Upon completion of
the offering, the 4,282 shares of Series B Preferred Stock owned by Radius will
automatically convert into 497,465 shares of the Company's Common Stock, which
are subject to a 180-day lockup agreement. If Radius were to enter bankruptcy
and were allowed to sell its shares of the Company's Common Stock without regard
to the Lock-up agreement or the restrictions of Rule 144 under the Securities
Act, such additional shares of Common Stock would become eligible for resale
into the public market at an indeterminate date after the date of this
Prospectus. See "Management--Compensation Plans," "Shares Eligible for Future
Sale" and "Underwriting." Certain existing stockholders holding approximately
2,450,000 shares of Common Stock are also entitled to registration rights with
respect to their shares of Common Stock. See "Description of Capital Stock--
Registration Rights."
No Prior Trading Market for Common Stock; Potential Volatility of Stock
Price. Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering. The initial public offering price will be
determined through negotiations between the Company and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after the Offering. The market price of the
shares of Common Stock may be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, change in estimates or recommendations by securities analysts,
litigation by or against the Company, announcements of technical innovations,
new products or new contracts by the Company, its competitors or their end
users, developments with respect to patents or proprietary rights, general
market conditions and other factors, certain of which could be unrelated to, or
outside the control of, the Company. The stock market has from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the common stocks of technology companies and
that have often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has been
initiated against the issuing company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business and operating results. Any settlement or adverse
determination in such litigation could also subject the Company to significant
liability, which could have a material adverse effect on the Company's financial
condition. See "Underwriting."
Dilution. The initial public offering price is substantially higher than
the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in the Offering will therefore incur immediate and
substantial dilution in net tangible book value per share. To the extent that
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
-15-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the . shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $. per share, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be $26.7 million ($30.9 million if
the Underwriters' over-allotment option is exercised in full). The Company will
use approximately $15.4 million of the proceeds of the Offering to redeem all
outstanding shares of the Company's Series A Preferred Stock, which are held by
funds affiliated with Summit Partners, L.P. and Sigma Partners, L.P., and
approximately $8.0 million to repay all outstanding subordinated promissory
notes, which are held by funds affiliated with Summit Partners. The subordinated
notes bear interest at a rate of 12% and require principal repayments beginning
January 30, 2001. The Series A Preferred Stock and the subordinated notes were
issued in connection with the Acquisition. The remaining net proceeds will be
used for working capital and general corporate purposes. A portion of the net
proceeds may also be used for investments in or acquisitions of complementary
businesses, products or technologies, although no such transactions are
currently under negotiation. Pending such uses, the Company expects to invest
the net proceeds in short-term, interest-bearing securities.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Certain Transactions" and "Principal and
Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's borrowing arrangements, including
the Company's line of credit and outstanding subordinated promissory notes
(which notes will be repaid out of the proceeds of the Offering) prohibit the
payment of cash dividends without the lender's prior written consent.
ACQUISITION
On January 30, 1996, the Company effected the Acquisition and related
transactions. The Acquisition consisted of: (i) the formation and initial
capitalization of Splash Technology Holdings, Inc.; (ii) the formation and
initial capitalization by Splash Technology Holdings, Inc. of a new wholly-owned
subsidiary, Splash Merger Company, Inc., a Delaware Corporation; (iii) the
formation and initial capitalization of a new corporation, Splash Technology,
Inc., a Delaware corporation, into which Radius placed certain assets and
liabilities of its Color Server Group in exchange for all of the capital stock
of Splash Technology, Inc.; and (iv) the merger of Splash Merger Company, Inc.
with and into Splash Technology, Inc. in a reverse triangular merger. As a
result of the merger, Splash Technology, Inc. was the surviving corporation and
Radius received in exchange for its interest in Splash Technology, Inc. (i)
$21.9 million in cash, (ii) an aggregate of 4,282 shares of Series B Preferred
Stock of the Company, which are convertible into a total of 497,465 shares of
Common Stock of the Company (representing approximately 19% of the outstanding
Common Stock of the Company on an as-converted basis prior to the Offering), and
(iii) a payment of approximately $1.5 million in cash on June 9, 1996.
The Acquisition was funded by the purchase of approximately $15.4 million
of Series A Preferred Stock by entities associated with Summit Partners, L.P.
and entities associated with Sigma Partners, L.P. and the purchase of $8.0
million of subordinated promissory notes by entities associated with Summer
Partners, L.P. As a result of an independent third party valuation, the Series A
Preferred Stock was valued at $14,700,000 and the subordinated promissory notes
were valued at $8,600,000.
-16-
<PAGE>
In connection with the Acquisition, the parties entered into an escrow
agreement providing for an escrow of $4.7 million for satisfaction of possible
claims for indemnification by Splash Technology, Inc., Splash Technology
Holdings, Inc. and its stockholders against Radius. An amount equal to
approximately $2.35 million remains in escrow pending (i) a final, non-
appealable order dismissing with prejudice the EFI litigation, (ii) the
attainment by Radius of certain financial tests, or (iii) or the discretionary
decision by Splash Technology Holdings, Inc. and its stockholders to release the
amount in escrow. See "Risk Factors--Dependence on Proprietary Technology" and
"Business--Intellectual Property."
In connection with the Acquisition and related transactions, funds
affiliated with Summit Partners, L.P. and Sigma Partners, L.P. acquired an
aggregate of 1,682,500 shares of Common Stock and 167,500 shares of Common
Stock, respectively, representing 63.2% and 6.3% of the Company's outstanding
Common Stock immediately prior to the Offering. In addition, funds affiliated
with Summit Partners, L.P. and Sigma Partners, L.P. acquired an aggregate of
13,933 shares and 1,493 shares, respectively, of Series A Preferred Stock of the
Company and funds affiliated with Summit Partners, L.P. acquired promissory
notes of the Company in the aggregate principal amount of $8.0 million. The
promissory notes are required to be repaid at face value plus accrued and unpaid
interest, and the Series A Preferred Stock is required to be redeemed at a price
of $1,000 per share plus accrued and unpaid dividends, upon certain events
including an initial public offering at a price of at least $12.00 per share and
aggregate gross proceeds to the Company of at least $35.0 million. It is
anticipated that the promissory notes will be repaid and the Series A Preferred
Stock will be redeemed out of the proceeds of the Offering even at a lesser
amount of aggregate gross proceeds to the Company. See "Use of Proceeds,"
"Certain Transactions," "Principal and Selling Stockholders" and "Description of
Capital Stock."
The Acquisition constituted a leveraged transaction. As of January 30,
1996, the Company had approximately $12.6 million in assets and approximately
$9.6 million of liabilities. Immediately following the Acquisition, the Company
had $34.6 million in assets and $19.1 million of liabilities. The proceeds from
the Offering will be used primarily to repay the $8.0 million in subordinated
notes and redeem the $15.4 million of outstanding Series A Preferred Stock
issued in connection with the Acquisition. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Certain Transactions" and "Principal and Selling
Stockholders."
-17-
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996: (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis to give effect to the conversion into Common Stock of all
outstanding shares of Series B Preferred Stock upon the closing of the Offering,
and (iii) the pro forma capitalization of the Company as adjusted to give effect
to the receipt of the estimated net proceeds from the initial public offering of
$26.7 million at an assumed public offering of $. per share, and the application
of the net proceeds therefrom and the amendment to the Company's Amended and
Restated Certificate of Incorporation. See "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt (1)................................................. $ 8,000 $ 8,000 $ --
-------- -------- --------
Stockholders' equity
Preferred Stock:
Authorized: 19,708,000 shares, actual and pro forma;
5,000,000 shares as adjusted
Series A Preferred Stock, par value $.001 per share:
Authorized: 15,426 shares, actual and pro forma; issued and
outstanding: 15,426 shares, actual; no shares pro forma; and
no shares as adjusted.......................................... $ 1 $ 1 $ --
Series B Preferred Stock, par value $.001 per share:
Authorized, issued and outstanding: 4,282 shares actual;
no shares pro forma and no shares as adjusted.................. 1 -- --
Common Stock, par value $.001 per share:
Authorized: 50,000,000 shares; issued and outstanding:
2,165,575 shares actual, 2,663,040 shares pro forma, . shares
as adjusted (2).................................................. 2 3 3
Additional paid-in capital......................................... 19,462 19,462 30,428
Accumulated deficit................................................ (11,944) (11,944) (11,635)
-------- -------- --------
Total stockholders' equity....................................... 7,522 7,522 18,796
-------- -------- --------
Total capitalization........................................... $ 15,522 $ 15,522 $ 18,796
======== ======== ========
</TABLE>
__________________
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Excludes an aggregate of approximately 70,000 shares of Common Stock
issuable on exercise of options and warrants outstanding as of June 30,
1996; approximately 4,000 shares of Common Stock issuable on exercise of
options granted after June 30, 1996; approximately 670,000 shares of Common
Stock reserved for future grants under the Company's 1996 Stock Option
Plan; and 50,000 shares of Common Stock reserved for issuance under the
Company's 1996 Employee Stock Purchase Plan. See "Use of Proceeds,"
"Management--Compensation Plans" and Note 8 of Notes to Consolidated
Financial Statements.
-18-
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at June 30, 1996,
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock upon or prior to the closing of the Offering, was
approximately $. million, or $. per share of Common Stock. "Pro forma net
tangible book value" per share represents the amount of total tangible assets of
the Company less total liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of . shares of
Common Stock offered hereby (after deducting the underwriting discounts and
commissions and estimated Offering expenses) at an assumed initial public
offering price of $. per share, the pro forma net tangible book value of the
Company at June 30, 1996 would have been $. million, or $. per share. This
represents an immediate increase in net tangible book value of $. per share to
existing stockholders and an immediate dilution of $. per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $
Pro forma net tangible book value before the Offering............... $
Increase attributable to new investors..............................
Pro forma net tangible book value after the Offering..................
Net tangible book value dilution to new investors..................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30,
1996, the differences in the total consideration paid and the average price per
share paid by the Company's existing stockholders and the new investors with
respect to the . shares of Common Stock to be sold by the Company. The
calculations in this table with respect to shares of Common Stock to be
purchased by new investors in the Offering reflect an assumed initial public
offering price of $. per share:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
---------------------------- ----------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................
New investors....................................
Total...........................................
</TABLE>
The foregoing computations exclude, as of June 30, 1996, an aggregate of
approximately 70,000 shares of Common Stock issuable on exercise of outstanding
options and warrants at a weighted average exercise of $1.63 per share. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors. See "Risk Factors--Dilution," "Management--
Compensation Plans" and "Description of Capital Stock."
-19-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data presented below for
the years ended September 30, 1994 and 1995, the four months ended January 31,
1996 and the five months ended June 30, 1996, and the selected consolidated
balance sheet data as of September 30, 1994 and 1995 and June 30, 1996 are
derived from, and are qualified by reference to, the audited consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The selected consolidated statement of operations data for the nine months ended
June 30, 1995 are derived from unaudited consolidated financial statements
included elsewhere in this Prospectus, have been prepared on the same basis as
the annual consolidated financial statements and, in the opinion of management,
contain all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the operating results and financial
position for such periods and as of such dates. The consolidated operating
results for the four months ended January 31, 1996 and five months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
full year or any other future period.
The financial statements for the periods prior to January 31, 1996 reflect
the operations of the CSG division of Radius and SuperMac, adjusted to reflect
operations as a separate corporation. The financial statements after January 31,
1996 reflect the consolidated operations of the Company after accounting for the
Acquisition using the purchase method of accounting. Operating results
subsequent to January 31, 1996 reflect (i) interest on the debt incurred in
connection with the Acquisition, (ii) non-recurring, non-cash charges relating
to the write-off of in-process research and development projects and the
amortization of purchased technology, and (iii) an income tax benefit from the
net operating loss associated with the Acquisition.
The data set forth below are qualified in their entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
notes thereto and other financial and statistical information appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
----------------------------------------------------------------- -----------------
FISCAL YEAR NINE MONTHS FOUR MONTHS FIVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, JANUARY 31, JUNE 30,
------------------------------- ---------------- ---------------- -----------------
1994 1995 1995 1996 1996
(UNAUDITED)
-------------- ---------------- ---------------- ---------------- -----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue..................................... $ 16,354 $ 30,472 $ 20,343 $ 13,008 $ 18,326
Cost of net revenue............................. 12,068 20,723 13,737 8,427 11,455
------- -------- -------- -------- --------
Gross profit.................................... 4,286 9,749 6,606 4,581 6,871
------- -------- -------- -------- --------
Operating expenses:
Research and development...................... 1,999 3,295 2,034 1,498 1,624
Sales and marketing........................... 562 2,076 1,505 688 806
General and administrative.................... 377 891 667 287 668
Amortization of purchased technology and
write-off of in-process technology.......... - - - - 22,729
------- -------- -------- -------- --------
Total operating expenses.................... 2,938 6,262 4,206 2,473 25,827
------- -------- -------- -------- --------
Income (loss) from operations.................... 1,348 3,487 2,400 2,108 (18,956)
Interest expense, net............................ -- -- -- 18 388
------- -------- -------- -------- --------
Income (loss) before provision for income taxes.. 1,348 3,487 2,400 2,090 (19,344)
Provision for (benefit from) income taxes........ 99 1,395 960 836 (7,765)
------- -------- -------- -------- --------
Net income (loss)................................ $ 1,249 $ 2,092 $ 1,440 $ 1,254 $ (11,579)
======= ======== ======== ======== ========
Net income (loss) per share (1).................. $ (4.38)
========
Shares used in computing per share amounts (1)... 2,726
========
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC
---------------------------- -------------------
SEPTEMBER 30, JUNE 30,
----------------------------
1994 1995 1996
------------ ------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital..................................... $ 4,126 $ 2,318 $ 5,955
Total assets........................................ 7,383 9,688 28,502
Long term debt...................................... -- -- 8,000
Total liabilities................................... 3,057 6,985 20,980
Equity.............................................. 4,326 2,703 7,522
</TABLE>
___________________________
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
The Company operated as the Color Server Group ("CSG") division of SuperMac
from late 1992 to August 1994 and, after the merger of SuperMac into Radius, as
the CSG division of Radius from August 1994 until January 1996. In January 1996,
Splash was acquired by an investor group in a leveraged transaction. See
"Acquisition" and "Certain Transactions." References below to the results of
operations for the nine months ended June 30, 1996 refer to the results of
operations of CSG for the four months ended January 31, 1996 plus the results of
operations of the Company for the five months ended June 30, 1996.
The Company sells pre-configured color server systems and board-level
server kits to two OEM customers, Xerox and Fuji Xerox, which integrate the
Company's color servers with their color copiers and sell such connected systems
on a worldwide basis. Sales to Xerox accounted for approximately 40%, 41% and
49% of net revenue in fiscal 1994, fiscal 1995 and the nine months ended June
30, 1996, respectively. Sales to Fuji Xerox accounted for approximately 60%, 59%
and 51% of net revenue in fiscal 1994, fiscal 1995 and the nine months ended
June 30, 1996, respectively. The Company expects that sales to Xerox and Fuji
Xerox will continue to account for all or a substantial portion of its net
revenue for the foreseeable future. As a result, sales of the Company's products
have been and will continue to be heavily influenced by the market acceptance of
the Xerox and Fuji Xerox color copiers with which the Company's products operate
and the sales efforts of Xerox and Fuji Xerox with respect to Splash products.
See "Risk Factors--Dependence on Xerox and Fuji Xerox."
Substantially all net revenue has been derived from the sale of systems and
color server kits. The Company's policy is to recognize revenue at the time of
shipment of its products to its OEM customers, which have no right to return
products. From inception to September 30, 1993, the Company was engaged
principally in research and development, and recorded approximately $1.3 million
of net revenue from product shipments and $1.6 million of research and
development costs. The Company began shipping board-level color server kits in
fiscal 1993 and pre-configured color server systems in fiscal 1995. In May 1996,
the Company made the transition from its Power Series products to its new PCI
Series products, and continues to offer Power Series products only as server
kits in limited quantities and as warranty and replacement parts. In May 1996,
Xerox informed Splash that it held in its inventory a substantial quantity of
Power Series products accumulated since January 1996. As a result of the
Company's product transition and Xerox's accumulation of inventory of these
products, sales of Power Series products shipped to Xerox between January and
April 1996 are recorded as net revenue when Xerox sells these products to end
users. All other Power Series and PCI Series product sales are recorded upon
shipment to the OEM customer.
The Company has achieved significant growth in net revenue and operating
income each year since fiscal 1994, before purchase accounting adjustments.
However, there can be no assurance that the Company will continue to grow at
similar rates in the future, if at all. In addition, the Company's overall
expense level is expected to increase as the Company builds corporate
infrastructure and expands its operations. Accordingly, the Company believes
that period-to-period comparisons of its financial results should not be relied
upon as an indication of future performance. Although the Company was profitable
for the first nine months of fiscal 1996 and the first five months of
independent operations through June 30, 1996 (before purchase accounting
adjustments), there can be no assurance that the Company will continue to be
profitable on an annual or quarterly basis in the future.
-22-
<PAGE>
The Company establishes its expenditure levels for operating expenses based
on projected sales levels and margins, and expenses are relatively fixed in the
short term. Moreover, the Company expects to expand its sales and marketing,
technical and customer support, research and product development and
administrative activities. Accordingly, if sales are below expectations in any
given quarter, the adverse impact of the shortfall in revenues on operating
results may be increased by the Company's inability to adjust spending in the
short term to compensate for the shortfall.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of revenue for the periods indicated.
<TABLE>
<CAPTION>
Splash
Technology
Predecessor Business Holdings, Inc.
--------------------------------------- ----------------
Year Ended September 30, Nine Months Ended June 30,
-------------------------- ----------------------------
1994 1995 1995 1996
------------ ------------ ------------ --------------
(unaudited) (pro forma)
<S> <C> <C> <C> <C>
Net revenue............................... 100% 100% 100% 100%
Cost of net revenue....................... 74 68 68 63
---- ---- ---- ----
Gross margin............................. 26 32 32 37
---- ---- ---- ----
Operating expenses:
Research and development................ 12 11 10 10
Sales and marketing..................... 3 7 7 5
General and administrative.............. 3 3 3 3
Amortization of purchased technology and -- -- -- 73
write-off of in-process technology..... ---- ---- ---- ----
Total operating expenses.............. 18 21 20 91
---- ---- ---- ----
Income (loss) from operations............. 8 11 11 (54)
Interest expense, net..................... -- -- -- 1
---- ---- ---- ----
Income (loss) before provision for
income taxes............................. 8 11 11 (55)
Provision for (benefit from) income
taxes.................................... -- 4 4 (22)
---- ---- ---- ----
Net income (loss)......................... 8% 7% 7% (33)%
==== ==== ==== ====
</TABLE>
NET REVENUE. The Company's net revenue increased 86% to $30.5 million in
fiscal 1995 from $16.4 million in fiscal 1994, and increased 54% to $31.3
million in the nine months ended June 30, 1996 from $20.3 million in the nine
months ended June 30, 1995. These increases were primarily attributable to
higher unit sales of systems and color server kits. In addition, the Company has
experienced a shift toward higher priced, pre-configured color server systems
from lower priced color server kits, particularly in the third quarter of fiscal
1995 with the introduction of the Company's Power Series product line and in the
third quarter of fiscal 1996 with the introduction of the Company's PCI Series
product line. For example, since the Company's introduction of the PCI Series
product line, Fuji Xerox has shifted its product purchases from substantially
all kits to substantially all pre-configured systems. There can be no assurance
that Fuji Xerox or Xerox will not change its mix of product purchases again in
the future. Any sales mix shift toward kits would result in lower average
selling prices and impact net revenue. Net revenue has also been and may
continue to be impacted by the Company's sales mix of systems and kits in
greater or lesser memory configurations.
Through April 1996, the Company derived substantially all of its revenue
from color server products designed for NuBus-based Apple Macintosh computers,
including the Power Series product line originally introduced in fiscal 1995 and
the Company's original Splash color server kit products introduced in fiscal
1993. Beginning in mid-calendar 1995, Apple began to transition from a NuBus
architecture in its high end Power Macintosh products to a PCI bus architecture.
Accordingly, Splash developed its initial PCI bus-based product line, the PCI
Series, and commenced shipment of such product line in May 1996. The Company
does not expect
-23-
<PAGE>
that sales of Power Series products will represent any material portion of net
revenue in the future other than any net revenue recognized from the sale to end
users of the remaining Power Series products held by Xerox. See "--Overview" and
"Risk Factors--Dependence on Xerox and Fuji Xerox."
All sales to Fuji Xerox are international sales. As a result, international
sales accounted for 60% and 59% of net revenues in fiscal 1994 and 1995,
respectively, and accounted for approximately 59% and 51% of net revenue in the
nine months ended June 30, 1995 and 1996, respectively. In addition, although
all sales to Xerox are U.S. sales, Xerox has a significant international
customer base and the Company believes that a significant portion of Splash
products purchased by Xerox are resold outside the United States. The Company
expects that direct and indirect international sales will continue to represent
a substantial portion of its net revenue for the foreseeable future. While the
Company's international sales are presently denominated in U.S. dollars,
fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to end users in a particular country, leading
to pressure to reduce the U.S. dollar denominated price to the Company's OEM
customers, which could in turn result in a reduction in net revenue and
profitability. See "Risk Factors--International Sales."
GROSS MARGIN. Cost of net revenue consists primarily of the costs of Apple
Power Macintosh computers (in the case of pre-configured systems), memory, and
royalties for Adobe PostScript software, plus, to a lesser extent, the cost of
other components, additional third party software license fees and royalties,
and manufacturing services. Gross margins increased to 32% in fiscal 1995 from
26% in fiscal 1994, and increased to 37% in the nine months ended June 30, 1996
from 32% in the nine months ended June 30, 1995. The increases in gross margin
were primarily due to economies in scale derived from higher sales volumes and
increases in pricing due to product improvements from additional software
features, partially offset by a sales shift toward certain lower margin pre-
configured server models. The gross margin for the nine months ended June 30,
1996 as compared to the nine months ended June 30, 1995 also increased due to
reductions in component costs achieved through new product designs and favorable
component pricing. The Company expects that gross margins will fluctuate from
period to period and may decrease in future periods. Gross margin is affected by
a number of factors, including product mix, product pricing and manufacturing
and component costs. The Company may also be required to reduce prices in
response to competitive pressure. Any decline in average selling prices of a
particular product which is not offset by a reduction in production costs or by
sales of other products with higher gross margins would decrease the Company's
overall gross margin and adversely affect the Company's operating results. See
"Risk Factors--Fluctuations in Operating Results; Seasonal Purchasing Patterns."
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related costs, consulting fees and depreciation of
equipment. Research and development expenses increased 65% to $3.3 million in
fiscal 1995 from $2.0 million in fiscal 1994, and increased 53% to $3.1 million
in the nine months ended June 30, 1996 from $2.0 million in the nine months
ended June 30, 1995. As a percentage of net revenue, however, research and
development decreased to 11% in fiscal 1995 from 12% in fiscal 1994, and was 10%
of net revenue in each of the nine months ended June 30, 1995 and 1996. These
increases in the absolute dollar amount of these expenses were primarily
attributable to increased staffing and associated support required to enhance
the Company's product line and, in fiscal 1995 and 1996, to introduce the
Company's Power Series and PCI Series product lines, respectively. Except for
charges related to the Acquisition, all research and development costs to date
have been expensed as incurred. In view of current projects under development
and contemplated, research and development expenses are expected to increase in
absolute dollars in future periods, although they may vary as a percentage of
net revenue. See "Business--Research and Development."
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related costs, consulting fees, trade show costs and marketing
materials. Sales and marketing expenses increased 269% to $2.1 million in fiscal
1995 from $562,000 in fiscal 1994 and remained relatively constant at $1.5
million in the nine months ended June 30, 1996 and the nine months ended June
30, 1995. Such expenses represented 7%, 3%, 5% and 7% of net revenue for such
respective periods. The increases in the absolute dollar amount of these
expenditures
-24-
<PAGE>
were primarily related to expansion of the Company's sales support and marketing
staff and associated costs, primarily to increase the Company's level of support
for Xerox's sales organizations. The Company intends to continue to increase
sales and marketing expenses in order to enhance sales support capabilities and
to pursue promotional programs designed to improve name and product recognition
in the end user community. Accordingly, sales and marketing expenses are
expected to increase in absolute dollars in future periods, although they may
vary as a percentage of net revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses prior to
January 31, 1996 consisted primarily of an allocation of overhead expenses by
Radius based on headcount. Since February 1, 1996, general and administrative
expenses have consisted primarily of compensation and related costs, and
consulting and professional fees. General and administrative expenses increased
136% to $891,000 in fiscal 1995 from $377,000 in fiscal 1994, representing 3% of
net revenue for each respective period, and increased 43% to $955,000 in the
nine months ended June 30, 1996 from $667,000 in the nine months ended June 30,
1995, representing 3% of net revenue in each such period. The increase from 1994
to 1995 was primarily due to increased salary and related costs due to increased
headcount. The increase in the first nine months of 1996 was primarily related
to the Company's efforts to enhance its corporate infrastructure to replace
services provided by Radius prior to the Acquisition, and to support expansion
of the Company's operations. The Company believes that its general and
administrative expenses will increase in absolute dollars in the foreseeable
future as it continues to implement additional management and operational
systems, and expands its administrative staff and incurs additional costs
relating to being a public company.
ACQUISITION-RELATED AND NON-OPERATING EXPENSES. In the nine months ended
June 30, 1996, the Company recorded certain costs related to the Acquisition,
including a write-off of $19.3 million of in-process research and development,
and the amortization in full through May 1996 of $3.4 million of purchased
technology. Through June 30, 1996, the Company had incurred interest costs
pursuant to the subordinated notes and line of credit established in connection
with the Acquisition, offset in part by interest earned on short-term
investments.
PROVISION FOR INCOME TAXES. The Company accounts for income taxes in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes." For fiscal
1994, 1995 and the nine month periods ended June 30, 1995 and 1996, the Company
estimated a provision for income taxes as if CSG had been operating as a
separate company. In addition, as a result of the Acquisition, the Company
recorded a deferred tax asset of approximately $9.1 million and realized a
corresponding credit to the provision for income taxes, arising from the
difference in treatment of acquired intangible assets for tax and financial
reporting purposes. The Company has not reduced the deferred tax asset by a
valuation allowance as it is more likely than not that all of the deferred tax
asset will be realized through future taxable income.
-25-
<PAGE>
QUARTERLY RESULTS
The following tables set forth consolidated statements of operations data
for the seven quarters in the period ended June 30, 1996, both in dollar amounts
and as percentages of net revenue. This information has been derived from
unaudited financial statements that, in the Company's opinion, reflect all
normal recurring adjustments that the Company considers necessary to present a
fair statement of the results of operations in the quarterly periods. The data
set forth should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of results for future quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ 4,559 $ 6,346 $ 9,438 $ 10,129 $ 7,206 $ 10,791 $ 13,337
Cost of net revenue..................... 3,042 4,171 6,524 6,986 4,847 6,871 8,164
------ ------ ------ ------ ------ ------ ------
Gross profit.......................... 1,517 2,175 2,914 3,143 2,359 3,920 5,173
------ ------ ------ ------ ------ ------ ------
Operating expenses
Research and development.............. 372 825 837 1,261 1,256 884 982
Sales and marketing................... 281 504 720 571 568 438 488
General and administrative............ 222 223 222 224 236 188 531
Amortization of purchased
technology and
write-off of in-process
technology..................... - - - - - 21,027 1,702
Total operating ------ ------ ------ ------ ------ ------ ------
expenses.......................... 875 1,552 1,779 2,056 2,060 22,537 3,703
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations........................ 642 623 1,135 1,087 299 (18,617) 1,470
Interest expense, net................... 197 209
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........................ 642 623 1,135 1,087 299 (18,814) 1,261
Provision for (benefit from) income
taxes................................. 257 249 454 435 120 (7,550) 501
------ ------ ------ ------ ------ ------ ------
Net income............................ $ 385 $ 374 $ 681 $ 652 $ 179 $(11,264) $ 760
====== ====== ====== ====== ====== ====== ======
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............................. 100% 100% 100% 100% 100% 100% 100%
Cost of net revenue..................... 67 66 69 69 67 64 61
----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 33 34 31 31 33 36 39
----- ----- ----- ----- ----- ----- -----
Operating expenses
Research and development.............. 8 13 9 12 18 8 7
Sales and marketing................... 6 8 8 6 8 4 4
General and administrative 5 3 2 2 3 2 4
Amortization of purchased
technology and
write-off of in-process
technology........................ - - - - - 195 13
----- ----- ----- ----- ----- ----- -----
Total operating expenses.............. 19 24 19 20 29 209 28
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations.......................... 14 10 12 11 4 (173) 11
Interest expense, net................... 2 1
----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........................ 14 10 12 11 4 (175) 10
Provision for (benefit from) income
taxes................................. 6 4 5 5 2 (71) 4
----- ----- ----- ----- ----- ----- -----
Net income............................ 8% 6% 7% 6% 2% (104)% 6%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's net revenue increased on a sequential quarterly basis from
the first quarter of fiscal 1995 to the fourth quarter of fiscal 1995, and the
same pattern was followed for the first three quarters of fiscal 1996. Increases
within each year reflected higher unit sales quarter to quarter due to
increasing market acceptance of the Company's products. In addition, the Company
has experienced shifts in sales to its higher-priced color server systems from
its lower-priced color server kits, particularly beginning in the third quarters
of fiscal 1995 and 1996 with the introductions of the Power Series and PCI
Series product lines, respectively. The gross margins decreased in the second
half of fiscal 1995 primarily due to a sales shift toward certain lower margin
pre-configured server
-26-
<PAGE>
systems. The subsequent increases in gross margins for each of the first three
quarters in fiscal 1996 were primarily due to the reductions in component costs
achieved through redesigns of the Power Series boards, new product line designs,
continued economies of scales from higher sales volumes and favorable component
pricing, particularly computers and memory. Memory prices have experienced
significant fluctuations in the past and there can be no assurances that current
pricing trends will continue. The Company expects that gross margins will
fluctuate quarter to quarter and may decrease in the future. See "Risk
Factors--Fluctuations in Operating Results; Seasonal Purchasing Patterns."
Research and development expenses have fluctuated from quarter to quarter
due in part to periodic third party funding of development efforts, which
totaled approximately $337,000, $543,000 and $453,000 in fiscal 1994 and 1995,
and the nine months ended June 30, 1996 respectively, ranging from $0 to
approximately $300,000 per quarter in the periods presented. Third party funding
of development is included in net revenue and costs of net revenue for such
products. In addition, research and development spending generally increased
quarter to quarter in fiscal 1995 as the Company expanded its development
efforts, and decreased in the second and third quarters of fiscal 1996 due to
elimination of overhead charges by Radius following the Acquisition. There can
be no assurance that the Company will continue to receive third party funding of
any of its future development projects. Sales and marketing expenses increased
in the third quarter of fiscal 1995 and third quarter of fiscal 1996 due to
marketing efforts in connection with the introduction of Splash's Power Series
and PCI Series products, respectively . General and administrative expenses
decreased in the second quarter of fiscal 1996 as the Company discontinued use
of Radius' administrative services and increased in the third quarter of fiscal
1996 as the Company began adding its own administrative infrastructure.
The Company's operating results have fluctuated and will likely continue to
fluctuate in the future on a quarterly and annual basis as a result of a number
of factors, many of which are outside the Company's control. These fluctuations
are in part due to the purchasing patterns of the Company's two customers, Xerox
and Fuji Xerox. These customers have historically made, and are expected to
continue to make, a significant portion of their purchases of the Company's
products in the second half of the Company's fiscal year. As a result, the
Company's sales have historically been significantly lower, and are expected to
continue to be lower, in the first quarter of the Company's fiscal year than the
immediately preceding fourth quarter. In addition, any increases in inventories
by the Company's customers could also result in variations in the timing of
purchases by such customers. In addition, announcements by the Company or its
competitors of new products and technologies could cause customers to defer
purchases of the Company's existing products. In the event that anticipated
orders from end users fail to materialize, or delivery schedules are deferred or
canceled as a result of the above factors or other unanticipated factors, it
would materially and adversely affect the Company's business, operating results
and financial condition.
Results in any period could also be affected by changes in market demand,
competitive market conditions, sales promotion activities by the Company, its
OEM customers or its competitors, market acceptance of new or existing products,
sales of color copiers with which the Company's products are compatible, the
cost and availability of components, the mix of the Company's customer base and
sales channels, the amount of any third party funding of development expenses,
the mix of products sold, the Company's ability to effectively expand its sales
and marketing organization, the Company's ability to attract and retain key
technical and managerial employees, and general economic conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicative of future performance. Due to all of the foregoing factors, the
Company's operating results in one or more future periods may be subject to
significant fluctuations. In the event this results in the Company's financial
performance being below the expectations of public market analysts and
investors, the price of the Company's stock would be materially and adversely
affected.
-27-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From fiscal 1994 until the Acquisition in January 1996, the Company
satisfied its liquidity requirements through cash flow generated from
operations. The Company had limited cash balances following the Acquisition and
satisfied its cash needs through a $4.0 million revolving line of credit and
cash flow from operations.
As of June 30, 1996, the Company had $6.6 million of cash and cash
equivalents and had repaid all borrowings under the bank line of credit.
Borrowings are available under the line of credit based on a percentage of
eligible accounts receivable, and at June 30, 1996, borrowings of $3.4 million
were available. Borrowings under the line of credit bear interest at a rate of
prime plus three-quarters of one percent. The line of credit expires on January
31, 1997. The Company has outstanding an aggregate of $8.0 million of
subordinated promissory notes issued to stockholders in connection with the
Acquisition. The subordinated promissory notes bear interest at a rate of 12%
per annum, payable quarterly. Such notes are payable in 2001 and 2002, or
earlier if certain events occur, including the Offering, and will be paid in
full out of the proceeds of the Offering. (The notes were valued at $8.6 million
by an independent third party valuation.) See Notes 4 and 5 of Notes to
Consolidated Financial Statements.
The Company's operating activities provided $4.2 million in cash in fiscal
1995, primarily due to increases in accounts payable, other accrued liabilities,
royalties payable and income taxes payable, offset in part by an increase in
inventories. For the nine months ended June 30, 1996, the Company generated $6.8
million in cash from operations, primarily due to decreases in accounts
receivable and increases in other accrued liabilities, deferred revenue and
income taxes payable, partially offset by decreases in royalties payable.
Investing activities used $444,000 in cash in fiscal 1995 and $22.9 million
in cash in the nine months ended June 30, 1996. These amounts represented
purchases of property and equipment and, in the nine months ended June 30, 1996,
$22.5 million in cash used in connection with the Acquisition. Financing
activities used $3.7 million in cash in fiscal 1995, consisting of cash
transfers to Radius and provided $23.6 million in cash in the nine months ended
June 30, 1996, consisting primarily of financing related to the Acquisition.
The Company has no material commitments other than obligations under
operating leases. See Note 6 of Notes to Consolidated Financial Statements.
The Company expects to use $23.4 million of the net proceeds of the
Offering for repayment of the subordinated promissory notes payable to
stockholders and redemption of its Series A Preferred Stock. See Notes 5 and 7
of Notes to Consolidated Financial Statements. The remaining net proceeds, if
any, will be used for working capital and general corporate purposes. Assuming
completion of the Offering and the application of the net proceeds therefrom, as
of June 30, 1996, the Company would have had approximately $9.2 million in
working capital, including approximately $9.9 million in cash and cash
equivalents. The Company believes that it will be able to satisfy its cash
requirements for at least the next twelve months from a combination of the
proceeds of the Offering, cash flow from operations and the Company's bank line
of credit. However, upon completion of the Offering, the Company will continue
to have limited capital resources and may require additional capital sooner. The
Company may not be able to obtain additional financing as needed on acceptable
terms or at all. See "Use of Proceeds," "Capitalization," "Risk Factors--Need
for Additional Financing" and "Certain Transactions."
-28-
<PAGE>
BUSINESS
This Business section and other parts of this Prospectus contain forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
Splash develops, produces and markets color servers that provide an
integrated link between desktop computers and digital color laser copiers and
enable such copiers to provide high quality, high speed, networked color
printing and scanning. These hybrid systems, consisting of color servers and
digital color laser copiers (referred to as connected or multifunction copiers),
support multiple uses including image scanning, image manipulation, printing and
photocopying. The Company's products feature advanced color correction, color
calibration and separations support, ease of use, time-saving workflow
functionality, simulation of many color monitors and printing presses, and
automatic correction for certain printing workflow problems. Splash's color
servers are commonly accessed by users across networks of Windows-based personal
computers, Apple personal computers and UNIX-based computers.
INDUSTRY BACKGROUND
The use of color in communications media is becoming ubiquitous. Just as
photography, television, computer monitors and, more recently, newspapers have
migrated from black and white to color, a similar transition is occurring in
electronic printing. Advances in computer-based color graphics, printing and
imaging technology are fueling increased demand for the ability to produce color
printed materials more easily, more frequently, in smaller batches, and at lower
cost.
Commercial color printing customarily involves a number of complex, labor
intensive and costly steps. Accordingly, color largely has been reserved for
high end and high volume applications, and printing of commercial quality
materials such as magazines, catalogs, brochures and sales material has been
performed primarily by professional independent printing companies. Typically,
the images to be printed are designed and composed by an end user's in-house
staff or by a design house or advertising agency. These images are passed to a
service bureau for prepress preparation are input by a high-quality scanner (or,
more recently accepted in electronic file format from the designer) and prepared
for printing. Preparation for printing includes color retouching and other
manipulation and then separation into the four colors -- cyan, magenta, yellow
and black ("CMYK") -- utilized by large, four-color commercial presses. The
separated CMYK files are transferred electronically to an imagesetter which
generates a separate CMYK film for each color. These films are then used to
print a pre-proof via a film proofer. Color separation and proofing are
typically performed by service bureaus or, at times, by commercial printers.
These steps are often repeated several times to ensure that the proof matches
the end user's expectations. Once approved by the end user, the proof serves as
the basis for the contract between the end user and the commercial printer. In
the final step of the process, the printer utilizes the CMYK films to prepare
printing plates and then print the job on a commercial press which is typically
large and expensive. Each step in the proofing and prepress process is
technically complex, time consuming, labor intensive and costly, and multiple
cycles are often required. Accordingly, the process involves high fixed costs
and considerable time, and historically has been justified only for printing in
large volumes.
The broad use of high quality desktop color displays, desktop software such
as Adobe Photoshop and QuarkXPress, and desktop-based color scanners, as well as
the increased availability of digital color copiers and networked and desktop
color printers, has enabled a greater amount of the color design and production
workflow to be performed more rapidly and at lower costs than was previously
possible. As a result, the different organizations in the traditional printing
workflow have begun to broaden their service offerings, with resultant overlap
of roles. For example, end users and designers are seeking to perform a greater
degree of color preparation and to review a
-29-
<PAGE>
greater number of design proofs earlier in the process, and service bureaus are
seeking to expand their service offerings with faster and lower cost color
alternatives. End users, service bureaus and traditional commercial printers are
all seeking to expand their internal capabilities for inexpensive, low volume,
high quality color printing of final output. In the emerging end user office
market in particular, the improvements in color copier technology make possible
inexpensive production of a broad range of color materials, including sales
brochures, product literature and internal communications.
Color printing involves significantly greater complexities and requires
substantially more memory and processing power than black and white printing.
For example, accurate printed replication of an electronic color image displayed
on a monitor is difficult to achieve because the monitor creates color by
projecting light in the three display colors of red, green and blue ("RGB") --an
additive process of light creation -- while printed output is created through
the mixing of the four CMYK ink colors on paper -- a subtractive process of
light absorption. Each display, scanning and printing device has unique color
properties that must be managed and adjusted during production, and each device
must be continually recalibrated over time. The variety of papers, ink and
printing processes also results in variations, as do changes in temperature and
humidity. In addition, different applications and devices may combine multiple
color and file formats when producing an image, resulting in issues of
compatibility and consistency.
Diagram #1:
Complicated, traditional workflow (reading from left to right)
including computer, scanner, imagesetter, film proofer, printing
press, and printed output.
Diagram #2:
Simplified, emerging workflow alternative (reading from left to right)
including only computer, scanner, Splash/copier, and printed output.
The complexities inherent in the color reproduction and printing workflow
have created a need for advanced, integrated, high quality, easy-to-use and
cost-effective color printing solutions. As a result, digital laser color
copiers and associated color servers are becoming increasingly prevalent across
the broad printing market: in end user offices where ease of use is as critical
as high quality results, at design houses and service bureaus which require
advanced color management tools, and at commercial printers which are seeking to
broaden their market through lower cost solutions.
THE SPLASH SOLUTION
Splash color servers provide an integrated link between computers and color
copiers and address the demand for high performance, cost effective digital
color printing. The Company's color servers turn a color copier into an
effective network-based solution for a variety of color printing applications
ranging from commercial and short-run printing to office color printing. The
Company's products feature advanced color correction, color calibration and
separations support, ease of use, time-saving workflow functionality, simulation
of many color monitors and printing presses, and automatic correction for
certain workflow problems.
Diagram #3:
Splash at the center of a network with two Windows PCs doing
newsletters and presentations, two Macs doing comps and pre-proofs,
and a UNIX workstation doing engineering drawings; inclusion of
Novell, AppleTalk, TCP/IP.
Splash servers utilize open systems that can be readily integrated with
corporate networks enabling easy access by a broad range of end users. The
Company's products use Adobe PostScript and are based on the Apple Power
Macintosh computer, both of which are widely used by color graphics
professionals. The Company's servers
-30-
<PAGE>
support popular network protocols, including AppleTalk for Apple Macintosh
networks, Novell IPX for Windows-based personal computer networks and TCP/IP for
UNIX-based networks. Open systems enable the Company to concentrate its
development resources on value-added solutions for end users, including improved
color quality, workflow and overall productivity, while being able to leverage
ongoing enhancements in hardware, software and computer performance from IBM,
Motorola, Apple and Adobe. Open systems also provide users with greater
flexibility by allowing the use of standard peripheral products and software.
The Company believes that its open systems approach and color expertise have
enabled it to provide innovative, high performance products.
STRATEGY
Splash's objective is to extend its position as a leading provider of
innovative, high quality color server solutions. To achieve this objective, the
Company's business strategy includes the following key elements:
Leverage Technology Expertise. Splash seeks to leverage its expertise in
color technology, application workflow, software and hardware design and
computer systems integration to continue to offer innovative, easy-to-use, color
server products. The Company believes that its technological leadership has
permitted it to offer a number of significant features for multifunction copiers
prior to its direct competitors. For example, Splash was first to market with a
number of key features in the areas of color calibration, color correction, CMYK
separation and mixed RGB/CMYK printing.
Support Open Systems. Splash intends to continue to utilize standards-based
open systems to enable it to bring new products to market more quickly and to
permit operation with a wide variety of computer networks, devices and
complementary software. Splash provides color servers based on open systems and
popular networking protocols in order to focus the Company's development efforts
on advanced software and hardware designs that optimize color quality and
consistency, workflow efficiency and ease of use.
Broaden Markets and Product Lines. Splash intends to continue to pursue the
markets for connected copiers in pre-proof and prepress applications and to
migrate its products to additional computer platforms in order to address both
the high end of the color server market and the broader, office color printing
market. The Company also intends to develop color servers for a wider range of
Xerox and Fuji Xerox color copiers in order to provide systems with different
feature sets across a range of price points and may consider offering color
servers for the systems of additional copier manufacturers.
Expand Sales and Marketing Organization. Splash intends to expand its sales
and marketing organizations on a worldwide basis in order to support its Xerox
and Fuji Xerox OEM relationships. The Company believes that such expansion will
allow it to better leverage the resources offered by Xerox, Fuji Xerox and their
affiliates, which are among the leading providers of digital color copiers and
have extensive worldwide sales organizations. Splash is seeking to further
develop sales through these channels in Europe and other geographic regions in
which the Company has had lower market penetration.
PRODUCTS AND TECHNOLOGY
Product Lines
Splash offers both pre-configured color server systems and board-level
server kits. The pre-configured color server systems include a Splash copier
interface board and frame buffer installed in an Apple Power Macintosh computer
and feature Splash software, a color display, a keyboard and an interface cable.
The server kits do not include the computer, display and keyboard, thereby
allowing the customer or reseller to install the Splash color server on a
locally procured or existing compatible system. Splash products are sold under
the Splash brand worldwide except in Japan, where they are sold under the SM ICS
brand name of Fuji Xerox. The fundamental
-31-
<PAGE>
architectures of the SM ICS and Splash products are substantially identical
other than localization differences for user interface and documentation.
Splash's primary product line is the Splash Professional Color Imaging
("PCI") Series, which was first introduced in the second calendar quarter of
1996. These products use the newest Apple Power Macintosh computers and are
compatible with the PCI bus architecture. The Splash Power Series product line,
based on a design originally launched in 1993 and updated over the years with
successive software releases, uses the NuBus architecture found in earlier Apple
Power Macintosh computers. The Company continues to offer, in limited
quantities, Power Series products, primarily board level kits and spare parts.
The retail prices of Splash PCI Series servers range from $22,000 to $35,000 in
the United States and (Yen) 2,560,000 to (Yen)3,760,000 in Japan, and the retail
prices of Splash Professional Color Image Series kits range from $17,000 to
$29,000 in the United States in each case depending on model and configuration.
The Splash PCI kits are currently not sold in the Japanese market. See "Risk
Factors--Dependence on Xerox and Fuji Xerox and Color Copier Market" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's products vary primarily by available memory. Memory
configuration impacts print quality, scan resolution and the ability to scan
images of larger sizes. The Company's principal products are
as follows:
<TABLE>
<CAPTION>
PRODUCT COMPUTER HARDWARE DISPLAY FRAME BUFFER
---------------------- --------------------- ------------ --------------
<S> <C> <C> <C>
PCI Series Servers
Splash PCI 1280 Server Power PC 604/120 MHz 14" color 128 MB RAM
Splash PCI 640 Server Power PC 604/120 MHz 14" color 64 MB RAM
Splash PCI 320 Server Power PC 604/120 MHz 14" color 32 MB RAM
PCI Series Kits (1)
Splash PCI 1280 Kit * * 128 MB RAM
Splash PCI 640 Kit * * 64 MB RAM
Splash PCI 320 Kit * * 32 MB RAM
Power Series Servers
Splash P105 Pro PowerPC 601/100 MHz NuBus 17" color 128 MB RAM
Splash P85 PowerPC 601/80 MHz NuBus 17" color 72 MB RAM
Splash P70 PowerPC 601/66 MHz NuBus 14" color 72 MB RAM
Power Series Kits (2)
Splash Power Kit Pro * * 128 MB RAM
Splash Power Kit * * 72 MB RAM
</TABLE>
_________________________
* Customer supplied.
(1) Compatible hosts for PCI Series Kits are: Apple Power Macintosh 7200,
7500, 7600, 8500, 9500.
(2) Compatible hosts for Power Series Kits are: Apple Power Macintosh 7100,
8100 (non-AV configurations).
Product Features and Technology
Splash servers are based on open systems, enabling the Company to leverage
the development efforts of computer and operating system suppliers, and thereby
concentrate its development resources in those areas specific to the concerns of
color users. This open systems approach has provided an advantage in bringing
innovative color and workflow solutions to the market rapidly. It has also
enabled the Company to provide to its customers with performance increases by
taking advantage of improvements in industry standard microprocessors and
computers.
-32-
<PAGE>
Diagram #4:
Splash performance increase over time measured in SpecInts, an
industry standard method of determining integer compute power of
various microprocessors; form is simple x-7 chart with increasing
SpecInts from lower left to upper right, and from 1993 to 1996.
The Splash solution integrates a standard computer system and two primary
components of Splash technology: a copier interface board or board set and
software written for the server and its networked clients. The Splash PCI Series
copier interface board uses double-sided surface mount technology and includes a
number of advanced design features such as a proprietary application specific
integrated circuit (ASIC), certain other custom ASICs and a large frame buffer -
all in a single-slot PCI form factor.
Diagram #5:
Splash board overview with call-outs for custom ASICs, copier
interface circuitry/connector, microcontroller, frame buffer, and PCI
bus circuitry/connector.
Splash software includes: driver software written for several different
types of client workstations; server software including network interface,
spooling, and imaging engine modules that reside on the standard computer
system; and server software including print interface and device control modules
that reside on the Splash board itself. These software modules are layered on a
standard computer operating system to provide compatibility with a wide variety
of off-the-shelf peripherals and third-party software applications.
Diagram #6:
Overall Splash software architecture identifying various layers of
function; from clients sending files across the network, through
internal functions, to output to copier; dotted-line box overarching
all Splash software that would indicate open system and compatibility.
The unique combination of Splash-engineered technology and an open systems
approach has enabled the Company to offer a number of technical innovations for
Adobe PostScript Level 2 color servers. Listed below are a number of innovations
commercially introduced by Splash prior to its direct competitors.
. Printing of traps, overprints and Desktop Color Separations
. Hardware-based color correction in the server while maintaining copier
speed
. Selection of multiple CMYK press profiles from remote client
. Color calibration using a copier's built-in digital scanning
capability
. Color calibration that automatically updates all press profiles
simultaneously
. Random placement of color patches to reduce calibration errors
. Mirror-image target for calibration using alternative media (i.e. T-
shirts and fine art paper)
. Accurate RGB monitor blue/purple printing
. Accurate color correction and printing of multiple RGB formats in the
same file
. Remote viewing of files in a WYSIWYG format
. Advanced print driver to avoid double spooling on Mac clients
The following describes some of the features introduced by Splash.
CMYK Separation Support.Splash's CMYK separation capability enables users
to employ page layout and publishing software to print pre-proofs from color
copiers that incorporate trapping (overlapping mixing of colors), and Desktop
-33-
<PAGE>
Color Separations (high-resolution separation files). This feature allows the
printing of high quality pre-proofs and thereby saves professional color
publishing end users time and moneyby reducing the number of cycles of film
proofs required for the design and production process.
Splash Match. Splash Match is a unique color management solution that
permits rapid, automatic and accurate color correction of image files. The user
can select among a variety of color profiles--including RGB monitor matching and
CMYK press matching--through "check box" selections within a printing window in
the graphical user interface from a networked client.
Splash ColorCal. Splash ColorCal is a fast, easy-to-use calibration utility
that uses a copier's built-in digital scanning capability for calibration. By
making calibration fast and simple and eliminating the need for separate,
expensive densitometers, Splash provides a mechanism for frequent calibration
that assures reproducible, consistent color. All Splash Match color profiles
(RGB and CMYK) are updated simultaneously upon completion of calibration. Splash
Match also provides an "expert mode" of operation that allows the user to
customize a copier's output to the unique print characteristics of a given press
intended for final printing.
Splash AccuColor. Splash AccuColor, implemented as part of Splash Match,
allows for more accurate translation and printing of monitor blues without the
significant purple shift that occurs with almost all other printing
alternatives. This is a performance advantage in printing applications where the
desired goal is producing output which comes as close as possible to matching
the RGB colors on a user's display. Splash AccuColor allows for screen-to-press
matching through the use of one of several Splash press profiles selectable in
Adobe Photoshop.
Splash IntelliColor. Splash IntelliColor compensates for mistakes commonly
made during the design process such as mixing different RGB file formats or
combining RGB and CMYK formats in the same document. images combined in the same
file are separately and accurately color corrected. This capability is
independent of the end user's application or computer workstation.
Splash Scan and Splash Print. Both Splash Scan and Splash Print are Adobe
Photoshop Plug-in modules that provide 400-dpi, 24-bit color scanning from the
copier and ultra high-speed bit map printing to a copier, respectively. In this
way, scans can be made, retouched and printed locally without tying up the
network.
Splash Colortone. Splash Colortone enhances the print quality of color
servers which have limited frame buffer memory. Splash Colortone delivers true,
continuous tone (contone) or near-contone quality output optimized to the
available frame buffer memory. Splash Colortone is automatically engaged
whenever the Splash server has too little memory to print a given page size with
full color quality. The Splash Colortone feature can print with either a 2:1
memory savings, yielding near-contone quality, or a 4:1 memory savings, yielding
prints with minimal degradation. Splash automatically switches back to true
contone printing when sufficient memory is available.
Splash Edit. Splash Edit is a utility that enables the user to change
certain print settings at the Splash server after the print job has been sent by
the user across the network. Changeable print settings include number of copies,
tray selection, color correction choice, page range and sorter. Because these
settings can be changed at the Splash server next to the copier, the user saves
time by not having to return to the client computer to resend the file.
SALES AND MARKETING
Splash sells its PCI Series color server products to two of the leading
providers of color copiers, Xerox and Fuji Xerox. These OEMs integrate the
Company's color servers with their digital color copiers and sell the connected
systems to end users through a worldwide direct distribution network. Xerox
sells primarily in North America, South America and (through its affiliate, Rank
Xerox) Europe, while Fuji Xerox sells primarily in Japan and Asia Pacific.
-34-
<PAGE>
Xerox and Fuji Xerox each provide primary customer service through their
worldwide networks, while Splash provides backup support to Xerox and Fuji
Xerox. These relationships allow Splash to provide strong customer support at
the local level as well as providing Splash with a valuable source of input for
product enhancement. Splash believes that the strength of Xerox and Fuji Xerox
in the office equipment market provides the Company with a significant
opportunity to expand its presence in the end user office printing market.
Fuji Xerox, Xerox and Rank Xerox sell Splash products as well as competing
color servers with their products. The Company does not have contracts with
Xerox and Fuji Xerox with respect to its PCI Series products and is currently
operating on a purchase order basis with these customers. This agreement may be
terminated at the discretion of Xerox upon not less than thirty days written
notice to the Company. Although the Company is currently negotiating an
agreement with Xerox and Fuji Xerox for its PCI Series products, there can be no
assurance that any such agreement will be completed or that the Company will
continue to receive orders from Xerox or Fuji Xerox. Any change in the level of
sales to Xerox or Fuji Xerox would have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Dependence on Xerox and Fuji Xerox."
Revenue from Xerox constituted 40%, 41% and 49% of Splash net revenue in
fiscal 1994, 1995 and the first nine months of fiscal 1996, respectively.
Revenue from Fuji Xerox constituted 60%, 59% and 51% of Splash net revenue in
fiscal 1994, 1995 and the first nine months of fiscal 1996, respectively. See
"Risk Factors--Dependence on Xerox and Fuji Xerox."
As of June 30, 1996, the Company employed six people in sales and
marketing. These people support Xerox's sales force while Fuji Xerox is
supported by its own personnel. Splash's sales and marketing personnel typically
provide support to Xerox and Fuji Xerox through sales literature, periodic
training, customer symposia, pre-sales support and joint sales calls. The
Company also participates in industry trade shows and conferences, publishes
articles in trade and technical journals, distributes sales and product
literature and has a public relations plan intended to generate coverage of the
Company's products and technology by editors of trade journals.
Splash believes that in order to increase its market penetration and
enhance brand awareness, it must expand its sales and marketing efforts. The
Company plans to recruit and hire additional field personnel in Europe, the
United States and Asia Pacific, as well as to expand its marketing programs.
There can be no assurance that the Company will be able to hire additional
personnel, expand its marketing programs or that the Company will be able to
increase its market penetration.
MARKETS AND CUSTOMERS
Splash products are employed by users in five principal markets: commercial
and short-run printing, prepress and trade service, graphic arts and
professional color publishing, print-for-pay, and office color printing. The
Company's strategy is to provide high quality innovative color server solutions
for those end users who are discerning about color and print quality.
Accordingly, the Company to date has focused principally on the prepress and
graphic arts markets. The Company believes that the emerging use of color in a
variety of printing applications is creating an opportunity for the Company's
products in the other market segments.
Diagram #7:
Pyramid segmenting the market into five layers closely following (but
not identically following the textual descriptions); from top to
bottom - (1) commercial and short-run printing, (2) prepress and photo
labs, (3) graphics arts and professional color publishing, (4) print-
for-pay and copy shops, (5) office color printing; brief, additional
description to the side of each; horizontal arrows would indicate
market potential (largest at the bottom); vertical arrow would
indicate color expertise (most at the top).
-35-
<PAGE>
Commercial and Short-Run Printing. The commercial printing market
represents the highest quality and highest volume color printing production.
Firms in this market typically have their roots in traditional offset press
printing, in which output is developed in-house at businesses and other
organizations, prepared for printing by service bureaus and trade shops (which
often perform prepress services as described below) and then delivered to the
commercial printer for printing on large, very expensive printing presses. In
recent years, many firms in the commercial printing market have begun to expand
into prepress and short-run printing services. These firms use color server-
based printing devices to more rapidly and less expensively produce pre-proofs
of color output. In addition, many of these firms have begun to use color
server-based printing devices as a less expensive alternative for printing in
smaller quantities. End users of Splash products in this segment include Applied
Computer Services, Inc. and R.R. Donnelley & Sons Company.
Prepress. The prepress market consists of service bureaus and trade shops
which handle complex color production for end users that intend to send print
jobs to short-run and commercial printing firms for high quality or high volume
printing. Prepress firms work closely with end users and the local commercial
printers that perform the print jobs. Prepress firms provide high end scanning,
image retouching, imagesetter output of color separation films for proofing and,
in some cases, the production of contract proofs which serve as the standard for
the commercial print run. Firms in this market are utilizing color server-based
printing devices as a means to reduce the cost and turnaround time for image
design, modification and pre-proofing. End users of Splash products in this
segment include smaller, local operators.
Graphic Arts and Professional Color Publishing. The graphic arts and
professional color publishing market consists of in-house creative staffs and
advertising agencies and design firms. These creative professionals perform
extensive color design and layout but historically have not performed print
production. Users typically utilize networked personal computers and
workstations for color design and use color server-based printing devices for
conceptual and comprehensive designs as well as pre-proofs. Users typically
compose the color image to be printed utilizing applications such as Adobe
Photoshop, Adobe Illustrator, QuarkXPress and Adobe PageMaker. End users of
Splash products in this segment include DRC Advertising, Hearst Magazines and
Gibson Greetings, Inc.
Print-for-Pay. Print-for-pay firms provide a broad range of walk-in
services including faxing, copying, desktop publishing and photographic
services. Recently these firms have begun to use connected color copiers to
offer expanded color printing and copier services. Users in this market segment
range from franchised and local storefronts traditionally focused on black and
white copying services to specialized firms that have traditionally provided
photolab services. End users of Splash products in this segment include The
Digital Cafe, a wholly-owned subsidiary of Boston Photo Imaging, and PIP
Printing.
Office Color Printing. The office color printing market consists of
networked office printing and central reproduction departments in businesses and
other organizations. These organizations which have typically used black and
white laser printers and desktop color ink jet printers for production of word
processed documents, spreadsheets and presentations are increasingly using
connected copiers to produce materials such as product brochures and internal
communications. This market segment is still emerging, but the Company believes
the ability of color servers to operate across corporate networks will help
expand this market.
MANUFACTURING
The Company outsources the manufacture of its products to third party
subcontract manufacturers including MSL, located in Sunnyvale, California, and
Logistix, located in Fremont, California. MSL purchases the components used in
Splash boards from its suppliers and performs double-sided active surface mount
assembly, in-circuit test, functional test and system test of the printed
circuit boards used in the Splash PCI Series products, on a turnkey basis. MSL
also performs in-warranty and out-of-warranty repair of failed boards for the
Splash PCI
-36-
<PAGE>
Series products. The Company purchases Apple Power Macintosh computers, monitors
and memory, and furnishes these components as well as the MSL-assembled boards
to Logistix for final assembly. Logistix directly purchases a small portion of
the components used in Splash color servers and does all final assembly and
system configuration. Other subcontract manufacturers perform similar services
with respect to the Splash Power Series product line.
While the Company's subcontract manufacturers conduct quality control and
testing procedures specified by the Company, the Company has from time to time
experienced manufacturing quality problems. Although the Company does not
believe any such problem had a material adverse effect on the its business,
there can be no assurance that quality problems will not occur again in the
future or that any such problem will not have a material adverse effect on its
business, operating results and financial condition.
If the Logistix, MSL or other third party manufacturing facilities utilized
by the Company become unavailable to the Company, or if the manufacturing
operations at these facilities are slowed, interrupted or terminated, the
Company's business, operating results and financial condition could be
materially and adversely affected. Although the Company believes that there are
other companies available with the capability to provide the Company with such
services, there can be no assurance that the Company would be able to enter into
alternative third party arrangements on terms satisfactory to the Company, on a
timely basis, or at all. See "Risk Factors--Dependence on Third Party
Manufacturers."
Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers. These include
Apple Power Macintosh computers, certain ASICs and other semiconductor
components. The Company does not maintain any long-term agreements with any of
its suppliers of components. Because the purchase of certain key components
involves long lead times, in the event of unanticipated increases in demand for
the Company's products, the Company could be unable to manufacture certain
products in a quantity sufficient to meet end user demand. In addition, Apple
has recently experienced significant financial difficulties and losses in market
acceptance, and its products have particularly low levels of market acceptance
in the office color printing market into which the Company is seeking to expand.
If Apple were to discontinue production of the Power Macintosh models with which
Splash products operate or were unable to provide or otherwise cease to provide
an acceptable level of end user customer support, the Company's business,
operating results and financial condition would be materially and adversely
affected. The Company also purchases memory modules from a single supplier.
Although other sources are available, a change in memory supplier could require
time to effect and could impact production. This risk would be exacerbated in
times of short memory supply. Any inability to obtain adequate deliveries of any
of the components or any other circumstance that would require the Company to
seek alternative sources of supply could affect the Company's ability to ship
its products on a timely basis, which could damage relationships with current
and prospective customers and could therefore have a material adverse effect on
the Company's business, financial condition and operating results. Moreover,
there can be no assurance that alternative sources of supply would be available
on reasonably acceptable terms, on a timely basis, or at all. The Company has
from time to time experienced shortages in deliveries of ASICs from Toshiba
Corporation, which shortages have impacted production volume capabilities. In
order to attempt to mitigate the risk of such shortages in the future, the
Company intends to increase its inventory of components for which the Company is
dependent upon sole or limited source suppliers. As a result, the Company may be
subject to an increasing risk of inventory obsolescence in the future, which
could materially and adversely affect the operating results and financial
condition. See "Risk Factors--Component Availability" and "--Dependence on Apple
Computer, Inc."
The market prices and availability of certain components, particularly
memory and other semiconductor components and, to a lesser extent, Apple Power
Macintosh computers, which collectively represent a substantial portion of the
total manufactured cost of the Company's products, have fluctuated significantly
in the past. Significant fluctuations in the future could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Fluctuations in Operating Results; Seasonal
Purchasing
-37-
<PAGE>
Patterns," "--Dependence on Component Availability and Cost" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RESEARCH AND DEVELOPMENT
Splash's research and development efforts are focused on color science,
application workflow, ASIC and board design, software and computer systems
integration and the continued development of new and enhanced products. The
Company also works closely with key technology partners including Adobe, Apple,
Fuji Xerox and Xerox.
The Company has historically devoted a significant amount of its resources
to research and development. As of June 30, 1996, the Company had 23 employees
engaged in research and development. Research and development expenses in fiscal
1994 and 1995 and the first nine months of fiscal 1996 were $2.0 million, $3.3
million and $3.1 million, respectively.
The graphics and color reproduction, color processing and personal
computing markets are characterized by rapid changes in customer requirements,
frequent introductions of new and enhanced products, and continuing and rapid
technological advancement. To compete successfully, the Company must continue to
design, develop, manufacture and sell new products that provide increasingly
higher levels of performance and reliability, take advantage of technological
advancements and changes and respond to new customer requirements. The Company's
success in designing, developing, manufacturing and selling new products will
depend on a variety of factors, including the identification of market demand
for new products, product selection, timely implementation of product design and
development, product performance, cost-effectiveness of current products and
products under development, effective manufacturing processes and the success of
promotional efforts.
The Company has recently transitioned its product offerings from its Power
Series products to its PCI Series products, and there can be no assurance that
the PCI Series or any future products will achieve widespread market acceptance.
In addition, the Company has in the past experienced delays in the development
of new products and the enhancement of existing products, and such delays may
occur in the future. If the Company is unable, due to resource constraints or
technological or other reasons, to develop and introduce new products or
versions in a timely manner, or if such new products or releases do not achieve
timely and widespread market acceptance, it would have a material adverse effect
on the Company's business, operating results and financial condition.
COMPETITION
The markets for the Company's products are characterized by intense
competition and rapid change. The Company competes directly with other
independent manufacturers of color servers and with copier manufacturers, and
indirectly with printer manufacturers and others. Splash has a number of direct
competitors for color server products, the most significant of which is EFI.
Splash also faces competition from copier manufacturers that offer internally
developed color server products, such as a non-PostScript color server offered
by Fuji Xerox, or that incorporate color server features into their copiers. In
addition, the Company faces competition from desktop color laser printers that
offer increasing speed and color capability. As component prices decrease and
the processing power and other functionality of copiers, printers and add color
server functionality to their systems, which could reduce the market for the
Company's existing line of products.
The Company also competes indirectly with manufacturers of electronic color
prepress systems, which offer similar functionality for the short-run and
commercial printing market as is provided by the Company's products. The Company
also competes indirectly with providers of color separation, color editing and
page layout software. While this software typically is complementary to the
Company's systems, it may also be competitive and may
-38-
<PAGE>
become increasingly competitive to the extent that the providers of such
software extend the functionality of their products in future releases. See
"Risk Factors-- Dependence on Adobe Systems Incorporated."
The Company believes that the principal competitive factors in its markets
are product features, functionality and performance; strength of distribution
channels, including sales capability and after-market support; brand name
recognition and market share; and price. The Company believes that it competes
favorably with respect to product features, functionality and performance,
including color and print quality and the open architecture of the Company's
systems. Splash was the first to introduce a number of significant features to
the multifunction color copier market, and its products currently provide
certain features and functionality not offered by competitors. However, Splash's
competitors also offer certain unique features and functionality which are not
offered by the Company. EFI also has substantially greater name recognition and
a significantly larger installed base than the Company, its products operate
with a broader range of color photocopier systems and its products are generally
priced less than those of Splash. EFI has historically had higher operating
margins than Splash which could allow EFI to increase pricing pressure on Splash
or to respond more effectively to any third party pricing pressures. The Company
also believes that it competes favorably in many distribution channels addressed
by Xerox and Fuji Xerox, but the Company's products do not support the range of
products from different manufacturers supported by EFI and other competitors,
and the Company's relationship with the Xerox distribution channel is currently
not as strong in certain geographical areas, such as Europe (with respect to
Rank Xerox), where the Company historically has had a smaller market presence
and lesser support capabilities.
Many of the Company's current and potential direct and indirect competitors
have longer operating histories, are substantially larger, and have
substantially greater financial, technical, manufacturing, marketing and other
resources than Splash. A number of these current and potential competitors also
have substantially greater name recognition and a significantly larger installed
base of products than the Company, which could provide leverage to such
companies in their competition with Splash. The Company expects competition to
increase to the extent the color server market grows, and such increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, operating results and financial condition. As a result of their
greater resources, many of such competitors are in a better position than Splash
to withstand significant price competition or downturns in the economy. There
can be no assurance that Splash will be able to continue to compete effectively,
and any failure to do so would have a material adverse effect upon the Company's
business, operating results and financial condition. See "Risk Factors--
Competition."
INTELLECTUAL PROPERTY
The Company relies in part on trademark, copyright and trade secret law to
protect its intellectual property in the United States and abroad. The Company
seeks to protect its software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection. The
Splash software included as a part of the Company's products is sold pursuant to
"shrink wrap" licenses that are not signed by the end user and, therefore, may
be unenforceable under the laws of certain jurisdictions. The Company does not
own any issued patent. There can be no assurance that any trademark or copyright
owned by the Company will not be invalidated, circumvented or challenged, that
the rights granted thereunder applications will be issued with the scope of the
claims sought by the Company, if at all. Further, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology, duplicate the Company's technology or design around any
patent of the Company. Moreover, effective intellectual property protection may
be unavailable or limited in certain foreign countries. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights as fully as do the laws of the United States.
There can be no assurance that the Company 's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. Moreover,
litigation may be necessary in the future to enforce the Company's intellectual
-39-
<PAGE>
property rights, to determine the validity and scope of the proprietary rights
of others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of management time
and resources and could have a material adverse effect on the Company's
business, operating results and financial condition.
There have been substantial amounts of litigation in the computer and
related industries regarding intellectual property rights, and there can be no
assurance that third parties will not claim infringement by the Company of their
intellectual property rights. In particular, EFI filed suit against Radius in
November 1995, alleging infringement of an EFI patent by Splash's predecessor,
CSG. The subject of the patent claim was acquired by Splash in the Acquisition,
and EFI could add Splash as a defendant to the suit at any time. Although a
portion of the purchase price in the Acquisition was placed in escrow pending
resolution of the EFI litigation, there can be no assurance that any such
litigation against Splash would not have a material adverse effect on the
Company's business, operating results and financial condition. Any claims that
the Company is infringing on proprietary rights of EFI or others, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources, and cause product shipment delays.
If the Company were found to be infringing on the intellectual property rights
of any third party, the Company could be subject to liabilities for such
infringement, which could be material, and could be required to seek licenses
from other companies or to refrain from using, manufacturing or selling certain
products or using certain processes. Although holders of patents and other
intellectual property rights often offer licenses to their patent or other
intellectual property rights, no assurance can be given that licenses would be
offered or that the terms of any offered license would be acceptable to the
Company. Any need to redesign the products or enter into any royalty or
licensing agreement could have a material adverse effect on the Company's
business, operating results and financial condition. See "Certain Transactions."
The Company has been required to place the source code for certain of its
software in escrow for the benefit of Xerox, and such software will be released
to Xerox in the event that the Company either files bankruptcy and as a result
is unable to deliver products for the thirty (30) days of the previously
committed date, or ceases operations.
The Company relies upon certain software licensed from third parties. There
can be no assurance that the software licensed by the Company will continue to
provide competitive features and functionality or that licenses for software
currently utilized by the Company or other software which the Company may seek
to license in the future will be available to the Company on commercially
reasonable terms. The loss of, or inability to maintain, existing licenses could
result in shipment delays or reductions until equivalent software or suitable
alternative products could be developed, identified, licensed and integrated,
and the inability to license key new software that may be developed, on
commercially reasonable terms, would have a material adverse effect on the
Company's competitive position. Any such event would materially adversely affect
the Company's business, operating results and financial condition. See "Risk
Factors--Dependence on Proprietary Technology" and "--Dependence on Adobe
Systems Incorporated."
EMPLOYEES
As of June 30, 1996, the Company employed 40 people, including 23 in
research and development, 5 in operations, 6 in sales and marketing, and 6 in a
general and administrative capacity. The Company also employs a number of
temporary employees and consultants on a contract basis. None of the Company's
employees is represented by a labor union with respect to his or her employment
by the Company. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.
The Company's future success will depend, in part, upon its ability to
attract and retain qualified personnel. Competition for qualified personnel in
the Company's industry is intense, and there can be no assurance that the
Company will be successful in retaining its key employees or that it will be
able to attract skilled personnel as the Company grows. See "Risk Factors--
Dependence on Key Personnel."
-40-
<PAGE>
FACILITIES
The Company's principal operations are located in a leased facility of
approximately 24,000 square feet in Sunnyvale, California. The lease on this
building expires in 2001, and the Company has an option to extend the lease for
a period of up to five additional years. The Company also leases space in
Paris, France, primarily for sales and marketing efforts in Europe. The Company
believes that its existing facilities are adequate to meet its needs for the
foreseeable future.
-41-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth certain information regarding the executive
officers, directors and other key personnel of the Company as of June 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Kevin K. Macgillivray 37 President, Chief Executive Officer and Director
Joan P. Platt 42 Chief Financial Officer and Vice President, Finance and Administration
Timothy D. Kleffman 38 Vice President, Engineering Operations
Christine A. Beheshti 34 Vice President, Software Engineering
Gregory M. Avis (1) 37 Director
Charles W. Berger (1) 42 Director
Peter Y. Chung (2) 28 Director
Lawrence G. Finch (2) 62 Director
Richard A. Falk 37 Chief Scientist
</TABLE>
______________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
* Class I Director
** Class II Director
** Class III Director
Kevin K. Macgillivray has served as President and Chief Executive Officer
of the Company since the Acquisition in January 1996. From April 1995 until the
Acquisition, Mr. Macgillivray was Vice President and General Manager of the
Publishing Division of Radius, a manufacturer of computer video cards and
display products, which included the CSG. From May 1993 to April 1995, Mr.
Macgillivray held other managerial positions within Radius and SuperMac, which
merged into Radius in 1994. From May 1991 to May 1993, Mr. Macgillivray was
Vice President and General Manager of Oce Graphics USA, a computer peripherals
manufacturer. Mr. Macgillivray received a B.S. in Mechanical Engineering from
Stanford University.
Joan P. Platt joined the Company in March 1996 as Vice President, Finance
and Administration and Chief Financial Officer. From October 1986 to March
1996, Ms. Platt was a general practice partner at Coopers & Lybrand L.L.P., a
public accounting firm. Prior to 1986, Ms. Platt was a staff accountant and
manager in the business advisory, accounting and audit practice of Coopers &
Lybrand. Ms. Platt received a B.S. in Business Administration from The
Pennsylvania State University.
Timothy D. Kleffman has served as Vice President, Engineering Operations of
the Company since the Acquisition. Mr. Kleffman was Director of Printer Systems
within the CSG at Radius and SuperMac from October 1992 until the Acquisition.
From August 1985 to October 1992, Mr. Kleffman held various management positions
at ROLM Corporation. Mr. Kleffman received a B.S. in Electrical and Computer
Engineering from the University of California, Davis.
Christine A. Beheshti has served as Vice President, Software Engineering of
the Company since the Acquisition. From March 1993 until the Acquisition, Ms.
Beheshti held various engineering management positions with Radius and SuperMac.
Prior to joining SuperMac, Ms. Beheshti worked for ROLM Corporation, where she
held various software development, management and engineering positions. Ms.
Beheshti received a B.S. in Computer Science from the University of Wisconsin.
-42-
<PAGE>
Gregory M. Avis has been a director of the Company since its formation in
December 1995. Mr. Avis has served as a General Partner of Summit Partners,
L.P., a venture capital partnership, since 1987 and has served as a Managing
Partner of Summit Partners, L.P. since 1990. Mr. Avis is also a director of CMG
Information Services, Inc. and Digital Link Corporation. Mr. Avis received a
B.A. in Political Economy from Williams College and an M.B.A. from Harvard
Business School.
Charles W. Berger has been a director of the Company since the Acquisition
in January 1996. Mr. Berger has served as Chief Executive Officer, President and
a director of Radius, a computer peripherals manufacturer, since March 1993 and
has been the Chairman of the Board of Directors of Radius since March 1994.
From April 1992 until he joined Radius, Mr. Berger was Senior Vice President,
Worldwide Sales, Operations and Support for Claris Corporation, a software
subsidiary of Apple, a personal computer manufacturer, that develops and markets
application software. From March 1989 to April 1992, Mr. Berger held various
executive positions at Sun Microsystems, Inc. and its subsidiaries. Mr. Berger
received a B.S. in Business Administration from Bucknell and an M.B.A. from
Santa Clara University.
Peter Y. Chung has been a director of the Company since its formation in
December 1995. Mr Chung has served as a Senior Associate at Summit Partners,
L.P., a venture capital partnership, since August 1994. From August 1989 to July
1992, Mr. Chung was employed by Goldman, Sachs & Co., an investment banking
company. Mr. Chung received a B.A. in Economics from Harvard College and an
M.B.A. from Stanford University.
Lawrence G. Finch has been a director of Splash since the Acquisition in
January 1996. Mr. Finch has served as a General Partner of Sigma Partners,
L.P., a venture capital firm, since January 1989. Mr. Finch is also a director
of Phoenix Technologies Ltd., a developer of computer firmware and software.
Richard A. Falk has served as Splash's Chief Scientist since the
Acquisition in January 1996. From October 1992 until the Acquisition, Mr. Falk
served in various engineering positions with SuperMac and Radius. Prior to
joining Radius, Mr. Falk worked for ROLM Corporation in a variety of
development, engineering and management positions. Mr. Falk received a B.A. in
Physical Sciences and an M.B.A. from the University of California, Berkeley.
The Company's Board of Directors is divided into three classes. The
initial term of the Class I directors expires at the Company's annual meeting of
stockholders in 1997, the initial term of the Class II directors expires at the
Company's annual meeting of stockholders in 1998, and the initial term of the
Class III directors expires at the Company's annual meeting of stockholders in
1999. Thereafter, the term of each class of directors shall be three years. All
directors hold office until the annual meeting of stockholders at which their
respective class is subject to reelection and until their successors are duly
elected and qualified, or until their earlier resignation or removal. Officers
serve at the discretion of the Board and are elected annually. There are no
family relationships among the directors or officers of the Company.
BOARD COMMITTEES
The Board of Directors has had a Compensation Committee and an Audit
Committee since July 1996. The Compensation Committee makes recommendations to
the Board concerning salaries and incentive compensation for the Company's
officers and employees and administers the Company's 1996 Stock Option Plan and
1996 Employee Stock Purchase Plan. The Audit Committee aids management in the
establishment and supervision of the Company's financial controls, evaluates the
scope of the annual audit, reviews audit results, consults with management and
the Company's independent auditors prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into aspects
of the Company's financial affairs.
-43-
<PAGE>
DIRECTOR COMPENSATION
Directors receive no cash remuneration for serving on the Board of
Directors, although directors are reimbursed for all reasonable expenses
incurred by them in attending Board and Committee meetings. Non- employee
directors are eligible to receive stock options under the 1996 Stock Option
Plan. See "--Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Avis and Berger. Neither of these individuals were at any time since the
formation of the Company, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not currently have any employment contract in effect with
its Chief Executive Officer or any other Named Executive Officer (as defined
below).
EXECUTIVE COMPENSATION
The following table set forth a summary of the compensation paid by Radius
during the fiscal year ended September 30, 1995 to the Company's Chief Executive
Officer and the Company's other most highly compensated executive officers
(collectively, the "Named Executive Officers") for services rendered in all
capacities to Radius.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
------------------------------------------------------------------
LONG TERM
1995 ANNUAL COMPENSATION
----------------
COMPENSATION SECURITIES ALL OTHER
-----------------------------
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION (1) SALARY($) BONUS($) OPTIONS ($)
- ------------------------------------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Kevin K. Macgillivray .................... $ 137,711 $ 35,500 - -
President, Chief Executive Officer and
Director
Timothy D. Kleffman ...................... 127,284 53,250 - -
Vice President, Engineering Operations
Christine A. Beheshti ................... 125,000 24,000 - -
Vice President, Software Engineering
</TABLE>
_________________________
(1) In March 1996, the Company hired Joan P. Platt as Vice President, Finance
and Administration and Chief Financial Officer. Ms. Platt's annualized
compensation and target bonus are $135,000 and $25,000, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The Company was formed in December 1995 and effected the Acquisition in
January 1996. Accordingly, the Company did not grant any stock options to the
Named Executive Officers during the fiscal year ended September 30, 1995. In
February 1996, the Company granted options to purchase shares of the Company's
Common Stock at an exercise price of $0.50 per share to the following executive
officers: (i) Kevin K. Macgillivray received options to purchase an aggregate
of 13,750 shares, (ii) Timothy D. Kleffman received options to purchase an
-44-
<PAGE>
aggregate of 13,750 shares and (iii) Christine A. Beheshti received options to
purchase an aggregate of 13,750 shares. In March 1996, the Company granted
options to purchase an aggregate of 27,617 shares of the Company's Common Stock
at an exercise price of $1.00 per share to Joan P. Platt.
COMPENSATION PLANS
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted in
January 1996 and amended in July 1996. The 1996 Plan provides for the grant to
employees of the Company (including officers and employee directors) of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and for the grant of nonstatutory
stock options to employees and consultants of the Company. The 1996 Plan is
administered by the Board of Directors or a Committee of the Board of Directors
(the "Administrator"), which selects the optionees, determines the number of
shares to be subject to each option and determines the exercise price of each
option. The 1996 Plan authorizes the issuance of an aggregate of up to 900,000
shares of Common Stock. As of June 30, 1996, approximately 160,000 shares had
been issued under the 1996 Plan, options for approximately 70,000 shares were
outstanding, and approximately 670,000 shares remained available for future
grants. The exercise price of all incentive stock options granted under the 1996
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. The exercise price of all nonstatutory stock options granted
under the 1996 Plan shall be determined by the Administrator. With respect to
any participant who owns stock possessing more than 10% of the voting power of
all classes of stock of the Company, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the maximum term of the option must not exceed five years. The term of
all other options granted under the 1996 Plan may not exceed ten years.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all the Company's assets, the 1996 Plan requires that
each outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that in the event the successor
corporation refuses to assume or substitute for the outstanding options, such
options will become fully vested and exercisable for a period of fifteen days
after notice from the Administrators. Unless terminated sooner, the 1996 Plan
will terminate ten years from its effective date. The Board has authority to
amend or terminate the 1996 Plan, provided that no such action may impair the
rights of the holder of any outstanding options without the written consent of
such holder.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in July 1996 and will become effective upon the closing of the Offering.
A total of 50,000 shares of Common Stock has been reserved for issuance under
the Purchase Plan. The Purchase Plan is intended to qualify under Section 423
of the Code. Offering periods may be up to 24 months duration and may include
several purchase periods as determined by the Board. The initial offering
period will commence on the date of the Offering and end on the last business
day on or prior to April 30, 1997, and subsequent offering periods are initially
expected to be May 1 to October 31 and November 1 to April 30 of each year.
Employees are eligible to participate if they are regularly employed by the
Company for at least twenty hours per week and more than five months in any
calendar year.
The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's base
compensation (20% in the first offering period), including commissions, bonuses
and overtime, at a price equal to 85% of the fair market value of the Common
Stock at the beginning of each offering period or the purchase date, whichever
is lower. In the event of certain changes in control of the Company, the
Purchase Plan provides that the Board of Directors will shorten the offering
period by setting a new purchase date to occur before the change in control
event. Unless terminated sooner, the Purchase Plan will terminate ten years
-45-
<PAGE>
after its effective date. The Board of Directors has authority to amend or
terminate the Purchase Plan provided no such action may adversely affect the
rights of any participant.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law (the "Delaware Law"). Under the Delaware Law, a director's liability to a
company or its stockholders may not be limited with respect to (i) any breach of
his duty of loyalty to the company or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) unlawful payments or dividends or unlawful stock repurchases or
redemptions, or (iv) transactions from which the director derived an improper
personal benefit.
The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted under the Delaware Law. The Company has also entered into
agreements to indemnify its directors and executive officers, in addition to the
indemnification provided for in the Company's Bylaws. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
directors and executive officers. The Company's Bylaws also permit it to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions, regardless of whether the Delaware
Law would permit indemnification.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification will be required
or permitted. The Company is not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification.
-46-
<PAGE>
CERTAIN TRANSACTIONS
On January 30, 1996, the Company effected the Acquisition and related
transactions. The Acquisition consisted of: (i) the formation and initial
capitalization of Splash Technology Holdings, Inc.; (ii) the formation and
initial capitalization by Splash Technology Holdings, Inc. of a new wholly-owned
subsidiary, Splash Merger Company, Inc., a Delaware Corporation; (iii) the
formation and initial capitalization of a new corporation, Splash Technology,
Inc., a Delaware corporation, into which Radius placed certain assets and
liabilities of its Color Server Group in exchange for all of the capital stock
of Splash Technology, Inc.; and (iv) the merger of Splash Merger Company, Inc.
with and into Splash Technology, Inc. in a reverse triangular merger. As a
result of the merger, Splash Technology, Inc. was the surviving corporation and
Radius received in exchange for its interest in Splash Technology, Inc. (i)
$21.9 million in cash, (ii) an aggregate of 4,282 shares of Series B Preferred
Stock of the Company, which are convertible into a total of 497,465 shares of
Common Stock of the Company (representing approximately 19% of the outstanding
Common Stock of the Company on an as-converted basis prior to the Offering),
and (iii) a payment of approximately $1.5 million in cash on June 9, 1996.
The Acquisition was funded by the purchase of approximately $15.4 million
of Series A Preferred Stock by entities associated with Summit Partners, L.P.
and entities associated with Sigma Partners, L.P. and the purchase of $8.0
million of subordinated promissory notes by entities associated with Summer
Partners, L.P. The following table shows the aggregate amount of Common Stock,
Series A Preferred Stock and subordinated notes acquired by each of the
principal parties in connection with the initial capitalization of Splash
Technology Holdings, Inc. and the amount and type of consideration contributed
therefor.
<TABLE>
<CAPTION>
PURCHASE
PRICE
SHARES OF FOR PRINCIPAL
MANDATORILY MANDATORILY AMOUNT OF
PURCHASE REDEEMABLE REDEEMABLE SUBORDINATED
SHARES OF PRICE FOR SERIES A SERIES A PROMISSORY
COMMON COMMON PREFERRED PREFERRED NOTES
STOCK STOCK STOCK STOCK PURCHASED TOTAL
--------- ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Entities associated with
Summit Partners, L.P......... 1,682,500 $ 67,300 13,933 $ 13,933,000 $ 8,000,000 $ 22,000,300
Entities associated with
Sigma Partners, L.P.......... 167,500 6,700 1,493 1,493,000 - 1,499,700
Management....................... 152,500 6,100 - - - 6,100
--------- ---------- ---------- ------------ ------------ -------------
Total................ 2,002,500 $ 80,100 15,426 $ 15,426,000 $ 8,000,000 $ 23,506,100
========= ========== ========== ============ ============ =============
</TABLE>
In connection with the Acquisition, the parties entered into an escrow
agreement providing for an escrow of $4.7 million for satisfaction of possible
claims for indemnification by Splash Technology, Inc., Splash Technology
Holdings, Inc. and its stockholders against Radius. An amount equal to
approximately $2.35 million remains in escrow pending (i) a final, non-
appealable order dismissing with prejudice the EFI litigation, (ii) the
attainment by Radius of certain financial tests, or (iii) or the discretionary
decision by Splash Technology Holdings, Inc. and its stockholders to release the
amount in escrow. See "Risk Factors-Dependence on Proprietary Technology" and
"Business-Intellectual Property."
In connection with the Acquisition and related transactions, funds
affiliated with Summit Partners, L.P. and Sigma Partners, L.P. acquired an
aggregate of 1,682,500 shares of Common Stock and 167,500 shares of Common
Stock, respectively, representing 63.2% and 6.3% of the Company's outstanding
Common Stock immediately prior to the Offering. In addition, funds affiliated
with Summit Partners, L.P. and Sigma Partners, L.P. acquired an
-47-
<PAGE>
aggregate of 13,933 shares and 1,493 shares, respectively, of Series A Preferred
Stock of the Company and funds affiliated with Summit Partners, L.P. acquired
promissory notes of the Company in the aggregate principal amount of $8.0
million. The promissory notes are required to be repaid at face value plus
accrued and unpaid interest, and the Series A Preferred Stock is required to be
redeemed at a price of $1,000 per share plus accrued and unpaid dividends, upon
certain events including an initial public offering at a price of at least
$12.00 per share and aggregate gross proceeds to the Company of at least $35.0
million. It is anticipated that the promissory notes will be repaid and the
Series A Preferred Stock will be redeemed out of the proceeds of the Offering
even at a lesser amount of aggregate gross proceeds to the Company. See "Use of
Proceeds," "Principal and Selling Stockholders" and "Description of Capital
Stock."
The Acquisition constituted a leveraged transaction. As of January 30,
1996, the Company had approximately $12.6 million in assets and approximately
$9.6 million of liabilities. Immediately following the Acquisition, the Company
had $34.6 million in assets and $19.1 million of liabilities. The proceeds from
the Offering will be used primarily to repay the face value of $8.0 million in
subordinated notes and redeem the face value of the $15.4 million of outstanding
Series A Preferred Stock issued in connection with the Acquisition. See
"Acquisition," "Use of Proceeds," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Principal and
Selling Stockholders."
-48-
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of June 30, 1996 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby with respect to
(i) each person (or group of affiliated persons) known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
Selling Stockholder, (iii) each of the Company's directors, (iv) each of the
Named Executive Officers, and (v) all directors and executive officers as a
group. Except as otherwise indicated in the footnotes to the table, each of the
stockholders has sole voting and investment power with respect to the shares of
beneficially owned by such stockholders, subject to community property laws
where applicable. Unless otherwise indicated, the address for each stockholder
is c/o Splash Technology Holdings, Inc., 555 Del Rey Avenue, Sunnyvale,
California 94086.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR OF OWNED AFTER
TO OFFERING(1)(2) SHARES OFFERING(1)(2)
------------------------------ ---------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ----------------------------------------- --------------- ------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Summit Partners, L.P. (1)(3)........... 1,682,500 63.2% - 1,682,500 .%
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Gregory M. Avis (1)(4)................. 1,682,500 63.2 - 1,682,500 .
Peter Y. Chung......................... - - - - -
Sigma Partners, L.P. (1)(6)............ 167,500 6.3 - 167,500 -
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Lawrence G. Finch (1)(6)............... 167,500 6.3 - 167,500 .
Radius Inc. (7)........................ 497,465 18.7 . - .
215 Moffett Park Drive
Sunnyvale, CA 94089
Charles W. Berger (7).................. 497,465 18.7 . . .
Kevin K. Macgillivray (8).............. 69,205 2.6 - 69,205 .
Joan P. Platt (9)...................... 27,617 1.0 - 27,617 .
Timothy A. Kleffman(10)................ 55,345 2.1 - 55,345 .
Christine D. Beheshti (11)............. 41,475 1.6 - 41,475 .
All directors and executive officers as
a group (8 persons)(12)................ 2,541,107 95.4 . . .
</TABLE>
___________________________
* Less than 1%
(1) Percentage of ownership is based on 2,663,040 shares of Common Stock
outstanding on June 30, 1996 and shares of Common Stock outstanding after
completion of the Offering. Ownership does not include 15,426 shares of
Series A Preferred Stock, all shares of which are held by affiliates of
Summit Partners, L.P. and Sigma Partners, L.P. See "Description of Capital
Stock." Assumes no exercise of the Underwriters' over-allotment option.
(2) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days of June 30,
1996 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(3) Includes 1,501,375, 64,050 and 117,075 shares of Common Stock held of
record by Summit Ventures IV, L.P., Summit Investors III, L.P., and Summit
Subordinated Debt Fund, L.P., respectively. Summit Partners IV, L.P. is a
General Partner of Summit Ventures IV, L.P. and Summit Partners SD, L.P. is
a General Partner of Summit Subordinated Debt Fund, L.P. Stamps, Woodsum &
Co., IV is a General Partner of Summit Ventures IV, L.P. and Stamps,
Woodsum & Co., III is a General Partner of Summit Subordinated Debt Fund,
L.P. Gregory M. Avis, a director of the Company, is General Partner of
Stamps, Woodsum & Co., III, Stamps, Woodsum & Co., IV, and Summit Investors
III, L.P. See Note (4).
-49-
<PAGE>
(4) Includes shares described in Note (1) above. Mr. Avis, a director of the
Company, is a general partner of affiliates of Summit Partners, L.P. Mr.
Avis exercises shared investment and voting power with respect to such
shares, but disclaims beneficial ownership of such shares.
(5) Includes 139,863, 25,459, and 2,178 shares of Common Stock held by Sigma
Partners III, L.P., Sigma Associates III, L.P., and Sigma Investors III,
L.P., respectively. Sigma Management III is a General Partner of Sigma
Partners III, L.P., Sigma Associates III, L.P., and Sigma Investors III,
L.P. and Wade Woodson is a General Partner of Sigma Management III. Mr.
Finch, a director of the Company, is General Partner of Sigma Partners,
L.P. See Note (6).
(6) Includes shares described in Note (1) above. Mr. Finch, a director of the
Company, is General Partner of Sigma Partners, L.P. Mr. Finch exercises
shared investment and voting power with such shares, but disclaims
beneficial ownership of such shares.
(7) Includes 497,465 shares beneficially owned by Radius Inc. Mr. Berger, a
director of the Company, is Chairman of the Board of Directors and Chief
Executive Officer of Radius Inc.
(8) Includes 69,205 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000.
(9) Includes 27,617 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000.
(10) Includes 55,345 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000.
(11) Includes 41,475 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000.
(12) Includes 193,642 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000.
-50-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the filing of an Amended and Restated Certificate of
Incorporation on or prior to the closing of the Offering, the authorized capital
stock of the Company will consist of 50,000,000 shares of Common Stock, par
value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value
$0.001 per share.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of June 30, 1996, there were 2,663,040 shares of Common Stock
outstanding held of record by approximately 33 stockholders, as well as options
and warrants to purchase an aggregate of approximately 70,000 shares of Common
Stock. The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive
conversion rights or other subscription rights. There are no redemption or
sinking funds provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be outstanding upon completion of the Offering will be fully paid and
non-assessable.
PREFERRED STOCK
Effective upon the closing of the Offering, redemption of outstanding
Series A Preferred Stock and automatic conversion of outstanding Series B
Preferred Stock, the Company will be authorized to issue 5,000,000 shares of
undesignated Preferred Stock. The Board of Directors will have the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series in the designations of such series, without any
further vote or action by the stockholders. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue Preferred Stock.
WARRANT
In connection with the Acquisition, the Company issued to Imperial Bank
(the "Warrantholder") a warrant to purchase an aggregate of 2,500 shares of
Common Stock at a price of $0.04 per share. The warrant terminates on January
31, 2001. The Warrantholder has certain rights to registration of its shares of
Common Stock issuable upon exercise of such warrant.
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement dated as of January
30, 1996 among the Company and certain holders of its securities (the "Rights
Agreement"), following the closing of the Offering, the holders of
-51-
<PAGE>
approximately 2,500,000 shares of Common Stock and the holder of a warrant to
purchase 2,500 shares of Common Stock (the "Registrable Securities") will be
entitled to certain rights with respect to the registration of such shares of
Common Stock under the Securities Act. Under the Rights Agreement, if the
Company proposes to register any of its Common Stock under the Securities Act,
certain holders of Registrable Securities are entitled to notice of such
registration and to include their Registrable Securities therein; provided,
among other conditions, that the underwriters have the right to limit the number
of shares included in any such registration. Beginning six months after the
closing of the Offering, the holders of at least fifty percent (50%) of the
Registrable Securities have the right to require the Company, on not more than
two occasions, to file a registration statement under the Securities Act in
order to register all or any part of their Registrable Securities. The Company
may, in certain circumstances, defer such registration and the underwriters have
the right, subject to certain limitations, to limit the number of shares
included in such registrations. Further, the holders of Registrable Securities
may require the Company to register all or any portion of their Registrable
Securities on Form S-3, when such form becomes available to the Company, subject
to certain conditions and limitations.
ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
The Company's Certificate of Incorporation and Bylaws, as amended and
restated on or prior to the closing of the Offering, among other things, (i)
permit vacancies on the Board of Directors that may occur between annual
meetings and any newly created seats to be filled only by the Board of Directors
and not by the stockholders, subject to any rights of holders of the Preferred
Stock that may be granted by the Board of directors in the future, (ii) limit
the rights of stockholders to call special meetings of stockholders, (iii)
provide for classification of the Board of Directors into three classes having
terms of three years each, and (iv) provide that the Board of Directors, without
action by the stockholders, may issue and fix the rights and preferences of
shares of Preferred Stock. These provisions may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock, may adversely affect the
market price of, and the voting and other rights of, the holders of the Common
Stock and could have the effect of discouraging certain attempts to acquire the
Company or remove incumbent management, including incumbent members of the
Company's Board of Directors, even if some or a majority of the Company's
stockholders deemed such an attempt to be in their best interests. See
"Management-Executive Officers, Directors and Key Personnel."
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"). Section 203 prohibits a publicly held Delaware corporation
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
became an interested stockholder, unless (i) prior to such date, the board of
directors of the corporation approves either the business combination of the
transaction that resulted in the stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the outstanding voting stock, excluding certain shares held by employee
directors and employee stock plans, or (iii) on or after the consummation date
the business combination is approved by the board of directors and by the
affirmative vote of at least 66% of the outstanding voting stock that is not
owned by the interested stockholder. For purposes of Section 203, a "business
combination" includes, among other things, a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is generally a person who, together with affiliates
and associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston. Its telephone number is (617) 575-2000.
-52-
<PAGE>
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "SPLH."
-53-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for securities of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future at a time
and place which it deems appropriate.
Upon completion of the Offering, the Company will have . shares of Common
Stock outstanding, assuming no exercise of the Underwriters' over-allotment
option, no exercise of outstanding options and no exercise of warrants after
June 30, 1996. Of this amount, the . shares offered hereby and no
additional shares will be available for immediate sale in the public market as
of the date of this Prospectus. Approximately 320,000 additional shares will be
available for sale in the public market following the expiration of the 180-day
lockup agreements with the Representatives of the Underwriters or the Company,
subject in some cases to compliance with the volume and other limitations of
Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES ELIGIBLE
OF THIS PROSPECTUS FOR SALE COMMENT
- -------------------------- ----------------------- ----------------------------------------
<S> <C> <C>
Freely tradeable shares sold in Offering
Upon Effectiveness......... 0 and shares saleable under Rule 144(k)
that are not subject to 180-day lockup
180 days................... approximately 320,000 Lockup released; shares saleable under
Rules 144 and 701
Thereafter................. approximately 2,350,000 Restricted securities held for two years
or less
</TABLE>
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least two years is entitled
to sell within any three-month period commencing 90 days after the date of this
Prospectus a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately shares immediately after
the Offering) or (ii) the average weekly trading volume during the four calendar
weeks preceding such sale, subject to the filing of a Form 144 with respect to
such sale. A person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the 90 days
immediately preceding the sale who has beneficially owned his or her shares for
at least three years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. Persons deemed to be
affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to the Offering, there has been no public market for the Common Stock, and there
can be no assurance that a significant public market for the Common Stock will
develop or be sustained after the Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of Alex. Brown & Sons Incorporated for a period
of 180 days from the date of this Prospectus (the "180-day Lockup Period"),
except that the Company may, without such consent, grant options and sell shares
pursuant to the 1996 Plan and the Purchase Plan.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register approximately 720,000 shares of Common Stock subject
to outstanding options or reserved for issuance under the
-54-
<PAGE>
1996 Plan, and the Purchase Plan within 180 days after the date of this
Prospectus, thus permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of June 30, 1996, the holders of options exercisable into
approximately 70,000 shares of Common Stock will be eligible to sell their
shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the expiration
of the 180-day Lockup Period. Upon completion of the offering, the 4,282 shares
of Series B Preferred Stock owned by Radius will automatically convert to
497,465 shares of the Company's Common Stock. If Radius were to enter bankruptcy
and were allowed to sell its shares of the Company's Common Stock without regard
to the restrictions of Rule 144 under the Securities Act, such additional shares
of Common Stock would become eligible for resale into the public market at an
indeterminate date after the date of this Prospectus.
In addition, after the Offering, the holders of approximately 2,500,000
shares of Common Stock and the holder of a warrant to purchase 2,500 shares of
Common Stock will be entitled to certain rights with respect to registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights."
-55-
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Montgomery Securities, have severally agreed
to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................
Montgomery Securities..............................................
----------
Total..........................................................
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to .
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to . and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the . shares are being offered.
-56-
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company and all stockholders of the Company have agreed not to offer,
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the effective date of the Offering without the prior written consent of
Alex. Brown & Sons Incorporated, except that the Company may issue, and grant
options to purchase, shares of Common Stock under its current stock option and
purchase plans and other currently outstanding options and warrants. In
addition, the Company may issue shares of Common Stock in connection with
corporate acquisitions.
The Representatives of the Underwriters have advised the Company and the
Selling Stockholders that the Underwriters do not intend to confirm sales to any
account over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company, the Selling
Stockholders and the Representatives of the Underwriters. Among the factors to
be considered in such negotiations will be prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations, the price-earnings ratios, the price-sales ratios, the market
prices generally of securities and stages of development of other companies that
the Company and the Representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company and its
industry in general and the present state of the Company's development.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters in connection with
the Offering will be passed upon for the Underwriters by Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, Palo Alto, California. Jeffrey D.
Saper, a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
is the Secretary of the Company.
EXPERTS
The consolidated balance sheets of the Company as of September 30, 1994 and
1995 and June 30, 1996 and the consolidated statements of income cash flows for
each of the two years in the period ended September 30, 1995, the four months
ended January 1996, and the five months ended June 30, 1996; and statement of
parent company investment for each of the two years in the period ended
September 30, 1995 and the four months ended January 31, 1996 and the
consolidated statement of stockholders' equity for the five months ended June
30, 1996, included in this Prospectus have been so included in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares of
Common Stock offered hereby, of which this Prospectus forms a part. In
accordance with the rules of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the provisions of such
documents are necessarily summaries of such documents and
-57-
<PAGE>
each such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission as an exhibit to the Registration
Statement. Copies of the Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
-58-
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
________
<TABLE>
<CAPTION>
Pages
<S> <C>
Report of Independent Accountants ....................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and
September 30, 1995 and 1994 ........................................ F-3
Consolidated Statements of Operations for the five months ended
June 30, 1996; the four months ended January 31, 1996 and the
years ended September 30, 1995 and 1994 ............................ F-4
Consolidated Statements of Stockholders' Equity for the five months
ended June 30, 1995 ................................................ F-5
Predecessor Business Statement of Parent Company Investment for
the four months ended January 31, 1996 and the years ended
September 30, 1995 and 1994 ........................................ F-6
Consolidated Statements of Cash Flows for the five months ended
June 30, 1996; the four months ended January 31, 1996 and the
years ended September 30, 1995 and 1994 ............................ F-7
Notes to Consolidated Financial Statements .............................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Splash Technology Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Splash Technology
Holdings, Inc. and its subsidiaries as of June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the five months ended June 30, 1996. We have also audited the balances sheets at
September 30, 1994 and 1995, and the statements of operations, cash flows and
parent company investment of the Predecessor Business for the years ended
September 30, 1994 and 1995, and the four months ended January 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Splash
Technology Holdings, Inc. and its subsidiaries as of June 30, 1996, and the
consolidated results of their operations and their cash flows for the five
months ended June 30, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the financial statements of the Predecessor
Business referred to above present fairly, in all material respects, the
financial position of the Predecessor Business as of September 30, 1994 and 1995
and the results of its operations and its cash flows for the years ended
September 30, 1994 and 1995 and for the four months ended January 31, 1996, in
conformity with generally accepted accounting principles.
San Jose, California
July 23, 1996 except for Note 12 the date for which is July 31, 1996.
F-2
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and 1995 and June 30, 1996
(in thousands, except per share data)
_________
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
------------------------------ -----------------------------
PRO FORMA
(NOTE 2)
SEPTEMBER 30, JUNE 30, JUNE 30,
1994 1995 1996 1996
-------------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ -- $ -- $ 6,601
Accounts receivable, net of allowance for doubtful accounts of
$16, $84 and $300 as of September 30, 1994 and 1995
and June 30, 1996, respectively.................................. 5,274 4,716 4,037
Inventories........................................................ 1,287 3,965 3,945
Prepaid expenses and other current assets.......................... -- -- 119
Deferred income taxes.............................................. 622 622 3,633
-------- -------- --------
Total current assets.......................................... 7,183 9,303 18,335
Property and equipment, net.......................................... 200 385 679
Deferred income taxes................................................ -- -- 8,249
Other long term assets............................................... -- -- 1,239
-------- -------- --------
Total assets.................................................. $ 7,383 $ 9,688 $ 28,502
======== ======== ========
LIABILITIES
Current liabilities:
Trade accounts payable............................................. $ 772 $ 2,538 $ 2,154
Other accrued liabilities.......................................... 331 1,074 1,955
Royalties payable.................................................. 1,233 1,978 1,070
Deferred revenue................................................... -- -- 5,227
Income taxes payable............................................... 721 1,395 1,974
-------- -------- --------
Total current liabilities..................................... 3,057 6,985 12,380
Subordinated promissory notes payable to stockholders................ -- -- 8,600
-------- -------- --------
Total liabilities............................................. 3,057 6,985 20,980
-------- -------- --------
Commitments (Note 6).
STOCKHOLDERS' EQUITY
Preferred Stock:
Authorized: 5,000,000 shares
Series A Preferred Stock, par value $.001 per share:
Authorized: 15,426 shares
Issued and outstanding: 15,426 shares; liquidation
value: $15,735,000.............................................. $ -- $ -- $ 1 $ 1
Series B preferred stock, par value $.001 per share:
Authorized, issued and outstanding: 4,282 shares as
of June 30, 1996 and no shares pro forma;
liquidation value: $4,338,000................................... -- -- 1 --
Parent company investment............................................ 4,326 2,703 -- --
Common stock, par value $.001:
Authorized: 10,000,000 shares as of June 30, 1996,
50,000,000 shares pro forma; Issued and outstanding:
2,165,575 shares as of June 30, 1996 and 2,663,040
shares pro forma................................................. -- -- 2 3
Additional paid-in capital........................................... -- -- 19,462 19,462
Retained earnings (accumulated deficit).............................. -- -- (11,944) (11,944)
-------- -------- -------- --------
Total stockholders' equity.................................... 4,326 2,703 7,522 $ 7,522
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 7,383 $ 9,688 $ 28,502
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
________
<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDING, INC.
------------------------------------------------------- ---------------
NINE MONTHS
ENDED FOUR MONTHS FIVE MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
SEPTEMBER 30, 1995 JANUARY 31, JUNE 30,
-----------------------
1994 1995 (UNAUDITED) 1996 1996
---------- ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net revenue.............................................. $ 16,354 $ 30,472 $ 20,343 $ 13,008 $ 18,326
Cost of net revenue...................................... 12,068 20,723 13,737 8,427 11,455
-------- -------- -------- -------- --------
Gross profit........................................ 4,286 9,749 6,606 4,581 6,871
-------- -------- -------- -------- --------
Operating expenses:
Research and development.............................. 1,999 3,295 2,034 1,498 1,624
Sales and marketing................................... 562 2,076 1,505 688 806
General and administrative............................ 377 891 667 287 668
Amortization of purchased technology and write-off
of in-process technology............................ -- -- -- -- 22,729
-------- -------- -------- -------- --------
Total operating expenses.......................... 2,938 6,262 4,206 2,473 25,827
-------- -------- -------- -------- --------
Income (loss) from operations................... 1,348 3,487 2,400 2,108 (18,956)
Interest expense, net.................................... -- -- -- 18 388
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes. 1,348 3,487 2,400 2,090 (19,344)
Provision for (benefit from) income taxes................ 99 1,395 960 836 (7,765)
-------- -------- -------- -------- --------
Net income (loss)............................... $ 1,249 $ 2,092 $ 1,440 $ 1,254 $(11,579)
======== ======== ======== ======== ========
Net loss per share....................................... $ (4.38)
========
Shares used in computing per share amounts............... 2,726
========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
________
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK ADDITIONAL EARNINGS
---------------------------------------
SERIES A SERIES B COMMON STOCK PAID-IN (ACCUMULATED
------------------ ------------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
-------- -------- -------- -------- -------- -------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 1, 1996
Issuance of preferred stock:
Series A.............................. 15,426 $ 1 -- $ -- -- $ -- $14,699 $ -- $14,700
Series B.............................. -- -- 4,282 1 -- -- 4,099 -- 4,100
Issuance of common stock............... -- -- -- -- 2,002,500 2 204 -- 206
Exercise of employee stock options for
cash.................................. -- -- -- -- 163,075 -- 95 -- 95
Accretion for dividends on preferred
stock Series A and B.................. -- -- -- -- -- -- 365 $ (365) --
Net loss............................... -- -- -- -- -- -- -- (11,579) (11,579)
------ ------ ------ ------ --------- ------ ------- -------- -------
Balances, June 30, 1996................. 15,426 $ 1 4,282 $ 1 2,165,575 $ 2 $19,462 $(11,944) $ 7,522
====== ====== ====== ====== ========= ====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
PREDECESSOR BUSINESS STATEMENT
OF PARENT COMPANY INVESTMENT
(in thousands)
_______
<TABLE>
<S> <C>
Balance, October 1, 1993....................................... $ (20)
Net change in parent company investment........................ 3,097
Net income..................................................... 1,249
-------
Balance, September 30, 1994.................................... 4,326
Net change in parent company investment........................ (3,715)
Net income..................................................... 2,092
-------
Balance, September 30, 1995.................................... 2,703
Net change in parent company investment........................ (12)
Net income..................................................... 1,254
-------
Balance, January 31, 1996...................................... $ 3,945
=======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
________
<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDING, INC.
--------------------------------------------------------- --------------
NINE MONTHS
ENDED FOUR MONTHS FIVE MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
SEPTEMBER 30, 1995 JANUARY 31, JUNE 30,
-----------------------
1994 1995 (UNAUDITED) 1996 1996
----------- ---------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 1,249 $ 2,092 $ 1,440 $ 1,254 $(11,579)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 80 259 82 102 57
Provision for doubtful accounts........................ 16 68 -- 17 199
Purchased and in-process technology.................... -- -- -- -- 22,729
Deferred income taxes.................................. (622) -- -- 622 (11,014)
Changes in assets and liabilities:
Accounts receivable.................................. (3,947) 490 419 (4,597) 5,059
Inventories.......................................... (513) (2,678) (2,678) 2,231 (2,211)
Prepaid expenses and other current assets............ -- -- -- -- (119)
Other long term assets............................... -- -- -- -- (118)
Trade accounts payable............................... (914) 1,766 1,049 (2,391) 2,008
Other accrued liabilities............................ 317 743 108 1,986 (1,042)
Royalties payable.................................... 796 745 (47) 1,434 (2,302)
Deferred revenue..................................... -- -- -- 905 2,157
Income taxes payable................................. 721 674 239 (559) 1,974
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............................ (2,817) 4,159 612 1,004 5,798
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment....................... (280) (444) (333) (63) (306)
Acquisition of Color Server Group from Radius
(net of cash acquired)................................. -- -- -- -- (22,492)
-------- -------- -------- -------- --------
Net cash used in investing activities.............. (280) (444) (333) (63) (22,798)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from Series A preferred stock................... -- -- -- -- 14,700
Proceeds from common stock............................... -- -- -- -- 206
Proceeds from subordinated debt.......................... -- -- -- -- 8,600
Exercise of stock options for cash....................... -- -- -- -- 95
Net change in Parent Company Investment.................. 3,097 (3,715) (279) (12) --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities.............................. 3,097 (3,715) (279) (12) 23,601
-------- -------- -------- -------- --------
Net increase in cash....................................... -- -- -- 929 6,601
Cash and cash equivalents at beginning of period........... -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period................. $ -- $ -- $ -- $ 929 $ 6,601
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Taxes paid............................................... $ -- $ -- $ -- $ -- $ 1,275
Interest paid............................................ $ -- $ -- $ -- $ -- $ 198
Non-cash financing activities:
Accretion of preferred stock............................. $ -- $ -- $ -- $ -- $ 365
Issuance of Series B preferred stock..................... $ -- $ -- $ -- $ -- $ 4,100
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
1. Recent Reorganization and Basis of Presentation:
-----------------------------------------------
Splash Technology Holdings, Inc. (the "Company"), through its wholly-owned
subsidiaries Splash Technology, Inc. and Splash Technology S.a.r.l.,
develops, produces and markets color servers, which consist of computer
hardware and software systems that provide an integrated link between
desktop computers and digital color copiers and enable such copiers to
provide high speed and quality networked color printing and scanning. The
Company sells its color servers through two original equipment
manufacturers who integrate the Company's color servers into connected
digital color photocopier systems which are sold to end users in North and
South America, Europe, Asia and Australia. The Company operates in one
business segment.
The business of the Company was previously operated as the unincorporated
Color Server Group of SuperMac Technology Inc. ("SuperMac") until August
1994 when SuperMac merged with Radius Inc. ("Radius"). In January 1996, the
assets and liabilities of the Color Server Group of Radius were transferred
by Radius into its newly created wholly-owned subsidiary, Splash
Technology, Inc. In December 1995, Splash Technology Holdings, Inc. was
incorporated in Delaware and was capitalized by the sale of Series A
preferred stock and common stock and subordinated debt to an investor group
consisting of certain affiliates of Summit Partners, L.P., Sigma Partners,
L.P. and certain members of the management of the Company. On January 31,
1996, Splash Technology, Inc. merged with a wholly-owned subsidiary of
Splash Technology Holdings, Inc. and as part of the consideration for the
merger, Splash Technology Holdings, Inc. issued Series B preferred stock to
Radius. The surviving corporation in the merger was Splash Technology
Holdings, Inc.
The acquisition of Splash Technology, Inc. was regarded as a purchase of
net assets accounted for under the purchase method of accounting as of
January 31, 1996. The total purchase price of $27,843,000 (including the
costs of the acquisition of $321,000), consisting of cash and the fair
value of Series B Preferred Stock of $4,100,000, has been allocated to the
net assets acquired based on their estimated fair values as of January 31,
1996. The two principal components of the initial excess purchase price
allocation included in-process research and development projects
($19,324,000) and existing purchased technology ($3,405,000). The Company
allocated a portion of the purchase price to various in-process research
and development projects that had identifiable economic value and expensed
this value as of the date of the acquisition. The purchased technology is
related to the Company's Power Series product for which the Company was
developing a replacement product at the time of the acquisition due to the
discontinuance of the Apple CPU architecture on which the Power Series
product relied. The Company transitioned to the new product in May 1996 and
accordingly, the fair value of the purchased technology was fully amortized
over the four months to May 31, 1996.
Continued
F-8
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_______
1. Recent Reorganization and Basis of Presentation, continued:
-----------------------------------------------
The fair value of the assets acquired (net of cash acquired of $929,000)
and liabilities assumed were as follows:
<TABLE>
<S> <C>
In-process technology $19,324
Purchased technology 3,405
Receivables 9,296
Inventories 1,734
Property and equipment 430
Other long term assets 1,121
Payables (147)
Other accrued liabilities (6,049)
Deferred revenue (2,200)
-------
$26,914
=======
</TABLE>
Of the purchase consideration, $2,350,000 remains in escrow pending
resolution of certain events including unasserted claims.
The Predecessor Business's financial statements presented herein include
the results of operations and cash flows for the four months ended January
31, 1996 and the years ended September 30, 1995 and 1994, and the balance
sheets as of September 30, 1995 and 1994, as if the Color Server Group
existed as a corporation separate from Radius and SuperMac during such
periods on a historical basis. The Company's financial statements presented
herein include the results of operations and cash flows for the five months
ended June 30, 1996 and the balance sheet as of that date. Results for the
four months ended January 31, 1996 and the five months ended June 30, 1996
are not necessarily indicative of the results for the entire year.
Radius and SuperMac each performed certain corporate headquarter functions
on behalf of the Color Server Group and provided certain marketing,
technology, human resource and financial and accounting services. Costs
associated with these services have been allocated to the Color Server
Group based on relative headcount, which management believes to be a
reasonable basis for allocation.
Continued
F-9
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_______
2. Summary of Significant Accounting Policies:
------------------------------------------
BASIS OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Splash Technology, Inc. and
Splash Technology S.a.r.l. All significant intercompany transactions
between the entities have been eliminated.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION:
Revenue is generally recognized upon shipment of the product to the
customer. The Company generally does not grant rights of return. In May
1996, the Company made the transition from its Power Series products to its
new PCI Series products. In calendar year 1996, one of the Company's
original equipment manufacturer ("OEM") customers accumulated a substantial
quantity of the Power Series product. Due to the transition of products and
the accumulation of Power Series product, the Company is recognizing
revenue from the sales of the Power Series product upon notification from
the OEM that the product has been sold to their end user. At June 30, 1996,
the Company had deferred revenue of $5,120,000 from sales of Power Series
products to the OEM.
WARRANTIES:
The Company's products are generally warranted for 15 months. Estimated
future costs of repair, replacement, or customer accommodations are
reflected in the accompanying consolidated financial statements.
Continued
F-10
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
RESEARCH AND DEVELOPMENT:
Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility has been established.
To date, the establishment of technological feasibility of the Company's
products and general release substantially coincide. As a result, the
Company has not capitalized any software development costs since such costs
have not been significant.
INCOME TAXES:
The Company uses the liability method to calculate deferred income taxes.
The realization of deferred tax assets is based on historical tax positions
and expectations about future taxable income.
Income taxes have been provided in the Predecessor Business statements of
operations as if the Predecessor Business was a separate taxable entity.
Since the division was not a separate taxable entity but was included in
the consolidated income tax returns of the Radius and SuperMac companies,
the current benefit from or provision for U.S. federal and state income
taxes was ultimately assumed to be receivable from or payable to Radius or
SuperMac in the period presented. In accordance with the merger agreement
with Radius, the Company is not required to repay Radius for the
utilization of their tax losses against the Company's taxable income as a
Predecessor Business. Such benefits are reflected as capital contributions
as of each fiscal year end.
CASH AND CASH EQUIVALENTS:
All highly liquid investments with an original, or remaining, maturity of
three months or less at the date of purchase and money market funds are
considered cash equivalents.
Cash and cash equivalents consist primarily of deposits with banks in the
United States.
FINANCIAL INSTRUMENTS:
The Company's financial instruments, including borrowings under the line of
credit and the subordinated promissory notes payable to stockholders, are
stated at fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.
Continued
F-11
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated using the
straight line method over their estimated useful lives ranging from three
to seven years or, in the case of leasehold improvements, the lease period,
if shorter. Upon disposal, the assets and related accumulated depreciation
are removed from the Company's accounts, and the resulting gains or losses
are reflected in the statements of income. The Predecessor Business'
accounting policy was to expense all items of property and equipment upon
acquisition. Accordingly, appropriate adjustments have been included in
the financial statements to reflect the capitalization and depreciation of
property and equipment during the periods presented.
CONCENTRATION OF CREDIT-RISKS:
Cash and cash equivalents are deposited with major banks in the United
States and France. Deposits in these banks may exceed the amount of
insurance provided on such deposits. The Company has not experienced any
losses on its deposits of cash and cash equivalents.
The Company sells its products to two OEM customers who distribute the
Company's products with their own color photocopier systems on a worldwide
basis. The Company performs ongoing credit evaluations of its customers.
The Company does not require collateral for its receivables and maintains
an allowance for potential credit losses. At June 30, 1996, the accounts
receivable balance is comprised primarily of these two customers, which
represent 57% and 37% of accounts receivable.
Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers. These
include Apple Power Macintosh computer, certain ASICs and other
semiconductor components.
Continued
F-12
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
RECENT PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires the
Company to review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. In certain situations, an impairment loss would
be recognized. SFAS 121 will become effective for the Company's year
ending September 30, 1997.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," which established a fair value based method of accounting
for stock-based compensation plans and requires additional disclosures for
those companies who elect not to adopt the new method of accounting. The
Company intends to continue to account for stock options under APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123 will be
effective for fiscal years beginning after December 15, 1995, and will
require the Company to provide additional disclosures in the financial
statements for the year ending September 30, 1997.
COMPUTATION OF NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of the incremental common shares
issuable upon conversion of convertible preferred stock (using the "if
converted" method) and stock options and warrants (using the treasury stock
method) as if converted for all periods presented.
The Company has computed common and dilutive common equivalent shares in
determining the number of shares used in calculating earnings per share for
all periods presented pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin (SAB) No. 83. SAB 83 requires the Company to
include all common shares and all common share equivalents issued during
the 12 month period preceding the filing date of an initial public offering
in its calculation of the number of shares used to determine earnings per
share as if the shares had been outstanding for all periods presented. Net
loss for the purposes of the computation reflects the cumulative dividend
(and dividend accretion) payable on the shares of preferred stock.
Continued
F-13
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
UNAUDITED INTERIM FINANCIAL INFORMATION:
The accompanying interim statements of operations and cash flows for the
nine months ended June 30, 1995 together with the related notes are
unaudited but include all adjustments, consisting of only normal recurring
adjustments, which the Company considers necessary to present fairly, in
all material respects, the results of operations and cash flows for the
periods ended June 30, 1995. Results for the nine months ended June 30,
1995 are not necessarily indicative of results for an entire year.
UNAUDITED PRO FORMA INFORMATION:
In conjunction with the initial public offering, all of the Company's
outstanding Series B preferred stock will be converted into shares of
Common Stock as described in Note 7. The pro forma effect of these
conversions has been reflected in the accompanying pro forma balance sheet
assuming the conversion had occurred June 30, 1996 and is unaudited.
3. Balance Sheet Detail (in thousands):
--------------------
INVENTORIES:
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
---------------------------- -----------------
SEPTEMBER 30, JUNE 30,
----------------------------
1994 1995 1996
------------- ------------- -----------------
<S> <C> <C> <C>
Raw materials $ 714 $ 591 $1,593
Work in processs 81 166 --
Finished goods 492 3,208 2,352
------ ------ ------
$1,287 $3,965 $3,945
====== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
------------------------------ -------------------
SEPTEMBER 30, JUNE 30,
------------------------------
1994 1995 1996
------------ -------------- -------------------
<S> <C> <C> <C>
Furniture and fixtures $ 81 $ 201 $ 270
Computer equipment 199 523 241
Leasehold improvements -- -- 80
Trade show booth -- -- 145
-------- ------ ------
280 724 736
Less accumulated depreciation (80) (339) (57)
and amortization -------- ------ -------
$ 200 $ 385 $ 679
======= ====== ======
</TABLE>
Continued
F-14
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
4. Revolving Credit Facility:
-------------------------
In January 1996, the Company entered into an agreement with a bank to
borrow up to a maximum of $4,000,000 under a revolving line of credit
subject to a borrowing base of 80% and 70% of eligible domestic and foreign
accounts receivable, respectively. The line bears interest at prime rate
plus 0.75%, is collateralized by accounts receivable, owned property and
equipment and inventory of the Company and matures on January 31, 1997.
The agreement contains dividend restrictions and certain financial
covenants concerning required liquidity, net worth and indebtedness ratios
as well as required profitability. The Company has no borrowings
outstanding under the line of credit as of June 30, 1996.
5. Subordinated Promissory Notes Payable to Stockholders:
-----------------------------------------------------
The Company issued subordinated promissory notes payable to stockholders,
with a face value totaling $8,000,000, which bear interest at 12%, payable
quarterly. The subordinated promissory notes were issued to stockholders in
conjunction with the Series A preferred stock and the fair value of the
notes was established at $8,600,000 by an independent third party
valuation. In the event of liquidation, merger or a firm commitment
underwriting pursuant to a public offering of common stock at a price of at
least $12.00 per share with gross proceeds to the Company of at least
$35,000,000, all principal and accrued interest shall be payable
immediately ("Qualified Liquidity Event"). In the event that a public
offering does not qualify as a Qualified Liquidity Event, the interest rate
increases to 15%. In the event that a Qualified Liquidity Event is not
consummated on or before January 30, 2001, then all outstanding principal
must be paid in two equal installments on January 30, 2001 and 2002. The
notes are subordinate to the Revolving Credit Facility (see Note 4).
6. Commitments:
-----------
The Company leases certain office facilities under noncancelable operating
leases which expire in April 2001. The Company is responsible for taxes,
insurance and maintenance expenses related to the leased facilities. Under
the term of certain lease agreements, the leases may be extended, at the
Company's options, and certain of the leases provide for adjustments of the
minimum monthly rent.
Future minimum annual lease payments under the leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Period Ending
-------------
<S> <C>
June 30, 1997 $384
June 30, 1998 398
June 30, 1999 412
June 30, 2000 427
June 30, 2001 442
</TABLE>
Rent expense for the five months ended June 30, 1996 was $83,960.
Continued
F-15
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. Preferred Stock:
---------------
The Company has authorized and issued 15,426 shares of Series A preferred
stock at a face value of $1,000 per share and 4,282 shares of Series B
preferred stock in a non cash transaction as part of the consideration for
the merger. The valuation of the Series A and Series B preferred stock by
an independent third party resulted in values of $14,700,000 and
$4,100,000, respectively for those instruments. The rights, preferences and
privileges of the Series A and Series B preferred stock are as follows:
LIQUIDATION RIGHTS:
The preferred stock has certain liquidation preferences over the common
stock in the event of a liquidating event such as a dissolution of the
affairs of the Company or a take-over by another corporation. The
liquidation preferences entitle the preferred stockholders to receive
$1,000 per share in addition to amounts due on unpaid dividends which have
been accrued or declared. The Series A preferred stockholders have
preference over the Series B preferred stockholders in determining the
order of liquidation payout. The preferred stock does not participate in
the distribution of assets remaining after the liquidation preference has
been paid.
CONVERSION RIGHTS:
The Series A preferred stock has no conversion rights. The Series B
preferred stockholders have the right at any time to convert each share of
preferred stock into common stock at the specified conversion rate per
share, which currently is 116.176 shares of common stock for each share of
preferred stock. The conversion rate will be adjusted for stock splits and
recapitalization. In the event of a public offering of the Company's
common stock where the gross proceeds received by the Company equals or
exceeds $35,000,000 and the offering price is at least $12.00 per share, or
in the event of a merger or sale of the Company where the consideration or
proceeds equals or exceeds $50,000,000, all shares of the Series B
preferred stock automatically convert into shares of common stock at the
specified conversion rate.
REDEMPTION RIGHTS:
The Company may redeem all or any of the shares of the Series A preferred
stock at any time. The Company may also redeem all or any of the shares of
the Series B preferred stock at any time but only if there are no shares of
the Series A preferred stock then outstanding.
The Company is required to redeem all of the shares of the Series A
preferred stock in the event of a public offering of the Company's common
stock or a merger or sale of the Company meeting the quantitative criteria
disclosed in the paragraph concerning conversion rights above. Provided
there are no shares of the Series A preferred stock then outstanding, the
Company is required to redeem the shares of the Series B preferred stock,
one half on January 1, 2002 and one half on January 1, 2003. The
redemption price for each share of preferred stock will be $1,000, plus any
unpaid and accrued dividends.
Continued
F-16
<PAGE>
SLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
7. Preferred Stock, continued:
---------------
VOTING RIGHTS:
The Series B preferred stockholders are entitled to vote on all matters
with the holders of common stock as if on an as converted basis. The
Series A preferred stockholders have no rights to vote other than to elect
one director to the Board of Directors. The other five directors are
elected by the common stockholders in conjunction with the Series B
preferred stockholders.
DIVIDEND RIGHTS:
The preferred stockholders will be entitled to receive dividends in
preference to the common stockholders. In addition, the Series A preferred
stockholders also have preference to the Series B preferred stockholders.
From the date of issuance until January 1, 1997, there shall be no
cumulative dividends payable to the preferred stockholders. After that
date, cumulative dividends are payable when and if declared or accumulate
as part of the shares' liquidation preferences as follows:
<TABLE>
<CAPTION>
Dividends per Share
-------------------
Series A Series B
-------- --------
<S> <C> <C>
January 2, 1997 to January 1, 1998 $ 60 $60
January 2, 1998 to January 1, 1999 $ 80 $60
January 2, 1999, and thereafter $100 $60
</TABLE>
The carrying amounts of both Series A and Series B have been increased by
amounts representing dividends not currently declared or paid but which
will be payable under the dividend rights of the respective series of
preferred stock. The increases have been effected by a charge against
retained earnings.
8. Common Stock:
------------
On January 31, 1996, the Company sold 2,002,500 shares of common stock at a
price of $0.04 per share for aggregate proceeds of $80,100. The Company
has granted certain registration rights to certain holders of common
shares, options, warrants and convertible securities in the event of any
registration of shares by the Company under the Securities Act.
Continued
F-17
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_______
8. Common Stock, continued:
------------
In connection with the line of credit, the Company issued the bank a
warrant to purchase 2,500 shares of common stock with an exercise price of
$0.04 per share. The warrant is not exercisable until the earlier of
January 31, 1997, an initial public offering, or an asset sale or merger.
STOCK OPTIONS AND REPURCHASE AGREEMENTS:
The Company reserved 261,758 shares of common stock for issuance under its
stock option plan as of January 30, 1996. Under this plan, the Board of
Directors may grant incentive or nonstatutory stock options at a price not
less than 100% or 85%, respectively, of fair market value of common stock,
as determined by the Board of Directors, at grant date. Options under the
plan are immediately exercisable. Stock issued through option exercises are
subject to the Company's right of repurchase at the original exercise
price. The number of shares subject to repurchase generally decrease by 25%
of the options shares one year after the grant date, and thereafter,
ratably over 48 months.
Activity for the Company's stock option is summarized as follows:
<TABLE>
<CAPTION>
Average Price
Available Outstanding Per Share Amount
--------- ----------- ------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Options authorized 261,758 -- -- --
Options granted (234,880) 234,880 $0.50-$6.00 $ 212
Options canceled 3,751 (3,751) $0.50 (2)
Options exercised -- (163,075) $0.50-$6.00 (95)
-------- -------- ------
Balances, June 30, 1996 30,629 68,054 $0.50-$6.00 $ 115
======== ======== ======
</TABLE>
At June 30, 1996, all options and shares outstanding under the Plan were
subject to repurchase.
9. Business Segments, Exports and Major Customers:
----------------------------------------------
The Company operates in a single industry segment encompassing the
development, manufacture, sales and support of high performance color
servers.
The Company sells its products and services to customers in the United
States and Japan. Net revenue from export sales accounted for 60%, 59% and
43% of total revenues for the years ended September 30, 1994, 1995 and the
five months ended June 30, 1996. All of export sales were made to Japan.
In the years ended September 30, 1994 and 1995 and the five months ended
June 30, 1996, two customers accounted for 60% and 40%; 59% and 41%; and
43% and 57% of total revenues, respectively. In addition, although all
sales made to the Company's U.S. based customers are considered U.S. sales,
this customer has a significant international customer base, and the
Company believes that a significant portion of the Company's products
purchased by the customer are resold outside the U.S.
Continued
F-18
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
10. Income Taxes:
-------------
The provision for (benefit from) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
------------------------------------- -------------------
FOUR MONTHS FIVE MONTHS
FISCAL YEAR ENDED ENDED ENDED
SEPTEMBER 30, JANUSARY 31, JUNE 30,
---------------------------
1994 1995 1996 1996
------------ ---------- ------------- -------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 522 $ 1,095 $ 192 $ 2,551
State 199 300 22 698
------ -------- ------ --------
721 1,395 214 3,249
------ -------- ------ --------
Deferred:
Federal $ (537) $ -- $ 537 $ (9,365)
State (85) -- 85 (1,649)
------ -------- ------ --------
(622) -- 622 (11,014)
------ -------- ------ --------
$ 99 $ 1,395 $ 836 $ (7,765)
====== ======== ====== ========
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
------------------------------------- -------------------
FOUR MONTHS FIVE MONTHS
FISCAL YEAR ENDED ENDED ENDED
SEPTEMBER 30, JANUSARY 31, JUNE 30,
---------------------------
1994 1995 1996 1996
------------ ---------- ------------- -------------------
<S> <C> <C> <C> <C>
Tax provision at federal statutory rate 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit 6.1 6.1 6.1 6.1
Net operating losses (33.3) -- -- --
Other 0.6 (0.1) (0.1) --
------- ------ ------- -------
7.4% 40.0% 40.0% 40.1%
======= ====== ======= =======
</TABLE>
continued
F-19
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
______
10. Income Taxes, continued:
------------
The components of the deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------------
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Deferred tax assets:
In-process and purchased technology $ -- $ -- $ 8,865
Receivable allowances 6 34 80
Inventory valuation allowance 231 221 334
Warranty accruals 55 128 92
State taxes 68 102 240
Deferred revenue -- -- 2,055
All other 262 137 216
------ ------ --------
Total deferred tax assets 622 622 11,882
Long-term portion of in-process and
purchased technology -- -- 8,249
Current portion of deferred tax asset ------ ------ --------
$ 622 $ 622 $ 3,633
====== ====== ========
</TABLE>
At June 30, 1996, the Company assessed the recoverability of the deferred
tax asset and based on its expectations about taxable income for future
periods, determined that it was more likely than not that the deferred tax
asset would be recovered.
11. Employee Benefit Plan:
---------------------
The Company adopted the Splash Technology, Inc. 401(k) Profit Sharing Plan
(the Plan) effective February 1996, which qualifies under Section 401(k) of
the Internal Revenue Code of 1986, as amended, and covers essentially all
employees. Each eligible employee may elect to contribute to the Plan,
through payroll deductions, up to 15% of compensation, subject to certain
limitations. The Company, at its discretion, may make additional
contributions on behalf of non-highly compensated employees. All employer
contributions are 100% vested after four years. During the five months
ended June 30, 1996, there were no Company contributions.
12. Subsequent Events:
-----------------
On July 25 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell up to $34,500,000 of shares of
its common stock to the public including shares which may be offered on
behalf of selling stockholders. Radius, Inc. has agreed that pursuant to
the planned public offering at a price to the public of at least $12.00 per
share, the Series B Preferred Stock held by Radius shall automatically
convert to common stock at the applicable conversion price.
On July 25, 1996, the Board of Directors of the Company authorized an
amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the Company's authorized number of shares to an
aggregate of 50,000,000 shares of common stock, par value $.001 per share
and 5,000,000 shares of preferred stock, par value $.001 per share.
F-20
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_______
On July 25, 1996, the Board of Directors adopted a payroll deduction
Employee Stock Purchase Plan and reserved an aggregate of 50,000 shares of
Common Stock for issuance thereunder and also amended and restated the 1996
Stock Option Plan and increased the aggregate number of shares Common Stock
reserved for issuance thereunder to 900,000 shares.
On July 31, 1996, the Board of Directors of the Company authorized the
establishment of a classified board of directors, effective upon the
Company's planned initial public offering, providing for three classes of
directors having terms of three years each (subject to initial staggering
year terms for the three classes).
F-21
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
_________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 5
Use of Proceeds....................................................... 16
Dividend Policy....................................................... 16
Acquisition........................................................... 16
Capitalization........................................................ 18
Dilution.............................................................. 19
Selected Consolidated Financial Data.................................. 20
Management's Discussion and Analysis
of Financial Condition and Results of Operations..................... 22
Business.............................................................. 29
Management............................................................ 42
Certain Transactions.................................................. 47
Principal and Selling Stockholders.................................... 49
Description of Capital Stock.......................................... 51
Shares Eligible for Future Sale....................................... 54
Underwriting.......................................................... 56
Legal Matters......................................................... 57
Experts............................................................... 57
Additional Information................................................ 57
Index to Consolidated Financial Statements............................ F-1
</TABLE>
_________________
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
. SHARES
[SPLASH LOGO]
COMMON STOCK
________________
PROSPECTUS
________________
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
REGISTRANT
--------------
<S> <C>
SEC Registration Fee..................................... $ 11,897
NASD Filing Fee.......................................... 3,950
Nasdaq National Market Application Fee................... 50,000
Printing................................................. 160,000
Legal Fees and Expenses.................................. 250,000
Accounting Fees and Expenses............................. 410,000
Blue Sky Fees and Expenses............................... 15,000
Director and Officer Liability Insurance................. 250,000
Custodial Fees........................................... 2,500
Transfer Agent and Registrar Fees........................ 10,000
Miscellaneous............................................ 36,653
--------
Total............................................... $1,200,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Ten of the Registrant's Certificate
of Incorporation (Exhibit 3.1 hereto) and Article VI of the Registrant's Bylaws
(Exhibit 3.2 hereto) provide for indemnification of the Registrant's directors,
officers, employees and other agents to the maximum extent permitted by Delaware
Law. In addition, the Registrant has entered into Indemnification Agreements
(Exhibit 10.1 hereto) with its officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among the
Company and the Underwriters with respect to certain matters, including matters
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1995, the Registrant has issued and sold the following
unregistered securities:
1. On January 30, 1996, the Registrant issued and sold an aggregate of
152,500 shares of Common Stock to four members of management pursuant to
restricted stock purchase agreements for aggregate cash consideration of $6,100.
2. On January 30, 1996, the Registrant issued and sold an aggregate of
15,426 shares of mandatorily redeemable Series A Preferred Stock to Summit
Subordinated Debt Fund, Summit Ventures IV, L.P., Summit
II-1
<PAGE>
Investors III, L.P., Sigma Partners III, L.P., sigma Associates III, L.P. and
Sigma Investors III, L.P. pursuant to the Purchase Agreement for an aggregate
cash consideration of $15,426.
3. On January 30, 1996, the Registrant issued and sold an aggregate of
4,282 shares of Series B Preferred Stock to Radius Inc. in return for a portion
of its ownership of Splash Technology, Inc.
4. On January 31, 1996, the Registrant issued a warrant to purchase an
aggregate of 2,500 shares of Common Stock to Imperial Bank for an aggregate cash
consideration of $1.00.
There was no underwriter involved in connection with any transaction set
forth above. The issuances of the securities set forth in paragraph 1 of this
Item 15 were deemed to be exempt from registration under the Securities Act in
reliance upon Rule 701 promulgated thereunder. The other issuances set forth in
this Item 15 were deemed to be exempt from registration pursuant to Section 4(2)
of the Securities Act and Regulation D promulgated thereunder as a transaction
by an issuer not involving a public offering.
In all of such transactions, the recipients of securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the securities issued.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
----------- ------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Merger Agreement, dated December 21, 1995, among
Summit Subordinated Debt Fund, L.P., Summit
Ventures IV, L.P., Summit Investors II, L.P.,
Splash Technology Holdings, Inc. and Splash Merger
Company, Inc.
Radius Inc., Splash Technology, Inc.,
2.2 Amendment No. 1 to Merger Agreement dated
January 30, 1996.
3.1 Certificate of Incorporation of Registrant.
3.2* Form of Amended and Restated Certificate of
Incorporation of Registrant.
3.3 Bylaws of Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
4.1 Warrant, dated January 31, 1996, issued by
Registrant to Imperial Bank.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2* 1996 Stock Option Plan and form of Stock Option
Agreement.
10.3* 1996 Employee Stock Purchase Plan and form of
Subscription Agreement.
10.4 Registration Rights Agreement dated January 30,
1996 among the Registrant and certain stockholders
of the Registrant.
10.5* Configurable Postscript Interpreter OEM License
Agreement dated September 18, 1992 between the
Registrant and Adobe Systems Incorporated.
10.6* Xerox and SMT Hardware Purchase and Software
Development/License Agreement between the
Registrant and Xerox Corporation dated November
13, 1993.
10.7 Property Lease covering Registrant's facilities in
Sunnyvale, California.
10.8 Security and Loan Agreement dated January 31,
1996, between the Registrant and Imperial Bank.
11.1 Computation Regarding Earnings Per Share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit
5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
II-2
<PAGE>
__________________
* To be supplied by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities 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 hereunder, 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 of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of this prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities 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.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the Underwriting Agreement, certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on August 5, 1996.
SPLASH TECHNOLOGY HOLDINGS, INC.
BY: /S/ KEVIN K. MACGILLIVRAY
------------------------------------------
Kevin K. Macgillivray,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Kevin Macgillivray and Joan Platt
and each of them acting individually, as his or her attorney-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any and all amendments to this registration Statement, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendments
to said Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ----------------------------- -------------------------
<S> <C> <C>
/s/ Kevin K. Macgillivray Director, President and Chief August 5, 1996
- ----------------------------------
Kevin K. Macgillivray Officer (Principal Executive
Officer)
/s/ Joan P. Platt Chief Financial Officer and August 5, 1996
- ----------------------------------
Joan P. Platt Vice President, Finance and
Administration (Principal
Financial and Accounting
Officer)
/s/ Gregory M. Avis
- ---------------------------------- Director August 5, 1996
Gregory M. Avis
/s/ Charles W. Berger Director August 5, 1996
- ----------------------------------
Charles W. Berger
/s/ Peter Y. Chung Director August 5, 1996
- ----------------------------------
Peter Y. Chung
/s/ Lawrence G. Finch Director August 5, 1996
- ----------------------------------
Lawrence G. Finch
</TABLE>
II-4
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
--------------------------------
REPORT ON FINANCIAL STATEMENT SCHEDULE
--------------------------------------
In connection with our audit of the consolidated financial statements of
Splash Technology Holdings, Inc., and its subsidiaries as of June 30, 1996 and
for the five months ended June 30, 1996, and in connection with our audit of the
Predecessor Business as of September 30, 1994 and 1995, and for the years then
ended and for the four months ended January 31, 1996, which financial statements
are included in the Prospectus, we have also audited the financial statement
schedules listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
San Jose, California
July 31, 1996
II-5
<PAGE>
Schedule II
FINANCIAL STATEMENT SCHEDULE
----------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
VALUATION FOR BALANCE AT BALANCE AT
DOUBTFUL ACCOUNTS BEGINNING OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
--------------------- ------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Years ended:
September 30, 1994(1) - 16 - 16
======= ======= ======== =======
September 30, 1995(1) 16 68 - 84
======= ======= ======== =======
Four months ended
January 31, 1996(1) 84 17 - 101
======= ======= ======== =======
Five months ended
June 30, 1996 101 199 - 300
======= ======= ======== =======
<CAPTION>
VALUATION FOR BALANCE AT BALANCE AT
INVENTORY RESERVES BEGINNING OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
--------------------- ------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Years ended:
September 30, 1994(1) - 575 - 575
======= ======= ======== =======
September 30, 1995(1) 575 - (25) 550
======= ======= ======== =======
Four months ended
January 31, 1996(1) 550 - (550) -
======= ======= ======== =======
Five months ended
June 30, 1996 0 832 - 832
======= ======= ======== =======
<CAPTION>
VALUATION FOR BALANCE AT BALANCE AT
WARRANTY RESERVES BEGINNING OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
--------------------- ------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Years ended:
September 30, 1994(1) - 136 - 136
======= ======= ======== =======
September 30, 1995(1) 136 181 - 317
======= ======= ======== =======
Four months ended
January 31, 1996(1) 317 - (176) 141
======= ======= ======== =======
Five months ended
June 30, 1996 141 232 - 373
======= ======= ======== =======
</TABLE>
________________________
(1) Predecessor Business.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
---------- -------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Merger Agreement, dated December 21, 1995, among Radius Inc.,
Splash Technology, Inc., Summit Subordinated Debt Fund, L.P.,
Summit Ventures IV, L.P., Summit Investors II, L.P., Splash
Technology Holdings, Inc. and Splash Merger Company, Inc.
2.2 Amendment No. 1 to Merger Agreement dated January 30, 1996.
3.1 Certificate of Incorporation of Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.3 Bylaws of Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
4.1 Warrant, dated January 31, 1996, issued by Registrant to
Imperial Bank.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement.
10.2* 1996 Stock Option Plan and form of Stock Option Agreement.
10.3* 1996 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.4 Registration Rights Agreement dated January 30, 1996 among
the Registrant and certain stockholders of the Registrant.
10.5* Configurable Postcript Interpreter OEM License Agreement
dated September 18, 1992 between the Registrant and Adobe
Systems Incorporated.
10.6* Xerox and SMT Hardware Purchase and Software
Develpoment/License Agreement between the Registrant and
Xerox Corporation dated November 13, 1993.
10.7 Property Lease covering Registrant's facilities in Sunnyvale,
California.
10.8 Security and Loan Agreement dated January 31, 1996, between
the Registrant and Imperial Bank.
11.1 Computation Regarding Earnings Per Share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
</TABLE>
____________________________
* To be supplied by amendment.
<PAGE>
EXHIBIT 2.1
MERGER AGREEMENT
DATED AS OF DECEMBER 21, 1995
AMONG RADIUS INC.,
SPLASH TECHNOLOGY, INC.,
SUMMIT SUBORDINATED DEBT FUND, L.P.,
SUMMIT VENTURES IV, L.P.,
SUMMIT INVESTORS II, L.P.,
SPLASH TECHNOLOGY HOLDINGS, INC.
AND
SPLASH MERGER COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER; EXCHANGE OF SECURITIES........................................2
1.1 CONTRIBUTION OF CSG ASSETS TO COMPANY..............................2
1.2 THE MERGER.........................................................3
1.3 CONVERSION OF SHARES...............................................3
1.4 THE CLOSING OF THE MERGER..........................................3
1.5 POST-CLOSING CONTRIBUTION BY SELLER................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS, HOLDCO AND HOLDCO SUB......................................5
2.1 HOLDCO AND HOLDCO SUB..............................................5
2.2 INVESTOR AUTHORIZATION.............................................7
2.3 FINDERS OR BROKERS.................................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY......................7
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY.......8
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS.......................................20
4.1 REPRESENTATIONS AND WARRANTIES....................................20
4.2 ABSENCE OF LITIGATION.............................................20
4.3 PERFORMANCE OF OBLIGATIONS........................................20
4.4 DOCUMENTATION AT CLOSING..........................................20
4.5 MATERIAL ADVERSE CHANGE...........................................23
4.6 CONDUCT OF BUSINESS; REVENUES.....................................23
4.7 CONSENTS, WAIVERS, ETC............................................23
4.8 ACCOUNTING REVIEW.................................................24
4.9 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT.............24
4.10 HART-SCOTT-RODINO WAITING PERIOD..................................24
4.11 ASSETS TRANSFER. .................................................24
4.12 ELECTION UNDER SECTION 338(H)(10). ...............................24
4.13 NUBUS EQUIPPED COMPUTERS. ........................................25
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S AND COMPANY'S OBLIGATIONS...............25
5.1 REPRESENTATIONS AND WARRANTIES....................................25
5.2 ABSENCE OF LITIGATION.............................................25
5.3 PERFORMANCE OF OBLIGATIONS........................................25
5.4 AIRNESS OPINION...................................................25
5.5 CONSENTS, WAIVERS, ETC. ..........................................25
5.6 BOARD OF DIRECTORS................................................26
5.7 HOLDCO CASH.......................................................26
5.8 HART-SCOTT RODINO WAITING PERIOD..................................26
5.9 DOCUMENTATION AT CLOSING..........................................26
5.10 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT.............28
ARTICLE VI
POST-CLOSING COVENANTS...................................................28
6.1 AFFIRMATIVE COVENANTS OF HOLDCO OTHER THAN REPORTING REQUIREMENTS.28
6.2 NEGATIVE COVENANTS OF HOLDCO......................................30
6.3 REPORTING REQUIREMENTS OF HOLDCO..................................32
6.4 CONFIDENTIALITY...................................................34
6.5 COVENANTS OF SELLER...............................................34
ARTICLE VII
OBLIGATIONS PENDING THE CLOSING..........................................35
7.1 ACCESS............................................................35
7.2 CONDUCT OF COMPANY'S BUSINESS.....................................36
7.3 CONSENTS..........................................................38
7.4 NOTICE OF BREACH..................................................39
7.5 SELLER AND INVESTORS AS STOCKHOLDERS..............................39
7.6 RETENTION OF CSG EARNINGS.........................................39
ARTICLE VIII
OBLIGATIONS AT OR PRIOR TO THE CLOSING...................................40
8.1 EXCLUSIVITY/OTHER OFFERS..........................................40
8.2 OTHER DELIVERIES..................................................40
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX
NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS................................................................41
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................41
ARTICLE X
INDEMNIFICATION..........................................................41
10.1 INDEMNIFICATION BY THE SELLER FOR BREACH OF THIS AGREEMENT........41
10.2 INDEMNIFICATION BY THE SELLER FOR EFI LITIGATION..................41
10.3 CLAIMS FOR INDEMNIFICATION OF INVESTORS...........................42
10.4 DEFENSE BY SELLER.................................................42
10.5 TIME LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY...........................................................43
10.6 MONETARY LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY...........................................................43
10.7 DAMAGES TO INVESTORS..............................................43
10.8 NO WAIVER BY INVESTORS, HOLDCO AND COMPANY........................44
10.9 MATERIALITY.......................................................44
10.10 INDEMNIFICATION BY HOLDCO AND INVESTORS...........................44
10.11 CLAIMS FOR INDEMNIFICATION OF SELLER..............................44
10.12 DEFENSE BY HOLDCO AND INVESTORS...................................44
10.13 TIME LIMITATION ON INDEMNIFICATION OF SELLER......................45
10.14 MONETARY LIMITATION ON INDEMNIFICATION OF SELLER..................45
10.15 NO WAIVER BY SELLER...............................................45
ARTICLE XI
DEFINITIONS AND ACCOUNTING TERMS.........................................46
11.1 CERTAIN DEFINED TERMS.............................................46
11.2 ACCOUNTING TERMS..................................................52
ARTICLE XII
MISCELLANEOUS............................................................52
12.1 NO WAIVER; CUMULATIVE REMEDIES....................................52
12.2 TERMINATION.......................................................52
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
12.3 AMENDMENTS, WAIVERS AND CONSENTS..................................52
12.4 ADDRESSES FOR NOTICES, ETC........................................53
12.5 COSTS, EXPENSES AND TAXES.........................................54
12.6 BINDING EFFECT; ASSIGNMENT........................................54
12.7 PRIOR AGREEMENTS..................................................54
12.8 SEVERABILITY......................................................54
12.9 GOVERNING LAW.....................................................54
12.10 HEADINGS..........................................................54
12.11 COUNTERPARTS......................................................54
12.12 FURTHER ASSURANCES................................................54
12.13 CONFIDENTIALITY...................................................55
12.14 PRESS RELEASE.....................................................55
12.15 INDEMNIFIED PARTIES...............................................55
</TABLE>
-iv-
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and entered into as of
December 21, 1995, by and among RADIUS INC., a California corporation (the
"Seller"), SPLASH TECHNOLOGY, INC., a Delaware corporation (the "Company"),
SPLASH TECHNOLOGY HOLDINGS, INC., a Delaware corporation ("Holdco"), SPLASH
MERGER COMPANY, INC., a Delaware corporation, ("Holdco Sub") and the entities
listed as Investors on the signature page(s) hereof (the "Investors").
RECITALS
A. The Seller currently operates a Color Server Group ("CSG") which is
engaged in the business of the design, manufacture and sale of color servers for
the color printing market, which such color servers are comprised of computer
software, computer hardware, hardware interfaces to computers and color
photocopying, scanning and printing devices, and the integration of such
elements with computers, computer networks, software and color photocopying,
scanning and printing devices.
B. Immediately prior to the Merger described below, Seller shall
contribute the assets and certain liabilities of CSG to the Company, which shall
be a wholly-owned subsidiary of Seller. Immediately prior to the closing of the
Merger described below, all of Holdco's capital stock shall be held by the
Investors and Holdco Sub shall be a wholly-owned subsidiary of Holdco.
C. Immediately following the transfer of the assets and certain
liabilities of CSG to the Company described above, Holdco Sub shall merge into
and with the Company, with the Company surviving, and the Seller shall receive
from Holdco Series B Redeemable and Convertible Preferred Stock, par value
$0.001, of the Company ("Series B Preferred Stock") convertible into
approximately 19.9% of Holdco Common Stock (post-closing and without considering
dilution by management options) and $21,945,175 in cash. Prior to such Merger,
the management of the Company shall have purchased approximately 6.1% of Holdco
Common Stock (post-closing and without considering dilution by management
options) from Holdco pursuant to a Restricted Stock Purchase Agreement, thus
leaving approximately 74% of Holdco Common Stock (post-closing and without
considering dilution by management options) in the hands of the Investors.
D. The respective boards of directors and stockholders of Holdco Sub
and the Company have approved the merger (the "Merger") of Holdco Sub into and
with the Company pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER; EXCHANGE OF SECURITIES
1.1 CONTRIBUTION OF CSG ASSETS TO COMPANY. Immediately prior to the
Effective Time (as hereinafter defined), the Seller shall transfer, assign and
deliver to the Company, and the Company shall accept and receive from the
Seller, all right, title and interest of the Seller, free and clear of all
Liens, other than as specified on Exhibit 1.1A or in the Disclosure Letter (as
hereinafter defined), in and to those tangible and intangible rights, properties
and assets set forth on Exhibit 1.1A hereto (the "Assets"). Immediately prior to
the Effective Time, the Certificate of Incorporation of the Company shall be in
the form of Exhibit 1.1B hereto, and the By-Laws of the Company shall be in the
form of Exhibit 1.1C hereto. The Company shall assume from the Seller all of its
obligations under the contracts, commitments and undertakings which are
specifically identified on Exhibit 1.1A as Contracts (the "Contracts"). Other
than the Company's obligations under the Contracts, the Company shall assume and
agree to perform or discharge, when and as due, only those obligations, claims
and liabilities described on Exhibit 1.1D hereto (the "Assumed Liabilities").
Exhibit 1.1D sets forth all employees and consultants of the Seller that are
realted to CSG and the Business and who will become employees and consultants of
the Company. As part of the same transaction, the Company and the Seller shall
enter into a Corporate Services Agreement mutually agreeable in form and
substance to the Seller and the Investors. Such Corporate Services Agreement
shall specify that the Seller provide the Company with certain tax, accounting,
legal, purchasing, payroll, information services, human resources and other
services (consistent with Past Practices and the provision of all services and
other items provided by the Seller to CSG immediately prior to the date hereof)
for a period extending for 3 months after the date of the Closing. The
consideration to be provided by the Company shall be based on the level of use
of services and market rates for similar services. Such Corporate Services
Agreement shall allow for termination by the Company with respect to any
services or part thereof upon 30 days prior notice to the Seller. Holdco shall
use reasonable efforts to become independent of the Seller with respect to such
services within 30 days of the Closing. The Corporate Services Agreement also
will provide for payment of consideration to the Seller for such services, if
any, provided by the Seller to CSG from January 1, 1996 to the date of the
Closing, to the extent that the Seller was not compensated for such services
previously. Further, as part of the same transaction, the Company and the Seller
shall enter into a Sub-Lease mutually agreeable in form and substance to the
Seller and the Investors. Such Sub-Lease shall specify that the Seller provide
the Company with rental of the real property owned or leased by the Seller that
is to be occupied by the Company for a period extending for 3 months after the
date of the Closing. The consideration to be provided by the Company shall be
based on the amount of rental space actually occupied by the Company and the
rent paid by the Seller for such rental space. Such Sub-Lease shall allow for
termination by the Company with respect to any rental space or part thereof upon
30 days prior notice to the Seller. The Sub-Lease also will provide for payment
of consideration to the Seller for such rental space, if any, provided by the
Seller to CSG from January 1, 1996 to the date of the Closing, to the extent
that the Seller was not compensated for such rental previously. In addition, as
part of the same transaction, the Company and the Seller shall have entered into
a Trademark License Agreement, mutually agreeable in form and substance to the
Seller and the Investors, which shall permit the Company to use certain Seller
trademarks that have been and are expected to be used in the Business for a
period extending 18 months after the date of the Closing. Such Trademark License
Agreement
-2-
<PAGE>
shall be in full force and effect and binding upon the parties thereto. Any
sales, use or transfer Taxes or permit or license transfer fees and expenses
relating to the transfer of the Assets from the Seller to the Company or
otherwise due as a result of the transactions contemplated by this Agreement
shall be paid by the Seller.
1.2 THE MERGER.
(a) SURVIVING CORPORATION. Subject to the conditions contained
herein and in accordance with the provisions of this Agreement and the DGCL, at
the Effective Time (as hereinafter defined), Holdco Sub shall be merged with and
into the Company, which, as the corporation surviving in the Merger (the
"Surviving Corporation"), shall continue unaffected and unimpaired by the Merger
to exist under and be governed by the laws of the State of Delaware. At the
Effective Time, the separate existence of Holdco Sub shall cease except to the
extent provided by law in the case of a corporation after its merger into
another corporation.
(b) EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Sections 259 through 261 of the DGCL.
(c) CERTIFICATE OF INCORPORATION, BY-LAWS, OFFICERS AND DIRECTORS.
The Certificate of Incorporation and By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall continue in full force and effect
as the Certificate of Incorporation and By-Laws of the Surviving Corporation.
The initial board of directors of the Surviving Corporation shall consist of the
initial directors of Holdco Sub and the initial officers of the surviving
corporation shall be as mutually agreed to by the Seller and the Investors, who
all shall serve until their respective successors are duly elected and
qualified.
1.3 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Seller as the sole stockholder
of the Company or Holdco as the sole stockholder of Holdco Sub:
(a) Each share of common stock, par value of $0.001, of the Company
(the "Company Common Stock") outstanding immediately prior to the Effective Time
shall be converted into (i) 4.282 shares of Series B Preferred Stock and (ii)
the right to receive $21,945.175, payable by wire transfer of federal clearing
house funds.
(b) Each share of the common stock, par value $0.001, of Holdco Sub
(the "Holdco Sub Common Stock") outstanding immediately prior to the Effective
Time shall be converted into one share of Company Common Stock.
1.4 THE CLOSING OF THE MERGER. The closing of the Merger (the "Closing")
shall be held at the office of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page
Mill Road, Palo Alto, California 94304-1050, on such date and at such time as
may be mutually agreed upon, but on or prior to January 31, 1996, unless the
parties agree otherwise. At the Closing, subject to the fulfillment or waiver of
the conditions set forth in Articles IV and V hereof, (a) the parties shall
cause the Merger to be consummated by the
-3-
<PAGE>
filing of a certificate of merger, executed and acknowledged in accordance with
the DGCL, with the Secretary of State of Delaware, (b) the Seller shall deliver,
assign, convey and transfer each share of Company Common Stock to Holdco, (c)
Holdco shall deliver, assign, convey and transfer to the Seller the shares of
Series B Preferred Stock that the Seller is entitled to pursuant to Section 1.3
hereof, and (d) Holdco shall transfer to the Seller (or an agent of the Seller,
if previously designated in writing by the Seller) by wire of federal clearing
house funds to such account or accounts as shall have been previously designated
in writing by the Seller, the amount of cash (the "Cash Purchase Price") that
the Seller is entitled to pursuant to Section 1.3 hereof; provided that an
--------
amount equal to $4,700,000 shall be wired to the escrow account subject to the
Escrow Agreement referred to in Section 4.4(h) rather than directly to an
account of the Seller. The date and time of the effectiveness of the Merger
pursuant to the DGCL shall be herein called the "Effective Time."
1.5 POST-CLOSING CONTRIBUTION BY SELLER.
(a) DELIVERY OF YEAR-END BALANCE SHEET. As soon as practicable
(but in no event later than 60 days) after the date of the Closing, the
Investors shall deliver to the Seller a balance sheet for the Company, prepared
by the Investors' Accountants at the expense of Holdco, as of the close of
business on December 31, 1995 (the "Year-End Balance Sheet") that is prepared in
accordance with Restricted GAAP and, to the extent in accordance with Restricted
GAAP, on a consistent basis with the Interim Balance Sheet.
(b) REVIEW BY SELLER; DISPUTE RESOLUTION.
(i) Promptly following receipt of the Year-End Balance
Sheet, Seller and Seller's Accountants may review the same and, within 30 days
after the date of such receipt, may deliver to the Investors a certificate
signed by a duly authorized officer of the Seller setting forth its objections
to the Year-End Balance Sheet (set forth in reasonable detail), together with a
summary of the reasons therefor and calculations and modifications which, in its
view, are necessary to eliminate such objections. In the event the Seller does
not so object within such 30-day period, the Year-End Balance Sheet shall be
final and binding for the purposes of this Agreement.
(ii) In the event the Seller so objects within such 30-day
period, then the Seller and the Investors shall jointly select a national
accounting firm acceptable to each of the Seller and the Investors (or if they
cannot agree on such selection, a national "big-six" accounting firm will be
selected by lot after eliminating the Seller's Accountants and the Investors'
Accountants) and the firm so selected (the "Additional Accounting Firm") shall
be directed by the Seller and the Investors to conduct a review of the
objections of the Seller to the Year-End Balance Sheet as promptly as reasonably
practicable (and the Seller and the Investors shall use reasonable efforts to
allow and cause the Additional Accounting Firm to conduct such review as
promptly as reasonably practicable) and, upon completion of such review, to
deliver written notice to each of the Seller and the Investors setting forth a
summary of all adjustments to the Year-End Balance Sheet determined necessary by
the Additional Accounting Firm to resolve the objections of the Seller to the
Year-End Balance Sheet (such written notice and related summary being herein
called the "Additional Report"). The Year-End Balance Sheet as adjusted by any
-4-
<PAGE>
adjustments as set forth in the Additional Report shall be final and binding,
for purposes of this Agreement.
(iii) Each of the Seller, the Investors, the Seller's
Accountants and the Investors' Accountants and, if applicable, the Additional
Accounting Firm, shall promptly make available to any of the foregoing Persons
such books, records and other information (including work papers) as may be
reasonably requested by any such Person to audit or review the Year-End Balance
Sheet or any objections thereto. The fees and expenses of the Investors'
Accountants related to its services under Section 1.5(a) shall be paid by
Holdco, the fees and expenses of the Investors' Accountants related to its
services under Section 1.5(b) shall be paid by the Investors, the fees and
expenses of the Seller's Accountants related to its services under this Section
1.5 shall be paid by Seller and the fees and expenses, if applicable, of the
Additional Accounting Firm related to its services under this Section 1.5 shall
be paid 50% by the Seller and 50% by the Investors.
(c) CONTRIBUTION BY SELLER. If the Working Capital of the Business
and the Company as of the date of the Closing as reported in the final and
binding Year-End Balance Sheet, is less than negative $554,825, then within five
(5) days of the date that the Year-End Balance Sheet becomes final and binding
in accordance with Section 1.5(b), the Seller shall pay to the Company by wire
transfer of federal clearing house funds the amount by which such Working
Capital is less than negative $554,825. If Seller does not pay any amounts due
under this Section in accordance with the terms of this Section, then the
Company, Holdco and the Investors shall receive indemnification from the Seller
in accordance with Article X and, at their sole election, shall receive payments
for such amounts from the escrow fund described in Section 4.4(h).
(d) PAYMENT BY THE COMPANY. If the Working Capital of the Business
and the Company as of the date of the Closing as reported in the final and
binding Year-End Balance Sheet, is greater than negative $554,825, then within
five (5) days of the date that the Year-End Balance Sheet becomes final and
binding in accordance with Section 1.5(b), the Company shall pay to the Seller
by wire transfer of federal clearing house funds the amount by which such
Working Capital is greater than negative $554,825; provided that, in any event,
such payment by the Company to the Seller shall not exceed $1,554,825. If
Company does not pay all amounts due under this Section in accordance with the
terms of this Section, then the Seller shall receive indemnification from the
Investors, Holdco and the Company in accordance with Article X hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS, HOLDCO AND HOLDCO SUB
2.1 HOLDCO AND HOLDCO SUB. Holdco, Holdco Sub and each Investor, jointly
and severally, represent and warrant to the Seller and the Company that (as of
the date hereof, as of the date of the Closing and as of the Effective Time):
-5-
<PAGE>
(a) ORGANIZATION AND UNDERSTANDING. Each of Holdco and Holdco Sub
is a duly organized and validly existing corporation in good standing under the
laws the State of Delaware. The Certificate of Incorporation and the By-Laws of
Holdco are in the form of Exhibit 2.1A and 2.1B, respectively.
(b) CORPORATE ACTION. Holdco has all necessary corporate power and
authority and have taken all corporate action required to make all the
provisions of this Agreement, and any other agreements and instruments executed
in connection herewith, the valid and enforceable obligations of Holdco. Holdco
Sub has all necessary corporate power and authority and has taken all corporate
action required to make all the provisions of this Agreement, and any other
agreements and instruments executed in connection herewith, the valid and
enforceable obligations of the Holdco Sub.
(c) CAPITALIZATION. Immediately prior to the Effective Time, the
authorized capital stock of Holdco shall consist of 10,000,000 shares of common
stock, par value $0.001, of Holdco ("Holdco Common Stock"), 2,002,500 shares of
which shall be outstanding and issued, 15,426 shares of Series A Redeemable
Preferred Stock, par value $0.001, of Holdco ("Series A Preferred Stock"),
15,426 shares of which shall be outstanding and issued, and 4,282 shares of
Series B Preferred Stock, none of which shares shall be issued and outstanding.
Immediately prior to the Effective Time, all such issued shares shall be validly
issued, fully paid and non-assessable and free and clear of all Liens.
Immediately prior to the Effective Time, there will be no options, warrants or
rights to purchase shares of capital stock or other securities authorized,
issued or outstanding, nor will Holdco be obligated in any other manner to issue
shares of its capital stock or other securities. None of the Investors has, and
as of the Closing none of them shall have, granted or sold, and none of the
Investors is, or at the time of Closing neither will be, a party to any
agreement, commitment or understanding, written or oral, providing for the grant
or sale of, options or other rights to purchase or restricting the transfer of,
and none of them is, and at the Closing none will be, obligated to sell or
otherwise transfer, any of securities or capital stock of Holdco to any person
or entity. Immediately prior to the Effective Time, there shall be sufficient
authorized but unissued shares of Holdco Common Stock reserved for issuance to
Seller upon conversion of all shares of Series B Preferred Stock then held by
the Seller into shares of Holdco Common Stock pursuant to the terms of Holdco's
Certificate of Incorporation. Immediately prior to the Effective Time, the
4,282 shares of Series B Preferred Stock to be issued to the Seller shall be
convertible into 497,465 shares of Holdco Common Stock (approximately 19.9% of
the issued and outstanding Holdco Common Stock), which shares have been reserved
for issuance pursuant to the terms of the Certificate of Incorporation of
Holdco. When issued to the Seller, the 4,282 shares of Series B Preferred Stock
will be validly issued, fully paid and non-assessable, and free and clear of all
Liens and will be issued in accordance with the registration and qualification
requirements of federal and any applicable state securities laws. The
authorized capital stock of Holdco Sub consists of 1,000 shares of Holdco Sub
Common Stock, 1,000 shares of which are outstanding and issued to Holdco.
Immediately prior to the Effective Time, Investors shall be the owners of
1,850,000 shares of Holdco Common Stock, 15,426 shares of Series A Preferred
Stock and certain Subordinated Notes of Holdco having a face value of
$8,000,000 (the "Subordinated Notes," together with such shares of Series A
Preferred Stock held by the Investors and the shares of Series B Preferred Stock
to be received by the Seller pursuant to the Merger, are sometimes collectively
referred to as the "Securities") substantially in the form in Exhibit 2.1C.
Immediately prior to the Effective Time, members of the management of the
Company
-6-
<PAGE>
shall be the owners of 152,500 shares of Holdco Common Stock, which shares will
have been purchased pursuant to the Restricted Stock Purchase Agreement
referenced in Sections 5.9(h) and 5.10 hereof, assuming delivery, execution and
performance thereunder by the management of the Company of such Restricted Stock
Purchase Agreement and satisfaction of the conditions specified in Sections
5.9(h) and 5.10 hereof.
(d) GOVERNMENT APPROVAL. No authorization, consent, approval,
permits, licenses, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with the
execution or delivery by the Investors, Holdco or Holdco Sub of, or for the
performance by the Investors, Holdco or Holdco Sub of their obligations under
this Agreement except for filings to be made, if any to comply with exemptions
from registration or qualification under federal and state security laws and the
expiration of any applicable waiting period pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
(e) LIABILITIES. Neither Holdco nor Holdco Sub has any material
Liabilities, except as contemplated herein.
2.2 INVESTOR AUTHORIZATION. Each Investor further represents that:
(a) Each Investor has duly authorized, executed and delivered this
Agreement and any other agreements and instruments executed in connection
herewith and has all necessary power and authority to do so.
(b) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of each Investor, enforceable
against it in accordance with their respective terms, and all such action to
make such agreements so has been taken.
(c) No consent or approval of any Person is required in connection
with the execution, delivery and performance of this Agreement and such other
agreements and instruments by each Investor which has not heretofore been
obtained.
(d) Execution and performance of this Agreement shall not result in
a material default of other agreements or instruments or any Law by any
Investor.
2.3 FINDERS OR BROKERS. Each Investor, Holdco and Holdco Sub represent
that no Person has or will have, as a result of the transactions contemplated by
this Agreement, any right, interest or valid claim upon or against the Company,
Holdco or the Seller for any commission, fee or other compensation as a finder
or broker because of any act or omission by such Investor, Holdco or Holdco Sub,
and each Investor agrees to indemnify and hold the Seller and the Company
harmless against any such commissions, fees or other compensation.
ARTICLE III
-7-
<PAGE>
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY. Except
as disclosed in a letter delivered by the Company to the Seller prior to the
date hereof (the "Disclosure Letter," which Disclosure Letter shall, when
qualifying a representation or warranty, refer specifically to the Section
number herein of the representation or warranty so qualified), the Seller and
the Company, jointly and severally, represent and warrant to the Investors that
(as of the date hereof, as of the date of the Closing, and as of the Effective
Time):
(a) ORGANIZATION AND STANDING. Each of the Seller and the Company
is a duly organized and validly existing corporation in good standing under the
laws of the jurisdiction in which it is organized and has all requisite
corporate power and authority for the ownership and operation of its properties
and for the carrying on its business, including, without limitation, the
Business as now conducted by CSG and as now proposed to be conducted by the
Company. The Seller, in relation to CSG and the operation of the Assets, is, and
the Company is, or will be as of the Closing, duly qualified and in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the property owned or leased, or the nature of the
activities conducted, by it makes such qualification necessary other than where
failure to so qualify would not have a material adverse effect upon CSG, the
Business, the Company or the Assets.
(b) CORPORATE ACTION. The Seller has all necessary corporate power
and authority and has taken all corporate action required to make all the
provisions of this Agreement, and any other agreements and instruments executed
by it in connection herewith, the valid and enforceable obligations of the
Seller. The Company has all necessary corporate power and authority and has
taken all corporate action required to make all the provisions of this
Agreement, and any other agreements and instruments executed by it in connection
herewith the valid and enforceable obligations of the Company.
(c) GOVERNMENTAL APPROVAL. No authorization, consent, approval,
permits, licenses, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with the
execution or delivery by the Seller or the Company of, or for the performance by
the Seller or the Company of their obligations under this Agreement except for
filings to be made, if any, to comply with exemptions from registration or
qualification under federal and state securities laws and the expiration of any
applicable waiting period pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(d) LITIGATION. There is no litigation or governmental proceeding
or investigation pending or, to the best knowledge of the Seller and the
Company, threatened against the Seller, the Company or the Assets affecting any
of the Assets or the Business, or, to the best knowledge of the Seller or the
Company, pending or threatened against any officer or key employee of the Seller
whose duties relate to the Business, or the Company that might reasonably be
expected to result, either in any case or in the aggregate, in any material
adverse change in the business, operations, affairs or conditions of CSG, the
Company, the Business, or the Assets taken as a whole, or that might reasonably
be
-8-
<PAGE>
expected to call into question the validity of this Agreement or any action
taken or to be taken pursuant hereto.
(e) COMPLIANCE WITH OTHER INSTRUMENTS. The Seller and the Company
are in compliance (i) in all respects with the terms and provisions of their
certificate or articles of incorporation or bylaws, (ii) in all respects with
the terms and provisions of each mortgage, indenture, lease, agreement and other
instrument relating to obligations of the Seller with respect to CSG and the
Company in excess of $50,000 individually or $100,000 in the aggregate, and,
(iii) with all international, foreign, federal, state or local judgments,
decrees, governmental orders, statutes, rules, regulations, permits or licenses
by which either the Company or the Seller (with respect to CSG, the Assets or
the Business) is bound or to which the Assets are subject that, in the case of
any of clauses (ii) or (iii) the default or violation of which might have a
material adverse effect on the Business, the Assets, the Company or CSG or that
might reasonably be expected to call into question the validity of this
Agreement, or any action taken or to be taken pursuant hereto. There is no term
or provision in any of the foregoing documents and instruments and judgments,
orders, statutes, rules, regulations, permits or licenses that materially
adversely affects the Business, the Assets, or the financial condition of CSG or
the Company. Neither the execution and delivery of this Agreement nor the
consummation of any transaction contemplated hereby, has constituted or resulted
in or will constitute or result in a material violation of any term or provision
in the certificate or articles of incorporation or bylaws of the Seller or the
Company or has constituted or resulted in a material default or violation of any
term or provision in any document or instrument to which they are subject.
(f) NO BROKERS OR FINDERS. No Person has or will have, as a result
of the transactions contemplated by this Agreement, any right, interest or valid
claim upon or against the Investors, the Company or Holdco for any commission,
fee or other compensation or as a finder or broker because of any act or
omission by the Seller or the Company or, to the knowledge of the Seller and the
Company, by any other Person.
(g) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately preceding
the Effective Time, the Company will have a total authorized capitalization
consisting of 1,000 shares of Company Common Stock, of which 1,000 shares will
be issued to the Seller and outstanding. There will be no options, warrants or
rights to purchase shares of capital stock or other securities authorized,
issued or outstanding, nor will the Company be obligated in any other manner to
issue shares of its capital stock or other securities. Neither of the Seller or
the Company, and as of the Closing neither of them shall have, granted or sold,
and neither of the Seller or the Company is, or at the time of Closing neither
will be, a party to any agreement, commitment or understanding, written or oral,
providing for the grant or sale of, options or other rights to purchase or
restricting the transfer of, and neither of them is, and at the Closing neither
will be, obligated to sell or otherwise transfer, any of securities or capital
stock of the Company to any person or entity except to Holdco pursuant to this
Agreement.
(h) FINANCIAL STATEMENTS. The unaudited pro forma, after giving
effect to the transfer of the Assets to the Company and the assumption by the
Company of the Contracts and the Assumed Liabilities, income statement of CSG
and the Company for the year ended September 30, 1995 (the "Financial
Statements"), and the unaudited pro forma balance sheet of CSG and the Company
as of
-9-
<PAGE>
December 8, 1995 (the "Interim Balance Sheet"), copies of which Financial
Statements and Interim Balance Sheet, along with any officers reports, have
heretofore been delivered to Investors and are attached to the Disclosure
Letter, were prepared in accordance with GAAP throughout the periods involved,
and, to the extent consistent with GAAP, in accordance with the Past Practice,
subject to normal year-end adjustments with respect to the Interim Balance
Sheet, and fairly present the financial position and results of operations of
CSG, and on a pro forma basis, the Company for the periods covered.
Notwithstanding the foregoing, the Interim Balance Sheet was prepared in
accordance with Restricted GAAP and fairly presents, as of its date, the Working
Capital of CSG, the Company and the Business, including all liabilites of CSG,
the Company and the Business. The unaudited income statements and cash flow
statements have been presented on a pro forma basis to reflect recurring results
of the Business on a stand-alone basis. All pro forma adjustments to the
Financial Statements and Interim Balance Sheet are set forth in the Disclosure
Letter. The balance sheets within the Financial Statements and Interim Balance
Sheet reflect all of the assets and liabilities which are necessary to conduct,
operate and maintain the Business, and the related income statements originated
from the books, records and accounts of the Seller and the Company described in
Section 3.1(j).
i) INVENTORY. Except as would not have a material adverse effect
on the Business, the Assets, the Company or CSG, all inventory of the Seller and
the Company used in the conduct of the Business, including, without limitation,
raw materials, work-in-process and finished goods, reflected on the Interim
Balance Sheet or acquired since the date thereof was acquired and has been
maintained in the ordinary course of the Business consistent with Past Practice,
is of good and merchantable quality, consists substantially of a quality,
quantity and condition usable, leasable or saleable in the ordinary course of
the Business, is valued at reasonable amounts based on the ordinary course of
the Business during the past six months, and is not subject to any material
write-down or write-off in excess of the inventory reserves set forth on the
Interim Balance Sheet. Neither the Seller nor the Company is under any liability
or obligation with respect to the return of the inventory used in the conduct of
the Business in the possession of wholesalers, retailers or other customers.
(j) BOOKS OF ACCOUNT. The books, records and accounts of the
Seller and the Company maintained with respect to the Business accurately and
fairly reflect, in reasonable detail and in all material respects, the
transactions and the assets and liabilities of the Seller and the Company
related to the Business and being transferred to the Company in accordance with
Section 1.1 hereof.
(k) ACCOUNTS RECEIVABLE. The accounts receivable of the Seller and
the Company arising from the Business as set forth on the Interim Balance Sheet
or arising since the date thereof are valid and genuine, have arisen solely out
of bona fide sales and deliveries of goods, performance of services and other
business transactions in the ordinary course of business consistent with Past
Practice and, to the best knowledge of the Seller and the Company, are not
subject to valid defenses, set-offs or counterclaims. The allowance for doubtful
accounts has been determined in accordance with Restricted GAAP and, to the
extent consistent with Restricted GAAP, in accordance with the Past Practice.
The Disclosure Letter provides true and complete information with respect to the
accounts receivable of the Seller with respect to the Business as of December 8,
1995. All of the accounts receivable included in the Assets (i) have arisen in
the normal course of business, (ii) represent bona fide indebtedness incurred by
the applicable account debtors in the stated amounts reflected on the books of
Seller, subject to
-10-
<PAGE>
collection and (iii) will be subject on the date of the Closing, to the best
knowledge of the Seller and the Company, to no prior assignment, lien, set-off
or security interest. To the best of Seller's and the Company's knowledge, such
accounts are not, and as of the date of the Closing will not be, (i) owed by a
person or entity that has sought the protection of any bankruptcy or insolvency
laws, or (ii) the subject of any dispute as to payment.
(l) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Seller has furnished
to the Investors a true and complete copy of each statement, report,
registration statement, definitive proxy statement and other filing filed with
the Securities and Exchange Commission ("SEC") pursuant to the Exchange Act by
Seller since September 30, 1992, and, prior to the Effective Time, the Seller
will have furnished the Investors with true and complete copies of any
additional documents filed with the SEC by the Seller prior to the Effective
Time (collectively, the "Seller SEC Documents"). In addition, the Seller has
made available to the Investors all exhibits to the Seller SEC Documents filed
prior to the date hereof, and will promptly make available to the Investors all
exhibits to any additional Seller SEC Documents filed or incorporated by
reference prior to the Effective Time, in each case limited to those exhibits
which relate to or otherwise affect the Assets and the Business. All documents
required to be filed as exhibits to the Seller SEC Documents and which relate to
or otherwise affect the Assets or the Business have been so filed. As of their
respective filing dates, the Seller SEC Documents complied in all material
respects as to form with the requirements of the Exchange Act and the Securities
Act, and as of their respective filing dates, none of the Seller SEC Documents
contain or contained any untrue statement of a material fact, or omit or omitted
to state a material fact required to be stated therein or necessary to make the
statements made therein relating to CSG, the Assets or the Business, in light of
the circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Seller SEC Document. The financial statements,
including the notes thereto, of Seller that relate in any way to CSG, the Assets
or the Business included in the Seller SEC Documents (the "Seller Financial
Statements") were and are complete and correct in all material respects as of
their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto as of their respective dates, and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Seller
Financial Statements fairly present the consolidated financial condition and
operating results of the Seller and its subsidiaries with respect to CSG and the
Business at the dates and during the periods indicated therein (subject, in the
case of unaudited statements, to normal, recurring year-end adjustments). There
has been no change in the Seller accounting policies with respect to CSG, the
Assets, or the Business except as described in the notes to the Seller Financial
Statements.
(m) ABSENCE OF CHANGES. Since December 8, 1995 there has not been
any event, occurrence, circumstance, state of facts or condition of any type,
whether or not in the ordinary course of business and whether or not covered by
insurance, that has materially and adversely affected, or might reasonably be
expected to materially and adversely effect, the Business, the Assets, or the
business, properties, Prospects, or financial condition of CSG or the Company,
taken as a whole, except for any change resulting from general economic
conditions.
-11-
<PAGE>
(n) GOOD AND MARKETABLE TITLE. Each of the Seller, in relation to
the Business, CSG and the Assets (as of the date hereof) has, and the Company
(as of the date of the Closing) will have, good and marketable title to, or a
valid leasehold interest in, the Assets, free and clear of all Liens and Claims
and have the right to use all the Assets in the operation of the Business, or
that CSG used in the operation of the Business immediately prior to the
transactions contemplated by Section 1.1 hereof. The Assets are in all material
respects in good condition and repair, ordinary wear and tear excepted, and are
in operating condition for the purpose for which they are currently being used.
The Seller has, and, as of the Closing, the Company will have, legal rights to
all of the intangible Assets, including the Contracts, free and clear of any
Lien.
(o) SUBSIDIARIES. The Company does not control, directly or
indirectly, any other corporation, association, partnership, limited liability
company or other business entity or own any shares of capital stock or other
securities of any other Person. The Company has no subsidiaries.
(p) TAXES AND TAX RETURNS.
(i) (A) the Seller and the Company have duly filed all Tax
Returns which are required by law to be filed by them; (B) the Company and the
Seller, in relation to CSG and the operation of the Business and the Assets,
have duly paid all Taxes due from them (whether or not shown on any Tax Return),
and there are no assessments or claims for payment of Taxes now pending or, to
the best knowledge of the Seller and the Company, threatened, nor is there any
audit of the records of the Company or the Seller, in relation to CSG and
operation of the Business and the Assets, being made or, to the best knowledge
of the Company and the Seller, threatened by any taxing authority; (C) to the
best knowledge of the Company, there are no facts or circumstances which could
reasonably be expected to constitute a valid basis for assessments or claims for
the payment of additional Taxes with respect to such Tax Returns; (D) each Tax
Return of the Company and the Seller, in relation to CSG and the operation of
the Business and the Assets, previously filed, or to be filed in the future
relating to any period up to the date of Closing, is or will be (as the case may
be) correct and complete in all material respects; and (E) the Company and the
Seller, in relation to CSG and the operation of the Business and the Assets, are
not currently the beneficiary of any extension of time within which to file any
Tax Return. The amounts set up as provisions for Taxes, if any, on the pro forma
September 30, 1995 and December 8, 1995 balance sheets of the Company included
in the Financial Statements and Interim Balance Sheet are sufficient for the
payment of all unpaid Taxes of the Company accrued for or applicable to the
periods ended on such date and all years and periods prior thereto and for which
the Company or the Seller in relation to CSG and operation of the Business and
the Assets, at those dates, may have been or is liable. The Company and the
Seller, in relation to CSG and the operation of the Business and the Assets,
have properly withheld and paid, or accrued for payment, when due, to
appropriate state and/or federal authorities, all sales and use taxes, if any,
and all amounts required to be withheld from payments made to its employees,
independent contractors, creditors, stockholders, shareholders or other third
parties and has also paid all employment taxes as required under applicable
laws.
(ii) The Company and the Seller, in relation to CSG, the
Business and the operation of the Assets, have not waived any statute of
limitation in respect of any Taxes or assessments
-12-
<PAGE>
by any federal, state, county, local, foreign or other taxing jurisdiction or
agreed to any extension of time with respect to an assessment or deficiency in
any Tax.
(iii) The Company has not made any payments, and is not
obligated to make any payments, nor is the Company a party to any agreement that
under any circumstances could obligate it to make any payments, that would not
be deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(a)(ii)
of the Code. The Company is not a party to any tax allocation or tax sharing
agreement.
(iv) The Company (A) is not and never has been required to
file a consolidated or combined state or federal income Tax Return with any
other person or entity and (B) is not liable for the Taxes of any person under
Treas. Reg. (S) 1. 1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract or otherwise.
(v) There are no Tax Liens (other than any Lien for current
Taxes not yet due and payable) on any of the Assets. Neither the Company nor
Holdco has or will become liable for any Taxes of CSG, the Seller or any present
or former Affiliate of Seller as a result of the consummation of the
transactions contemplated by this Agreement.
(vi) Seller shall treat the transfer of the Assets described
in Section 1.1 hereof as a taxable transaction for federal and state income tax
purposes.
(q) INSURANCE. Included in the Disclosure Letter is a complete list
of all insurance policies currently maintained by the Company or by the Seller
on behalf of CSG or the Company and in effect, and, with respect to each of such
policies, a general description of the risks covered and claims insured; copies
of all of such policies have been furnished or made available to Investors.
(r) CERTAIN TRANSACTIONS. The Company is not indebted, either
directly or indirectly, to any of the officers, directors, or stockholders of
the Company, or, to their respective spouses or children, in any amount
whatsoever, other than for payment of salary for services rendered and
reasonable expenses, and none of said officers, directors, stockholders or any
members of their immediate families, are indebted to the Company. To the best
knowledge of the Seller and the Company, no officer, director or stockholder of
the Company has any direct or indirect ownership interest in (other than
ownership interests of one percent (1%) or less in companies whose securities
are publicly traded), or any contractual relationship with, any firm,
corporation or other Person with which the Company is Affiliated or with which
the Company has a business relationship, or any firm, corporation or other
Person which competes with the Company. To the best knowledge of the Seller and
the Company, no officer, director or stockholder or shareholder (with respect to
the Seller, only if such shareholder holds greater than 1% of the Seller's
voting securities) of the Seller or the Company, or any member of their
immediate families, are a party to or otherwise an interested party with respect
to any material contract with the Company.
(s) CONTRACTS AND COMMITMENTS.
-13-
<PAGE>
(i) Except as expressly contemplated by this Agreement,
neither the Seller, in relation to CSG, the Assets or the Business, nor the
Company is and will be, as of the Closing, a party to, or bound by, any
currently effective and executory written or oral:
(A) collective bargaining agreement with any labor
union;
(B) contract for the employment of any officer,
individual employee, or other person or entity on a full-time, part-time,
consulting or other basis which, in any way, restricts or limits its right to
terminate such contract at will (other than the existence of any law, public
policy, or any oral discussions, or oral statements of policy which might, under
current law, be interpreted as imposing upon the Company any covenant of good
faith and fair dealing, or otherwise generally restrict the Company's ability to
terminate its employees other than on an "at-will" basis or within sixty (60)
days following delivery of such notice);
(C) agreement or indenture relating to the borrowing
of money in excess of $50,000 (in aggregate) or to the mortgaging, pledging,
transfer of a security interest, or otherwise placing a Lien on any Asset or on
any material asset or material group of assets of the Company or the Seller, in
relation to CSG, the Assets or the Business;
(D) guarantee of any obligation in excess of $50,000
(in aggregate);
(E) lease or agreement under which it is the lessee of
or holds or operates any property, real or personal, owned by any other party
other than leases or agreements under which the aggregate annual rental payments
of the Company or the Seller, in relation to CSG, the Assets or the Business, do
not, in the aggregate, exceed $25,000;
(F) agreement or group of related agreements with the
same party or any group of parties who, to the best knowledge of the Seller and
the Company, are Affiliated, which requires an aggregate payment by or to the
Company or the Seller, in relation to CSG, the Assets or the Business, in an
amount in excess of (x) with respect to purchase or sales orders in the ordinary
course of business, $25,000, and (y) with respect to any other contracts,
$50,000;
(G) warranty agreement of the Company or the Seller,
in relation to CSG, the Assets or the Business, with respect to services
provided or products sold, licensed or leased by the Company or the Seller, in
relation to CSG, the Assets or the Business, as seller, licensor or lessor;
(H) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world;
(I) agreement which has not been fully performed and
involves consideration in excess of $25,000 which in the best judgment of the
Seller or the Company is material to the Business;
-14-
<PAGE>
(J) Contract; or
(K) instrument, document, or written agreement
relating to any of the Assumed Liabilities and to which the Seller or the
Company is a party.
(ii) The Seller, in relation to CSG, the Business and the
Assets, and the Company have performed in all material respects all obligations
required to be performed by them and are not in material default under, or in
material breach of, or after due inquiry by the officers of the Seller and the
Company, in receipt of any claim of default under or breach of, any material
agreement, all of which are described in the Disclosure Letter, to which any of
them are a party or to which the Assets are subject; the Seller and the Company
have no present expectation or intention of not fully performing all such
obligations; the Seller in relation to CSG, the Business and the Assets, and the
Company do not have any knowledge of any material breach or anticipatory breach
by the other parties to any material contract or commitment, all of which are
described in the Disclosure Letter, to which it is a party or to which any of
CSG or the Assets are subject; and neither the Seller, in relation to CSG, the
Business and the Assets, nor the Company is a party to any contract or contracts
which, either individually or in the aggregate, are reasonably likely to result
in a material loss to CSG, the Business or the Company. There are no warranty
claims or other uninsured claims under completed contracts with respect to the
Business which might involve a material monetary liability which is not reserved
against in the Financial Statements.
(iii) To the best knowledge of the Seller and the Company, no
officer of the Company is a party to any oral or written contract which
prohibits, or materially restricts or limits, or will prohibit or materially
restrict or limit his performance of his duties or the fulfillment of his
obligations as an employee and an officer of the Company.
(iv) a true and correct copy of each of the written contracts
and other documents and a description of the oral contracts which are referred
to in the Disclosure Letter, together with any amendments or written waivers
thereto, have been supplied to the Investors' counsel, Wilson Sonsini Goodrich &
Rosati, P.C.
(t) ERISA.
(i) The Company does not and has not at any time maintained
any employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or benefit plans, programs or arrangements
(collectively, the "Employee Plans"). Other than as shown in the Disclosure
Letter, neither Seller with respect to the Business nor any ERISA Affiliate of
Seller maintains or has at any time maintained any Employee Plan for the benefit
of any active, retired or former employee of the Business or their spouses or
dependents. For purposes of this Agreement, the term "ERISA Affiliate" shall
refer to all members of the group consisting of all corporations and all trades
or businesses (whether or not incorporated) under common control with the Seller
and/or the Company within the meaning of Section 414 of the Code.
-15-
<PAGE>
(ii) No Employee Plan maintained by the Seller or any ERISA
Affiliate of Seller is subject to either Title IV of ERISA or Section 412 of the
Code, and no such Employee Plan which is subject to such provisions has been
terminated within the last six years. No Employee Plan of Seller with respect to
the Business or any ERISA Affiliate of Seller has been administered in violation
of any of the health care continuation coverage requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Each Employee Plan of
Seller with respect to the Business or any ERISA Affiliate of Seller intended to
be qualified under Section 401(a) of the Code has either obtained a current
favorable determination letter as to its qualified status (including its
compliance with the Tax Reform Act of 1986) from the Internal Revenue Service or
still has a remaining period of time under applicable Treasury Regulations in
which to apply for such determination letter and make amendments necessary to
obtain a favorable determination. To the best knowledge of the Seller, there are
no pending or anticipated claims (other than claims for benefits incurred in the
ordinary course of plan adminstration) or suits brought by or on behalf of any
of the employees of the Business against or otherwise involving Seller's
Employee Plans, and no event has occurred that would likely lead to any such
claims or suits. All contributions, premiums or other payments due from the
Company to (or under) any such Employee Plan have been fully paid or adequately
provided for on the Company's most recent financial statements.
(u) INTELLECTUAL PROPERTY.
(i) The Disclosure Letter contains a list and description
(showing in each case any product, device, process, service, business or
publication covered thereby, the registered or other owner, expiration date and
number, if any) of all Copyrights, Patent Rights and Trademarks (including all
assumed or fictitious names under which the Seller or the Company is conducting
the Business) owned by, licensed to or used by the Seller or the Company that
are material to the conduct of the Business.
(ii) The Disclosure Letter contains a list and description
(showing in each case any owner, licensor or licensee) of all Software owned by,
licensed to or used by the Seller or the Company that is material to the conduct
of the Business other than "off the shelf" Software obtained for less than
$5,000 individually which are subject to shrink wrap licenses.
(iii) The Disclosure Letter contains a list and description
(showing in each case the parties thereto) of all agreements, contracts,
licenses, sublicenses and assignments which relate to (A) any Copyrights, Patent
Rights or Trademarks listed in the Disclosure Letter, (B) any Trade Secrets
owned by, licensed to or used by the Seller or the Company that are material to
the conduct of the Business or (C) any Software listed in the Disclosure Letter.
(iv) Except for existing licenses or as disclosed in the
Disclosure Letter, the Seller, as of the date hereof, and the Company, as of the
closing date either: (A) owns or will own the entire right, title and interest
(subject to such exceptions as do not materially adversely affect CSG, the
Assets, the Business, or the Company) in and to the Intellectual Property and
Software listed in the Disclosure Letter free and clear of any Lien, except as
would not have a material adverse effect on the Business, the Assets, CSG or the
Company, or (B) has or will have the necessary right and
-16-
<PAGE>
license to use the same, and which (together with the services to be provided by
the Seller to the Company pursuant to the License Agreement described in Section
4.4) will enable the Company to conduct the Business as it has been conducted in
the past and as currently conducted, without restrictions that materially
adversely affect the Business as it has been conducted and without additional
material cost. The Seller's Software which is used in the conduct of the
Business, as of the date hereof, and the Company's Software, as of the date of
the Closing, includes those flow charts, diagrams, coding sheets, source code
listings and annotations, programmers' notes, information and work papers that
the Seller or the Company is using to maintain, modify, develop and enhance such
Software.
(v) (A) All registrations for Copyrights, Patent Rights and
Trademarks identified in the Disclosure Letter are valid and in force, and all
applications to register any unregistered copyrights, Patent Rights and
Trademarks so identified are pending and in good standing, and, to the best
knowledge of the Seller and the Company, are all without challenge of any kind;
(B) the Intellectual Property owned by the Seller, in respect of the Assets, the
Business and CSG, and by the Company is valid and enforceable; and (C) the
Seller has, as of the date hereof, and the Company will have, as of the Closing
Date, the sole and exclusive right to bring actions for infringement or
unauthorized use of the Intellectual Property and Software owned by the Seller
or the Company and used in the Business, and, to the best knowledge of the
Seller and the Company, there is no valid basis for any such action, subject, in
the case of each of clause (A), (B) and (C), to such exceptions as do not
materially adversely affect the Business, CSG, the Assets or the Company.
Correct and complete copies of registrations for all registered Copyrights,
Patent Rights and Trademarks identified in the Disclosure Letter (together with
any subsequent correspondence with the U.S. Copyright Office or the U.S. Patent
and Trademark Office, as applicable, or filings relating to the foregoing) have
already been delivered or made available by the Seller to the Investors.
(vi) (A) No infringement by the Seller with respect to the
conduct of the Business or the Company of any Intellectual Property of any other
Person has occurred within the past five years or results in any way from the
operations of the Business and (B) neither the Seller nor the Company has had
notice of, nor, to the best knowledge of the Seller and the Company, is there a
valid basis for, a claim against it that the operations, activities, products,
Software, equipment, machinery or processes of the Business infringe any
Intellectual Property of any other Person, other than, in each case, any
infringement which does not have a material adverse effect on the Business, CSG,
the Assets or the Company.
(vii) (A) No proceedings are pending or, to the best knowledge
of the Seller and the Company, threatened against the Seller or the Company that
challenge the validity or ownership of any Copyright, Patent Right or Trademark
described in the Disclosure Letter; and (B) to the knowledge of the Seller and
the Company, there is no infringing use of any of the same by any other Person.
-17-
<PAGE>
(v) ENVIRONMENTAL MATTERS.
(i) Other than Hazardous Materials reasonably necessary for
the conduct of the Business which are properly stored in material compliance
with applicable Environmental Laws, no Hazardous Material is present on any
Company Facility now owned or leased by the Company or the Seller during the
time such property was owned or leased by the Company or the Seller and which is
or was used for the conduct of the Business.
(ii) The Hazardous Material Activities of the Company, and
the Seller, with respect to the operations of CSG, the Business and the Assets,
have been conducted in material compliance with applicable Environmental Laws.
(iii) The Disclosure Letter accurately describes all of the
material Environmental Permits currently held by the Company, and by the Seller,
with respect to the operations of CSG, the Business and the Assets, and, to the
best knowledge of the Seller and the Company, such Environmental Permits are all
of the Environmental Permits necessary for the continued conduct of any
Hazardous Material Activities associated with CSG, the Business and the Assets
as such activities are currently being conducted. All such Environmental
Permits are valid, in full force and effect, and will survive the Closing.
Except as would not have a material adverse effect on the Business, the Assets,
the Company or CSG, to the best knowledge of the Seller and the Company, no
circumstances exist which could cause any Environmental Permit to be revoked,
modified, or rendered non-renewable upon payment of the permit fee or which
could impose upon the Company the obligation to obtain any additional
Environmental Permit. Except as would not have a material adverse effect on the
Business, the Assets, the Company or CSG, all Environmental Permits and all
other consents and clearances required by any Environmental Law or any agreement
to which the Company is bound as a condition to the performance and enforcement
of this Agreement or which are required by any Governmental Authority in
connection with the transactions contemplated by this Agreement have been
obtained or will be obtained prior to the Closing at no cost to the Investors or
Holdco.
(iv) The Company and the Seller, with respect to the
operations of CSG, the Business and the Assets, have transferred or released
Hazardous Materials only to those Disposal Sites described in the Disclosure
Letter. To the best knowledge of the Seller and the Company, no action,
proceeding, liability or claim by a private party or any Governmental Authority,
exists or is threatened, against any Disposal Site or against the Seller or the
Company with respect to any transfer or release of Hazardous Materials to a
Disposal Site in connection with the operations of CSG, the Business and the
Assets and there is no valid basis for such claim except for those actions,
proceedings, liabilities or claims which, if adversely determined would not have
a material adverse effect on the Business, the Assets, the Company or CSG.
(w) COMPLIANCE WITH LAWS. The Company, and the Seller, with respect
to the operation of CSG, the Business and the Assets, have complied in all
respects with all Laws promulgated by any Governmental Authority, except for
such noncompliance as would not have a material adverse effect on the Business,
the Assets, the Company or CSG.
-18-
<PAGE>
(x) DISCLOSURE. No representation, warranty or statement by the
Seller or the Company in this Agreement (including the Exhibits hereto), in the
Disclosure Letter, in that certain Business Plan Summary of CSG dated September
18, 1995 (the "Business Plan," which is in the form previously furnished to the
Investors and is included in the Disclosure Letter), in the Seller SEC Dcouments
(taken as a whole), in the Seller Financial Statements (taken as a whole) or in
any written certificate required by this Agreement to be furnished to the
Investors or their counsel pursuant to this Agreement contains or will contain
any untrue statement of material fact or, omits or will omit to state a material
fact necessary to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading, it being understood
that Investors have not received or been provided with a "prospectus" (as
defined in the Securities Act) with respect the Company, the Seller, CSG or the
Business. To the extent that the foregoing representation and warranty is
interpreted as relating to any projections which may have been delivered by the
Seller or the Company to Investors, the Seller and the Company represent only
that any such projections were prepared in good faith, that the Seller and the
Company believe that there was at the time of the preparation of such
projections a reasonable basis for such projections, and that the Seller and the
Company are not aware of any change in their circumstances or other fact that
has occurred that causes them to believe that CSG and the Company will be unable
to meet the sales and income forecasts set forth in such projections. Seller has
not failed to disclose to the Investors or the Company any fact or circumstance
known to Seller that could reasonably be expected to have a material adverse
effect on CSG, the Business, the Company or the Assets.
(y) NO THIRD PARTY OPTIONS. Other than this Agreement, there are no
existing agreements, options, commitments or rights with, of or to any person to
acquire all or any portion of the Business or any of the Assets or any interest
therein, except for those contracts entered into in the normal course of
business consistent with Past Practice for the sale of inventory of Seller with
respect to CSG.
(z) NECESSARY ASSETS. The Assets are sufficient (and on the date of
the Closing will be sufficient) to permit the Company to conduct, operate and
maintain the Business in all material respects consistent with Past Practice and
as contemplated by the Business Plan.
(aa) CONDITIONS AFFECTING SELLER. To the best knowledge of Seller
and the Company, there is no fact or development with respect to the products,
services, customers, facilities, computer software, data bases, suppliers,
operations or assets of CSG, the Business or the Assets which could materially
adversely affect the Business. Seller has used all commercially reasonable
efforts to keep available for the Company the services of the employees,
customers and suppliers of Seller active in the conduct of the Business and the
maintenance and operation of the Assets whose activities are material to the
Business. To the best of Seller's and the Company's knowledge, the consummation
of the transactions contemplated hereby will not result in any materially
adverse loss of any customer or supplier of the Business.
(bb) PERMITS, LICENSES. (i) There are no governmental permits
necessary for or used by Seller to carry on the Business as now being conducted
or to use and occupy the premises leased or owned by the Seller and used by CSG
or for the Business as now being used, which
-19-
<PAGE>
governmental permits are required by currently effective laws, rules and
regulations which have not yet been obtained, or if not obtained, would not have
a material adverse effect on the Business, the Assets, the Company or CSG; (ii)
all such governmental permits are in full force and effect and no proceeding is
pending or, to the best knowledge of Seller and the Company, threatened, to
revoke or limit any such governmental permit except for such revocations or
limitations which would not have a material adverse effect on the Business, the
Assets, the Company or CSG and (iii) Seller is in compliance in all respects
with the terms and conditions of all such governmental permits except for such
non-compliance as could not reasonably be expected to have a material adverse
effect on the Business. No action by Seller, the Investors or the Company is
required in order that all such governmental permits will remain in full force
and effect following the consummation of the transactions provided for herein.
(cc) SELLER INTENT. The Seller has no present intent to transfer the
Holdco Common Stock that it shall hold after the Closing.
(dd) RETENTION OF CSG EARNINGS. As of the date of the Closing and
the Effective Time, the Seller and the Company have complied in all respects
with all terms of Section 7.6 hereof.
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE INVESTORS, HOLDCO AND HOLDCO SUB
The obligations of the Investors, Holdco and Holdco Sub to effect the
Merger at the Closing shall be subject to the fulfillment, or the waiver by the
Investors and Holdco, at or prior to the Closing, of each of the following
conditions (provided that any such waiver, to be effective, must be in writing
and signed by Holdco and each of the Investors):
4.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Seller and the Company set forth in Article III hereof shall
be true in all respects on the date of the Closing. The Disclosure Letter
delivered to the Investors by the Seller prior to the date hereof shall not have
been altered or withdrawn.
4.2 ABSENCE OF LITIGATION. There shall be no litigation, whether brought
against the Seller, the Company, Holdco, Holdco Sub, or any of the Investors,
seeking to prevent the consummation of the transactions contemplated by this
Agreement, and, to the best knowledge of the Seller and the Company, no such
litigation shall have been threatened. There shall not be in effect any order
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement and there shall be no proceedings pending with respect thereto.
Other than the EFI Litigation, there shall be no pending or, to the best
knowledge of the Seller, the Company, Holdco, Holdco Sub and the Investors,
threatened litigation, or asserted or unasserted claims, assessments, or other
loss contingencies, materially affecting CSG, the Company, the Business, their
Prospects, or
-20-
<PAGE>
the Assets other than as disclosed in the Exhibits delivered pursuant hereto as
of the date of this Agreement.
4.3 PERFORMANCE OF OBLIGATIONS. The Company and the Seller shall have
performed and complied, in all material respects, with all covenants, conditions
and obligations required by this Agreement to have been performed by the Company
and the Seller at or prior to the Closing.
4.4 DOCUMENTATION AT CLOSING. The Investors shall have received prior to
or at the Closing all of the following, each in form and substance satisfactory
to the Investors and their counsel, and all of the following events shall have
occurred prior to or simultaneous with the Closing hereunder:
(a) A copy of all charter documents of the Seller and the Company
certified by the Secretary of State of their respective states of incorporation,
a certified copy of the resolutions of the board of directors and, if required,
the shareholders of the Seller and stockholders of the Company, evidencing
approval of this Agreement and all other matters contemplated hereby, a
certified copy of the bylaws of the Seller and the Company, and certified copies
of all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement and the Merger.
(b) An opinion of Fenwick & West, counsel for the Seller, as to
such matters as counsel to the Investors may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary of the
Seller stating the names of the officers of the Seller authorized to sign this
Agreement and the other documents or certificates to be delivered pursuant to
this Agreement by the Seller or any of its officers, together with the true
signatures of such officers. A certificate of the Secretary or an Assistant
Secretary of the Company stating the names of the officers of the Company
authorized to sign this Agreement and the other documents or certificates to be
delivered pursuant to this Agreement by the Company or any of its officers,
together with the true signatures of such officers. The Investors, Holdco and
Holdco Sub may conclusively rely on such certificates until they shall receive a
further certificate of the Secretary or Assistant Secretary of the Seller or the
Company, as the case may be, canceling or amending a prior certificate and
submitting the signatures of the officers named in such further certificate.
(d) A certificate from the Chief Executive Officer of the Seller
stating that the representations and warranties of the Seller and the Company
contained in Article III hereof and otherwise made by the Seller or the Company
in writing in connection with the transactions contemplated hereby are true and
correct as of the date hereof and as of the date of Closing, as if such
representations and warranties were made on the date of Closing, and that all
conditions required to be performed by the Seller or the Company prior to or at
the Closing have been performed, and, to the best of such Person's knowledge,
that no condition or event has occurred or is continuing or will result from the
execution and delivery of this Agreement, which is a breach by the Seller or the
Company of a material term hereof or would constitute a breach by the Seller or
the
-21-
<PAGE>
Company of a material term hereof but for the requirement that notice be given
or time elapse or both. A certificate from the President of the Company stating
that the representations and warranties of the Company contained in Article III
hereof and otherwise made by the Company in writing in connection with the
transactions contemplated hereby are true and correct as of the date hereof and
as of the date of Closing, as if such representations and warranties were made
on the date of Closing, and that all conditions required to be performed by the
Company prior to or at the Closing have been performed, and, to the best of such
Person's knowledge, that no condition or event has occurred or is continuing or
will result from the execution and delivery of this Agreement, which is a breach
by the Company of a material term hereof or would constitute a breach by the
Company of a material term hereof but for the requirement that notice be given
or time elapse or both.
(e) An Invention Assignment and Non-Disclosure Agreement between
each Key Employee of the Company and the Company in the form set forth in
Exhibit 4.4A hereto shall have been executed and delivered by such Key Employee
and the Company and shall be in full force and effect and binding upon the
parties thereto.
(f) A Registration Rights Agreement in the form set forth in
Exhibit 4.4B hereto shall have been executed and delivered by the Seller and the
management of the Company and shall be in full force and effect and binding upon
the parties thereto, assuming execution and delivery thereof by the Investors
and Holdco.
(g) A Stockholders Agreement in the form set forth in Exhibit 4.4C
hereto shall have been executed and delivered by the Seller and the management
of the Company and shall be in full and effect and binding upon the parties
thereto, assuming execution and delivery thereof by the Investors and Holdco.
(h) An Escrow Agreement, mutually acceptable in form and substance
to the Seller and the Investors and providing for an escrow of $4,700,000 for
satisfaction of any claim for indemnification by the Investors, the Company and
Holdco against the Seller pursuant to Article X hereof, shall have been executed
and delivered by the Seller. Subject to any indemnification paid to Holdco, the
Company or the Investors pursuant to Article X hereof, such Escrow Agreement
shall specify that the escrow funds be released to the Seller, and not any other
Person, as follows: (i) 50% of the amount initially placed in escrow shall be
released after both (A) the Year-End Balance Sheet becomes final and binding in
accordance with Section 1.5(b) and (B) the payment of any amount due to the
Investors in accordance with Section 1.5(c) and (ii) the remainder of the amount
initially placed in escrow (the "Escrow Remainder") shall be released to the
Seller, and not any other Person, on the later of (C) the date six months after
the date of the Closing and (D) the date of a final, non-appealable order
dismissing with prejudice the EFI Litigation. Notwithstanding the foregoing, the
Escrow Remainder shall be released to the Seller, and not to any other Person,
if, at any time after the first anniversary of the date of the Closing, each of
the three following conditions are true: (X) the consolidated net worth of the
Seller, as determined in accordance with GAAP, is greater than $5,000,000, (Y)
the Seller has reported positive net income in each of its two most recently
regularly prepared quarterly financial statements, and (Z) to the best knowledge
of the Seller, there are no facts or circumstances that have occurred or that
are reasonably likely to occur, that, taken in aggregate,
-22-
<PAGE>
that could reasonably be expected to reduce the consolidated net worth of the
Seller, as determined in accordance with GAAP, to an amount less than $5,000,000
within the next twelve months. In addition, if the Investors reasonably and in
good faith determine that the maximum potential Investor Damages (as defined in
Section 10.1 hereof) that could result from the EFI Litigation is less than
$2,000,000, then the amount of the Escrow Remainder exceeding such maximum
potential Investor Damages shall be released to the Seller, and not to any other
Person. The terms of such Escrow Agreement shall provide that the escrow amount
be kept under the possession and control of an independent financial institution
in a separate account of such institution, and that Holdco have a perfected
security interest in the escrow account and the status of a first-priority
secured creditor with respect to the escrow account. Such Escrow Agreement shall
be in full force and effect and binding on the parties thereto, assuming
execution and delivery by the Investors and Holdco.
(i) A Restricted Stock Purchase Agreement, providing for the
purchase of 152,500 shares of Holdco Common Stock by the management of the
Company at a purchase price of $0.04 per share prior to the Effective Time,
subject to vesting and otherwise mutually agreeable in form and substance to the
Seller and the Investors, shall have been executed and delivered by the
management of the Company. Such Stock Purchase Agreement shall specify vesting
of 50% of the shares purchased by each member of management on the first
anniversary of purchase, and straight-line monthly vesting for the remainder of
shares over the following two years. Such agreement shall be in full force and
effect and binding upon the parties thereto, assuming execution and delivery
thereof by Holdco.
(j) An opinion of patent counsel, addressed to Holdco, the Company
and the Seller, of non-infringement by the Seller and the Company of U.S. Patent
No. 4,941,038, in form and substance acceptable to the Investors and their legal
counsel, which acceptance shall not be unreasonably withheld.
(k) Such UCC financing statements shall have been filed with
respect to the escrow account established pursuant to the Escrow Agreement
referenced in clause (h) above, as may be necessary to ensure that Holdco has
obtained the status of a secured creditor with respect thereto.
(l) To the extent considered reasonably necessary by the Investors,
consents of the creditors of the Seller and any other consents to the
transactions contemplated hereby shall have been obtained.
4.5 MATERIAL ADVERSE CHANGE. There shall not have been, subsequent to
December 8, 1995, any material adverse change in the financial condition of the
Business, CSG's or the Company's assets, liabilities, business, results of
operations, Prospects or customer, supplier or employee relations, or the
Assets.
4.6 CONDUCT OF BUSINESS; REVENUES. The Business shall have been
conducted up until the date of the Closing as usual and consistent with the
practices of the Company prior to December 8, 1995. All practices of CSG, the
Company and the Business, including procurement of inventory and raw materials,
payment of accounts payable, and fulfillment of customer orders shall
-23-
<PAGE>
have been conducted to the date of Closing in the ordinary course of business.
Up to and including the date of the Closing, the revenues of CSG and the Company
for the calendar quarter ending on December 31, 1995 shall have been at least
$7,000,000.
4.7 CONSENTS, WAIVERS, ETC. Prior to the Closing, the Seller, the
Investors, Holdco, Holdco Sub and the Company shall have obtained all consents
or waivers, if any, necessary to transfer assets to the Company in accordance
with Section 1.1 hereof (including, but not limited to, those consents or
waivers listed on Exhibit 4.7 hereto), to issue the Securities, to effect the
Merger, and to carry out the transactions contemplated hereby, and all such
consents and waivers shall be in full force and effect. All corporate and other
action and governmental filings necessary to effectuate the terms of this
Agreement, all transactions contemplated by this Agreement (including the
transactions described in Section 1.1) and other agreements and instruments
executed and delivered by the Seller, the Investors, Holdco, Holdco Sub and the
Company in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under federal and state securities laws.
In addition to the documents set forth above, the Seller and the Company shall
have provided or made available to the Investors any other information or copies
of documents that they may reasonably request.
4.8 ACCOUNTING REVIEW. The Investors shall have received, at Holdco's
expense, an accounting review by the Investors' Accountants of all financial
statements relating to CSG, the Business and the Company provided to the
Investors by the Seller or its representatives. Investors' Accountants, at
Holdco's expense, shall have determined that audited financial statements of the
Company, prepared in accordance with GAAP and Regulation S-X promulgated under
the Securities Act throughout the periods involved and fairly presenting the
financial position and result of operations of CSG, and, on a pro forma basis,
the Company for the periods covered, for the years ended September 30, 1993,
1994 and 1995 (the "Audited Financial Statements"), could be readily produced by
the Company from its records within 60 days after the Closing.
4.9 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. Prior to the
Effective Time, the management of the Company shall have purchased from Holdco,
in accordance with the terms of a Restricted Stock Purchase Agreement entered
into in accordance with Section 4.4(i), 152,500 shares of Holdco Common Stock at
$0.04 per share, assuming performance by Holdco of its obligations under such
Restricted Stock Purchase Agreement.
4.10 HART-SCOTT-RODINO WAITING PERIOD. Any applicable waiting period
with respect to the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall have expired.
4.11 ASSETS TRANSFER. All documentation pursuant to which the
transactions described in Section 1.1 shall have been presented to the Investors
and Investors' counsel for review and shall have been consistent with this
Agreement and satisfactory in form and substance to the Investors and their
counsel prior to the consummation of such transactions. The consummation of the
transaction pursuant to such documentation shall have been satisfactory in form
and substance to the Investors and their legal counsel. All of the Assets,
including the Contracts, shall have been transferred or
-24-
<PAGE>
assigned to the Company free and clear of all Liens, other than the Assumed
Liabilities, and the Investors and their counsel shall have received evidence of
such transfers reasonably satisfactory to them.
4.12 ELECTION UNDER SECTION 338(H)(10). The Seller shall have executed
the Form 8023A prepared in accordance with Section 6.5(d) hereof.
4.13 NUBUS EQUIPPED COMPUTERS. The Investors shall have received
assurances reasonably satisfactory to them that the Company has been allocated
by Apple Computer, Inc., for sale to the Company, 400 Nubus Apple computers
consistent with the needs of the Company.
ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S AND COMPANY'S OBLIGATIONS
The obligations of the Seller and the Company to cause the consummation by
the Company of the Merger at the Closing, of the Seller to contribute the Assets
to the Company prior thereto, and of the Seller and the Company to perform their
other obligations under this Agreement shall be subject to the fulfillment, or
the waiver by the Seller and the Company, at or prior to the Closing, of each of
the following conditions (provided that any such waiver, to be effective, must
be in writing and signed by the Seller and the Company):
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Investors, Holdco and Holdco Sub in this Agreement shall have been
true and correct at and as of the date hereof, and they shall be true and
correct at and as of the Closing with the same force and effect as though made
at and as of that time.
5.2 ABSENCE OF LITIGATION. There shall be no litigation, whether
brought against the Seller, the Company, Holdco, Holdco Sub or any of the
Investors, seeking to prevent the consummation of the transactions contemplated
by this Agreement, and, to the best knowledge of Holdco, Holdco Sub, the
Investors, the Seller and the Company, no such litigation shall have been
threatened. There shall not be in effect any order restraining or prohibiting
the consummation of the transactions contemplated by this Agreement and there
shall not be any proceedings pending with respect thereto. There shall be no
pending or, to the best knowledge of the Investors, Holdco and Holdco Sub,
threatened litigation, asserted claims, assessments or other loss contingencies,
materially affecting Holdco other than as set forth in this Agreement.
5.3 PERFORMANCE OF OBLIGATIONS. Investors, Holdco and Holdco Sub shall
have performed and complied, in all material respects, with all of their
covenants, conditions and obligations required by this Agreement to be performed
or complied with by them at or prior to the Closing.
-25-
<PAGE>
5.4 FAIRNESS OPINION. Prior to the Closing, the Seller shall have
obtained an opinion by Broadview Associates, L.P. stating that the transactions
contemplated hereby shall be fair to the shareholders of the Seller from a
financial point of view.
5.5 CONSENTS, WAIVERS, ETC. Prior to the Closing, the Seller, the
Investors, Holdco, Holdco Sub, and the Company shall have obtained all consents
or waivers, if any, necessary for the Seller to contribute the Assets to the
Company, for the Company to accept and receive the Assets and assume the
Contracts from the Seller, for the Company to consummate the Merger, for Holdco
to issue the Securities and to carry out the transactions contemplated hereby,
and all such consents and waivers shall be in full force and effect. All
corporate and other action and governmental filings necessary to effectuate the
terms of this Agreement, and other agreements and instruments executed and
delivered by the Seller, the Investors, Holdco, Holdco Sub, and the Company in
connection herewith shall have been made or taken, except for any post-sale
filing that may be required under federal and state securities laws.
5.6 BOARD OF DIRECTORS. The number of members of the board of directors
of Holdco Sub shall have been fixed at five initially consisting of (i) Mr.
Charles Berger (as the initial designee of the Seller); (ii) two designees of
the Investors (one such designee as a Series A Director, as defined in the
Certificate of Incorporation of Holdco); (iii) one additional designee of the
Investors, which designee shall not be Affiliated with any of the parties hereto
and shall have been approved by the Seller and the management of the Company,
whose approval shall not have been unreasonably withheld; and (iv) Kevin
Macgillivray (as the initial designee of the management of the Company).
5.7 HOLDCO CASH. Holdco's accounts shall contain approximately
$23,500,000 in cash and Holdco shall have no Liabilities other than as set forth
in or contemplated by this Agreement and Holdco's authorized officers shall have
executed a certificate to that effect.
5.8 HART-SCOTT RODINO WAITING PERIOD. Any applicable waiting period
with respect to the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall have expired.
5.9 DOCUMENTATION AT CLOSING. The Seller and the Company shall have
received prior to or at the Closing all of the following, each in form and
substance satisfactory to the Seller and the Company and their counsel, and all
of the following events shall have occurred prior to or simultaneous with the
Closing hereunder:
(a) A copy of all charter documents of Holdco and Holdco Sub
certified by the Secretary of their respective states of incorporation, a
certified copy of the resolutions of the board of directors and, if required,
the stockholders of Holdco and Holdco Sub, evidencing approval of this
Agreement, and other matters contemplated hereby, a certified copy of the bylaws
of Holdco and Holdco Sub, and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any, with
respect to this Agreement, the Merger and the transactions contemplated by this
Agreement.
-26-
<PAGE>
(b) An opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel
for Investors, as to such matters as counsel to the Seller may reasonably
request.
(c) A certificate of the Secretary or an Assistant Secretary of
Holdco stating the names of the officers of Holdco authorized to sign this
Agreement and the other documents or certificates to be delivered pursuant to
this Agreement by Holdco or any of its officers, together with the true
signatures of such officers. A certificate of the Secretary or an Assistant
Secretary of Holdco Sub stating the names of the officers of Holdco Sub
authorized to sign this Agreement and the other documents or certificates to be
delivered pursuant to this Agreement by Holdco Sub or any of its officers,
together with the true signatures of such officers. The Seller and the Company
may conclusively rely on such certificates until they shall receive a further
certificate of the Secretary or Assistant Secretary of Holdco or Holdco Sub, as
the case may be, canceling or amending a prior certificate and submitting the
signatures of the officers named in such further certificate.
(d) A certificate from the Chief Executive Officer of Holdco
stating that the representations and warranties of Holdco and Holdco Sub
contained in Article II hereof and otherwise made by Holdco or Holdco Sub in
writing in connection with the transactions contemplated hereby are true and
correct as of the date hereof and as of the date of Closing, as if such
representations and warranties were made on the date of Closing and that all
conditions required to be performed by Holdco or Holdco Sub prior to or at the
Closing have been performed, and that, to the best of such Person's knowledge,
no condition or event has occurred or is continuing or will result from the
execution and delivery of this Agreement, which is a breach by Holdco or Holdco
Sub of a material term hereof or would constitute a breach by Holdco or Holdco
Sub of a material term hereof but for the requirement that notice be given or
time elapse or both. A certificate from the Chief Executive Officer of Holdco
Sub stating that the representations and warranties of Holdco Sub contained in
Article II hereof and otherwise made by Holdco Sub in writing in connection with
the transactions contemplated hereby are true and correct as of the date hereof
and as of the date of Closing, as if such representations and warranties were
made on the date of Closing and that all conditions required to be performed by
Holdco Sub prior to or at the Closing have been performed, and that, to the best
of such Person's knowledge, no condition or event has occurred or is continuing
or will result from the execution and delivery of this Agreement, which is a
breach by the Company of a material term hereof or would constitute a breach by
the Company of a material term hereof but for the requirement that notice be
given or time elapse or both.
(e) A Registration Rights Agreement in the form set forth in
Exhibit 4.4B hereto shall have been executed and delivered by the Investors and
Holdco and shall be in full force and effect and binding upon the parties
thereto, assuming execution and delivery thereof by Seller and the management of
the Company.
(f) A Stockholders Agreement in the form set forth in Exhibit 4.4C
hereto shall have been executed and delivered by the Investors and Holdco and
shall be in full and effect and binding upon the parties thereto, assuming
execution and delivery thereof by the Seller and the management of the Company.
-27-
<PAGE>
(g) Holdco shall have adopted a Management Stock Option Plan
mutually agreeable in form and substance to the Seller and the Investors, which
plan shall reserve for issuance options for 261,758 shares of Holdco Common
Stock. Such plan either shall specify that the board of directors of Holdco
shall specify appropriate vesting for each option granted under the plan, or
shall specify specific vesting provisions for each option issued thereunder that
are mutually agreeable to the Seller and the Investors.
(h) A Restricted Stock Purchase Agreement, providing for the
purchase of 152,500 shares of Holdco Common Stock by the management of the
Company at a purchase price of $0.04 per share, subject to vesting and otherwise
mutually agreeable in form and substance to the Seller and the Investors, shall
have been executed and delivered by Holdco. Such Stock Purchase Agreement shall
specify vesting of 50% of the shares purchased by each member of management on
the first anniversary of purchase, and straight-line monthly vesting for the
remainder of shares over the following two years. Such agreement shall be in
full force and effect and binding upon the parties thereto, assuming execution
and delivery thereof by the management of the Company.
5.10 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. Holdco shall
have performed all of its obligations under a Restricted Stock Purchase
Agreement entered into in accordance with Section 5.9(h), unless the management
of the Company has not performed all of their obligations thereunder.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 AFFIRMATIVE COVENANTS OF HOLDCO OTHER THAN REPORTING REQUIREMENTS.
Without limiting any other covenants and provisions hereof, Holdco covenants and
agrees that, after the Closing and for so long as (i) shares of either series of
Preferred Stock or (ii) the Subordinated Notes remain outstanding, Holdco will
perform and observe the following covenants and provisions and will cause each
of its subsidiaries to perform and observe such of the following covenants and
provisions as are applicable to such subsidiaries, and will not, without
approval of the holders of a majority of the shares of Preferred Stock and of a
majority in interest in principal amount of the holders of the Subordinated
Notes, amend or revise any terms of this Section:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and cause
each of its subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
business, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims, which, if unpaid, might become
a lien or charge upon any properties of Holdco or any of its subsidiaries,
provided that neither Holdco nor any subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim that is being contested in good
faith and by appropriate proceedings if Holdco or its subsidiary concerned shall
have set aside on its books adequate reserves with respect thereto as shall be
determined by its board of directors. Pay on a timely basis the Subordinated
Notes as and when due. Pay and cause each of
-28-
<PAGE>
its subsidiaries to pay, when due, or in conformity with customary trade terms,
all lease obligations, all trade debt, and all other Indebtedness incident to
the operations of Holdco or its subsidiaries, except such as are being contested
in good faith and by appropriate proceedings so long as the Company or the
subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto as shall be determined by its board of directors.
(b) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
subsidiaries to maintain, with responsible and reputable insurance companies or
associations, insurance in such amounts and covering such risks as is usually
carried by companies of similar size engaged in similar businesses and owning
similar properties in the same general areas in which Holdco or such subsidiary
operates, but in any event in amounts sufficient to allow Holdco or subsidiaries
to replace any of their properties that might be damaged or destroyed without
additional expenditures by Holdco and its subsidiaries except for reasonable
deductibles. Within sixty (60) days of the date of this Agreement, Holdco shall
use all commercially reasonable efforts to obtain and thereafter maintain term
life insurance payable to Holdco in the amount of $1,000,000 on the life of
Kevin Macgillivray.
(c) PRESERVATION OF CORPORATE EXISTENCE. Except as permitted by
Section 6.2(a), Preserve and maintain, and cause each of its subsidiaries to
preserve and maintain, its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each of its subsidiaries to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties. Preserve and maintain, and cause each of its subsidiaries to
preserve and maintain, all material licenses and other rights to use patents,
processes, licenses, trademarks, trade names, inventions, intellectual property
rights or copyrights owned or possessed by it and necessary to the conduct of
its business; provided, however, that nothing contained in this Section 6.1(c)
shall require Holdco to bring or maintain a cause of action with respect to the
foregoing.
(d) COMPLIANCE WITH LAWS. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders of any United States' federal or state
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise, except non-compliance
being contested in good faith through appropriate proceedings so long as Holdco
or its subsidiary concerned shall have set up sufficient reserves required under
GAAP with respect to such items and except for such noncompliance as would not
have a material adverse effect on Holdco, its subsidiaries or its business taken
as a whole. Use its best efforts to comply, and cause each of its subsidiaries
to comply, in all material respects with all applicable foreign laws, rules,
regulations and orders of any foreign governmental authority, noncompliance with
which could materially adversely affect its business or condition, financial or
otherwise, except non-compliance being contested in good faith through
appropriate proceedings so long as Holdco or its subsidiary concerned shall have
set up sufficient reserves required under GAAP with respect to such items and
except for such noncompliance as would not have a material adverse effect on
Holdco, its subsidiaries or its business taken as a whole.
-29-
<PAGE>
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
of its subsidiaries to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP, reflecting all financial
transactions of Holdco and such subsidiary, and in which, for each fiscal year,
all proper reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection within its business shall be
made.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and
cause each of its subsidiaries to maintain and preserve, all of its properties
necessary or useful in the proper conduct of its business, in good repair,
working order and condition, ordinary wear and tear excepted.
(g) BUDGETS AND BOARD APPROVAL. Prior to the commencement of each
fiscal year, prepare and submit to, and obtain the approval of a majority of the
board of directors of Holdco of a budget and operating plan for the upcoming
fiscal year, including projections or forecasts of capital and operating
expenses, cash flow, and profits and losses, all itemized in reasonable detail
and obtain the approval of such budget and plan not more than sixty (60) days
following the end of the prior fiscal year.
(h) AGREEMENTS. Use its best efforts to cause each officer, Key
Employee, consultant and other personnel, including employees, agents and
contractors who have contributed to or participated in the conception and
development of the intellectual property on behalf of CSG, the Company or Holdco
and all employees now or hereafter employed by Holdco or any of its subsidiaries
promptly to execute an Invention Assignment and Non-Disclosure Agreement
substantially in the form of Exhibit 4.4A hereto or in a form approved by the
board of directors of Holdco.
(i) BOARD OF DIRECTORS; INDEMNIFICATION. The board of directors of
Holdco initially shall consist of five (5) directors. The certificate of
incorporation or bylaws of Holdco and its subsidiaries shall at all times
provide for the indemnification of the board of directors of Holdco and its
subsidiaries to the full extent provided by the law of the jurisdiction in which
Holdco or its concerned subsidiary, as the case may be, is organized. Holdco
and its subsidiaries shall use all commercially reasonable efforts to obtain and
maintain directors and officers liability insurance with coverage and premium
levels consistent with policies carried by companies of similar size. Holdco
and its subsidiaries shall pay for reasonable travel and living expenses of the
members of their board of directors who are not employees of Holdco or its
subsidiaries in attending meetings of their board of directors and committees
thereof and in conducting other business on behalf of Holdco or its concerned
subsidiary, as the case may be.
(j) RESERVATION FOR SERIES B PREFERRED STOCK. As long as any shares
of Series B Preferred Stock remain outstanding, Holdco shall keep reserved
sufficient shares of Holdco Common Stock to allow all of such outstanding shares
of Series B Preferred Stock to convert into the number of shares of Holdco
Common Stock specified by the terms of the Certificate of Incorporation of
Holdco.
-30-
<PAGE>
6.2 NEGATIVE COVENANTS OF HOLDCO. Without limiting any other covenants
and provisions hereof, Holdco covenants and agrees that, after the Closing and
for so long as either shares of Preferred Stock or the Subordinated Notes remain
outstanding, it will not without the consent of a majority in interest in
principal amount of the Subordinated Notes and the holders of a majority of the
shares of Preferred Stock take the actions contained in the following covenants
and provisions, and will cause each subsidiary of Holdco to not, without the
consent of a majority in interest in principal amount of the Subordinated Notes
and the holders of a majority of the shares of Preferred Stock take actions
contained in the following covenants and provisions as are applicable to such
subsidiary, and will not, without the approval of the holders of a majority of
the Preferred Stock and of a majority in interest in principal amount of the
holders of the Subordinated Notes, amend or revise any terms of this Section:
(a) MERGER, SALE OF ASSETS, ETC. Merge or consolidate with, or
sell, assign, lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions), a material
portion of its assets (whether now owned or hereinafter acquired) to any Person,
or permit any of its subsidiaries to do any of the foregoing, except for sales
or other dispositions of assets in the ordinary course of business and except
that (1) any wholly-owned subsidiary of Holdco may merge into or consolidate
with or transfer assets to any other wholly-owned subsidiary of Holdco, (2) any
wholly-owned subsidiary of Holdco may merge into or transfer assets to Holdco,
and (3) Holdco may merge any Person into it or otherwise acquire such Person so
long as Holdco is the surviving entity, the holders of voting stock of Holdco
immediately prior to such merger are the holders of more than 50% of Holdco
immediately following such merger, such merger or acquisition does not result in
the violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition. The foregoing shall not
prohibit Holdco or any of its subsidiaries from pledging or granting a security
interest in a material portion of its assets, provided that such transaction has
been approved by the board of directors of Holdco.
(b) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Create any
subsidiary that is not a wholly-owned subsidiary, sell or otherwise dispose of
any shares of capital stock of any of its subsidiaries, except to Holdco or
another of its subsidiaries, or permit any of its subsidiaries to issue, sell or
otherwise dispose of any shares of its capital stock or the capital stock of any
of its subsidiaries except to Holdco or another of its subsidiaries; provided,
however, that nothing herein contained shall prevent any merger, consolidation
or transfer of assets permitted by subsection 6.2(a).
(c) DEALINGS WITH AFFILIATES AND OTHERS. Enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of Holdco or any officer or
director of any of its subsidiaries or holder of any class of capital stock of
Holdco, or any member of their respective immediate families or any corporation
or other entity directly or indirectly controlled by one or more of such
officers, directors or stockholders or members of their immediate families
(other than any such transactions in the ordinary course of business which are
in an amount not in excess of $50,000 and loans for purchases of Holdco
securities by employees, officers, directors or consultants and housing loans to
officers and directors, so long as approved by a majority of the disinterested
members of the board of directors of Holdco).
-31-
<PAGE>
(d) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof by CSG or the Company or as contemplated in
written materials delivered to the Investors prior to the date hereof.
(e) DIVIDENDS. While the Preferred Stock is outstanding, declare
or pay any dividends on any class of Holdco's or any of its subsidiaries'
capital stock now or hereafter outstanding (other than dividends on the
Preferred Stock, dividends payable in Holdco Common Stock or dividends payable
by any of Holdco's subsidiaries to either Holdco or another subsidiary that is
the parent of the paying subsidiary), or purchase, redeem or otherwise acquire
or retire any of Holdco's or any of its subsidiaries capital stock of any class
now or hereafter outstanding or otherwise return capital or make distributions
of assets to stockholders as such, other than redemption of the Series A
Preferred Stock and the Series B Preferred Stock pursuant to the Certificate of
Incorporation of Holdco and repurchases of capital stock under other agreements
providing for the repurchase of Holdco stock from employees, officers, directors
or consultants on termination of their relationship with Holdco.
(f) AGREEMENTS WITH EMPLOYEES FOR THE PURCHASE OF SECURITIES.
Except as set forth herein, without approval of a majority of the disinterested
members of the board of directors of Holdco, accelerate or terminate the vesting
schedules under which restrictions on transfer of capital stock of Holdco lapse
over a period of time with respect to capital stock held by employees, officers,
directors or consultants of Holdco, increase the number of shares (such number
to be equitably adjusted in the event of any stock split, combination,
reclassification or other similar event occurring on or after the date of this
Agreement) currently available for exercise under Holdco's stock option plan or
otherwise, or issue, sell or exchange, agree to issue, sell or exchange, or
reserve or set aside for issuance, sale or exchange to directors, officers,
employees and/or consultants shares of Holdco Common Stock, or options
exercisable therefor, except as issued at fair market value, or granted with an
exercise price equal to fair market value, at the time of issuance or grant, to
directors, officers, employees or consultants of Holdco and any of its
subsidiaries.
(g) ISSUANCES OF SECURITIES AND EMPLOYEE STOCK OPTIONS. Except as
set forth herein, issue, sell or exchange, agree to issue, sell or exchange, or
reserve or set aside for issuance, sale or exchange, (i) any equity security of
Holdco (other than Holdco Common Stock), including, without limitation, shares
of Preferred Stock, (ii) any debt security of Holdco that by its terms is
convertible into or exchangeable for any equity security of Holdco, (iii) any
security of Holdco that is a combination of debt and equity, or (iv) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
equity security or any such debt security, except for (x) Holdco Common Stock
issued as a stock dividend to holders of Holdco Common Stock or upon any
subdivision or combination of shares of Holdco Common Stock, and (y) shares of
Holdco Common Stock (or options to purchase such stock), issued pursuant to
stock plans or arrangements approved by all of the disinterested members of the
board of directors of Holdco.
6.3 REPORTING REQUIREMENTS OF HOLDCO. Holdco will furnish the following
to each holder of the Subordinated Notes, to each holder who owns of record or
beneficially any Preferred Stock, and to each holder of at least 10% of the
issued and outstanding Holdco Common Stock:
-32-
<PAGE>
(a) as soon as available and in any event within thirty (30) days
after the end of each fiscal month of Holdco, unaudited Consolidated balance
sheets of Holdco and its subsidiaries as of the end of such month and
Consolidated statements of income and of statements of cash flow of Holdco and
its subsidiaries for the period ending with such month, setting forth in each
case in comparative form the corresponding figures for the corresponding period
of the prior fiscal year, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by the chief executive officer or chief financial
officer of Holdco as having been prepared in accordance with GAAP except for a
lack of customary year end disclosures, footnotes and year end adjustments;
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of Holdco, a copy of the annual audit report
for such year for Holdco and its subsidiaries, including therein consolidated
balance sheets of Holdco and its subsidiaries as of the end of such fiscal year
and consolidated statements of income and retained earnings and of statements of
cash flow of Holdco and its subsidiaries for such fiscal year, setting forth in
each case in comparative form the corresponding figures for the preceding fiscal
year, all duly certified by a "Big Six" independent public accounting firm
selected by Holdco's board of directors;
(c) at the time of delivery of each monthly and annual statement, a
certificate, executed by the chief executive officer or chief financial officer
of Holdco in the case of monthly statements, and Holdco's independent public
accountants in the case of annual statements, stating that such officer or
accountants, as the case may be, has caused Sections 6.1(a) (insofar as it
relates to payment of federal and state income taxes), 6.2(b), 6.2(c), 6.2(f)
and 6.2(g) to be reviewed and has no knowledge of any default by Holdco or any
of its subsidiaries in the performance or observance of any of the provisions of
this Agreement or, if such officer or accountant has such knowledge, specifying
such default and the nature thereof;
(d) promptly upon the request of any holder of at least $250,000 in
principal amount of Subordinated Notes or any Person holding an aggregate of at
least 250 shares of Preferred Stock, any written report submitted to Holdco by
independent public accountants in connection with an annual or interim audit of
the books of Holdco and its subsidiaries made by such accountants;
(e) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, materially
affecting Holdco and its subsidiaries when considered as a whole;
(f) at least thirty (30) days prior to the commencement of each
fiscal year of Holdco, a copy of the operating plan and budget provided for in
Section 6.1(g);
(g) upon request, to any holder of at least $250,000 in principal
amount of Subordinated Notes or any Person holding an aggregate of at least 250
shares of Preferred Stock, copies of all materials provided to the committees of
the board of directors of Holdco, and to any such holder or Person who is not a
member of the board of directors of Holdco copies of all materials provided to
the board of directors of Holdco and all other information respecting the
-33-
<PAGE>
business, properties or the condition or operations, financial or otherwise, of
Holdco or any of its subsidiaries that any Investor may from time to time
reasonably request; provided, however, that Holdco shall not be required to
-------- -------
deliver any such information to the extent that such action would, in the
opinion of counsel to Holdco, be deemed to constitute a waiver of the attorney-
client privilege.
Any person receiving the information distributed pursuant to
subsections (f) and (g) above agrees to hold such information in confidence to
the same extent that would be required of a member of Holdco's board of
directors.
6.4 CONFIDENTIALITY. Any confidential information obtained by any holder
of the Subordinated Notes or the Preferred Stock pursuant to this Agreement
shall be treated as confidential and shall not be disclosed to a third party
without the consent of the board of directors of Holdco, except that such
information shall not be deemed confidential for the purpose of enforcement of
this Agreement or valuation of the Preferred Stock or Subordinated Notes and
except that any such holder may otherwise disclose such information to its
partners if such partners agree to be bound by the restrictions contained in
this Section. At the request of the board of directors of Holdco, any Person to
receive or receiving any information pursuant to this Agreement shall execute
and deliver a reasonable confidentiality agreement in form and substance
reasonably satisfactory to the board of directors of Holdco.
6.5 COVENANTS OF SELLER.
(a) FURTHER ASSET TRANSFER. From and after the date of the Closing,
the Seller agrees to convey, transfer, and assign to the Company, free and clear
of all Liens, any tangible or intangible rights, properties or assets then held
by the Seller (i) that are necessary to permit the Company to conduct, operate
and maintain the Business consistent with Past Practice and as it is proposed to
be conducted, (ii) that are among the Assets, including without limitation, the
Contracts, (iii) the conveyance, transfer or assignment of which would have been
necessary for representations and warranties of the Seller herein to be true and
correct as of the date of the Closing, or (iv) the conveyance, transfer or
assignment of which was or is required by the covenants of the Seller contained
in this Agreement. To the extent that any Contract was not assigned to the
Company because of a limit on assignability of such Contract, the Seller shall
take all actions necessary to pass through to the Company all benefits of such
Contracts and the Company shall perform all obligations of the Seller thereunder
and shall indemnify the Seller with respect to such obligations; provided that
--------
such indemnification shall be contingent on the passing of all benefits of such
Contracts to the Company; provided, further, that compliance of the Seller with
--------- --------
this sentence shall not excuse the Seller from any breach of the
representations, warranties and covenants of the Seller, resulting from such
non-assignment.
(b) EFI NON-INFRINGEMENT OPINION. The Seller shall use its best
efforts to cause the opinion of patent counsel described in Section 4.4(j) to be
updated and delivered to Holdco and the Company if reasonably requested to do so
by Holdco or the Company.
-34-
<PAGE>
(c) YEAR-END BALANCE SHEET. The Seller shall cooperate with and
give assistance to the Investors and the Investors' Accountants in relation to
the preparation of the Year-End Balance Sheet. Until the Year-End Balance Sheet
is final and binding in accordance with Section 1.5(b) and until the Audited
Financial Statements have been prepared and finalized, the Seller shall give to
the Additional Accounting Firm, the Investors, Holdco, the Company and their
counsel, accountants and other authorized representatives, on prior request
therefor from the Additional Accounting Firm, the Investors, Holdco, the Company
or such representatives, such access during normal business hours to copies of
the Seller's financial statements, books and records so as to allow the
Investors' Accountants to prepare the Year-End Balance Sheet, so as to allow the
Additional Accounting Firm to resolve disputes as specified in Section 1.5(b),
and so as to allow Holdco, the Company and their accountants to prepare the
Audited Financial Statements.
(d) ELECTION UNDER SECTION 338(H)(10). Seller shall join with
Holdco in preparing a protective joint election on Form 8023A for the Company
under Section 338(h)(10) of the Code and under any applicable similar provisions
of state law with respect to the Merger. The Form 8023A shall be prepared by
advisers of Holdco and executed by those parties hereto required to execute such
form within 90 days after the date of the Closing and filed by Holdco if it so
elects in its sole discretion. Information accompanying the Form 8023A will
reflect the purchase price allocation determined by Holdco; the parties hereto
agree to take no position for any tax or reporting purposes which is contrary to
such allocation.
(e) TAX TREATMENT. The Seller shall treat the formation of the
Company and the transfer of the Assets described in Section 1.1 hereof as a
taxable transaction for federal and state income tax purposes.
ARTICLE VII
OBLIGATIONS PENDING THE CLOSING
Between the date hereof and the Closing, unless this Agreement is
terminated sooner, pursuant to Section 12.2 hereof:
7.1 ACCESS. The Seller shall give to the Investors and their counsel,
accountants and other authorized representatives from and after the date of
execution of this Agreement, on prior request therefor from the Investors or
such representatives, such access during normal business hours to the premises,
employees, agents and consultants of the Seller relating to CSG, the Business or
the Assets, and of the Company, and such copies of the Seller's financial
statements, books and records, and contracts and leases and other documentation
relating to CSG, the Business, the Assets or the Company, so as to enable the
Investors to inspect and evaluate all aspects of the business and operations,
assets, operating results, financial condition, future Prospects,
capitalization, ownership, and legal and regulatory affairs of CSG, the Business
and the Company and to verify the accuracy of the information heretofore
furnished to the Investors and the representations and warranties made in this
Agreement by the Seller or the Company with respect to the foregoing matters.
The Seller
-35-
<PAGE>
agrees that it will take no action to prevent or delay CSG or the Company from
furnishing or making available all information reasonably requested by the
Investors. Each of the Investors agrees to conduct its review in a manner
designed to minimize any disruption of the Seller's and the Company's
operations. All information and records obtained by the Investors pursuant to
this Agreement shall be maintained as confidential prior to the Closing and
shall not be disclosed to any third party prior to the Closing without the prior
written consent of the Seller, except (i) in response to legal process;
provided that Investors shall notify the Seller of such legal process so as to
- --------
provide the Seller with a reasonable opportunity to contest the validity thereof
or (ii) to the extent required to comply with applicable law; provided, however,
-------- -------
that prior to making such disclosure, Investors shall use their best efforts to
have such information and records afforded confidential treatment. Seller may
require, as a condition to providing the access described in Section 7.1, that
each Investor and its representatives execute and deliver a confidentiality
agreement in form and substance reasonably satisfactory to the Seller. The
Investors shall not be obligated to maintain as confidential any information
obtained from the Seller or the Company which is publicly available, readily
available from public sources, known to it at the time the information was
disclosed, or which was rightly obtained from a third party. In the event that
this Agreement is terminated prior to the date of the Closing, Investors shall
return all information (and any copies thereof) received by them (from the
Seller or its agents or representatives) and relating to the Seller, the
Company, the Assets, the Business or CSG to the Seller.
7.2 CONDUCT OF COMPANY'S BUSINESS. Unless the Investors give their
prior written consent for actions to be taken to the contrary, from the date of
this Agreement and until the Closing or termination of this Agreement, whichever
first occurs, the Seller and the Company shall, and the Seller shall take no
action to prevent or delay CSG or the Company from being able to (except that
from and after December 31, 1995, all dollar amounts shown in this Section 7.2
shall be considered to be $0):
(a) OPERATION OF BUSINESS. Operate and conduct CSG's and the
Company's business and operations diligently and only in the ordinary course of
business consistent with Past Practice. The Business shall be conducted up until
the date of the Closing as usual and consistent with the practices of the Seller
with respect to the Business prior to December 8, 1995. All practices of CSG,
the Company and the Business, including procurement of inventory and raw
materials, payment of accounts payable, and fulfillment of customers order,
shall be conducted to the date of Closing in the ordinary course of business
consistent with Past Practice. Neither CSG nor the Company shall (i) incur any
new indebtedness or increase the amount due and owing to any lender for borrowed
money, except it may incur indebtedness for up to $50,000 for purposes of
financing equipment purchases or leases, or (ii) increase the compensation or
benefits of an employee, independent contractor or agent or adopt or amend any
commission plan or arrangement or any employee benefit plan or arrangement of
any type which results or may result in an increase in costs or liabilities
thereunder of more than $10,000 per month, in the aggregate, above those
existing on the date hereof, or otherwise lend or advance any sum or extend
credit to any employee, director, shareholder or stockholder or any of their
respective affiliates ;
-36-
<PAGE>
(b) ORGANIZATION. Preserve intact CSG's and the Company's
organization and use its reasonable best efforts to retain all employees of and
consultants to the Seller, relating to CSG, the Business and the Assets, and the
Company, commensurate with the requirements of the Business;
(c) VENDORS. Use its reasonable best efforts to retain services of
all vendors, suppliers, agents and consultants used in the Business,
commensurate with the requirements of the Business;
(d) INSURANCE. Maintain insurance (either directly or through the
Corporate Services Agreement described in Section 1.1), including liability and
efforts and omissions insurance, consistent with Past Practice and, unless
comparable insurance is substituted therefor or is not generally available to
businesses of the type conducted by CSG and the Company, not take any action to
terminate or modify, nor permit the lapse or termination of, the present
insurance policies and coverages of the Seller, relating to CSG, the Business
and the Assets, and the Company as set forth in the Disclosure Letter;
(e) LAWSUITS, CLAIMS. Promptly notify the Investors of, and if
requested by the Investors, diligently defend against, all lawsuits, claims,
proceedings or investigations that are, or which any officers of the Company or
the Seller, as a result of events or circumstances known to them, has reason to
believe may be, threatened, brought, asserted or commenced against the Seller in
relation to CSG or the Company or any of their officers or directors, involving
or affecting in any way CSG's or the Company's operations, or any of the Assets,
or the Business or the transactions contemplated hereby; and, without the prior
written consent of the Investors, not settle any action or proceeding which
would materially and adversely affect the Business, the Assets, CSG or the
Company, their business, financial condition or operating results and, without
the prior written consent of the Investors, not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than $50,000
individually or $100,000 in the aggregate which the Company or the Seller may
have against any other persons, including, without limitation, claims or rights
to reimbursement or payment for services rendered by the Company, CSG or the
Seller, in relation to CSG, the Business and the Assets;
(f) CERTAIN CHANGES. Not sell or otherwise dispose, or enter into any
agreement for the sale, of any of the Assets, except for sales of inventory and
obsolete equipment in the ordinary course of business and consistent with Past
Practice, and not permit or allow, or enter into any agreements providing for or
permitting, any of its assets or properties to be subjected to any option or
Lien other than Liens in existence on the date hereof and statutory liens to
secure Taxes that are not yet due and payable, all of which are listed on the
Disclosure Letter;
(g) CONDITION OF ASSETS. Maintain in good working order and
condition, ordinary wear and tear excepted, and in compliance in all material
respects with all applicable laws and regulations, all of the tangible Assets,
wherever located, that are used, leased or owned by the seller or by the
Company;
-37-
<PAGE>
(h) AGREEMENTS. Observe and perform all terms, conditions, covenants
and obligations contained in all existing material agreements between the
Seller, in relation to CSG, or the Company and third parties the violation of
which would have, individually or in the aggregate, a material adverse effect on
the Business, the Assets, CSG or the Company or their business, financial
condition, operating results or future Prospects; and, except as required by any
existing agreements, not enter into any new agreements or transactions with
respect to the Company, the Business, the Assets or CSG, or incur any
expenditures, liabilities or obligations, involving more than $50,000
individually or $100,000 in the aggregate, or renew, extend, amend or modify any
existing agreement involving any commitments, obligations, liabilities or
requiring any expenditures that would exceed $50,000 individually or $100,000 in
the aggregate with respect to the Company, the Business, the Assets or CSG; not
take any action which would cause a material breach or violation of or material
default under any material agreement, lease, contract, or other written
instrument, commitment or arrangement, or under any material permit, license,
franchise, judgment, writ or order, applicable to or affecting the Seller in
relation to CSG, or the Company or the Business, and promptly notify the
Investors in writing of the occurrence of any such breach or default; and not
enter into any transaction with respect to the Company, the Business, the Assets
or CSG with any stockholder, shareholder, director or officer or any person or
entity related to or affiliated with any such person other than those
transactions that are described in the Disclosure Letter, if any;
(i) TAXES. Pay, when due, and prior to the imposition or assessment
of any interest, penalties or liens by reason of the non-payment of, all Taxes
assessed against the Seller (as related to the Assets, the Business, CSG or the
Company) or the Company, any of its assets or its operations other than Taxes,
the validity of which is being contested in good faith and for which adequate
reserves have been established in accordance with GAAP;
(j) DIVIDENDS, ETC. Except as contemplated by this Agreement not: (i)
declare or pay any dividends or make any distributions with respect to or redeem
any shares of the Company's capital stock; (ii) accelerate the payment of or
prepay any indebtedness or other obligations of the Company; (iii) approve or
effect any reclassification or recapitalization of the Company or its authorized
or outstanding shares; (iv) merge or consolidate the Seller or the Company with
or sell any of their assets to a third party other than sales of assets in the
ordinary course of business and consistent with Past Practice; (v) approve or
commence any proceedings for the liquidation of the Seller or the Company; or
(vi) enter into any agreement to do any of the foregoing;
(k) CORPORATE MATTERS. Except as expressly contemplated by this
Agreement, not: (i) amend in any manner the Certificate of Incorporation or
Bylaws of the Company; (ii) alter the composition or membership of the Company's
board of directors; (iii) except for shares purchased upon exercise of
outstanding options, authorize or issue any shares of capital stock of the
Company of any class or series; (iv) create or issue any warrants, obligations,
subscriptions, options, convertible securities or other commitments under which
any additional shares of the capital stock of any class or other equity
securities of the Company may be directly or indirectly authorized, issued or
transferred; or (v) agree to do any of the above; and
-38-
<PAGE>
(l) LIABILITIES AND EXPENSES. Not: with respect to CSG, the Assets,
the Business or the Company, create or incur (whether as principal, surety or
otherwise) any actual or contingent liabilities or expenses in excess of $25,000
in the aggregate other than liabilities and expenses incurred in the ordinary
course of business consistent with Past Practice.
7.3 CONSENTS. Each party to this Agreement shall use its reasonable best
efforts to obtain or cause to be obtained at the earliest practicable date, and
prior to the Closing, all consents, approvals and licenses, if any, which such
party requires to permit it to consummate the transactions contemplated hereby
without violating any material agreement, contract, instrument or applicable law
or regulation, license or permit, to which it is a party or to which it or its
assets are subject. The parties hereto shall cooperate with each other in their
efforts to obtain all such consents, approvals and licenses.
7.4 NOTICE OF BREACH. Each party to this Agreement will immediately give
notice to the other parties of the occurrence of any event, or the failure of
any event to occur, that results in a breach by it of any representation or
warranty or a failure by it to comply with or fulfill any covenant, condition or
agreement contained herein.
7.5 SELLER AND INVESTORS AS STOCKHOLDERS. The Seller agrees, as the sole
stockholder of the Company prior to the Closing, to cause the Company, and the
Investors agree as the controlling stockholders of Holdco prior to the Closing,
to cause Holdco and Holdco Sub to comply with all of their respective
obligations hereunder to be fulfilled prior to the Closing.
7.6 RETENTION OF CSG EARNINGS. It is the intent of the parties hereto
that all assets and liabilities shown on the Year-End Balance Sheet, all
proceeds and obligations relating to such assets and liabilities, and all
earnings, revenues, income and profits earned by CSG and the Business from and
after December 31, 1995 shall be transferred to the Company immediately prior to
the Effective Time. In addition, it is the intent of the parties hereto that CSG
and the Business be run separately from the remainder of the business of the
Seller for the benefit of Holdco and those who will be Holdco's stockholders
immediately after the Effective Time. In furtherance of these purposes, from and
after December 31, 1995, the Seller shall keep and hold all assets and
liabilities related to, and all revenue and income attributable to, CSG, the
Business and the Assets, including but not limited to those assets and
liabilities shown on the Year-End Balance Sheet, separate from other Seller
assets, revenue, income and liabilities. As of December 31, 1995, all assets
related to, and all revenue and income attributable to CSG, the Business and the
Assets, including but not limited to those assets and liabilities shown on the
Year-End Balance Sheet and all assets, receivables, income and revenue received
by the Seller that relates to CSG, the Business and the Assets, shall be held in
trust for transfer to the Company pursuant to this Agreement. From and after
December 31, 1995, the Seller shall not cause or allow the Company, CSG, the
Business, and the Assets to assume any Liability or to become subject to any
Lien other than pursuant to the assumption of trade payables of CSG and the
Business in the ordinary course of business. From and after December 31, 1995,
any increases in the Working Capital of CSG and any additional receivables
received by the Seller in relation to CSG, the Business and the Assets shall be
held in trust by the Seller for transfer to the Company. From and after December
31, 1995, all cash shown (or to be shown) on the Year-End
-39-
<PAGE>
Balance Sheet shall be placed in an account separate from that of all other
funds of the Seller. All cash received by the Seller in relation to CSG, the
Business and the Assets from and after December 31, 1995, as income, conversion
of accounts receivable or otherwise, shall be placed in such separate account
and held there in trust until transferred to the Company pursuant to Section
1.1. No cash shall be paid out of this separate account except for (x) payments
in the ordinary course of business not exceeding $10,000 in the aggregate, (y)
payment in the ordinary course of business of trade payables shown on (or to be
shown on) the final and binding Year-End Balance Sheet, and (z) payment of the
amounts of salary (at the level shown on Exhibit 1.1D), accruing after December
31, 1995 in the ordinary course of business, of those employees and consultants
of the Seller that are listed on Schedule 1.1D as to be employees or consultants
of the Company. In no event shall cash from such separate account be used
to pay obligations accruing on or before December 31, 1995 that are not shown on
the Year-End Balance Sheet, and, to the extent that any such obligations exist,
such obligations shall remain obligations only of the Seller after the Effective
Time. The Company shall not transfer assets or cash, whether as a dividend, an
assumption of liabilities, a payment for deemed or actual federal or state
income taxes, a loan or otherwise, or obligate itself to transfer any assets or
cash, to the Seller (and the Seller shall not receive such from the Company),
prior to the Effective Time. As of and after December 31, 1995, the Seller and
its directors shall owe the Investors the same fiduciary duties with respect to
CSG, the Assets and the Business that the Company and its directors will owe the
holders of Company Common Stock and that Holdco and its directors will owe the
holders of Holdco Common Stock after the Closing. From and after December 31,
1995, the Seller shall operate CSG, the Business and the Assets substantially in
accordance with the projected financial statements set forth in Exhibit 7.6
hereto. The Seller shall take all actions necessary to insure, that, as of the
moment immediately prior to the Effective Time, the Company shall hold all
profits, earnings, revenue, and cash held by the Seller as of December 31, 1995
and shown or to be shown and the Year-End Balance Sheet, or received by the
Seller from and after December 31, 1995 in relation to the operation of CSG, the
Business, the Assets, and the Company or related to any of the items shown on
the Year-End Balance Sheet including, with limitations, accounts receivable.
Any of the requirements of this Section 7.6 may be waived with the prior written
consent of the Investors. In the event of any conflict between this Section 7.6
and any other provision of this Article VII, the provisions of this Section 7.6
shall control.
ARTICLE VIII
OBLIGATIONS AT OR PRIOR TO THE CLOSING
8.1 EXCLUSIVITY/OTHER OFFERS. Unless and until this Agreement has been
terminated in accordance with Section 12.2 below, none of the Investors, Holdco,
Holdco Sub, the Company, or the Seller, or any of their respective
representatives, agents, officers, directors, shareholders, stockholders,
partners or employees, will solicit or accept offers from, provide information
or assistance to, or negotiate or enter into any agreement or understanding
(written or oral) with, any other person or entity regarding (i) the sale,
merger, initial public offering or reorganization of the Company; the sale or
other disposition of, or the granting of any security interest, lien or
encumbrance on, any of the Assets, the Business or CSG other than dispositions
of inventory in the
-40-
<PAGE>
ordinary course of business; or (iii) any other transaction which would cause or
result in any change, other than of an immaterial nature, in or adversely affect
the Business, the Assets, or the business of CSG or the Company or otherwise
interfere with the consummation of the transactions contemplated herein.
8.2 OTHER DELIVERIES. At the Closing, the parties hereto shall also
execute and deliver all agreements and instruments referred to in Articles IV, V
and otherwise provided herein.
ARTICLE IX
NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Holdco, Holdco Sub and the Investors in Section 2.1(c) hereof
and by the Seller in this Agreement or any other instrument or document
delivered in connection herewith, including the documents contained the Exhibits
hereto and the Disclosure Letter, shall survive until the date one year after
the date of the Closing. Other than as set forth above, all representations and
warranties made by the Investors, Holdco, Holdco Sub, and the Company in this
Agreement or any other instrument or document delivered in connection herewith
shall terminate upon the Closing and shall not survive the Closing. All
covenants made in the Agreement and any other instrument or document delivered
in connection with the Agreement shall survive indefinitely unless this
Agreement or such instrument or document specifically specifies otherwise.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION BY THE SELLER FOR BREACH OF THIS AGREEMENT. Subject
to the limitations set forth in this Article, the Seller shall indemnify and
hold harmless the Investors, the Company, Holdco and their respective officers,
directors, employees, successors and assigns (the "Indemnified Investor
Parties") in respect of any and all claims, actions, suits or other proceedings
and any and all losses, costs, expenses, liabilities, fines, penalties, interest
and damages, whether or not arising out of any claim, action, suit or other
proceeding (and including reasonable counsel and accountants' fees and expenses
and all other reasonable costs and expenses of investigation, defense or
settlement of claims and amounts paid in settlement) incurred by, imposed on or
borne by the Indemnified Investor Parties ("Investor Damages") resulting from
the breach of any of the representations, warranties or covenants (including,
but not limited to, the covenant in Section 1.5 hereof) made by the Seller in
this Agreement, the Disclosure Letter, or any agreement, instrument or document
that is attached as an Exhibit to this Agreement. Investor Damages shall
exclude (i) any amount with respect to which the Indemnified Investor Parties
shall be entitled to receive and shall have received payment under any insurance
policy which provides coverage for the liability to which such amount relates
and (ii) the amount of any tax benefit actually received by the Indemnified
-41-
<PAGE>
Investor Parties as a result of such Investor Damages, after taking into account
the tax consequences of the indemnification payment for such Investor Damages.
10.2 INDEMNIFICATION BY THE SELLER FOR EFI LITIGATION AND BULK SALES
VIOLATIONS. The Seller shall indemnify and hold harmless the Indemnified
Investor Parties in respect of any and all Investor Damages resulting from the
EFI Litigation and from any violation by the Seller or the Company of the
requirements and provisions of any "bulk-transfer" laws of any jurisdiction in
connection with any of the transactions contemplated herein. Investor Damages
shall exclude any amount with respect to which the Indemnified Investor Parties
shall be entitled to receive and shall have received payment under any insurance
policy which provides coverage for the liability to which such amount relates.
Investor Damages shall exclude (i) any amount with respect to which the
Indemnified Investor Parties shall be entitled to receive and shall have
received payment under any insurance policy which provides coverage for the
liability to which such amount relates and (ii) the amount of any tax benefit
actually received by the Indemnified Investor Parties as a result of such
Investor Damages, after taking into account the tax consequences of the
indemnification payment for such Investor Damages.
10.3 CLAIMS FOR INDEMNIFICATION OF INVESTORS. Whenever any claim shall
arise for indemnification hereunder, the Indemnified Investor Parties making
such claim shall promptly notify the Seller in writing of the claim and, when
known, the facts constituting the basis for such claim and use its reasonable
efforts to cooperate with the Seller to mitigate the Investor Damages suffered
or to be suffered by the such Indemnified Investor Parties; provided that
--------
failure to give such notice shall not affect any rights or remedies of the
Indemnified Investor Parties hereunder with respect to indemnification for
Investor Damages except to the extent that the Seller is materially prejudiced
thereby. In the event of any claim for indemnification hereunder resulting from
or in connection with any claim or legal proceedings by a third party, the
notice to the Seller shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. None of the Indemnified Investor
Parties shall settle or compromise any claim by a third party for which they are
entitled to indemnification hereunder, without the prior written consent of the
Seller (which shall not be unreasonably withheld).
10.4 DEFENSE BY SELLER. In connection with any claim giving rise to
indemnity hereunder or resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Seller at its
sole cost and expense may, upon written notice to the Indemnified Investor
Parties, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Investor Parties in writing its obligation to
indemnify the Indemnified Investor Parties with respect to all elements of such
claim, and thereafter diligently conduct the defense thereof with counsel
reasonably acceptable to the Indemnified Investor Parties. The Indemnified
Investor Parties shall be entitled to participate in (but not control) the
defense of any such action with their counsel and at their own expense. If the
Seller does not assume or fails to conduct in a diligent manner the defense of
any such claim or litigation resulting therefrom, (a) the Indemnified Investor
Parties may defend against such claim or litigation, in such manner as they may
deem appropriate, including, but not limited to, settling such claim or
litigation, after giving reasonable notice of the same to the Seller, on such
terms as the Indemnified Investor Parties may deem appropriate (with the
Seller's
-42-
<PAGE>
prior written consent, which consent shall not be unreasonably withheld), and
(b) the Seller shall be entitled to participate in (but not control) the defense
of such action, with its counsel and at its own expense. If the Seller
thereafter seeks to question the manner in which the Indemnified Investor
Parties defended such third party claim or the amount or nature of any such
settlement, the Seller shall have the burden to prove by a preponderance of the
evidence that the Indemnified Investor Parties did not defend or settle such
third party claim in a reasonably prudent manner. Notwithstanding the foregoing,
no party shall consent to entry of any judgment or enter into any settlement (or
have any liability for Investor Damages with respect thereto) which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified and indemnifying party of a release from all liability in
respect to such Claim. Each party agrees to cooperate fully with the other, with
such cooperation to include, without limitation, attendance at depositions and
the provision of relevant documents as may be reasonably requested by the
Seller, provided that the Seller will hold the Indemnified Investor Parties
harmless from all of their reasonable expenses, including reasonable attorneys'
fees, incurred in connection with such cooperation by the Indemnified Investor
Parties.
10.5 TIME LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND COMPANY.
Except for indemnification claims for Investor Damages resulting from (a) the
EFI litigation, (b) the violation of "bulk-transfer" laws of any jurisdiction by
the Seller or the Company in connection with any of the transactions
contemplated hereby, (c) the violation of any covenants of the Seller made in
this Agreement, the Disclosure Letter, or any agreement, instrument or document
that is attached as an Exhibit to this Agreement, or (d) the failure of the
Seller to pay any obligation greater than $2,000,000 pursuant to Section 1.5(c)
hereof (collectively the "Unlimited Claims"), no claim for indemnification under
this Article may be made or suit instituted by the Indemnified Investor Parties
after the date one year after the date of the Closing. Notwithstanding the
foregoing, this Agreement shall place no such limitation on the Unlimited
Claims.
10.6 MONETARY LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY. With respect to any indemnification claims, except for any Unlimited
Claims, made by the Indemnified Investor Parties under this Article, the Seller
shall have no obligation to indemnify the Indemnified Investor Parties for any
Investor Damages which exceed an aggregate cumulative amount equal to the
amount, at the time of such claim, in the escrow fund established in accordance
with the terms of the Escrow Agreement described in Section 4.4(h). Further,
with respect to any indemnification claims, except for the Unlimited Claims,
made by the Indemnified Investor Parties under this Article, the Seller have no
obligation to indemnify the Indemnified Investor Parties until the aggregate
cumulative amount of Investor Damages exceeds $250,000; provided that if the
aggregate cumulative amounts of Investor Damages exceeds $250,000, this Article
X shall provide for payment of indemnification claims for all Investor Damages.
Payment of indemnification pursuant to this Article (except for the Unlimited
Claims, which claims may be made directly against the Seller or the such escrow
fund at the option of the Indemnified Investor Parties, as the case may be,
seeking indemnification), shall be made only from such escrow fund.
Notwithstanding the foregoing, there shall be no limit on the amount of the
Unlimited Claims that may be recovered by the Investors, Holdco and the Company
from the Seller.
-43-
<PAGE>
10.7 DAMAGES TO INVESTORS. The Seller acknowledges and agrees that, if
the Company suffers, incurs or otherwise becomes subject to any Investor Damages
as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the Seller or as a result of
the EFI Litigation or violation by the Seller or the Company of "bulk-transfer"
laws, then Holdco and the Investors also shall be deemed, by virtue of their
ownership of the stock of the Company, to have incurred Investor Damages as a
result of or in connection with such inaccuracy or breach in the same amount and
to the same extent as has the Company; provided that the terms of this Section
--------
10.7 shall not permit the Company, Holdco and the Investors to receive from the
Seller, pursuant to this Article X, an aggregate of indemnification payments
greater than such Investor Damages.
10.8 NO WAIVER BY INVESTORS, HOLDCO AND COMPANY. The Indemnified
Investor Parties shall not be barred from receiving indemnification under this
Article X because any of them had knowledge, prior to the date of Closing or at
any other time, of a breach of representation, warranty or covenant of the
Seller or a violation by the Seller or the Company of any "bulk-transfer" laws
by the Seller or the Company.
10.9 MATERIALITY. For the purposes of determining the amount of Investor
Damages under this Article X, all representations and warranties of the Seller
contained herein or in any instrument, document or agreement contemplated hereby
shall be deemed to be without any materiality or material adverse effect
exceptions or qualifications or any similar exceptions or qualifications that
may be present in such representations and warranties.
10.10 INDEMNIFICATION BY HOLDCO AND INVESTORS. Subject to the
limitations set forth in this Article, the Holdco and the Investors shall
indemnify and hold harmless the Seller and its officers, directors, employees
successors and assigns (the "Indemnified Seller Parties") in respect of any and
all claims, actions, suits or other proceedings and any and all losses, costs,
expenses, liabilities, fines, penalties, interest and damages, whether or not
arising out of any claim, action, suit or other proceeding (and including
reasonable counsel and accountants' fees and expenses and all other reasonable
costs and expenses of investigation, defense or settlement of claims and amounts
paid in settlement) incurred by, imposed on or borne by the Indemnified Seller
Parties ("Seller Damages") resulting from the breach of any of the
representations or warranties of Holdco and the Investors contained in Section
2.1(c) hereof. Seller Damages shall exclude (i) any amount with respect to
which the Indemnified Seller Parties shall be entitled to receive and shall have
received payment under any insurance policy which provides coverage for the
liability to which such amount relates and (ii) the amount of any tax benefit
actually received by the Indemnified Seller Parties as a result of such Seller
Damages, after taking into account the tax consequences of the indemnification
payment for such Seller Damages.
10.11 CLAIMS FOR INDEMNIFICATION OF SELLER. Whenever any claim shall
arise for indemnification hereunder, the Indemnified Seller Parties making such
claim shall promptly notify Holdco and the Investors in writing of the claim
and, when known, the facts constituting the basis for such claim and use its
reasonable efforts to cooperate with the indemnifying party to mitigate the
Seller Damages suffered or to be suffered by such Indemnified Seller Parties;
provided that failure to
- --------
-44-
<PAGE>
give such notice shall not affect any rights or remedies of the Indemnified
Seller Parties hereunder with respect to indemnification for Seller Damages
except to the extent that Holdco and the Investors are materially prejudiced
thereby. In the event of any claim for indemnification hereunder resulting from
or in connection with any claim or legal proceedings by a third party, the
notice to Holdco and the Investors shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnified
Seller Parties shall settle or compromise any claim by a third party for which
they are entitled to indemnification hereunder, without the prior written
consent of Holdco and the Investors (which shall not be unreasonably withheld).
10.12 DEFENSE BY HOLDCO AND INVESTORS. In connection with any claim
giving rise to indemnity hereunder or resulting from or arising out of any claim
or legal proceeding by a person who is not a party to this Agreement, Holdco and
the Investors at their sole cost and expense may, upon written notice to the
Indemnified Seller Parties, assume the defense of any such claim or legal
proceeding if they acknowledge to the Indemnified Seller Parties in writing
their obligation to indemnify the Indemnified Seller Parties with respect to all
elements of such claim, and thereafter diligently conduct the defense thereof
with counsel reasonably acceptable to the Indemnified Seller Parties. The
Indemnified Seller Parties shall be entitled to participate in (but not control)
the defense of any such action with its counsel and at its own expense. If
Holdco and the Investors do not assume or fails to conduct in a diligent manner
the defense of any such claim or litigation resulting therefrom, (a) the
Indemnified Seller Parties may defend against such claim or litigation, in such
manner as they may deem appropriate, including, but not limited to, settling
such claim or litigation, after giving reasonable notice of the same to Holdco
and the Investors, on such terms as the Indemnified Seller Parties may deem
appropriate (with the prior written consent of Holdco and the Investors, which
consent shall not be unreasonably withheld), and (b) Holdco and the Investors
shall be entitled to participate in (but not control) the defense of such
action, with their counsel and at their own expense. If Holdco and the Investors
thereafter seek to question the manner in which the Indemnified Seller Parties
defended such third party claim or the amount or nature of any such settlement,
Holdco and the Investors shall have the burden to prove by a preponderance of
the evidence that the Indemnified Seller Parties did not defend or settle such
third party claim in a reasonably prudent manner. Notwithstanding the foregoing,
no party shall consent to entry of any judgment or enter into any settlement (or
have any liability for Seller Damages with respect thereto) which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified and indemnifying party of a release from all liability in
respect to such Claim. Each party agrees to cooperate fully with the other, with
such cooperation to include, without limitation, attendance at depositions and
the provision of relevant documents as may be reasonably requested by Holdco and
the Investors, provided that Holdco and the Investors will hold the Indemnified
Seller Parties harmless from all of their reasonable expenses, including
reasonable attorneys' fees, incurred in connection with such cooperation by the
Indemnified Seller Parties.
10.13 TIME LIMITATION ON INDEMNIFICATION OF SELLER. No claim for
indemnification under this Article may be made or suit instituted by the
Indemnified Seller Parties after the date one year after the date of the
Closing.
-45-
<PAGE>
10.14 MONETARY LIMITATION ON INDEMNIFICATION OF SELLER. With respect to
any indemnification claims made by the Indemnified Seller Parties under this
Article, Holdco and the Investors shall have no obligation to indemnify the
Indemnified Seller Parties for any Seller Damages which exceed an aggregate
cumulative amount equal to the $4,282,000. Further, with respect to any
indemnification claims made by the Indemnified Seller Parties under this
Article, Holdco and the Investors have no obligation to indemnify the
Indemnified Seller Parties until the aggregate cumulative amount of Seller
Damages exceeds $250,000; provided that if the aggregate cumulative amounts of
Seller Damages exceeds $250,000, this Article X shall provide for payment of
indemnification claims for all Seller Damages.
10.15 NO WAIVER BY SELLER. The Indemnified Seller Parties shall not be
barred from receiving indemnification under this Article X because any of them
had knowledge, prior to the date of Closing or at any other time, of a breach of
the representations and warranties of Holdco and the Investors made in Section
2.1(c).
ARTICLE XI
DEFINITIONS AND ACCOUNTING TERMS
11.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Additional Accounting Firm" has the meaning specified in Section
1.5.
"Additional Report" has the meaning specified in Section 1.5.
"Affiliate" (and, with a correlative meaning, "Affiliated") shall
mean, with respect to any Person, any other Person that directly, or through one
or more intermediaries, controls or is controlled by or is under common control
with such first Person, and, if such a Person is an individual, any member of
the immediate family of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), and "immediate family" shall mean parents, spouse and
children.
"Agreement" means this Merger Agreement as from time to time amended
and in effect between the parties hereto.
"Assets" has the meaning specified in Section 1.1.
-46-
<PAGE>
"Assumed Liabilities" has the meaning specified in Section 1.1.
"Audited Financial Statements" has the meaning specified in Section
4.8.
"Business" means the business of CSG as operated as of December 8,
1995 and the business of the Company as now proposed or contemplated, including
the operations of the Assets.
"Business Plan" has the meaning specified in Section 3.1.
"Cash Purchase Price" has the meaning specified in Section 1.4.
"Claims" means any and all personal injury, property damage,
nuisance, tort, contract or other claims, actions or demands brought at any time
by any Person, any and all demands, actions or claims for investigation,
remediation, removal, closure or other action with respect to Hazardous
Materials, and any and all other investigations, suits, demands, actions, fines,
penalties, claims, enforcement actions, Liens, Liabilities, damages,
deficiencies, injunctions, reasonable attorneys' fees, reasonable experts' fees,
costs and expenses actually paid, imposed or incurred.
"Closing" has the meaning specified in Section 1.4.
"COBRA" has the meaning specified in Section 3.1.
"Code" has the meaning specified in Section 3.1.
"Company" means and shall include Splash Technology, Inc., a
Delaware corporation, and its successors and assigns.
"Company Common Stock" has the meaning specified in Section 1.3.
"Company Facility" shall mean any real property asset (including the
land, the improvements and fixtures thereon, and the ambient air ground water
and surface water thereof and including, but not limited to, the Assets), that
the Seller, the Company or any of their past or present subsidiaries has at any
time owned, operated, occupied, controlled or leased in connection with CSG, the
Business or the Assets.
"Consolidated" when used with reference to any term defined herein
shall mean that term as applied to the accounts of the Company or Holdco, as
appropriate in the context, and its subsidiaries consolidated in accordance with
GAAP after eliminating intercompany items and minority interests.
"Contracts" has the meaning specified in Section 1.1.
"Copyrights" mean U.S. and foreign copyrights, whether registered or
unregistered, and pending applications to register the same.
-47-
<PAGE>
"CSG" has the meaning specified in the Recitals.
"DGCL" means the State of Delaware General Corporation Law, as
amended.
"Disclosure Letter" has the meaning specified in Section 3.1.
"Disposal Site" shall mean a landfill, incinerator, disposal agent,
waste hauler or recycler of Hazardous Materials.
"Effective Time" has the meaning specified in Section 1.4.
"EFI Litigation" means any and all litigation or other claims
arising out of or related to U.S. Patent No. 4,941,038 and any divisionals,
continuations in part, or reissues thereof, to case number C95-04110 DLG pending
in United States District Court in the Northern District of California and any
amendments thereto, and any claims for indemnification related to the foregoing.
"Employee Plans" has the meaning specified in Section 3.1.
"Environmental Law" means any Law pertaining to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter, including, without limitation, the following laws as in
effect on the date of the Closing: (a) Clean Air Act (42 U.S.C. (S)7401, et
seq.); (b) Clean Water Act (33 U.S.C. (S)1251, et seq.); (c) Resource
Conservation and Recovery Act (42 U.S.C. (S)6901, et seq.); (d) Comprehensive
Environmental Response Compensation and Liability Act (42 U.S.C. (S)9601, et
seq.); (e) Safe Drinking Water Act (42 U.S.C. (S)300f, et seq.); (f) Toxic
Substances Control Act (15 U.S.C. (S)2601, et seq.); (g) Rivers and Harbors Act
(33 U.S.C. (S)401, et seq.); (h) Endangered Species Act (16 U.S.C. (S)1531, et
seq.); and (i) Occupational Safety and Health Act (29 U.S.C. (S)651, et seq.);
together with any other foreign or domestic laws (federal, state, provincial or
local) relating to Hazardous Materials of Hazardous Materials Activities.
"Environmental Permit" shall mean any approval, permit, license,
clearance or consent required to be obtained from any Person or any Governmental
Authority with respect to a Hazardous Materials Activity which is or was
conducted by the Seller in relation to CSG, the Business, the Assets or the
Company, by the Company or by any of their past or present subsidiaries.
"ERISA" has the meaning specified in Section 3.1.
"ERISA Affiliate" has the meaning specified in Section 3.1.
"Escrow Remainder" has the meaning specified in Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other
-48-
<PAGE>
Federal Agency then administering the Exchange Act) thereunder, all as the same
shall be in effect at the time.
"Financial Statements" has the meaning specified in Section 3.1.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Governmental Authority" means any local, state, federal, foreign or
international governmental authority, agency or entity, including, but not
limited to, any court, commission, tribunal or panel having jurisdiction over
the matter at issue.
"Hazardous Materials Activity" shall mean the handling
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, removal, remediation, release, exposure of others to, sale, or
distribution of any Hazardous Material or any product containing a Hazardous
Material.
"Hazardous Material" shall mean any material or substance that is
prohibited or regulated by any Environmental Law or that has been designated by
any Governmental Authority to be radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment, including without limitation
asbestos, petroleum, radon gas, and radioactive matter.
"Holdco" has the meaning specified in the Preamble.
"Holdco Common Stock" has the meaning specified in Section 2.1.
"Holdco Sub Common Stock" has the meaning specified in Section 1.3.
"Holdco Sub" has the meaning specified in the Preamble.
"Indemnified Investor Parties" has the meaning specified in Section
10.1.
"Indemnified Seller Parties" has the meaning specified in Section
10.10.
"Intellectual Property" means Copyrights, Patent Rights, Trademarks
and Trade Secrets.
"Interim Balance Sheet" has the meaning specified in Section 3.1.
"Investor Damages" has the meaning specified in Section 10.1.
"Investors" has the meaning specified in the Preamble.
"Investors' Accountants" means Coopers & Lybrand, L.L.P.
-49-
<PAGE>
"Key Employee" means and includes the Chairman of the board of
directors, the President, any Vice-President and the Chief Financial Officer of
the Company, Holdco, or any of their subsidiaries, or any person who is not an
officer of Company, Holdco or any of their subsidiaries and is in charge of one
or more of the following functions: sales, marketing, production, or engineering
and technical development or any employee with access to the confidential
information of Holdco or the Company.
"Law" means any national, international, state, or local law,
statute, rule, regulation, ordinance, requirement for approval or permit,
judgment, injunction, decree of any court of applicable jurisdiction, or any
treaty, international understanding, or other rule which has the force of law,
including, without limitation, any Environmental Law.
"Liability" means any direct or indirect liability, indebtedness,
obligation, guarantee or endorsement, either accrued, absolute, contingent or
otherwise, as determined in accordance with GAAP.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien, charge or Claim of any kind, whether
voluntarily incurred or arising by operation of Law or otherwise, including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and/or the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction.
"Merger" has the meaning specified in Recitals.
"Past Practice" shall mean the Past Practice of the Seller with
respect to CSG, excluding any practices of the Seller after September 30, 1995
that were not consistent with practices of the Seller prior to September 30,
1995.
"Patent Rights" means U.S. and foreign patents, patent applications
pending or filed between the date hereof and the date of the Closing,
continuations, continuations-in-part, divisions, reissues or patent disclosures.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock and the
Series B Preferred Stock.
"Prospects" means the prospects of the Business as described in and
contemplated by the Business Plan.
-50-
<PAGE>
"Restricted GAAP" means GAAP, as further limited to those accounting
principles and methods, all consistent with GAAP (except as disclosed on Exhibit
11.0), shown on Exhibit 11.0 hereto.
"SEC" has the meaning specified in Section 3.1.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Securities Act) thereunder, all as the same shall be in effect at the time.
"Securities" has the meaning specified in Section 2.1.
"Seller" has the meaning specified in the Preamble.
"Seller Damages" has the meaning specified in Section 10.10.
"Seller Financial Statements" has the meaning specified in Section
3.1.
"Seller SEC Documents" has the meaning specified in Section 3.1.
"Seller's Accountants" shall mean the Seller's auditors and any
other accounting firm otherwise engaged by the Seller.
"Series A Preferred Stock" has the meaning specified in Section 2.1.
"Series B Preferred Stock" has the meaning specified in Section 1.3.
"Software" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level "proprietary" languages, related documentation and
materials, whether in source code, object code or human readable form.
"Subordinated Notes" has the meaning specified in Recitals.
"Surviving Corporation" has the meaning specified in Section 1.2.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Tax" or "Taxes" shall mean any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock,
-51-
<PAGE>
franchise profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"Trademarks" mean United States, state and foreign trademarks,
service marks, logos, trade dress and trade names, whether registered or
unregistered, and pending applications to register the foregoing and all
goodwill associated therewith.
"Trade Secrets" mean confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, inventions (whether or not patentable),
reports, data, customer lists, mailing lists, business plans, or other
proprietary information that provides the owner with a competitive advantage.
"Unlimited Claims" shall have the meaning set forth in Section 10.5.
"Working Capital" means the aggregate of the cash, net accounts
receivable (less any allowances for doubtful accounts), net value of inventory
(adjusted for all applicable write-downs and write-offs) less liabilities of any
kind, which liabilities will include, but not be limited to, accounts payable,
royalties payable, warranty reserves, accrued bonuses, accrued vacation,
employee expense obligations, deferred revenue, open purchase order commitments,
other commitments or obligations to customers, and liabilities under development
agreements.
"Year-End Balance Sheet" has the meaning specified in Section 1.5.
11.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, and all other financial data
submitted pursuant to this Agreement shall be prepared and calculated in
accordance with such principles.
ARTICLE XII
MISCELLANEOUS
12.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
the Seller, the Company, Holdco Sub, Holdco, any Investor, any Indemnified
Party, or any holder of the Subordinated Notes or the Preferred Stock, in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
12.2 TERMINATION. This Agreement may be terminated prior to the Closing
(i) by the mutual consent of the parties hereto; (ii) by the Seller and the
Company if there has been a material
-52-
<PAGE>
misrepresentation or material breach on the part of any of the Investors, Holdco
or Holdco Sub in the representations and warranties of the Investors, Holdco or
Holdco Sub set forth herein, which, if curable, has not been cured within 10
business days after notice thereof by Seller; (iii) by Investors, Holdco, Holdco
Sub, if there has been a material misrepresentation or material breach on the
part of the Company or the Seller in the representations, warranties and
covenants of Seller or the Company set forth herein, which, if curable, has not
been cured within 10 business days after notice thereof by Investors; and (iv)
by any party hereto, if the Closing does not occur by January 31, 1996 for any
reason. Upon termination of this Agreement, no party shall have any further
obligations or liability hereunder. Sections 12.5, 12.13 and 12.14 alone shall
survive the termination of this Agreement.
12.3 AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement
to the contrary notwithstanding, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein or therein set
forth may be omitted or waived, if each of the Seller, the Company, Holdco,
Holdco Sub and the Investors shall consent in writing. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
12.4 ADDRESSES FOR NOTICES, ETC. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing and
delivered personally or sent by telecopier, Federal Express or registered or
certified mail, postage prepaid, addressed as follows:
If to the Seller or the Company Radius Inc.
(prior to the Closing), to: 215 Moffet Park Drive
Sunnyvale, California 94089-1374
Telecopier: (408) 541-5105
Attention: Charles Berger
with a copy to: Gordon Davidson, Esq.
Fenwick & West
Two Palo Alto Square, Suite 800
Palo Alto, California 94306
Telecopier: (415) 857-0361
If to the Company or Holdco Splash Technology, Inc. or Splash
(after the Closing), to: Technology Holdings, Inc.
c/o Radius Inc.
215 Moffet Park Drive
Sunnyvale, California 94089-1374
Telecopier: (408) 541-5015
Attention: Kevin Macgillivray
If to the Investors, Holdco (before Summit Partners
the Closing), or Holdco Sub, to: 499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
-53-
<PAGE>
Telecopier: (415) 321-1188
Attention: Gregory M. Avis
with a copy to: Jeffrey D. Saper, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopier: (415) 493-6811
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
12.5 COSTS, EXPENSES AND TAXES. Holdco agrees to pay on demand all costs
and expenses of the Investors in connection with the investigation, preparation,
execution and delivery of this Agreement and any other instruments and documents
to be delivered hereunder and the consummation of the Merger and all other
transactions contemplated hereby and thereby, including the fees and out-of-
pocket expenses of Wilson Sonsini Goodrich & Rosati, P.C., counsel for
Investors, fees for any government filings required by any of the transactions
contemplated hereby, and to pay the legal expenses of the Investors, if this
transaction is completed. In addition, if the Closing occurs, the Seller shall
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement and instruments and
documents to be delivered hereunder and the consummation of the transactions
hereunder, and agrees to hold the Investors harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and filing fees.
12.6 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company, the Seller, Holdco, Holdco Sub and
Investors and their respective successors and assigns, except that no party
shall have the right to assign its rights hereunder or any interest herein
without the prior written consent of the other parties.
12.7 PRIOR AGREEMENTS. This Agreement, including all Exhibits hereto and
the Disclosure Letter, constitutes the entire agreement between the parties and
supersedes any prior understandings or agreements concerning the subject matter
hereof.
12.8 SEVERABILITY. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
12.9 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of California without regard
to principles of conflicts of law.
-54-
<PAGE>
12.10 HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
12.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.12 FURTHER ASSURANCES. From and after the date of this Agreement,
upon the reasonable request of the Investors, the Seller, the Company and each
of their subsidiaries shall execute and deliver such instruments, documents and
other writings as may be necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
12.13 CONFIDENTIALITY. Until the date of Closing, any information
relating to the terms of this Agreement and the transactions contemplated hereby
shall be treated as confidential and shall not be disclosed, by any of the
parties hereto, to a third party without the consent of the board of directors
of the Seller and the mutual consent of the Investors except as otherwise
required by federal securities laws. The parties hereto agree to request that
any federal or state security regulator treat as confidential any information
submitted to such regulator with respect to the transactions contemplated by
this Agreement.
12.14 PRESS RELEASE. No party hereto shall release a press release
relating to this Agreement or any of the transactions or documents contemplated
hereby without first submitting a copy of such press release to the other
parties hereto and obtaining the prior approval of such other parties to any
such press release, which approval shall not be unreasonably withheld.
12.15 INDEMNIFIED PARTIES. The Indemnified Investor Parties and
Indemnified Seller Parties that are not parties to this Agreement shall be third
parties beneficiaries hereof for the purposes of Article X.
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized and in
accordance with Section 1102 of the DGCL, as of the date first above written.
SELLER:
RADIUS INC.,
a California corporation
By: /s/ Charles W. Berger
----------------------------------------
Name: Charles W. Berger
Title: Chairman and CEO
COMPANY:
SPLASH TECHNOLOGY, INC.
a Delaware corporation
By: /s/ Charles W. Berger
---------------------------------------
Name: Charles W. Berger
Title: Chairman and CEO
HOLDCO:
SPLASH TECHNOLOGY HOLDINGS,INC.
a Delaware corporation
By: /s/ Gregory M. Avis
---------------------------------------
Name:
Title:
HOLDCO SUB:
SPLASH MERGER COMPANY, INC.
a Delaware corporation
By: /s/ Gregory M. Avis
---------------------------------------
Name:
Title:
-56-
<PAGE>
INVESTORS:
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners SD, L.P., General Partner
By: Stamps, Woodsum & Co., III, General Partner
By: /s/ Gregory M. Avis
-------------------------------------------
Name:
General Partner
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., General Partner
By: Stamps, Woodsum & Co., IV, General Partner
By: /s/ Gregory M. Avis
-------------------------------------------
Name:
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
-------------------------------------------
Name:
General Partner
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1 TO
MERGER AGREEMENT
This Amendment No. 1 to Merger Agreement (this "Amendment") is made as of
January 30, 1996, among RADIUS INC., a California corporation (the "Seller"),
SPLASH TECHNOLOGY, INC., a Delaware corporation (the "Company"), SPLASH
TECHNOLOGY HOLDINGS, INC., a Delaware corporation ("Holdco"), SPLASH MERGER
COMPANY, INC., a Delaware corporation, ("Holdco Sub"), the entities listed as
Old Investors on the signature page(s) hereof (the "Old Investors") and the
entities listed as New Investors on the signature page(s) hereof (the "New
Investors").
WHEREAS, the Seller, the Company, Holdco, Holdco Sub, and the Old Investors
are parties to that certain Merger Agreement dated December 21, 1995 (the
"Merger Agreement").
WHEREAS, the parties to the Merger Agreement wish to amend the terms
thereof as provided in this Amendment.
WHEREAS, the parties hereto also wish to waive certain requirements under
the Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto in the Merger Agreement.
2. The entities listed as New Investors on the signature page(s) hereto
shall be, in addition to the Old Investors, Investors, as that term is defined
in the Merger Agreement. The New Investors, along with the Old Investors, shall
have all of the rights and obligations of the Investors under the Merger
Agreement, except that the notices to each New Investor shall be delivered to
the address set forth beneath its respective signature on the signature page(s)
hereof rather than to the address specified for the Investors in Section 12.4 of
the Merger Agreement, if an address appears directly beneath such signature.
3. The Exhibits to the Merger Agreements shall be deemed modified as
follows:
<TABLE>
<CAPTION>
Exhibit Name Exhibit Number Modification(s)
------------ -------------- ---------------
<S> <C> <C>
CSG Assets 1.1A addition of the items listed in Exhibit 1 hereto
Company 1.1B Change: size of the board of directors from
Cert. Incorp. five to six
Company 1.1C Change: size of the board of directors from
By-Laws five to six
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Name Exhibit Number Modification(s)
------------ -------------- ---------------
<S> <C> <C>
Holdco Cert. 2.1A Change: size of the board of directors fom
of Incorp. being fixed at five members to being set in the
bylaws at a size between three and thirteen
members
Holdco 2.1B Changes: (i) size of board of directors from five
By-Laws to six and (ii) allow stockholders holding at least
10% of the voting shares to call a special
stockholders meeting
Registration 4.4B Changes:(i) alter recitals to indicate that the
Rights Series B shares may be issued after the Closing
Agreement as set forth in Section 6.6 of the Merger
Agreement and (ii) add Imperial Bank as a
beneficiary with respect to piggy back
registration rights
Stockholders 4.4C Change: size of board of directors from five
Agreement to six, with the Investors to designate the added
director
</TABLE>
4. The recital C on the first page of the Merger Agreement shall be
modified to read in full as follows:
"C. Immediately following the transfer of the assets and certain
liabilities of CSG to the Company described above, Holdco Sub shall merge
into and with the Company, with the Company surviving, and the Seller shall
receive from Holdco $21,945,175 in cash. Prior to such Merger, the
management of the Company shall have purchased from Holdco certain shares
of Holdco Common Stock pursuant to Restricted Stock Purchase Agreement(s).
In consideration for its promises and covenants herein, after the
satisfaction of certain conditions set forth in Section 6.6 below, Holdco
shall issue to the Seller shares of Series B Redeemable and Convertible
Preferred Stock, par value $0.001, of Holdco ("Series B Preferred Stock")
convertible into approximately 19.9% of Holdco Common Stock (post-closing,
assuming the conversion into Holdco Common Stock of the shares of Series B
Preferred Stock issued to the Seller and without considering dilution by
management options). After the issuance of such shares of Series B
Preferred Stock to the Seller, the shares of Holdco Common Stock purchased
by the management of the Company prior to the Merger shall constitute
approximately 6.1% of Holdco Common Stock (post-closing, assuming the
conversion into Holdco Common Stock of the shares of Series B Preferred
Stock issued to the Seller and without considering dilution by management
options) and the shares of Holdco Common Stock purchased by the Investors
prior to the Merger shall constitute approximately 74% of Holdco Common
Stock (post-closing, assuming the conversion into Holdco Common Stock of
the shares of Series B Preferred Stock issued to the Seller and without
considering dilution by management options)."
2
<PAGE>
5. Section 1.3 of the Merger Agreement shall be modified to read in full
as follows:
"1.3 CONVERSION OF SHARES. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Seller as the sole
stockholder of the Company or Holdco as the sole stockholder of Holdco Sub:
(a) Each share of common stock, par value of $0.001, of
the Company (the "Company Common Stock") outstanding immediately
prior to the Effective Time shall be converted into the right to
receive $21,945.175, payable by wire transfer of federal clearing
house funds.
(b) Each share of the common stock, par value $0.001, of
Holdco Sub (the "Holdco Sub Common Stock") outstanding
immediately prior to the Effective Time shall be converted into
one share of Company Common Stock."
6. Section 1.4 of the Merger Agreement is hereby amended by deleting the
clause (c) thereof in its entirety and by deleting the "(d)" in the tenth line
thereof and inserting "(c)" therefor.
7. The third sentence of Section 2.1(c) of the Merger Agreement is hereby
modified to read in full as follows:
"Immediately prior to the Effective Time, there will be no
options, warrants or rights to purchase shares of capital stock or other
securities of Holdco authorized, issued or outstanding other than as
provided for in Section 6.6 hereof, nor will Holdco be obligated in any
other manner to issue shares of its capital stock or other securities other
than as provided for in Section 6.6 hereof."
8. The sixth sentence of Section 2.1(c) of the Merger Agreement is hereby
modified to read in full as follows:
"Immediately after the issuance of the 4,282 shares of Series B
Preferred Stock to be issued to the Seller after the Effective Time subject
to the terms and conditions of Section 6.6, such shares shall be
convertible into 497,465 shares of Holdco Common Stock (approximately 19.9%
of the issued and outstanding Holdco Common Stock after such conversion,
not accounting for any other conversion or exercise of any options,
warrants, convertible securities or other rights to purchase Holdco Common
Stock and not accounting for any other securities issued by Holdco after
the date of the Effective Time), which shares shall have been reserved for
issuance pursuant to the terms of the Certificate of Incorporation of
Holdco."
9. Section 4.7 of the Merger Agreement is hereby amended by inserting the
words "other than the shares of Series B Preferred Stock" immediately after the
word "Securities," and immediately prior to the comma preceding the words "to
effect the Merger" contained in the fourth line thereof.
10. Section 5.5 of the Merger Agreement is hereby amended by inserting the
words "other than the shares of Series B Preferred Stock" immediately after the
word "Securities," and immediately prior to the words "and to carry out the
transactions" contained in the fifth line thereof.
3
<PAGE>
11. Section 5.6 of the Merger Agreement shall be modified to read in full
as follows:
" 5.6 BOARD OF DIRECTORS. The number of members of the board of
directors of Holdco Sub shall have been fixed at no less than five and no
more than six and no less than five members shall have been appointed as
follows: (i) Mr. Charles Berger; (ii) three designees of the Investors (one
such designee as a Series A Director, as defined in the Certificate of
Incorporation of Holdco); and (iii) Kevin Macgillivray (as the initial
designee of the management of the Company)."
12. The first sentence of Section 6.1(i) of the Merger Agreement is hereby
modified to read in full as follows: "The board of directors of Holdco
initially shall consist of six (6) directors."
13. Article VI of the Merger Agreement shall be modified by the addition
of the following Section 6.6 at the end of such Article:
"6.6 ISSUANCE OF SERIES B PREFERRED STOCK. After the later to
occur of (but in no event later than March 31, 1996) (a) the Effective Time
and (b) the issuance of a permit to Holdco by the California Department of
Corporations that qualifies the issuance of 4,282 shares of Series B
Preferred Stock to the Seller under Sections 25120 and 25121 of the
California Securities Law, in consideration for the promises and covenants
of the Seller contained herein, the Holdco shall issue to the Seller 4,282
shares of Series B Preferred Stock."
14. Holdco, Holdco Sub, the Old Investors and the New Investors hereby
waive the requirement that the third party consents with respect to the
transactions contemplated by the Merger Agreement described in items 2, 6 and 10
of Exhibit 4.7 to the Merger Agreement (the "Certain Third Party Consents") be
received prior to the Closing. The Seller agrees to take all reasonable efforts
to obtain the Certain Third Party Consents as soon as practicable after the
Closing (as defined in the Merger Agreement). Any failure by the Seller to
obtain the Certain Third Party Consents shall be considered a breach of a
covenant of the Merger Agreement for the purposes of Article 10 of the Merger
Agreement and the last sentence of Article 9 of the Merger Agreement.
15. Section 4.12 of the Merger Agreement shall be modified to read in full
as follows:
"4.12. ELECTION UNDER SECTION 338(H)(10). The Seller shall have
executed the Form 8023A to be prepared in accordance with Section 6.5(d)
hereof."
16. Section 6.5(c) of the Merger Agreement shall be amended by the
addition of the following sentence as the last sentence thereof:
"Upon the completion of the Audited Financial Statements, the
Chief Financial Officer of the Seller shall deliver to the Investors'
Accountants a representation to the effect that the Seller has provided to
the Investors' Accountants all books and records of the Business, CSG and
the Company with respect to the period extending from October 1, 1992 to
the date of the Closing, and that the Seller has disclosed, to the best
knowledge of the Seller, all financial transactions and all contingent
liabilities required to be reported or
4
<PAGE>
reserved for in accordance with GAAP, existing or occurring during the
period extending from October 1, 1992 to the date of the Closing, of the
Business, CSG and the Company to the Investors' Accountants"
17. The first sentence of Section 9.1 of the Merger Agreement is hereby
amended by the deleting the words "Section 2.1(c)" and replacing such words with
the words "Sections 2.1(c) and 2.2."
18. The definition of the term for "EFI Litigation" in Section 11.1 of the
Merger Agreement is hereby amended by deleted the three capitalized letters
"DLG" and replacing such three letters with the three capitalized letters "DLJ."
19. Except as amended hereby, the Merger Agreement shall remain in full
force and effect.
20. No failure or delay on the part of the Seller, the Company, Holdco
Sub, Holdco, any New Investor, any Old Investor, any Indemnified Party, or any
holder of the Subordinated Notes or the Preferred Stock, in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
21. Any provision in this Amendment to the contrary notwithstand, changes
in or additions to this Amendment may be made, and compliance with any covenant
or provision herein set forth may be omitted or waived, if each of the Seller,
the Company, Holdco, Holdco Sub, the Old Investors and the New Investors shall
consent in writing. Any waiver or consent may be given subject to satisfaction
of conditions stated therein and any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given .
22. This Agreement shall be binding upon and inure to the benefit of the
Company, the Seller, Holdco, Holdco Sub, the Old Investors and the New Investors
and their respective successors and assigns, except that no party shall have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the other parties.
23. The invalidity or unenforceability of any provision hereof shall in no
way affect the validity or enforceability of any other provision.
24. This Amendment shall be governed by, and construed in accordance with,
the internal laws of the State of California without regard to principles of
conflicts of law.
25. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Amendment by signing any such counterpart.
5
<PAGE>
26. From and after the date of this Amendment, upon the reasonable request
by any of the other parties hereto, the Old Investors, the New Investors,
Holdco, Holdco Sub, the Seller, the Company and each of their affiliates shall
execute and deliver such instruments, documents and other writings as may be
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Amendment.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and in
accordance with Section 1102 of the Delaware General Corporation Law, as of the
date first above written.
SELLER:
RADIUS INC.
a California corporation
By: /s/ Charles W. Berger
------------------------------------------------
Name: Charles W. Berger
Title: Chairman and CEO
COMPANY:
SPLASH TECHNOLOGY, INC.
a Delaware corporation
By: /s/ Charles W. Berger
------------------------------------------------
Name: Charles W. Berger
Title: Chairman and CEO
HOLDCO:
SPLASH TECHNOLOGY HOLDINGS, INC.
a Delaware corporation
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
President and Chief Executive Officer
HOLDCO SUB:
SPLASH MERGER COMPANY, INC.
a Delaware corporation
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
President and Chief Executive Officer
[Signature Page of Amendment No.1 to Merger Agreement]
7
<PAGE>
OLD INVESTORS:
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners SD, L.P., General Partner
By: Stamps, Woodsum & Co., III, General Partner
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
General Partner
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., General Partner
By: Stamps, Woodsum & Co., IV, General Partner
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
General Partner
NEW INVESTORS:
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
------------------------------------------------
Gregory M. Avis
General Partner
[Signature Page of Amendment No.1 to Merger Agreement]
8
<PAGE>
SIGMA PARTNERS III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
-------------------------------------------
General Partner
Address: c/o Sigma Partners
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
SIGMA ASSOCIATES III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
-------------------------------------------
Address: c/o Sigma Partners
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
SIGMA INVESTORS III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
--------------------------------------------
Address: c/o Sigma Partners
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
[Signature Page of Amendment No.1 to Merger Agreement]
9
<PAGE>
Exhibit 1
---------
Items to be Added to Exhibit 1.1A
---------------------------------
1. "Splash" trademark application and any other trademark and trade dress of
the Seller used by CSG or the Business, but not including (i) any trademark or
trade dress set forth on Exhibit A of the Trademark License Agreement, dated
January 30, 1996, by and between the Seller and the Company, (ii) any trademark
or trade dress previously but not currently used by CSG, the Business, or the
Company which was used by the Seller in relation to its business other than CSG,
the Business, or the Company; and (iii) the following trademarks: Press View,
ColorMatch, and ProSense.
2. The draft patent disclosure and draft patent application tentatively
entitled "Color Calibration method and Apparatus for a Color Reproduction
System", the draft patent disclosures "Grey Scale Preservation," "Black
Preservation," and "Blue Shift", and such other draft patent disclosures and
draft patent applications which are licensed by the Company to the Seller
pursuant to the Software and Technology License Agreement, dated January 30,
1996, by and between the Seller and the Company (the "License Agreement).
3. All computer software and copyrighted material produced by the Seller that
relates exclusively to CSG, the Business, and the Company, and such computer
software and copyrighted material which is licensed by the Company to the Seller
pursuant to the "License Agreement".
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SPLASH TECHNOLOGY HOLDINGS, INC.
ARTICLE ONE
-----------
The name of this corporation is Splash Technology Holdings, Inc. (the
"Corporation").
ARTICLE TWO
-----------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
-------------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE FOUR
------------
This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock and Common Stock. The total number of
shares of Common Stock this Corporation shall have the authority to issue is
10,000,000 shares, and shall have a par value of $0.001 per share ("COMMON"),
and the total number of shares of Preferred Stock this corporation shall have
authority to issue is 19,708, and shall have a par value of $0.001 per share
("PREFERRED"). The Preferred shall be divided into two series, namely, Series A
Redeemable Preferred Stock ("SERIES A PREFERRED") consisting of 15,426 shares
and Series B Redeemable and Convertible Preferred Stock ("SERIES B PREFERRED")
consisting of 4,282 shares.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares
<PAGE>
of Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
Section 1. Liquidation Rights.
---------- ------------------
(a) Liquidation Preferences. In the event of any voluntary or involuntary
-----------------------
liquidation, dissolution or winding up of the affairs of the Corporation (or the
deemed occurrence of such event pursuant to subsection (c) of this Section 1),
the holders of each share of Preferred shall be entitled to receive, prior and
in preference to any distribution of any of the assets or property of the
Corporation to the holders of the Common by reason of their ownership thereof,
an amount equal to One Thousand Dollars ($1,000.00) per share for each share of
Preferred then held by them and, in addition, an amount equal to any dividends
previously accrued or declared but unpaid on such share of Preferred.
All of the preferential amount to be paid to the holders of the Series A
Preferred under this subsection 1(a) shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Series B
Preferred or the Common in connection with any such liquidation, dissolution or
winding up. All of the preferential amount to be paid to the holders of the
Series B Preferred under this subsection 1(a) shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the Common
in connection with any such liquidation, dissolution or winding up. After the
payment or the setting apart for pay ment to the holders of the Series A
Preferred and Series B Preferred and of the preferential amounts so payable to
them, the remaining assets of the Corporation available for distribution shall
be distributed in accordance with the provisions of subsection (b) of this
Section 1.
If the assets or property to be distributed are insufficient to permit the
payment to holders of the Series A Preferred of their full preferential amount,
the entire assets and property legally available for distribution shall be
distributed ratably among the holders of Series A Preferred in proportion to the
full preferential amount each such holder is otherwise entitled to receive. If
assets and property are remaining and legally available for distribution to the
Series B Preferred after distribution to the Series A Preferred but are
insufficient to permit the payment to the holders of the Series B Preferred of
their full preferential amount, the entire assets and property legally available
for distribution to the holders of Series B Preferred shall be distributed
ratably among the holders of the Series B Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
-2-
<PAGE>
(b) Distributions after Payment of Liquidation Preference. After the
-----------------------------------------------------
payment or setting apart for payment to the holders of Preferred of the
preferential amounts set forth in subsection (a) above, the holders of Common
shall be entitled to receive all remaining assets of the Corporation available
for distribution.
(c) Effect of Merger. For purposes of this Section 1, a merger or
----------------
consolidation of the Corporation with or into any other Corporation or
Corporations (except where a majority of the out standing equity securities of
the surviving Corporation immediately after the merger or consolidation is held
by persons who were stockholders of this Corporation immediately prior to the
merger or consolidation), or a sale or other transfer of all or substantially
all of the assets of the Corporation (or any series of related transactions
resulting in the sale or other transfer of all or substantially all of the
assets of the Corporation), shall be treated as a liquidation, dissolution or
winding up.
(d) Consent. Each holder of an outstanding share of Preferred shall be
-------
deemed to have consented, for purposes of Sections 151 and 160 of the Delaware
General Corporation Law, to distributions made by the Corporation in connection
with the repurchase of shares of Common issued to or held by employees or
consultants upon termination of their employment or services pursuant to
agreements between the Corporation and such persons providing for the
Corporation's right of said repurchase.
Section 2. Conversion Rights. The holders of the Series B Preferred shall
---------- -----------------
have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Series B Preferred shall be
----------------
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series B Preferred, into such number of fully paid and nonassessable
shares of Common equal to the "CONVERSION AMOUNT," which conversion amount shall
initially be 116.176. Such initial Conversion Amount shall be subject to
adjustment, in order to adjust the number of shares of Common into which each
series of the Series B Preferred is convertible, as hereinafter provided.
(b) Automatic Conversion. Each share of Series B Preferred shall
--------------------
automatically be converted into the number shares of Common as determined by its
then effective Conversion Amount upon (A) the closing ("CLOSING") of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common for the account of the Corporation to the public at an offering
price to the public of at least Twelve Dollars ($12.00) per share (as adjusted
for stock splits, stock dividends, reclassifications, and like events) and in
which the aggregate gross proceeds received by the Corporation (net of
underwriting discounts) equal or exceed $35,000,000 (a "QUALIFIED OFFERING"). In
the event of a Qualified Offering, the person(s) entitled to receive
-3-
<PAGE>
the Common issuable upon such conversion of the Series B Preferred shall not be
deemed to have converted that Series B Preferred until immediately prior to the
Closing, (B) the closing of merger or consolidation by the Corporation with or
into any other corporation in which the holders of all series of the
Corporation's capital stock receive an aggregate of consideration of at least
$50,000,000, or (C) the closing of the sale or transfer of all or substantially
all of the assets of the Corporation in a single transaction or a series of
related transactions in which the Corporation receives aggregate proceeds of at
least $50,000,000 (the closing of such a merger or consolidation or of such a
sale or transfer, a "QUALIFIED MERGER OR SALE").
(c) Mechanics of Conversion. No fractional shares of Common shall be
-----------------------
issued upon conversion of the Series B Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the result obtained by dividing
(i) One Thousand Dollars ($1,000) by (ii) the then effective Conversion Amount.
Before any holder of Series B Preferred shall be entitled to convert the same
into full shares of Common pursuant to Section 2(a) hereof, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series B Preferred, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein his name or the name or names of his nominees in
which he wishes the certificate or certificates for shares of Common to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Preferred, or to his nominee
or nominees, a certificate or certificates for the number of shares of Common to
which he shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred to be converted, and the person or persons entitled
to receive the shares of Common issuable upon conversion shall be treated for
all purposes as the record holder or holders of such shares of Common on such
date.
(d) Adjustments to Conversion Amount.
--------------------------------
(i) Adjustments for Subdivisions, Combinations, Consolidations or
-------------------------------------------------------------
Stock Dividends. In the event the outstanding shares of Common shall be
- ---------------
subdivided (by stock split or otherwise), into a greater number of shares of
Common, or shares of Common shall have been issued by stock dividend, the
Conversion Amount then in effect shall, concurrently with the effectiveness of
such subdivision or stock dividend, be proportionately increased. In the event
the outstanding shares of Common shall be combined or consolidated by
reclassification or otherwise, into a lesser number of shares of Common, the
Conversion Amount then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately decreased.
(ii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common entitled to receive any distribution
payable in securities of the Corporation other than
-4-
<PAGE>
shares of Common, then and in each such event provision shall be made so that
the holders of Series B Preferred shall receive upon conversion thereof, in
addition to the number of shares of Common receivable thereupon, the amount of
securities of the Corporation which they would have received had their Series B
Preferred been converted into Common on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 2 with respect to the rights of the holders of the
Series B Preferred. In the event the Corporation shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends), or options or
rights, then, in each such case for the purpose of this subsection 2(d), the
holders of the Series B Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common of the Corporation into which their shares of Series B Preferred are
convertible as of the record date fixed for the determination of the holders of
Common of the Corporation entitled to receive such distribution.
(iii) Adjustments for Reclassification, Exchange and Substitution.
-----------------------------------------------------------
If the Common issuable upon conversion of the Series B Preferred shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Amount then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series B Preferred shall be convertible into, in lieu of
the number of shares of Common which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common that would have been subject to
receipt by the holders upon conversion of the Series B Preferred immediately
before that change.
(iv) Reorganization, Mergers, Consolidations, or Sales of Assets.
-----------------------------------------------------------
Subject to Section 1(c) hereof, if at any time or from time to time there shall
be a capital reorganization of the Common (other than a subdivision,
combination, reclassification, or exchange of shares provided for elsewhere in
this Section 2) or a merger or consolidation of this Corporation with or into
another Corporation, or the sale of all or substantially all of this
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation, or sale, provision shall be made so that
the holders of the Series B Preferred shall thereafter be entitled to receive
upon conversion of the Series B Preferred, the number of shares of stock or
other securities or property of this Corporation, or of the successor
Corporation resulting from such merger or consolidation or sale, to which a
holder of Common deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
Section 2 with respect to the rights of the holders of the Series B Preferred
after the reorganization, merger, consolidation, or sale to the end that the
provisions of this Section 2 (including adjustment of the
-5-
<PAGE>
Conversion Amount then in effect) shall be applicable after that event as nearly
equivalent as may be practicable.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Amount pursuant to this Section 2, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred a certificate certified by the Corporation's chief financial
officer setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series B Preferred,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments and (ii) the Conversion Amount in effect
at that time.
(g) Notices of Record Date. In the event of any taking by the Corporation
----------------------
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to each holder of
Series B Preferred at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
Section 3. Redemption.
---------- ----------
(a) Optional Redemption. At its option and to the extent permitted by
-------------------
law, the Corporation may redeem all or any, allocated ratably among the holders
thereof, outstanding shares of Series A Preferred. At its option and to the
extent permitted by law, the Corporation may redeem all or any, allocated
ratably among the holders thereof, outstanding shares of Series B Preferred, but
only if no shares of Series A Preferred are then outstanding.
(b) Mandatory Redemption.
--------------------
(i) On Liquidity. Upon (A) the Closing of a Qualified Offering,
------------
or (B) a Qualified Merger Or Sale, the Corporation shall redeem all of the
shares of Series A Preferred then outstanding.
-6-
<PAGE>
(ii) On Sixth and Seventh Anniversaries - Series B Preferred. To the
-------------------------------------------------------
extent permitted by law and only if no shares of Series A Preferred are
outstanding, the Corporation shall redeem, ratably among the holders thereof,
(A) one-half of the outstanding shares of Series B Preferred on the sixth
anniversary of the original issue thereof and (B) the remaining outstanding
shares of the Series B Preferred on the seventh anniversary of the original date
of issue thereof. In the event that such redemption of the Series B Preferred is
not permitted in whole or in part and only if no shares of Series A Preferred
are outstanding, the Corporation shall, at the sixth anniversary of the original
date of issue or the seventh anniversary of the original date of issue (as
appropriate), redeem, allocated ratably among the holders thereof, as many
shares of Series B Preferred as permitted by law (up to one-half of the
outstanding shares of Series B Preferred Stock on the sixth anniversary of the
original date of issue thereof). In such event, the shares of Series B Preferred
not redeemed shall remain outstanding and be entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series B
Preferred and only if no shares of Series A Preferred are outstanding, such
funds will immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem but which it has not redeemed.
(c) Redemption Price. The redemption price for each share of Preferred
----------------
redeemed pursuant to this Section 3 shall be equal to $1,000 per share of
outstanding Preferred plus all accrued and unpaid dividends on such share,
calculated in accordance with Section 5 below, whether or not earned or
declared, and any otherwise declared and unpaid dividends on such share, up to
and including the date fixed for redemption (the "REDEMPTION PRICE").
(d) Pro Rata Basis. The redemption or repurchase of all or any portion or
--------------
number of shares of the Preferred Stock, whether pursuant to the provisions of
this Section 5 or otherwise, and all dividends or other distributions thereon or
with respect thereto shall be on a pro rata basis in right of payment and in all
other respects for each and every share of such the Preferred Stock (except as
otherwise provided in Section 5(a)), without regard to the identity of the
holder, except as otherwise set forth above.
(e) Redemption Notice. At least 30 days prior to the date(s) fixed for
-----------------
redemption (each, a "REDEMPTION DATE"), written notice (the "REDEMPTION NOTICE")
shall be mailed, postage prepaid, by the Corporation to each holder of record of
each series of Preferred, at its address shown on the records of the
Corporation. The Redemption Notice shall contain the following information:
(i) The series of Preferred to be redeemed; the number of shares of
the series of Preferred held by the holder which shall be redeemed by the
Corporation, and the total number of shares of such series of Preferred held by
all holders to be so redeemed,
(ii) The Redemption Date and the Redemption Price, and
-7-
<PAGE>
(iii) That the holder is to surrender to the Corporation at the place
designated in such notice, the holder's certificate or certificates representing
the shares of the series Preferred to be redeemed.
(f) Payment and Surrender of Certificates. Each holder of shares of
-------------------------------------
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation at the place designated in the
Redemption Notice on or before the Redemption Date, and thereupon the applicable
Redemption Price for such shares as set forth in this Section 3 shall be paid to
the order of the person whose name appears on such certificate or certificates
and each surrendered certificate shall be canceled and retired.
(g) No Rights as Stockholder Following Redemption. If any shares of
---------------------------------------------
Preferred are not redeemed solely because a holder fails to surrender the
certificate or certificates representing such shares pursuant to Section 3(f)
hereof, then, from and after the Redemption Date, the holders of such shares of
Preferred thereupon subject to redemption shall cease to have any rights of a
holder of Preferred except solely for the right to receive the Redemption Price
upon surrender of the certificate or certificates representing the shares.
Section 4. Voting Rights.
---------- -------------
(a) General. Except as otherwise provided herein, or as required by law,
-------
each issued and outstanding share of Common shall be entitled to one vote on all
matters. Except as required by law or by the provisions hereof, the holders of
the Series B Preferred shall be entitled to vote on all matters with the holders
of the Common on an as if converted basis. Except as required by law or the
provisions hereof, the holders of the Series A Preferred shall not be entitled
to vote on any matters.
(b) Board of Directors. The Board of Directors shall have five (5)
------------------
members. The holders of shares of the Series A Preferred shall have the right to
elect one director (the "SERIES A DIRECTOR") and the holders of the shares of
Common Stock and the Series B Preferred (voting on an as-if converted basis),
shall have the right to elect the remaining directors (the "COMMON STOCK
DIRECTORS").
(c) Procedures for the Election of the Series A Director.
----------------------------------------------------
(i) The Series A Director shall hold office for a term expiring at
the next annual meeting of stockholders. Any vacancy caused by the death or
resignation of the Series A Director may be filled only by the holders of Series
A Preferred. A special meeting of the holders of the Series A Preferred entitled
to vote with respect to filling the vacancy shall be called and held as promptly
as practicable after any such death or resignation at the direction of a
majority of the Board of Directors, and in any event shall be called within ten
days, to be held within 15 days, after receipt of a written request by the
holders of record of at least 50% of the then outstanding shares of Series A
Preferred. In connection with any special meeting to be held for the purpose of
electing the
-8-
<PAGE>
Series A Director to fill a vacancy, only holders of Series A Preferred shall be
notified and be permitted to participate at such meeting. The holders of record
of at least 50% of the then outstanding shares of the Series A Preferred may
designate in writing one of their number to call the meeting, and the meeting
may be called by the person so designated upon notice in accordance with the
notice required for annual meetings of stockholders. If any special meeting of
the holders of Series A Preferred required to be called by a holder of Series A
Preferred for the election of directors pursuant to this Section 4(c) shall not
have been duly called within ten days after the request therefor, then the
secretary of the Corporation shall call the meeting. Any holders of shares of
Series A Preferred shall have access to the stock record books of the
Corporation for the purpose of so calling a special meeting. The Corporation
shall pay the reasonable expenses of calling and holding any such meeting.
(ii) Any special meeting of the holders of shares of Series A
Preferred to vote for the election of directors pursuant to this Section 4(c)
shall be held in the city in which the preceding annual meeting of stockholders
of the Corporation was held or in the city designated by the holders on record
of at least 50% of the then outstanding shares of Series A Preferred. At a
special or annual meeting for the election of directors by the holders of shares
of Series A Preferred, the presence in person, by proxy or by telephone of the
holders of 50% of the outstanding shares of Series A Preferred entitled to vote
thereon shall constitute a quorum. In connection with any special meeting to be
held for the purpose of electing the Series A Director to fill a vacancy, only
holders of the Series A Preferred shall be notified and be permitted to
participate at such meeting. A majority of the holders of the shares of Series A
Preferred entitled to vote thereon present in person, by proxy or by telephone
shall have the power to adjourn the meeting for the purpose of such election,
from time to time without notice, other than announcement at the meeting, until
a quorum shall be present. The election of the Series A Director also may be
accomplished by written consent in lieu of a meeting of the holders of the
Series A Preferred.
(iii) In connection with any vote for the Series A Director, each
holder of Series A Preferred Stock as provided herein shall be entitled to one
vote for each share of Series A Preferred held by such holder that is then
convertible, the nominees receiving a plurality of the votes entitled to be cast
shall be elected.
Section 5. Dividend Rights.
---------- ---------------
(a) From the date of issuance until January 1, 1997, no holders of the
then outstanding shares of Preferred shall be entitled to receive cumulative
dividends. During the same period, to the extent that dividends are properly and
legally declared by the Board of Directors at the rate set forth below, they
shall be fully paid to (i) holders of Series A Preferred before any dividend or
other distribution shall be paid on or declared and set apart for the holders of
the Series B Preferred or Common, and (ii) holders of Series B Preferred before
any dividend or other distribution shall be paid on or declared and set apart
for the holders of the Common.
-9-
<PAGE>
(b) After January 1, 1997, the holders of outstanding Series A Preferred
shall be entitled to receive, when and as declared by the Board of Directors and
out of funds legally available therefore, cash dividends at the annual rate of
Sixty Dollars ($60.00) per share of outstanding Series A Preferred (as adjusted
for stock splits, stock dividends, reclassifications, and like events), payable
in preference and priority to any payment of any dividend on Series B Preferred
or Common, when and as declared by the Board of Directors in its discretion.
Such annual dividend rate shall increase to Eighty Dollars ($80.00) per share of
Series A Preferred (as adjusted for stock splits, stock dividends,
reclassifications, and like events) after January 1, 1998, and shall further
increase to One Hundred Dollars ($100.00) per share of Series A Preferred (as
adjusted for stock splits, stock dividends, reclassifications, and like events)
after January 1, 1999. Such dividends shall be cumulative whether or not earned
or declared so that if such dividends in respect of any previous or current
annual dividend period, at the annual rate specified above, shall not have been
paid or declared, the deficiency shall be fully paid to the holders of Series A
Preferred before any dividend or other distribution shall be paid on or declared
and set apart for the holders of the Series B Preferred or Common.
(c) After January 1, 1997, the holders of the Series B Preferred shall be
entitled to receive, out of any funds legally available therefor, dividends at
an annual rate of Sixty Dollars ($60.00) per share of outstanding Series B
Preferred (as adjusted for stock splits, stock dividends, reclassifications and
like events), payable in preference and priority to any payment of any dividend
on the Common, when and as declared by the Board of Directors in its discretion.
Such dividends shall be cumulative whether or not earned or declared so that if
such dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, shall not have been paid or declared, the
deficiency shall be fully paid to the holders of Series B Preferred before any
dividend or other distribution shall be paid on or declared and set apart for
the holders of the Common.
(d) Dividends may be paid on the Common as and when declared by the Board
of Directors, subject to the prior dividend rights of the Preferred.
Section 6. Covenants. So long as any shares of Preferred shall be
---------- ---------
outstanding, the Corpo ration shall not, without first obtaining the affirmative
vote or written consent of holders of such outstanding shares of Preferred
voting together as a class (except that for the purposes of Sections 6(a)
through 6(d), if one series of Preferred is affected in a manner different than
another, a majority vote of each series of Preferred so disproportionately
affected, voting as a series, shall be required):
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series A Preferred or Series B
Preferred;
-10-
<PAGE>
(b) reclassify any Common or other series of its capital stock shares into
shares having any preference or priority as to dividends, liquidation,
redemption, blocking rights, voting rights, conversion or otherwise superior to
or on a parity with any such preference or priority of the Series A Preferred or
Series B Preferred (including amendment of the Series A Preferred to provide it
with the right to convert into Common Stock);
(c) pay or declare any dividend or distribution on any shares of
Preferred, Common or any other series of its capital stock or apply any of its
assets to the redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of Preferred,
Common, or any other series of its capital stock (or derivative instrument
therefor) except from employees of, or consultants to, the Corporation upon
termination of employment or consultancy and except for redemption of Preferred
or dividends on Preferred in accordance with this Certificate of Incorporation;
(d) create or issue any other class or classes of stock or series of
Preferred senior to or on parity with the Series A Preferred or the Series B
Preferred with respect to dividends, liquidation, redemption, blocking rights,
voting rights, conversion or otherwise or increase or decrease the number of
shares of any series of Preferred; or
(e) merge or consolidate with or into any other corporation (except where
a majority of the outstanding equity securities of the surviving corporation
immediately after the merger or consolidation is held by persons who were
stockholders of this Corporation immediately prior to the merger or
consolidation), or sell or otherwise transfer in a single transaction or a
series of related transactions all or substantially all of the assets of the
Corporation.
Section 7. Residual Rights. All rights accruing to the outstanding shares
---------- ---------------
of the Corporation not expressly provided for to the contrary herein shall be
vested in the Common.
Section 8. Status of Converted or Redeemed Stock. In the event any shares
---------- -------------------------------------
of Preferred shall be converted pursuant to Section 2 hereof, or redeemed
pursuant to Section 3 hereof, the shares so converted or redeemed shall be
canceled and shall not be issuable by the Corporation, and the Certificate of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized stock.
Section 9. Partial Conversion or Redemption. In the event that less than
---------- --------------------------------
all of a holder's shares of Preferred shall be converted at any time pursuant to
Section 2 hereof or redeemed at any time pursuant to Section 3 hereof, the
Corporation shall promptly upon receipt of such holder's certificate for shares
to be converted or promptly after the later of the dated fixed for redemption or
the receipt of such holder's certificate for shares to be redeemed, issue a new
certificate to such holder representing the unconverted or unredeemed shares, as
the case may be.
-11-
<PAGE>
ARTICLE FIVE
------------
The name and mailing address of the incorporator is as follows:
Brett D. Byers
c/o Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
ARTICLE SIX
-----------
The Corporation is to have perpetual existence.
ARTICLE SEVEN
-------------
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Corporation shall so provide.
ARTICLE EIGHT
-------------
The number of directors which constitute the whole Board of Directors of
the Corporation shall be five (5).
ARTICLE NINE
------------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE TEN
-----------
(a) To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
-12-
<PAGE>
(b) The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article Ten, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article Ten, shall eliminate or reduce the effect of this Article Ten,
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article Ten, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE ELEVEN
--------------
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE TWELVE
--------------
Vacancies created by newly created directorships, created in accordance
with the Bylaws of this Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
ARTICLE THIRTEEN
----------------
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE FOURTEEN
----------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-13-
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purposes of forming a Corporation pursuant to the Corporation Law of the State
of Delaware, do make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand on December 19, 1995.
/s/ Brett D. Byers
----------------------------------------
Brett D. Byers
-14-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SPLASH TECHNOLOGY HOLDINGS, INC.
Splash Technology Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), does hereby certify:
FIRST: That resolutions were duly adopted by the Board of Directors of the
-----
Company (in accordance with Section 141 of the General Corporation Law of the
State of Delaware (setting forth the proposed amendment of the Certificate of
Incorporation of the Company, declaring said amendment to be advisable, and
calling for the solicitation of the approval by affirmative vote of the
stockholders of the Company. The resolution setting forth the proposed amendment
is as follows:
RESOLVED: That the first sentence of paragraph (b) of Section 4 of Article
IV of Certificate of Incorporation of this corporation be amended so that, as
amended, said sentence shall be and read as follows:
"The number of directors of the Board of Directors shall be as set forth in
the Bylaws of the Company, but not less than three (3) nor more than thirteen
(13). "
SECOND: That, the company has not received any payment for any of its
------
stock and has no stock outstanding.
THIRD: That said amendment was duly adopted in accordance with the
-----
provisions of Section 241 of the General Corporation Law of the State of
Delaware.
<PAGE>
FOURTH: That the capital of the Company shall not be reduced under or by
------
reason of said amendment.
This certificate of Amendment of the Certificate of Incorporation may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, Splash Technology Holdings, Inc. has caused this
Certificate of Amendment of Certificate of Incorporation to be signed by Gregory
M. Avis, its President and Chief Executive Officer and attested to by Brett D.
Byers, its Assistant Secretary, this 30th day of January, 1996.
SPLASH TECHNOLOGY HOLDINGS, INC.
A Delaware Corporation
By: /s/ Gregory M. Avis
--------------------
Gregory M. Avis
President and Chief
Executive Officer
ATTEST:
By: /s/ Brett D. Byers
------------------------
Brett D. Byers
Assistant Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
----------------------------
OF
--
SPLASH TECHNOLOGY HOLDINGS, INC.
--------------------------------
(A Delaware Corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
CORPORATE OFFICES............................................... -1-
-----------------
1.1 REGISTERED OFFICE......................................... -1-
-----------------
1.2 OTHER OFFICES............................................. -1-
-------------
ARTICLE II
MEETINGS OF STOCKHOLDERS........................................ -1-
------------------------
2.1 PLACE OF MEETINGS......................................... -1-
-----------------
2.2 ANNUAL MEETING............................................ -1-
--------------
2.3 SPECIAL MEETING........................................... -1-
---------------
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.......................... -2-
--------------------------------
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............. -2-
--------------------------------------------
2.6 QUORUM.................................................... -2-
------
2.7 ADJOURNED MEETING; NOTICE................................. -2-
-------------------------
2.8 CONDUCT OF BUSINESS....................................... -3-
-------------------
2.9 VOTING.................................................... -3-
------
2.10 WAIVER OF NOTICE.......................................... -3-
----------------
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING... -3-
-------------------------------------------------------
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
--------------------------------------------------
CONSENTS.................................................. -4-
--------
2.13 PROXIES................................................... -4-
-------
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE..................... -5-
-------------------------------------
ARTICLE III
DIRECTORS....................................................... -5-
---------
3.1 POWERS.................................................... -5-
------
3.2 NUMBER OF DIRECTORS....................................... -5-
-------------------
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS... -5-
-------------------------------------------------------
3.4 RESIGNATION AND VACANCIES................................. -6-
-------------------------
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................. -7-
----------------------------------------
3.6 REGULAR MEETINGS.......................................... -7-
----------------
3.7 SPECIAL MEETINGS; NOTICE.................................. -7-
------------------------
3.8 QUORUM.................................................... -7-
------
3.9 WAIVER OF NOTICE.......................................... -8-
----------------
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......... -8-
-------------------------------------------------
3.11 FEES AND COMPENSATION OF DIRECTORS........................ -8-
----------------------------------
3.12 APPROVAL OF LOANS TO OFFICERS............................. -8-
-----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
----
<S> <C> <C> <C>
3.13 REMOVAL OF DIRECTORS...................................... -9-
--------------------
ARTICLE IV
COMMITTEES...................................................... -9-
----------
4.1 COMMITTEES OF DIRECTORS................................... -9-
-----------------------
4.2 COMMITTEE MINUTES......................................... -10-
-----------------
4.3 MEETINGS AND ACTION OF COMMITTEES......................... -10-
---------------------------------
ARTICLE V
OFFICERS........................................................ -10-
--------
5.1 OFFICERS.................................................. -10-
--------
5.2 APPOINTMENT OF OFFICERS................................... -10-
-----------------------
5.3 SUBORDINATE OFFICERS...................................... -11-
--------------------
5.4 REMOVAL AND RESIGNATION OF OFFICERS....................... -11-
-----------------------------------
5.5 VACANCIES IN OFFICES...................................... -11-
--------------------
5.6 CHAIRMAN OF THE BOARD..................................... -11-
---------------------
5.7 PRESIDENT................................................. -11-
---------
5.8 VICE PRESIDENTS........................................... -12-
---------------
5.9 SECRETARY................................................. -12-
---------
5.10 CHIEF FINANCIAL OFFICER................................... -12-
-----------------------
5.11 ASSISTANT SECRETARY....................................... -13-
-------------------
5.12 ASSISTANT TREASURER....................................... -13-
-------------------
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............ -13-
----------------------------------------------
5.14 AUTHORITY AND DUTIES OF OFFICERS.......................... -14-
--------------------------------
ARTICLE VI
INDEMNITY....................................................... -14-
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................. -14-
-----------------------------------------
6.2 INDEMNIFICATION OF OTHERS................................. -14-
-------------------------
6.3 INSURANCE................................................. -14-
---------
ARTICLE VII
RECORDS AND REPORTS............................................. -15-
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS..................... -15-
-------------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
----
<S> <C> <C> <C>
7.2 INSPECTION BY DIRECTORS................................... -16-
-----------------------
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.......................... -16-
--------------------------------
ARTICLE VIII
GENERAL MATTERS................................................. -16-
---------------
8.1 CHECKS.................................................... -16-
------
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.......... -16-
------------------------------------------------
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.................... -17-
--------------------------------------
8.4 SPECIAL DESIGNATION ON CERTIFICATES....................... -17-
-----------------------------------
8.5 LOST CERTIFICATES......................................... -18-
-----------------
8.6 CONSTRUCTION; DEFINITIONS................................. -18-
-------------------------
8.7 DIVIDENDS................................................. -18-
---------
8.8 FISCAL YEAR............................................... -18-
-----------
8.9 SEAL...................................................... -18-
----
8.10 TRANSFER OF STOCK......................................... -18-
-----------------
8.11 STOCK TRANSFER AGREEMENTS................................. -19-
-------------------------
8.12 REGISTERED STOCKHOLDERS................................... -19-
-----------------------
ARTICLE IX
AMENDMENTS...................................................... -19-
----------
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED BY-LAWS
----------------------------
OF
--
SPLASH TECHNOLOGY HOLDINGS, INC.
--------------------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, the chairman of the board, the president, by one or more
stockholders holding shares in aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting, or as provided in that certain
Stockholders Agreement dated as of January 30, 1996 among the corporation and
the
<PAGE>
stockholders named therein, as the same may from time to time be amended (the
"Stockholders Agreement"). Except as provided in the Stockholders Agreement, no
other person or persons are permitted to call a special meeting. No business
may be conducted at a special meeting other than the business brought before the
meeting by the board of directors, the chairman of the board, the president, the
stockholders calling such meeting, or, as provided in the Stockholders
Agreement, certain stockholders of the corporation.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these by-laws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stock holders for the transaction of business
except as otherwise provided by statute, by the certificate of incorporation or
by the Stockholders Agreement. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the Chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these by-laws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed
-2-
<PAGE>
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
-------------------
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these by-laws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these by-
laws, a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these by-laws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
-3-
<PAGE>
If the action which is consented to is such as would have required the filing of
a certificate under any section of the General Corporation Law of Delaware if
such action had been voted on by stock holders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corpo rate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date,
-4-
<PAGE>
unless the proxy provides for a longer period. A proxy shall be deemed signed if
the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(e) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these by-laws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The authorized number of directors shall be six (6).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
-5-
<PAGE>
Except as provided in Section 3.4 of these by-laws, the certificate of
incorporation or the Stockholders Agreement, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the certificate of
incorporation or these by-laws, wherein other qualifications for directors may
be prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the attention of
the Secretary of the corporation. Subject to the provisions of the Stockholders
Agreement and the certificate of incorporation, when one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation, these by-
laws or the Stockholders Agreement:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these by-laws, or may
apply to the Court of Chancery for a decree summarily ordering an election as
provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such
-6-
<PAGE>
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any one director.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
-7-
<PAGE>
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these by-
laws, a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
by-laws, the board of directors shall have the authority to fix the compensation
of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan,
-8-
<PAGE>
guaranty or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or under any
statute.
3.13 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, and except as otherwise provided by
the certificate of incorporation, these by-laws or the Stockholders Agreement,
any director or the entire board of directors may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors; provided, however, that, so long as stockholders of the
corporation are entitled to cumulative voting, if less than the entire board is
to be removed, no director may be removed without cause if the votes cast
against his or her removal would be sufficient to elect such director if then
cumulatively voted at an election of the entire board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for,
-9-
<PAGE>
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), (ii) adopt an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the bylaws of the corporation; and, unless the board resolution establishing the
committee, the by-laws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these by-laws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), and Section 3.10 (action without a meeting), with such
changes in the context of those by-laws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these by-
laws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and any such other officers as may be appointed in
accordance with
-10-
<PAGE>
the provisions of Section 5.3 of these by-laws. Any number of offices may be
held by the same person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these by-laws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the chief executive officer
of the corporation to appoint, such other officers and agents as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these by-laws or
as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected and unless
otherwise designated by the board of directors, shall, if present, preside at
meetings of the board of directors. In addition, such officer shall exercise and
perform such other powers and duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these by-laws. If so
designated by the board of directors, then the chairman of the board shall also
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these by-laws.
-11-
<PAGE>
5.7 PRESIDENT
---------
Subject to such powers and duties, if any, as may be given by the board of
directors to the chairman of the board or any vice chairman, if there be such an
officer, the president shall be the chief executive officer of the corporation
and shall, subject to the control of the board of directors, have general
supervision, direction, and control of the business and the officers of the
corporation. The president shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board or if otherwise
designated by the board of directors, at all meetings of the board of directors.
The president shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these by-
laws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the chairman of the board, any vice
chairman and the president, the vice presidents, if any, in order of their rank
as fixed by the board of directors or, if not ranked, a vice president
designated by the board of directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these by-laws, the president or the
chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these by-laws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
-12-
<PAGE>
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. The chief financial officer shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the chief executive officer and directors, whenever they request it,
an account of all his or her transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or these by-
laws.
The chief financial officer shall be the treasurer of the corporation
unless otherwise designated by the board of directors.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these by-laws.
5.12 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these by-laws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations
-13-
<PAGE>
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation that was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorney's fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
-14-
<PAGE>
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
-15-
<PAGE>
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evi dences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these by-laws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
-16-
<PAGE>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if the person were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
-17-
<PAGE>
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
-----------------
-18-
<PAGE>
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
Subject to any voting requirements set forth in the corporation's
certificate of incorporation, the by-laws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal by-laws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal by-laws.
-19-
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BY-LAWS
OF
SPLASH TECHNOLOGY HOLDINGS, INC.
Certificate by Secretary of Adoption
------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Assistant Secretary of Splash Technology Holdings, Inc. and that the
foregoing Amended and Restated By-Laws, comprising twenty-one (21) pages, were
ratified as the By-Laws of the corporation by the unanimous written consent of
the board of directors effective as of January 30, 1996.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Adoption of Amended and Restated By-laws on January 30, 1996.
/s/ Brett D. Byers
-------------------------------
Brett D. Byers
Assistant Secretary
<PAGE>
EXHIBIT 4.1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION, THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Splash Technology Holdings, Inc., a Delaware Corporation
Number of Shares: Two-thousand five-hundred (2,500)
Class of Stock: Common
Initial Exercise Price: Four Cents ($0.04) per share
Issue Date: January 31, 1996
Expiration Date: January 31, 2001 (subject to Section 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANK ("Holder") is entitled
to purchase the number of fully paid and nonassessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as may
be adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
--------
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
------------------
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
----------------
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (and rounding down to
the nearest whole share) (a) the aggregate fair market value of the Shares or
other securities otherwise issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Shares by (b) the fair market value of one
Share. The fair market value of the Shares shall be determined pursuant to
Section 1.3.
<PAGE>
1.3 Fair Market Value. If the Shares are traded regularly in a public
-----------------
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm or valuation professional to
undertake such valuation. If the valuation of such investment banking firm or
valuation professional is more than 10% greater than that determined by the
Board of Directors, then all fees and expenses of such investment banking firm
or valuation professional shall be paid by the Company. In all other
circumstances, such fees and expenses shall be paid by Holder.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger or Consolidation of the Company.
----------------------------------------------------------
1.6.1 "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities immediately prior to the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity immediately following the transaction.
1.6.2 Assumption of Warrant. If upon the closing of any
---------------------
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same amount and type of securities,
cash, and property as would be payable for the Shares issuable upon exercise of
the unexercised portion of this Warrant as if such Shares were outstanding on
the record date for the Acquisition and subsequent closing. If upon the closing
of any Acquisition the successor entity assumes the obligations of this Warrant,
the exercise price of the Warrant shall be adjusted such that the exercise price
for the amount of securities, cash and property as would be payable for the
Shares issuable upon exercise of the unexercised portion of this Warrant as if
such Shares were outstanding on the record date for the Acquisition and
subsequent closing, is set at an amount equal to the Warrant Price, and such
that the aggregate exercise price for this Warrant is set such that it is equal
to the Warrant Price multiplied by the number of the Shares.
-2-
<PAGE>
1.6.3 Non-assumption; Conversion. If upon the closing of any
--------------------------
Acquisition the successor entity does not assume the obligations of this Warrant
and Holder has not otherwise exercised this Warrant in full, then the
unexercised portion of this Warrant shall be deemed to have been automatically
converted pursuant to Section 1.2 and thereafter the Holder shall participate in
the Acquisition on the same terms as other holders of the same class of
securities of the Company; provided that, at the election of the successor
--------
entity, the Holder may receive securities that are Equivalent Nonvoting
Securities (as hereinafter defined) to the securities that the Holder would
receive in exchange for the Shares pursuant to the Acquisition. "Equivalent
Nonvoting Security", with respect to any security (a "first security") issued or
to be issued by any person or entity, shall mean a security (an "equivalent
security") of such person or entity that is identical in rights and benefits to
such first security, except that (a) the equivalent security shall not be
entitled to vote on any matter on which holders of voting securities of such
person or entity are entitled to vote, other than as required by applicable law
or with respect to any amendment or repeal of any provision of the Certificate
of Incorporation or Bylaws of such person or entity or any other agreement or
instrument pursuant to which the equivalent security was issued which provision
specifically affects such equivalent security, (b) subject to such reasonable
restrictions as any affected Holder subject to banking law and regulations (a
"Regulated Holder") may request (including, without limitation, any restriction
necessary to prevent the violation by such Regulated Holder of any provision of
applicable banking law and regulations with respect to its ownership of voting
securities), the equivalent security shall be convertible in a one-to-one ratio
into the first security and (c) the terms of the equivalent security shall
include such provisions requested by any affected Regulated Holder as are
reasonable and equitable to ensure that (i) the equivalent security is treated
comparably to the first security with respect to dividends, distributions, stock
splits, reclassifications, capital reorganizations, mergers, consolidations and
other similar events and transactions, (ii) the conversion right provided in
clause (b) above is equitably protected and (iii) the acquisition of the
- ----------
equivalent security will not cause such Regulated Holder to violate applicable
banking law and regulations.
1.6.4 Non-assumption; Purchase. Notwithstanding the provisions of
------------------------
Section 1.6.3, if upon the closing of any Acquisition the successor entity does
not assume the obligations of this Warrant and Holder has not otherwise
exercised this Warrant in full and if the securities that would otherwise be
provided to a Regulated Holder in respect of the Warrant pursuant to the terms
of Section 1.6.3 are securities of a type that the Regulated Holder is not
permitted to hold for any period of time under then applicable banking law and
regulations, then the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value (as determined by the Board of Directors of the Company in
its reasonable good faith judgment) of any consideration that would have been
received by Holder in consideration of the Shares had Holder exercised the
unexercised portion of this Warrant immediately before the record date for
determining the shareholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event
less than zero.
-3-
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Subject to Section 4.1,
------------------------------------------
upon any reclassification, exchange, substitution, or other event that results
in a change of the number and/or class of the securities issuable upon exercise
or conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
---------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the number of shares issuable upon the exercise of the Warrant shall
be proportionately decreased.
2.4 No Impairment. The Company shall not, by amendment of its Articles
-------------
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment.
2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant
-----------------------------
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
-4-
<PAGE>
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances of or by the Company except for restrictions on transfer
provided for herein or under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
------------------------
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; or (d)
to merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Company shall
give Holder (1) at least 10 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto); and (2) in the case of the matters referred to in (c) and (d) above at
least 10 days prior written notice of the date when the same will take place
(and specifying the date on which the holders of common stock will be entitled
to exchange their common stock for securities or other property deliverable upon
the occurrence of such event).
3.3 Information Rights. So long as the Holder holds this Warrant and/or
------------------
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within thirty (30) days after
the end of each of the first eleven months of each fiscal year, the Company's
monthly, unaudited financial statements.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 Term: Notice of Expiration. The Warrant shall not become
--------------------------
exercisable until immediately prior to the earlier of (i) the closing of an
Acquisition, (ii) the completion of a fully distributed, firm commitment
underwritten public offering of the common stock of the Company registered under
the Securities Act of 1993, as amended, or (iii) one year after the date of
original issuance of this Warrant. Notwithstanding any provision of this Warrant
to the contrary, this Warrant shall expire and cease to be exercisable upon the
closing of an Acquisition. The Company shall give Holder written notice of
Holder's right to exercise this Warrant in the form attached as Appendix 2 not
less than 10 days before an Acquisition.
-5-
<PAGE>
4.2 Legends. This Warrant and the Shares (and the securities issuable,
-------
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person or entity who directly
competes with the Company.
4.5 Notices. All notices and other communications from the Company to
-------
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
-6-
<PAGE>
4.7 Attorneys' Fees. In the event of any dispute between the parties
---------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
Splash Technology Holdings, Inc.
By:/s/ Kevin Macgillivray
------------------------------------------
Name: Kevin Macgillivray
Title: President and CEO
By:/s/ Jeffrey Saper Secretary
------------------------------------------
Name:Jeffrey Saper
----------------------------------------
(Print)
Title: Corporate Secretary
-7-
<PAGE>
APPENDIX 1
----------
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase__________shares of the
Common Stock of Splash Technology Holdings, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to_________of the Shares covered by the Warrant.
[STRIKE PARAGRAPH THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
_____________________________
(Name)
_____________________________
_____________________________
(Address)
_____________________________
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_____________________________________________
(Signature)
______________________________
(Date)
-8-
<PAGE>
APPENDIX 2
----------
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------------------------------
__________, ____
Mr. Kenneth W. Le Deit
Commercial Loan Officer
Imperial Bank
Special Markets Group
2460 Sand Hill Road, Suite 102
Menlo Park, CA 94025
Dear Ken:
This is to advise you that the Warrant issued to you described below may
expire on or about __________, ____ because of the scheduled or anticipated
closing of an Acquisition (as defined in the Warrant).
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price Per Share:
Number of Shares Issuable:
Please contact _________________________________________ with any questions
[(name of contact person at (phone number)]
you may have concerning exercise of the Warrant. This is your only notice of
pending expiration.
_____________________________________________
(Name of Issuer)
By:__________________________________________
Title:_______________________________________
-9-
<PAGE>
EXHIBIT 10.1
SPLASH TECHNOLOGY HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of January
__, 1996 by and between Splash Technology Holdings, Inc., a Delaware corporation
(the "COMPANY") and _______________ ("INDEMNITEE").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insur ance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint
<PAGE>
venture, trust or other enterprise, or by reason of any action or inaction on
the part of Indemnitee while serving in such capacity (hereinafter an
"INDEMNIFIABLE EVENT") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by Indemnitee therefor is presented to
the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court
-3-
<PAGE>
has determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member
-4-
<PAGE>
of its Board of Directors or an officer, employee, agent or fiduciary, such
change, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section 8(a)
hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law;
-5-
<PAGE>
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a consti tuent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with
-6-
<PAGE>
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer, employee,
agent or fiduciary of the Company which imposes duties on, or involves services
by, such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immedi ately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which
-7-
<PAGE>
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director, officer, employee, agent or fiduciary of the Company or of any other
enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement of Expenses with respect
to such action, unless, as a part of such action, a court having jurisdiction
over such action determines that each of Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. All notices and other communications required or permitted hereunder
shall be in writing, shall be effective when given, and shall in any event be
deemed to be given (a) five (5) days after deposit with the U.S. Postal Service
or other applicable postal service, if delivered by first class mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the
business day of deposit with Federal Express or similar overnight courier,
freight prepaid, or (d) one day after the business day of delivery by facsimile
transmission, if delivered by facsimile transmission, with copy by first class
-8-
<PAGE>
mail, postage prepaid, and shall be addressed (i) if to the Purchaser, at the
Purchaser's address as set forth beneath his signature to this Agreement and to
the Company at the address of its principal corporate offices (attention:
Secretary) or at such other address as such party may designate by ten days'
advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall
-9-
<PAGE>
be construed as giving Indemnitee any right to be retained in the employ of the
Company or any of its subsidiaries.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SPLASH TECHNOLOGY HOLDINGS, INC.
By: /s/ Gregory M. Avis
----------------------------------------
Gregory M. Avis
President and Chief Executive Officer
Address: 215 Moffet Park Drive
Sunnyvale, CA 94089-1374
AGREED TO AND ACCEPTED BY:
INDEMNITEE
_______________________
Address: 1545 Waverly Street
Palo Alto, CA 94301
-11-
<PAGE>
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is entered into as of January 30, 1996 by and among Splash
Technology Holdings, Inc. a Delaware corporation (the "Company"), the entities
named as Investors on the signature page(s) hereof (the "Investors"), Imperial
Bank (the "Bank"), the members of the management of the Company or a subsidiary
of the Company named as Management Stockholders (the "Managers") and Radius
Inc., a California corporation (the "Seller").
RECITALS
A. The Investors hold or, on the date hereof, are acquiring certain
shares of common stock (the "Common Stock"), par value of $0.001, of the Company
(the "Investor Shares") pursuant to the terms of a Merger Agreement dated
December 21, 1995 between the Company, the Investors, and certain other entities
(the "Merger Agreement"), as amended by Amendment No.1 to Merger Agreement,
dated the date hereof.
B. The execution and delivery of this Agreement is a condition of the
Merger Agreement and the Company desires to grant registration rights to the
Investors and the Seller.
C. The Seller will be acquiring certain shares of Series B Redeemable and
Convertible Preferred Stock ("Preferred Stock"), par value $ 0.001, of the
Company ("Seller Shares") pursuant and subject to the terms and conditions of
Section 6.6 of the Merger Agreement.
D. The Managers hold or, on the date hereof, are acquiring (or later will
be acquiring) certain shares of Common Stock ("Management Shares") pursuant to
the terms of a Restricted Stock Purchase Agreement.
E. The Bank holds, or is or will be acquiring, a Warrant (the "Bank
Warrant") to purchase 6,314 shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Investors, the Seller and the Company agree as follows:
REGISTRATION
1. DEFINITIONS.
As used herein:
1.1 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, and the declaration or ordering of
the effectiveness of such registration statement.
<PAGE>
1.2 The term "Registrable Shares" means and includes (i) the Investor
Shares, (ii) any shares of Common Stock issued or issuable upon the conversion
of the Seller Shares, (iii) for the purposes of Section 2.1 and 2.3, but not
Section 2.2, the Management Shares, and (iv) for the purposes of Section 2.1 and
2.3, but not Section 2.2, any shares of Common Stock issued or issuable upon
conversion of the Bank Warrant.
1.3 The term "Ownership Percentage" means and includes, with respect to
--------------------
each holder of Registrable Shares requesting inclusion of Registrable Shares in
an offering pursuant to this Agreement, the number of Registrable Shares held by
such holder divided by the aggregate of (i) all Registrable Shares held by all
holders requesting registration in such offering and (ii) the total number of
all other securities entitled to registration pursuant to any agreement with the
Company approved by a majority in interest of the Investors and held by others
participating in the underwriting.
1.4 The term "Public Offering" shall mean a fully distributed,
underwritten public offering of shares of Common Stock registered under the
Securities Act.
1.5 The term "Securities Act" means the Securities Act of 1933, as
amended.
2. REGISTRATION RIGHTS.
2.1 "PIGGY BACK" REGISTRATION. If at any time the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock (except shares to be issued solely in connection with any
acquisition of any entity or business, shares issuable solely upon exercise of
stock options, or shares issuable solely pursuant to employee benefit plans), it
shall send to each holder of Registrable Shares (or options, warrants,
convertible securities or other similar instruments convertible or exercisable
into Registrable Securities) written notice of such determination and, if within
twenty (20) days after receipt of such notice, such holder shall so request in
writing, the Company shall include in such registration all or any part of the
Registrable Shares that such holder requests to be registered, except that if,
in connection with any offering involving an underwriting of Common Stock to be
issued by the Company, the managing underwriter shall impose a limitation on the
number of shares of Common Stock included in any such registration because, in
its judgment, such limitation is necessary to effect an orderly public
distribution, and such limitation is imposed as provided herein among, first, to
---------
the Common Stock to be sold by the Company in an offering pursuant to a demand
- --- ------
of any stockholder of the Company exercising registration rights and, then, to
the Common Stock held by the holders of Common Stock having an incidental
("piggy back") right to include such Common Stock in the registration statement
----------
as provided below. Thereafter, to the extent that any Registrable Shares remain
available for registration after the underwriter's cut-back (the "Available
Shares"), the Company shall be obligated to include in such registration
statement, with respect to the requesting holder, the amount equal to (i) the
number of Available Shares multiplied by (ii) such holder's Ownership
------------------------------ ---------
Percentage. Notwithstanding the foregoing, in any underwriting of Common Stock
- ----------
that occurs after the Company's initial Public Offering, the underwriter shall
not reduce the number of Registrable Shares requested for inclusion
-2-
<PAGE>
hereunder to be included to less than thirty percent (30%) of all shares to be
underwritten. If any holder of Registrable Shares disapproves of the terms of
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. No incidental right under this Section 2.1 shall be
construed to limit any registration required under Section 2.2.
2.2 REQUIRED REGISTRATION. (a) If at any time after the earlier to occur
of (i) six (6) months after the Company has completed a Public Offering, or (ii)
the second anniversary of the date hereof, one or more holders of at least
thirty percent (30%) of the Registrable Shares, shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
any portion or all of the Registrable Shares, the Company will so notify all
holders of Registrable Shares. Upon written request of any holder given within
thirty (30) days after the receipt by such holder from the Company of such
notification, the Company will cause all or any part of the Registrable Shares
that may be requested by any holder thereof (including the holder or holders
giving the initial notice of intent to offer) to be registered under the
Securities Act as expeditiously as possible. The Company shall not be required
to register Registrable Shares pursuant to this Section 2.2 on more than three
occasions.
(b) If at any time after six (6) months after the Company has
completed a Public Offering, the Seller shall notify the Company in writing that
it intends to offer or cause to be offered for public sale any portion or all of
the Registrable Shares, the Company will so notify all holders of Registrable
Shares. Upon written request of any holder given within thirty (30) days after
the receipt by such holder from the Company of such notification, the Company
will cause all or any part of the Registrable Shares that may be requested by
any holder thereof (including the holder or holders giving the initial notice of
intent to offer) to be registered under the Securities Act as expeditiously as
possible. The Company shall not be required to register Registrable Shares
pursuant to this Section 2.2 on more than one occasion.
(c) Notwithstanding anything contained in this Section 2.2 or Section
2.3 to the contrary, if the Company furnishes to the holders of Registrable
Shares, requesting any registration pursuant to such section, a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, such registration would be detrimental
to the Company and that it is in the best interests of the Company to defer the
filing of a registration statement, then the Company shall have the right to
defer the filing of a registration statement with respect to such offering for a
period of not more than 90 days from receipt by the Company of the request by
the initiating holder; provided, however, that the Company may not exercise such
right more than two times, nor may the Company exercise such right
consecutively.
2.3 REGISTRATION ON FORM S-3. In addition to the rights provided to the
holders of Registrable Shares in Section 2.1 and Section 2.2 above, if the
registration of Registrable Shares pursuant to the Securities Act can be
effected on Form S-3 (or any similar form promulgated by the Securities and
Exchange Commission), upon the request of one or more holders of at least ten
percent (10%) of the Registrable Shares, the Company will promptly so notify
each holder of Registrable Shares and then will, as expeditiously as possible
thereafter, effect the registration under the Securities Act on said Form S-3 of
all or such portion of the Registrable Shares as the holder or
-3-
<PAGE>
holders shall specify; provided that the aggregate proceeds of such registration
shall be at least $500,000. Notwithstanding the foregoing, Company shall not be
required to register Registerable Shares on Form S-3 pursuant to this Section
2.3 on more than one occasion in any calendar year.
2.4 EFFECTIVENESS. The Company will use its best efforts to maintain the
effectiveness for of any registration statement pursuant to which any of the
Registrable Shares are being offered until the earlier of (a) such time as all
of the Registrable Shares registered thereby are sold or (b) nine (9) months
after the effective date of the registrable statement, and from time to time
will amend or supplement such registration statement and the prospects contained
therein as and to the extent necessary to comply with the Securities Act and any
applicable state securities statute or regulation.
2.5 INDEMNIFICATION OF HOLDERS OF REGISTRABLE SHARES. In the event that
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or under any other statute or at common law, or otherwise, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, if any, for any legal or other
expenses reasonably incurred, as incurred, by them or any of them in connection
with investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented by the Company) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with such registration, unless such untrue
statement or omission was made in such registration statement, preliminary or
amended, preliminary prospectus or prospectus in reliance upon and in conformity
with information furnished in writing to the Company in connection therewith by
such holder of Registrable Shares, any such underwriter or any such controlling
person expressly for use therein. Promptly after receipt by any holder of
Registrable Shares, any underwriter or any controlling person of notice of the
commencement of any action in respect of which indemnity may be sought against
the Company, such holder of Registrable Shares, or such underwriter or such
controlling person, as the case may be, will notify the Company in writing of
the commencement thereof, and, subject to the provisions hereinafter stated, the
Company shall assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to such holder of
Registrable Shares, such underwriter or such controlling person, as the case may
be), and the payment of expenses insofar as such action shall relate to any
alleged liability in respect of which indemnity may be sought against the
Company. Such holder of Registrable Shares, any such underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and
-4-
<PAGE>
expenses of such counsel shall not be at the expense of the Company unless the
employment of such counsel has been specifically authorized by the Company. The
Company shall not be liable to indemnify any person for any settlement of any
such action effected without the Company's consent. The Company shall not,
except with the approval of each party being indemnified under this Section 2.5,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to the parties being so indemnified of a release from all liability in respect
to such claim or litigation.
2.6 INDEMNIFICATION OF COMPANY. In the event that the Company registers
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom any of such shares may be sold) and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer, underwriter or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares, expressly for use therein; provided, however, that
such holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against such holder of Registrable Shares, the
Company will notify such holder of Registrable Shares in writing of the
commencement thereof, and such holder of Registrable Shares shall, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel, who shall be counsel satisfactory to the Company) and
the payment of expenses insofar as such action shall relate to the alleged
liability in respect of which indemnity may be sought against such holder of
Registrable Shares. The Company and each such director, officer, underwriter or
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of such holder of Registrable Shares
unless employment of such counsel has been specifically authorized by such
holder of Registrable Shares. Notwithstanding the two preceding sentences, if
the action is one in which the Company may be obligated to indemnify any holder
of Registrable Shares pursuant to Section 2.5, the Company shall have the right
to assume the defense of such action, subject to the right of such holders to
participate therein as permitted by Section 2.5. Such holder of Registrable
Shares shall not be liable to indemnify any person for any
-5-
<PAGE>
settlement of any such action effected without such holder's consent. Such
holder shall not, except with the approval of the Company, consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the party
being so indemnified of a release from all liability in respect to such claim or
litigation.
2.7 EXCHANGE ACT REGISTRATION. The Company will use its best efforts to
file on a timely basis with the Securities and Exchange Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, shall use its best efforts to take all action that may be required
as a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereinafter in effect) with respect to the Company's
Common Stock. The Company shall furnish to any holder of Registrable Shares
forthwith upon request (a) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, (b) a copy of the most
recent annual or quarterly report of the Company as filed with the Securities
and Exchange Commission and (c) any other reports and documents that a holder
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission allowing a holder to sell any such
Registrable Shares without registration.
2.8 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is required
hereunder to register Registrable Shares, it agrees that it shall also do the
following:
(a) Furnish to each selling holder such copies of each preliminary
and final prospectus and any other documents that such holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares to be registered pursuant to this Agreement under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder may
reasonably request; provided, however, that the Company shall not be obligated
to qualify to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a copy of the signed:
(i) opinion of counsel for the Company, dated the effective
date of the registration statement;
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent permitted by
the standards of the American Institute of Certified Public Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in
-6-
<PAGE>
opinions of issuer's counsel and in accountants' "comfort" letters delivered to
the underwriters in underwritten public offerings of securities, but only if and
to the extent that the Company is required to deliver or cause the delivery of
such opinion or "comfort" letters to the underwriters in an underwritten public
offering of securities;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them; and
(e) Furnish to each selling holder, upon request, a copy of all
documents filed and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering unless confidential treatment of
such information has been requested of the Securities and Exchange Commission.
2.9 EXPENSES. In the case of any registration under Sections 2.1, 2.2 or
2.3 the Company shall bear all costs and expenses of each such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission filing fees and "blue sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
bear (i) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares, (ii) any portion of the underwriter's commissions or
discounts attributable to the Registrable Shares being offered and sold by the
holders of Registrable Shares, or (iii) any of such expenses if the payment of
such expenses by the Company is prohibited by the laws of a state in which such
offering is qualified and only to the extent so prohibited; and provided
further, that, in the event any registration under the Securities Act is
initiated by any holders of Registrable Shares pursuant to Sections 2.2 or 2.3
of this Agreement and such registration is thereafter withdrawn or terminated by
such holders for reasons other than the occurrence of one or more events
regarding the Company which may have a material adverse affect upon the business
or prospects of the Company, and such holders learn of such event or events
after the date of the demand for registration and prior to the date of
withdrawal or termination by them and such withdrawal or termination occurs with
reasonable promptness thereafter, then the Company shall have no obligation to
pay or otherwise bear any fees, expenses or other costs arising out of or
relating to such registration, unless, in the case of a registration under
Section 2.2 hereof, such holders relinquish one of their rights to demand
registration under such section.
2.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holders of Registrable Shares under this Agreement may be transferred by any
Investor, any Manager, the Seller or the Bank to (i) any partner or affiliate of
such Investor, Seller or Bank, (ii) the heirs of such Manager and (iii) to any
transferee of such Investor's, Seller's or Bank's Registrable Shares who after
such transfer will hold at least 5% of the holdings of Registrable Shares of
such Investor, Seller or Bank.
2.11 NO SUPERIOR RIGHTS. The Company will not grant registration rights to
any person or entity without the prior written and executed consent of the
holders of at least 66 percent of the Registrable Securities.
-7-
<PAGE>
2.12 MARKET STAND-OFF AGREEMENT. Provided that all holders of Registrable
Securities are treated equally and all officers and directors of the Company are
bound by restrictions not less restrictive then those set forth in this Section
2.12, no holder of Registrable Shares shall, to the extent requested by the
Company or any managing underwriter of the Company, sell or otherwise transfer
or dispose of (other than to donees or partners of the holder who agree to be
similarly bound) any Registrable Shares during a period (the "Stand-Off Period")
equal to 180 days following the effective date of a registration statement of
the Company filed under the Securities Act (or such shorter period as the
Company or managing underwriter may authorize) except for securities sold as
part of the offering covered by such registration statement in accordance with
the provisions of this Agreement. In order to enforce the foregoing covenant,
the Company may impose stock transfer restrictions with respect to the
Registrable Shares of each holder until the end of the Stand-Off Period.
2.13 UNDERWRITING.
(a) (i) If the holders of Registrable Securities intend to
distribute the Registrable Securities covered by their request pursuant to
Section 2.2 or 2.3 hereof, by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to such Section and the Company
shall include such information in the written notice referred to in such
Section. The right of any such holder to registration pursuant to Sections 2.2
and 2.3 shall be conditioned upon such holder's participation in such
underwriting and the inclusion of such holder's Registrable Securities in the
underwriting to the extent requested (unless otherwise mutually agreed by a
majority in interest of the holders of Registrable Securities) to the extent
provided herein.
(ii) The Company shall (together with all holders of
Registrable Securities proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by a majority in interest of
the holders of Registrable Securities. Notwithstanding any other provision of
this Section 2.13, if the managing underwriter advises the holders of
Registrable Securities in writing that marketing factors require a limitation of
the number of shares to be underwritten, then, subject to the provisions of
Sections 2.2 and 2.3, the Company shall so advise all holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
holders of Registrable Securities requesting inclusion in the registration in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such holders of Registrable Securities at the time of filing
the registration statement, provided however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless (i) all other shares which are not Registrable Securities are first
entirely excluded from the Underwriting or (ii) the holders of not less than 50%
of the Registrable Securities consent thereto in writing. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration.
(iii) If any holder of Registrable Securities disapproves
of the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the other holders of
Registrable Securities. The Registrable Securities
-8-
<PAGE>
and/or other securities so withdrawn shall also be withdrawn from registration;
provided, however, that if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other holders of Registrable
Securities may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
holders of Registrable Securities who have included Registrable Securities in
the registration the right to include additional Registrable Securities in the
same proportion used in determining the underwriter limitation in this Section
2.13.
(b) The substantive provisions of Sections 2.12(a)(i) and 2.12 (a)(iii)
shall be applicable to any participation in an underwritten offering pursuant to
Section 2.1.
3. ASSIGNABILITY
Subject to the provisions of Section 2.10 hereof, this Agreement shall be
binding upon and inure to the benefit of the respective heirs, successors and
assigns of the parties hereto; provided that the Company is given notice of such
transfer or assignment and the transferee or assignee agrees in writing to be
bound by this Agreement.
4. LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California without regard to conflicts of laws principles.
5. AMENDMENT
Any modification, amendment, or waiver of this Agreement or any provision
hereof shall be in writing and executed by holders of not less than 66 2/3
percent (66-2/3%) of the Registrable Shares; provided however, that no such
modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Shares without the consent of the record of beneficial holders of at
least 90 percent of the Registrable Shares; provided that no such modification,
--------
amendment or waiver of this Agreement shall eliminate the rights of the Seller
under any of Sections 2.1, 2.2, 2.3, 2.10 or 3 without the consent of the
Seller; provided further that no such modification, amendment or waiver of this
-------- -------
Agreement shall eliminate the rights of the Managers under any of Sections 2.1,
2.10 and 3 without the consent of the holders of a majority of the Management
Shares and that no such modification, amendment or waiver of this Agreement
shall materially and adversely affect the rights of the Bank under any of
Sections 2.1, 2.10 and 3 without the consent of the Bank.
6. CONFLICT
In the event of any conflict between the terms of this Agreement and the
Merger Agreement, the terms of this Agreement shall control.
7. COUNTERPARTS
-9-
<PAGE>
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
8. NOTICE
Any notices and other communications required or permitted under this
Agreement shall be effective if in writing and delivered personally or sent by
telecopier, Federal Express or registered or certified mail, postage prepaid,
addressed to the addressee at the address of such party set forth beneath the
signature of such party on the signature page(s) hereof, in Section 12.4 of the
Merger Agreement, or at such other address as a party may designate by ten days'
advance written notice to the other parties pursuant to the provisions of this
Section 8. Unless otherwise specified herein, such notices or other
communications shall be deemed effective (a) on the date delivered, if delivered
personally, (b) two business days after being sent, if sent by Federal Express,
(c) one business day after being sent, if sent by telecopier with confirmation
of good transmission and receipt, and (d) three business days after being sent,
if sent by registered or certified mail. Each of the parties herewith shall be
entitled to specify another address by giving notice as aforesaid to each of the
other parties hereto.
9. TERMINATION
The obligations of the Company under Sections 2.2 and 2.3 shall terminate
on the fifth anniversary of the Company's initial Public Offering. The
obligations of the Company with respect to a particular party hereof will
terminate when such party is permitted by law to sell all Registrable Shares
held by such party may be sold within the following three months pursuant to
Rule 144 under the Securities Act.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COMPANY:
Splash Technology Holdings, Inc.
a Delaware corporation
By: /s/ Gregory M. Avis
-------------------------------------
Gregory M. Avis
President and Chief Executive Officer
SELLER:
Radius Inc.
A California corporation
By: /s/ Charles W. Berger
------------------------------------------
Name: Charles W. Berger
Title: Chairman & CEO
MANAGEMENT:
/s/ Christine Beheshti
------------------------------------------
Print Name: Christine Beheshti
Address:617 Maple St. San Mateo, CA 94402
----------------------------------
/s/ Kevin Macgillivray
-----------------------------------------
Print Name: Kevin Macgillivray
Address:1015 Balboa Ave., Pacific Grove
-----------------------------------------
CA 93950
---------
[Registration Rights Agreement Signature Page]
-11-
<PAGE>
/s/Richard A. Falk
----------------------------------------------
Print Name: Richard Falk
Address: 819 Montgomery Street,
----------------------------------------------
Mountain View, CA 94041-2351
----------------------------------------------
/s/ Tim Kleffman
----------------------------------------------
Print Name: Tim Kleffman
Address:3010 Posey Granada
--------------------------
Pleasanton, CA 94566
--------------------------
______________________________________________
Print Name:
Address:______________________________________
INVESTORS:
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners SD, L.P., General Partner
By: Stamps, Woodsum & Co., III, General Partner
By: /s/ Gregory M. Avis
----------------------------------------------
Gregory M. Avis
General Partner
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., General Partner
By: Stamps, Woodsum & Co., IV, General Partner
By: /s/ Gregory M. Avis
-----------------------------------------
Gregory M. Avis
General Partner
-12-
<PAGE>
[Registration Rights Agreement Signature Page]
SUMMIT INVESTORS III, L.P.
By: /s/ Gregory M. Avis
--------------------------------------
Gregory M. Avis
General Partner
Address: c/o Summit Partners
499 Hamilton Avenue
Suite 200
Palo Alto, CA 94301
Telecopier: (415) 321-1188
with a copy to:
Jeffrey D. Saper, Esq.
Wilson, Sonsini,
Goodrich & Rosati,P.C.
650 Page Mill Road
Palo Alto, CA 94304
Telecopier: (415) 493-6811
SIGMA PARTNERS III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
--------------------------------------
Wade Woodson
General Partner
Address: c/o Sigma Partners
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
-13-
<PAGE>
[Registration Rights Agreement Signature Page]
SIGMA ASSOCIATES III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
------------------------------------
Wade Woodson
General Partner
Address: c/o Sigma Partners
2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
SIGMA INVESTORS III, L.P.
By: Sigma Management III, General Partner
By: /s/ Wade Woodson
------------------------------------
Wade Woodson
General Partner
Address: 2884 Sand Hill Road
Suite 121
Menlo Park, CA 94025
Telecopier: (415) 854-1323
BANK:
IMPERIAL BANK
By:/s/ Kenneth W. LeDeit
---------------------------------------
Name: Kenneth W. LeDeit
Title: CLO
-14-
<PAGE>
[Registration Rights Agreement Signature Page]
-15-
<PAGE>
EXHIBIT 10.7
LEASE AGREEMENT
This LEASE, made this 12th day of February, 1996 between H. TAYLOR PEERY
JOINT VENTURE II, a California joint venture, hereinafter called Landlord, and
SPLASH TECHNOLOGY, a Delaware corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in Red on Exhibit A,
---------
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 23,697 plus/minus square foot, one-story building located at
555 Del Rey Avenue, Sunnyvale, California 94086. Said Premises is more
particularly shown within the area outlined in Red on Exhibit A attached hereto.
---------
The entire parcel, of which the Premises is a part, and exclusive parking
appurtenant thereto, is showned within the area outlined in Green on Exhibit A
---------
attached. The Premises shall be improved as shown on Exhibit B to be attached
---------
hereto, and is leased an "as-is" basis, in its present condition, and in the
configuration as shown in Red on Exhibit B to be attached hereto.
---------
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the Premises shall be measured from outside of exterior walls to outside
of exterior walls, and shall include any atriums, covered entrances or egresses
and covered building loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises nor bring or keep or permit to be brought or kept in or about the
Premises anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Premises or neighboring premises or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or
permit
Initials:________
Initials:________
<PAGE>
any nuisance in, on or about the Premises. No sale by auction shall be
permitted on the Premises. Tenant shall not place any loads upon the floors,
walls, or ceiling which endanger the structure, or place any harmful fluids or
other materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises. No loudspeaker or other device, system or apparatus which
can be heard outside the Premises shall be used in or at the Premises without
the prior written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend and
hold Landlord harmless against any loss, expense, damage, reasonable attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or
restriction ("CC&R's") affecting the Premises. The provisions of this paragraph
are for the benefit of Landlord only and shall not be construed to be for the
benefit of any tenant or occupant of the Premises.
2. TERM/1/
A. The term of this Lease shall be for a period of five (5) years
sixteen (16) days (unless sooner terminated as hereinafter provided) and,
subject to Paragraphs 2B and 3, shall commence on the 15th day of April, 1996
and end on the 30th day of April, 2001.
B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel for the purpose of conducting its business (as opposed to installing
its trade fixtures and equipment as provided for in Paragraph 40); or
_____________________
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month) at
the Basic Rent rate scheduled for the projected commencement date as shown in
Paragraph 39.
Initials:________
Initials:________
PAGE 2 0F 28
<PAGE>
(c) When the Tenant Improvements have been substantially completed
for Tenant's use and occupancy, in accordance and compliance with Exhibit B of
---------
this Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said Premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2B, above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 90 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
4. RENT
A. BASIC RENT. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
TWO MILLION SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND 84/100 Dollars
($2,078,700.84) in lawful money of the United States of America, payable as
follows:
See Paragraph 39 for Basic Rent Schedule.
B. TIME FOR PAYMENT. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten percent (10%) of each rental payment so
in default.
Initials:________
Initials:________
Page 3 0f 28
<PAGE>
D. ADDITIONAL RENT. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph 9,
and
(b) All insurance premiums relating to the Premises, as set forth
in Paragraph 12, and
(c) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's
agent (i) within five (5) days for taxes and insurance and within thirty (30)
days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure for such Additional Rent items, which
estimated amount shall be reconciled within 120 days of the end of each calendar
year or more frequently if Landlord elects to do so at Landlord's sole and
absolute discretion as compared to Landlord's actual expenditure for said
Additional Rent items, with Tenant paying to Landlord, upon demand, any amount
of actual expenses expended by Landlord in excess of said estimated amount, or
Landlord refunding to Tenant (providing Tenant is not in default in the
performance of any of the terms, covenants and conditions of this Lease) any
amount of estimated payments made by Tenant in excess of Landlord's actual
expenditures for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at H. Taylor Peery Joint Venture II, c/o
Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054 or
to such other person or to such other place as Landlord may from time to time
designate in writing.
Initials:________
Initials:________
Page 4 of 28
<PAGE>
F. SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of SEVENTY THREE THOUSAND FOUR
HUNDRED SIXTY AND 70/100 Dollars ($73,460.70). Said sum shall be held by
Landlord as a Security Deposit for the faithful performance by Tenant of all the
terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provision
of this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith, Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
Deposit is so used or applied, Tenant shall, within ten (10) days after written
demand therefor, deposit cash with Landlord in the amount sufficient to restore
the Security Deposit to its original amount. Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; all broken, marred or
nonconforming acoustical ceiling tiles replaced; all windows washed; the air
conditioning and heating systems serviced by a reputable and licensed service
firm and in good operating condition and repair; the plumbing and electrical
systems and lighting in good order and repair, including replacement of any
burned out or broken light bulbs or ballasts; the lawn and shrubs in good
condition including the replacement of any dead or damaged plantings; the
sidewalk, driveways and parking areas in good order, condition and repair;
together with all alterations, additions, and improvements which may have been
made in, to, or on the Premises (except moveable trade fixtures installed at the
expense of Tenant) except that Tenant shall ascertain from Landlord within
thirty (30) days before the end of the term of this Lease whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term of sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner
Initials:________
Initials:________
Page 5 of 28
<PAGE>
termination of this Lease shall be deemed abandoned by Tenant and title to same
shall thereupon pass to Landlord without compensation to Tenant. Landlord may,
upon termination of this Lease, remove all moveable furniture and equipment so
abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such
removal at Tenant's sole cost. If the Premises be not surrendered at the end of
the term or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from the delay by Tenant in so surrendering
the Premises including, without limitation, any claims made by any succeeding
tenant founded on such delay. Nothing contained herein shall be construed as an
extension of the term hereof or as a consent of Landlord to any holding over by
Tenant. The voluntary or other surrender of this Lease or the Premises by
Tenant or a mutual cancellation of this Lease shall not work as a merger and, at
the option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies. SEE PARAGRAPH 47.
6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (such consent not
to be unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, air conditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10)
days after the filing thereof, at the cost and expense of Tenant. Any exceptions
to the foregoing must be made in writing and executed by both Landlord and
Tenant.
7. TENANT MAINTENANCE Subject to Paragraph 46, and except as otherwise
provided in Paragraph 21, Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, or replacement, and in good and sanitary
condition. Tenant's maintenance and repair responsibilities herein referred to
include, but are not limited to, janitorization, all windows (interior and
exterior), window frames, plate glass and glazing (destroyed by accident or act
of third parties), truck doors, plumbing systems (such as water and drain lines,
sinks, toilets, faucets, drains, showers and water fountains), electrical
systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs,
tubes and ballasts), heating and air conditioning systems (such as compressors,
fans, air handlers, ducts, mixing boxes, thermostats, time
Initials:________
Initials:________
Page 6 of 28
<PAGE>
clocks, boilers, heaters, supply and return grills), exterior surfaces of the
building, store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior),
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever, and all exterior improvements including but not limited to
landscaping, sidewalks, driveways, parking lots including striping and sealing,
sprinkler systems, lighting, ponds, fountains, waterways, and drains. Tenant
agrees to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon
Lease termination. Tenant hereby waives all rights under, and benefits of,
Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil
Code and under any similar law, statute or ordinance now or hereafter in effect.
In the event any of the above maintenance responsibilities apply to any other
tenant(s) of Landlord where there is common usage with other tenant(s), such
maintenance responsibilities and charges shall be allocated to the leased
Premises by square footage or other equitable basis as calculated and determined
by Landlord.
8. UTILITIES Tenant shall pay promptly, as the same become due, all charges
for water, gas electricity, telephone, telex and other electronic communication
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed. In the event the above charges apply to any other tenant(s) of
Landlord where there is common usage with other tenant(s), such charges shall be
allocated to the leased Premises by square footage or other equitable basis as
calculated and determined by Landlord.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
9. TAXES
A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to the
Tax Collector, all Real Property Taxes relating to the Premises. In the event
the Premises lease hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant's proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis as calculated and determined by Landlord. If the tax billing pertains 100%
to the leased Premises, and Landlord chooses to have Tenant pay said real estate
taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining to
the leased Premises, and failure to receive a bill for taxes and/or assessments
Initials:________
Initials:________
Page 7 of 28
<PAGE>
shall not provide a basis for cancellation of or nonresponsibility for payment
of penalties for nonpayment or late payment by Tenant. The term "Real Property
Taxes," as used herein, shall mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership of the Premises)
now or hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy assessments,
which are levied or assessed against, or with respect to the value, occupancy or
use of, all or any portion of the Premises (as now constructed or as may at any
time hereafter be constructed, altered or otherwise changed) or Landlord's
interest therein; any improvements located within the Premises (regardless of
ownership); the fixtures, equipment and other property of Landlord, real or
personal, that are an integral part of and located in the Premises; or parking
areas, public utilities, or energy within the Premises; (ii) all charges, levies
or fees imposed by reason of environmental regulation or other governmental
control of the Premises; and (iii) all costs and fees (including reasonable
attorneys' fees) incurred by Landlord in reasonably contesting an Real Property
Tax and in negotiating with public authorities as to any Real Property Tax. If
at any time during the term of this Lease the taxation or assessment of the
Premises prevailing as of the commencement date of this Lease shall be altered
so that in lieu of or in addition to any Real Property Tax described above there
shall be levied, assessed or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge, or any other
cause) an alternate or additional tax or charge (i) on the value, use or
occupancy of the Premises or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Premises, on Landlord's
business of leasing the Premises, or computed in any manner with respect to the
operation of the Premises, then any such tax or charge, however designated,
shall be included within the meaning of the term "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is based upon property or
rents unrelated to the Premises, then only that part of such Real Property Tax
that is fairly allocable to the Premises shall be included within the meaning of
the term "Real Property Taxes." Notwithstanding the foregoing, the term "Real
Property Taxes" shall not include estate, inheritance, gift or franchise taxes
of Landlord or the federal or state net income tax imposed on Landlord's income
from all sources.
B. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for and shall
pay ten days before delinquency, taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right to
do regardless of the validity thereof, but only under proper protest if
requested by Tenant. Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such taxes
resulting from such increase in the assessment; provided that in any such event
Tenant shall have the right, in the name of Landlord and with Landlord's full
cooperation, to bring suit in any court of competent jurisdiction to recover the
amount of such taxes so paid under protest, and any amount so recovered shall
belong to Tenant.
Initials:________
Initials:________
Page 8 of 28
<PAGE>
10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for bodily injury and property damage occurring in, on or about the Premises,
including parking and landscaped areas. Such insurance shall be primary and
noncontributory as respects any insurance carried by Landlord. The policy or
policies effecting such insurance shall name Landlord as additional insureds,
and shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. A certificate of insurance of said policy
shall be delivered to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this Paragraph 10 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
11. TENANTS'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE Tenant shall maintain a policy or policies of fire and property damage
insurance in "all risk" form with a sprinkler leakage endorsement insuring the
personal property, inventory, trade fixtures, and leasehold improvements within
the leased Premises for the full replacement value thereof. The proceeds from
any of such policies shall be used for the repair or replacement of such items
so insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (excluding routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in or right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such
Initials:________
Initials:________
Page 9 of 28
<PAGE>
fire or casualty; provided, however, that if the insurance policy of either
releasing party prohibits such waiver, then this waiver shall not take effect
until consent to such waiver is obtained. If such waiver is so prohibited, the
insured party affected shall promptly notify the other party thereof. See
Paragraph 54.
13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors, Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.
14. COMPLIANCE Subject to Paragraph 49, Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now or hereafter in effect; with
the requirements of any board of fire underwriters or other similar body now or
hereafter constituted; and with any direction or occupancy certificate issued
pursuant to law by any public officer; provided, however, that no such failure
shall be deemed a breach of the provisions if Tenant, immediately upon
notification, commences to remedy or rectify such failure. The judgment of any
court of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord be a party thereto or not, that Tenant has violated any
such law, statute, ordinance or governmental rule, regulation, requirement,
direction or provision, shall be conclusive of that fact as between Landlord and
Tenant. Tenant shall, at its sole cost and expense, comply with any and all
requirements pertaining to said Premises, of any insurance organization or
company, necessary for the maintenance of reasonable fire and public liability
insurance covering the Premises.
15. LIENS Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the imposition
of such lien, cause the same to be released of record, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord
Initials:________
Initials:________
Page 10 of 28
<PAGE>
which consent will not be unreasonably withheld. As a condition for granting
this consent to any assignment, transfer, or subletting, Landlord may require
that Tenant agrees to pay to Landlord, as additional rent, all rents or
additional consideration received by Tenant from its assignees, transferees, or
subtenants in excess of the rent payable by Tenant to Landlord hereunder,
provided, however, that for sharing such excess rent, Tenant shall first be
entitled to recover from such excess rent, the amount of any reasonable leasing
commissions paid by Tenant to third parties not affiliated with Tenant. Tenant
shall, by thirty (30) days written notice, advise Landlord of its intent to
assign or transfer Tenant's interest in the Lease or sublet the Premises or any
portion thereof for any part of the term hereof. Within thirty (30) days after
receipt of said written notice, Landlord may, in its sole discretion, elect to
terminate this Lease as to the portion of the Premises described in Tenant's
notice on the date specified in Tenant's notice by giving written notice of such
election to terminate. If no such notice to terminate is given to Tenant within
said thirty (30) day period, Tenant may proceed to locate an acceptable
sublessee, assignee, or other transferee for presentment to Landlord for
Landlord's approval, all in accordance with the terms, covenants, and conditions
of this paragraph 16. If Tenant intends to sublet the entire Premises and
Landlord elects to terminate this Lease, this Lease shall be terminated on the
date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord, which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by operation of law without the written consent of Landlord, which consent shall
not be unreasonably withheld. As a condition to its consent, Landlord may
require Tenant to pay all expenses in connection with the assignment, and
Landlord may require Tenant's assignee or transferee (or other assignees or
transferees) to assume in writing all of the obligations under this Lease and
for Tenant to remain liable to Landlord under the Lease. SEE PARAGRAPH 50.
17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease
Initials:________
Initials:________
Page 11 of 28
<PAGE>
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all rent and observe and perform all of the provisions set forth in this
Lease. SEE PARAGRAPH 51.
18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to make repairs or provide any services to a contiguous tenant(s); to
submit the Premises to prospective purchasers, mortgagers or tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises or
other parts of the building, all without abatement of rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least extent
that is reasonably practical. Any entry to the Premises by Landlord for the
purposes provided for herein shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors ro other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold
estate under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
Initials:________
Initials:________
Page 12 of 28
<PAGE>
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured
default of this Lease by Tenant, Landlord shall have the following rights and
remedies in addition to any other rights or remedies available to Landlord at
law or in equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
Initials:________
Initials:________
Page 13 of 28
<PAGE>
and the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof) exceeds
the amount to be paid as rent for the Premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied first
to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
rent as the same becomes due hereunder. If Tenant has been credited with any
rent to be received by such subletting under option (i) and such rent shall not
be promptly paid to Landlord by the subtenant(s), or if such rentals received
from such subletting under option (ii) during any month be less than that to be
paid during that month by Tenant hereunder. Tenant shall pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly.
No taking possession of the Premises by Landlord shall be construed as an
election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d. above.
20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides and on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder) or
surrender said Premises, or be dispossessed by the process of law, or otherwise,
any personal property belonging to Tenant and left on the Premises shall be
deemed to be abandoned, at the option of Landlord, except such property as may
be mortgaged to Landlord.
21. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7. Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing withing thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete
Initials:________
Initials:________
Page 14 of 28
<PAGE>
the rebuilding or restoration within one hundred eighty (180) days following the
date of destruction (such period of time to be extended for delays caused by the
fault or neglect of Tenant or because of Acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargos, rainy or stormy weather,
inability to obtain materials, supplies of fuels, acts of contractors or
subcontractors, or delay of the contractor or subcontractors due to such causes
or other contingencies beyond the control of Landlord), then Tenant shall have
the right to terminate this Lease by giving fifteen (15) days prior written
notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's
obligation to rebuild or restore shall be limited to the building and interior
improvements constructed by Landlord as they existed as of the commencement date
of the Lease and shall not include restoration of Tenant's trade fixtures,
equipment, merchandise, or any improvements, alterations or additions made by
Tenant to the Premises, which Tenant shall forthwith replace or fully repair at
Tenant's sole cost and expense provided this Lease is not cancelled according to
the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less that 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not.
22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, then Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of the
date of receipt of said written advice, or commencement of said action or
proceeding, or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following the month in
which such notice is given or the date on which title to the Premises shall vest
in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease withing sixty (60) days from the date of such taking
or conveyance, upon written notice to Landlord of its intention so to do, and
upon giving of such notice this
Initials:________
Initials:________
Page 15 of 28
<PAGE>
Lease shall terminate on the last day of the calendar month next following the
month in which such notice is given, upon payment by Tenant of the rent from the
date of such taking or conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall in the ratio that the area of the portion of the
Premises not so taken or conveyed bears to the total area of the Premises prior
to such taking.
23. SALE OF CONVEYANCE BY LANDLORD In the event of a sale of conveyance of
the Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Premises and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor. SEE PARAGRAPH
52.
24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of
Landlord in the land and buildings in which the leased Premises are located
(whether such interest of Landlord is a fee title Interest or a leasehold
interest) is encumbered by deed of trust, and such interest is acquired by the
lender of any third party through judicial foreclosure or by exercise of a power
of sale at private trustee's foreclosure sale. Tenant hereby agrees to attorn to
the purchaser at any such foreclosure sale and to recognize such purchaser as
the Landlord under this Lease. In the event the lien of the deed of trust
securing the loan from a Lender to Landlord is prior and paramount to the Lease,
this Lease shall nonetheless continue in full force and effect for the remainder
of the unexpired term hereof, at the same rental herein reserved and upon all
the other terms, conditions and covenants herein contained.
25. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of
this Lease, with the consent of Landlord, shall be construed to be a tenancy
from month to month, on the same terms and conditions herein specified insofar
as applicable except that the monthly Basic Rent shall be increased to an amount
equal to one hundred fifty (150%) percent of the monthly Basic Rent required
during the last month of the Lease term.
26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification sand certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not,
Initials:________
Initials:________
Page 16 of 28
<PAGE>
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord; that there are no uncured
defaults in Landlord's performance, and that not more than one month's rent has
been paid in advance.
27. CONSTRUCTION CHANGES It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such minor changes as Landlord or Landlord's architect determines to
be desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder of shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obliged
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment on performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
29. ATTORNEYS' FEES
A. In the event that either Landlord or Tenant should bring suit for
the possession of the Premises, for the recovery of any sum due under this
Lease, or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suite, including a
reasonable attorney's fee.
Initials:________
Initials:________
Page of 28
<PAGE>
30. WAIVER The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a waiver
of such term, covenant or condition or of any subsequent failure of the party
failing to perform or observe the same or any other such term, covenant or
condition therein contained, and no custom or practice which may develop between
the parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
31. NOTICES All notices, demands, requests, advices or designations which
may be or are required to be given by either party to the other hereunder shall
be in writing. All notices, demands, requests, advices or designations by
Landlord to Tenant shall be sufficiently given, made or delivered if personally
served on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at H. Taylor Peery Joint Venture
II, c/o Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA
95054. Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
32. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have heretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) days
period and thereafter diligently prosecutes the same to completion.
34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the by-
laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
Initials:________
Initials:________
Page 18 of 28
<PAGE>
35. LIMITATION OF LIABITITY In consideration of the benefits accruing
hereunder. Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:
(a) the sole and exclusive remedy shall be against Landlord and
Landlord's assets'
(b) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(g) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
36. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs of lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
the premises.
Initials:________
Initials:________
Page 19 of 28
<PAGE>
37. MISCELLANEOUS AND GENERAL PROVISIONS
A. USE OF BUILDING NAME. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
B. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. DEFINITION OF TERMS. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any provision hereof.
D. TIME OF ESSENCE. Time is of the essence of this Lease and of each
and all of its provisions.
E. QUITCLAIM. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
F. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This instrument
along with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
Initials:________
Initials:________
Page 20 of 28
<PAGE>
G. RECORDING. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
H. See Paragraph 48.
I. ADDITIONAL PARAGRAPHS. Paragraphs 39 through 55 are added hereto
and are included as a part of this lease.
J. CLAUSES, PLATS AND RIDERS. Clauses, plats and riders, if any,
signed by Landlord and Tenant and endorsed on or affixed to this Lease are a
part hereof.
K. DIMINUTION OF LIGHT, AIR OR VIEW. Tenant covenants and agrees that
no diminution or shutting off of light, air or view by any structure which may
be hereafter erected (whether or not by Landlord) shall in any way affect this
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
Initials:________
Initials:________
Page 21 of 28
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
H. TAYLOR PEERY JOINT VENTURE II, SPLASH TECHNOLOGY,
a California joint venture a Delaware corporation
By /s/ Richard T. Peery By /s/ Kevin MacGillivray
------------------------------- ------------------------------------
Richard T. Peery, Trustee
Dated: ___________________________ Title President & CEO
---------------------------------
Type or Print Name: Kevin MacGillivray
By /s/ Nancy Marriott Dated: Feb. 28, 1996
-------------------------------
Nancy Marriott
By /s/ Mary Fife
-------------------------------
Mary Fife
H. TAYLOR PEERY TESTAMENTARY TRUST A
By /s/ Richard T. Peery
-------------------------------
Richard T. Peery, Trustee
H. TAYLOR PEERY TESTAMENTARY TRUST B
By /s/ Richard T. Peery
-------------------------------
Richard T. Peery, Trustee
Initials:________
Initials:________
Page 22 of 28
<PAGE>
Paragraphs 39 through 55 to Lease Agreeement Dated February 12, 1996, By and
Betwwen H. Taylor Peery Joint Venture II, as Landlord, and Splash Technology, a
Delaware corporation, as Tenant for 23,697 plus/minus Square Feet of Space
Located at 555
38. BASIC RENT: In accordance withParagraph 4A herein, the total aggregate
----------
sum of TWO MILLION SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND 84/100 DOLLARS
($2,078,700.84), shall be payable as follows:
On April 15, 1996, the sum of SEVENTEEN THOUSAND SIXTY ONE AND 84/100
DOLLARS ($17,061.84) shall be due, representing the rental for the period April
15, 1996 through
On May 1, 1996, the sum of THIRTY ONE THOUSAND NINE HUNDRED NINETY AND
95/100 DOLLARS ($31,990.95) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1997.
On May 1, 1997, the sum of THIRTY THREE THOUSAND ONE HUNDRED SEVENTY FIVE
AND 80/100 DOLLARS ($33,175.80) shall be due, and a like sum due on the first
day of each month thereafter, through and including April 1, 1998.
On May 1, 1998, the sum of THIRTY FOUR THOUSAND THREE HUNDRED SIXTY AND
65/100 DOLLARS ($34,360.65) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 1999.
On May 1, 1999, the sum of THIRTY FIVE THOUSAND FIVE HUNDRED FORTY FIVE
AND 50/100 DOLLARS ($35,545.50) shall be due, and a like sum due on the first
day of each month thereafter, through and including April 1, 2000.
On May 1, 2000, the sum of THIRTY SIX THOUSAND SEVEN HUNDRED THIRTY AND
95/100 DOLLARS ($36,730.35) shall be due, and a like sum due on the first day of
each month thereafter, through and including April 1, 2001; or until the entire
aggregate sum of TWO MILLION SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND 84/100
DOLLARS ($2,078,700.84) has been paid.
39. EARLY ENTRY: Subject to the provisions of Paragraph 42 ("Tenant Interior
-----------
Improvements"), Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to the
Paragraph 40 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
---------
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from
Initials:________
Initials:________
Page 23 of 28
<PAGE>
any and all loss, damage, liability, expense (including reasonable attorney's
fees), claim or demand of whatsoever character, direct or consequential,
including, but without limiting thereby the generality of the foregoing, injury
to or death of persons and damage to or loss of property arising out of the
exercise by Tenant of any early entry right granted hereunder. In the event
Tenant's work in said Premises delays the completion of the interior
improvements to be provided by Landlord, if any, or in the event Tenant has not
completed construction of its interior improvements by the scheduled
Commencement Date, it is agreed between the parties that this Lease will
commence and Tenant's obligation to pay Rent under the Lease shall commence as
of the date it would otherwise have commenced absent delay caused by Tenant.
40. AS-IS-BASIS: Subject only to Paragraphs 42, 46, 47 and 49 and to
-----------
Landlord making the improvements shown on Exhibit B to be attached hereto, it is
---------
hereby agreed that the Premises leased hereunder is leased strictly on an "as-
is" basis and in its present condition, and in the configuration as shown on
Exhibit B to be attached hereto, and by reference made a part hereof. Except as
- ---------
noted herein, it is specifically agreed between the parties that after Landlord
makes the interior improvements as shown on Exhibit B, Landlord shall not be
---------
required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease. Landlord makes
no warranty or representation or any kind or nature whatsoever as to the
condition or repair of the Premises, nor as to the use or occupancy which may be
made thereof.
41. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and
----------------------------
expense, construct certain interior improvements (the "Tenant Improvements") in
the Premises, as shown on Exhibit B and Exhibit B1 to be attached to the Lease
--------- ----------
and Landlord agrees to deliver the Premises leased hereunder to Tenant, at
Landlord's expense, in the configuration shown in Red on Exhibit B to be
---------
attached hereto. Notwithstanding anything to the contrary above, it is
specifically understood and agreed that Landlord shall be required to furnish
only a standard air condition/heating system, normal electrical outlets,
standard fire sprinkler systems, standard bathroom, standard lobby, 2' x 4'
suspended acoustical tile drop ceiling throughout the entire space leased,
carpeting and/or vinyl-coated floor tile, and standard office partitions and
doors, as shown on Exhibit B to be attached hereto; provided however, that any
---------
special HVAC and/or plumbing and/or electrical requirements over and above that
normally supplied by Landlord shall be 100 percent the responsibility of and be
paid for 100 percent by Tenant. The finished interior of said Premises shall be
similar in quality to the interior of the building located at 3201 Scott
Boulevard, Santa Clara, California.
It is further agreed that Tenant shall furnish Landlord with Tenant's required
specifications and a preliminary space plan showing the layout of the
improvements to be constructed in the Premises by February 19, 1996. At that
time, Landlord shall have the working drawing of the interior plans ("Working
Drawings") drawn by Landlord's architect which are the logical and reasonable
development of the preliminary space plan. Within three (3) business days
following receipt of the Working Drawings, Tenant shall approve in writing the
final plans for the interior improvements or notify Landlord in writing of its
specific objections within said 3 day period. If Tenant so objects, the parties
shall confer and use their best efforts to reach agreement upon final interior
improvement plans and together shall apply the
Initials:________
Initials:________
Page 24 of 28
<PAGE>
standards set forth in this Paragraph 42 to resolve Tenant's objections and
incorporate such resolution into the final interior improvement plans, which
process Landlord and Tenant shall cause to be completed within three (3)
business days after Tenant has notified Landlord of its objections. In
resolving Tenant's objections, the parties agree to act reasonably so as to
promptly finalize the final interior improvement plans.
If said preliminary plans and specifications for any items affecting the
interior improvements to be constructed in the building are not received by
Landlord for Landlord's approval (which approval shall not be unreasonably
withheld) by February 19, 1996, then it is agreed that, notwithstanding anything
to the contrary in this Lease, this Lease and Tenant's obligation to perform all
terms, covenants and conditions of this Lease shall commence as of the date it
would otherwise have commenced absent delay caused by Tenant. Landlord shall
complete construction of the interior improvements as soon as reasonably
possible thereafter.
Notwithstanding anything to the contrary, it is agreed that in the event Tenant
makes changes, additions, or modifications to the final interior plans as
approved by Tenant, or improvements are installed for Tenant in excess of those
to be provided Tenant by Landlord as set forth on Exhibit B, any increased
---------
cost(s) resulting from said changes, additions, and/or modifications and/or
improvements in excess of those to be provided Tenant shall be contracted for
with Landlord and paid for one hundred percent (100%) by Tenant.
The interior shall be constructed in accordance with Exhibit B of the Lease, it
---------
being agreed, however, that if the interior improvements relating thereto do not
conform exactly, but conform materially, to the plans and specifications as set
forth in the Lease, and the general appearance, structural integrity, and
Tenant's uses and occupancy of the Premises and interior improvements relating
thereto are not materially or unreasonably affected by such deviation, it is
agreed that the commencement date of the Lease, and Tenant's obligation to pay
rental, shall not be affected, and Tenant hereby agrees, in such event, to
accept the Premises and interior improvements as constructed by Landlord.
Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord), and
Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the repairs on the "punch list" without the Commencement
Date of the Lease and Tenant's obligation to pay Rental thereunder being
affected. This Paragraph shall be of no force and effect if Tenant shall fail
to give any such notice to Landlord within thirty (30) days after the
Commencement Date of this Lease.
Initials:________
Initials:________
Page 25 of 28
<PAGE>
42. CONSENT: Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
43. ASSESMENT CREDITS: The demised property herein may be subject to a
-----------------
special assessment levied by the City of Sunnyvale as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited.
44. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
-------------------
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property"):
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 45, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the Term of
the Lease) or other parties on the Property, as described below, (during the
Term of this Lease) did not store, dispose, or transport in, use, or cause to be
on the Property or which Tenant, its agents, employees, contractors, vendors,
invitees, visitors or its future subtenants and/or assignees (if any) (during
the Term of this Lease), did not store, dispose, or transport in, use or cause
to be on the Property in violation of applicable law.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or its
future subtenants and/or assignees (if any), or other parties on the Property,
does store, dispose, or transport in, use or cause to be on the Property, and
(ii) any claims, including third party claims, resulting from such Hazardous
Materials contamination. Tenant shall indemnify Landlord and hold Landlord
harmless from any liabilities, demands, costs, expenses and damages, including,
without
Initials:________
Initials:________
Page 26 of 28
<PAGE>
limitation, attorney fees incurred as a result of any claims resulting from such
Hazardous Materials contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property without first obtaining Landlord's written consent. Tenant agrees to
complete compliance with governmental regulations regarding the use or removal
or remediation of Hazardous Materials used, stored, disposed of, transported or
caused to be on the Property as stated above, and prior to the termination of
said Lease Tenant agrees to follow the proper closure procedures and will obtain
a clearance from the local fire department and/or the appropriate governing
agency. If Tenant uses Hazardous Materials, Tenant also agrees to install, at
Tenant's expense, such Hazardous Materials monitoring devices as Landlord deems
reasonably necessary. It is agreed that the Tenant's responsibilities related
to Hazardous Materials will survive the termination date of the Lease and that
Landlord may obtain specific performance of Tenant's responsibilities under this
Paragraph 45.
45. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding
---------------------------
anything to the contrary in Paragraph 7, Landlord shall repair damage to the
structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's cost and expense provided Tenant has not caused such damage, in which
event Tenant shall be responsible for 100 percent of any such costs for repair
or damage so caused by the Tenant. Notwithstanding the foregoing, a crack in the
foundation, or exterior walls that does not endanger the structural integrity of
the building, or which is not life-threatening, shall not be considered
material, nor shall Landlord be responsible for repair of same.
46. CONDITION OF PREMISES: Landlord, at its sole cost, shall deliver the
---------------------
Premises to Tenant in good condition and repair with the roof (structural and
roof membrane) water-tight, the parking lot resealed, resurfaced and restriped,
the outside areas and landscaping in good condition with all dead vegetation
removed and replaced, and the electrical, mechanical, HVAC, plumbing, fire
safety, and other systems serving the Premises in good working order.
47. AMENDMENTS TO LEASE: Tenant agrees to execute any amendments reasonably
-------------------
required by a lender to enable Landlord to obtain financing, so long as Tenant's
rights and obligations hereunder are not materially adversely affected and there
is no change in Basic Rent, Additional Rent, any options to renew, or
outstanding construction obligations of Landlord.
48. COMPLIANCE CONTINUTED: Any non-conformance of the improvements installed
--------------------
and paid for by Landlord as set forth on Exhibit B, required to be corrected by
---------
the governing agency, shall be corrected at the cost and expense of Landlord if
such non-conformance exists as of the Commencement Date of the Lease and further
provided that such governing agency's requirement to correct the non-conformance
is not initiated as a result of: (i) any future improvements made by or for
Tenant; or (ii) any permit request made to a governing agency by or for Tenant.
Any non-conformance of the Premises occurring after the Commencement Date of
this Lease Agreement shall be the responsibility of Tenant to correct at
Tenant's cost and expense.
Initials:________
Initials:________
Page 27 of 28
<PAGE>
49. ASSIGNMENT AND SUBLETTING CONTINUED: Notwithstanding anything to the
-----------------------------------
contrary in this Lease, Tenant shall have the right to assign or sublet without
Landlord's consent and without being subject to the requirements of Paragraph 16
pursuant to which Tenant would be obligated to pay to landlord excess
consideration on account of such assignment or subletting (but shall give
Landlord notice thereof) to: (i) any parent or subsidiary corporation, or
corporation with which Tenant merges or consolidates, or (ii) any third party or
entity to whom Tenant sells all or substantially all of its assets (collectively
referred to as "Permitted Assignments"); provided, that the net worth of the
resulting or acquiring corporation has a net worth after the transaction in
questions is equal to or greater than the greater of the net worth of Tenant
immediately prior to the date of such transaction or at the time of such Lease
execution by Tenant. No such assignment or subletting will release the Tenant
from its liabilities and responsibilities under this Lease to the extent Tenant
continues in existence following such transaction.
50. SUBORDINATION AND MORTGAGES CONTINUED: Paragraph 17 is modified to
-------------------------------------
provide that this Lease shall not be subordinate to a mortgage or deed of trust
unless the Lender holding such mortgage or deed of trust enters into a written
subordination, non-disturbance and attornment agreement in which the Lender
agrees that notwithstanding any subordination of this Lease to such Lender's
mortgage or deed of trust, (i) such Lender shall recognize all of Tenant's
rights under this Lease, and (ii) in the event of a foreclosure, this Lease
shall not be terminated so long as Tenant is not in default of its obligations
under this Lease, but shall continue in effect and Tenant and such Lender (or
any party acquiring the Premises through such foreclosure) shall each be bound
to perform the respective obligations of Tenant and Landlord with respect to the
Premises arising after such foreclosure.
51. SALE OR CONVEYANCE BY LANDLORD CONTINUED: Notwithstanding anything to
----------------------------------------
the contrary in this Lease, upon any sale or transfer of the Premises, (i)
Landlord shall not be released from any then outstanding liability arising under
this Lease during the period preceding the date of transfer, and (ii) Landlord
shall not be relieved of the obligation under the Lease which may accrue after
the date of a sale or other transfer unless the transferee agrees in writing to
assume and be bound by the terms of this Lease and to perform all obligations of
"Landlord" under the Lease which may accrue after the date of such transfer.
52. OPTION TO EXTEND LEASE FOR FIVE (5) YEARS: Provided Tenant is not in
-----------------------------------------
default (pursuant to Paragraph 19 of the Lease, i.e., Tenant has received notice
----
and any applicable cure period has expired without cure) of any of the terms,
covenants, and conditions of this Lease Agreement, Landlord hereby grants to
Tenant an Option to Extend this Lease Agreement for an additional five (5) year
period (the "Extended Term") upon the following terms and conditions:
A. Tenant shall give Landlord written notice of Tenant's exercise of
this Option to Extend not later than twelve (12) months prior to the scheduled
Lease Termination Date, which date is currently projected to be April 30, 2001,
in which event the Lease shall be considered extended for an additional five (5)
years upon the same terms and conditions, absent this Paragraph 53, and subject
to the Basic Rental set forth below. In the event that Tenant fails to timely
exercise Tenant's option as set forth herein
Initials:________
Initials:________
Page 28 of 28
<PAGE>
in writing, Tenant shall have no further Option to Extend this Lease, and this
Lease shall continue in full force and effect for the full remaining term
hereof, absent this Paragraph 53.
B. The following summarizes the Basic Monthly Rental and the related
per square foot charge by period under the Lease Agreement that would be applied
to the Extended Tenn:
<TABLE>
<CAPTION>
Period Rate PSF Rent per Month
- ------------------- -------- --------------
<S> <C> <C>
05/01/01-04/30/02 1.600 $37,915.20
05/01/02-04/30/03 1.650 $39,100.05
05/01/03-04/30/04 1.700 $40,284.90
05/01/04-04/30/05 1.750 $41,469.75
05/01/05-04/30/06 1.800 $42,654.60
</TABLE>
C. The option rights of Tenant under this Paragraph 53, and the
Extended Term thereunder, are granted for Tenant's personal benefit and may not
be assigned or transferred by Tenant, except to a parent or subsidiary
corporation, or corporation with which Tenant merges or consolidates or to whom
Tenant sells all or substantially all of its assets as provided for in Paragraph
50, either voluntarily or by operation of law, in any manner whatsoever. In the
event that Landlord consents to a sublease or assignment under Paragraph 16, the
option granted herein and any Extended Term thereunder shall be void and of no
force and effect, whether or not Tenant shall have purported to exercise such
option prior to such assignment or sublease.
D. INCREASED SECURITY DEPOSIT: In the event the term of Tenant's Lease
--------------------------
is extended pursuant to this Paragraph 53, Tenant's Security Deposit shall be
increased to equal twice the Basic Rental due for the last month of the extended
term (i.e. $42,654.60 per month X 2 = $85,309.20).
53. PROPERTY INSURANCE CONTINUED: It is agreed that during the last twelve
----------------------------
(12) months of the Lease Term provided said Lease is not extended or during the
last twelve (12) months of the Extended Term (provided said Lease is extended as
provided for above) the insurance deductible related to an earthquake claim
shall be paid 50% by Tenant and 50% by Landlord.
54. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby
------------------------
assigns to Tenant all of Landlord's Contractor's warranties and shall cooperate
with Tenant in enforcing any of such warranties except that Landlord shall not
be required to pay any legal fees or incur any expenses in this regard.
Initials:________
Initials:________
Page 29 of 28
<PAGE>
EXHIBIT 10.8
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between SPLASH TECHNOLOGY, INC, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
80.000% of Eligible Accounts
70.000% of Eligible Foreign Accounts Receivable of Fuji-Xerox
(Japan)
and in no event more than $4,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account and (b) on or before the tenth day of
each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of No &
750/1000ths percent (0.750%) per annum in excess of the rate of interest
which Bank has announced as its prime lending rate ("Prime Rate") which
shall vary concurrently with any change in such Prime Rate. Interest shall
be computed at the above rate on the basis of the actual number of days
during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered
one year. Bank at its option may demand payment of any or all of the
amount due under the Loan Account including accrued but unpaid interest at
any time. Such notice may be given verbally or in writing and should be
effective upon receipt by Borrower. The amount of interest payable each
month by Borrower shall not be less than a minimum monthly charge of
$250.00. Bank is hereby authorized to charge Borrower's deposit account(s)
with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
<PAGE>
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
90 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so notified
Borrower. Eligible Accounts shall only include such accounts as Bank
in its sole discretion shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security
therefor, and hereby grants to Bank a continuing security interest in all
moneys in the Collateral Account referred to in Section 6 hereof, as
security for any and all obligations of Borrower to Bank, whether now owing
or hereafter incurred and whether direct, indirect, absolute or contingent.
So long as Borrower is indebted to Bank or Bank is committed to extend
credit to Borrower, Borrower will execute and deliver to Bank such
assignments, including Bank's standard forms of Specific or General
Assignment covering individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to affirm,
effectuate or further assure the assignment to Bank of the Collateral or to
give any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts,
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other
funds and property so as to be capable of identification as the property of
Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth
-2-
<PAGE>
on an itemized schedule, showing the name of the account debtor, the amount
of each payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or
damage of or to merchandise represented by the Accounts and of any credits,
adjustments or disputes arising in connection with the goods or services
represented by the Accounts and, in any of such events, Borrower will
immediately pay to Bank from its own funds for application to Borrower's
Loan Account or any other obligation secured hereby the amount of any
credit for such returned or repossessed merchandise and adjustments made to
any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for
either merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed, and accepted
by, the account debtor; (iv) That there are no defenses, counterclaims, or
setoffs which may be asserted against the Accounts; and (v) any and all
financial information, including information relating to the Collateral,
submitted by Borrower to Bank, whether previously or in the future, is or
will be true and correct, in all material respects.
See Rider attached
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein; (ii)
Furnish Bank periodically, in such form and detail and at such times as
Bank may require, statements showing aging and reconciliation of the
Accounts and collections thereon; (iii) Permit representatives of Bank to
inspect the Borrower's books and records relating to the Collateral and
make extracts therefrom at any reasonable time and to arrange for
verification of the Accounts, under reasonable procedures, acceptable to
Bank, directly with the account debtors or otherwise at Borrower's expense;
(iv) Promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors or
other persons obligated in connection therewith, which may in any way
affect the value of the Collateral or the rights and remedies of Bank in
respect thereto; (v) Reimburse Bank upon demand for any and all reasonable
legal costs, including reasonable attorneys' fees, and other expense
incurred in
-3-
<PAGE>
collecting any sums payable by Borrower under Borrower's Loan Account or
any other obligation secured hereby, enforcing any term or provision of
this Security Agreement or otherwise or in the checking, handling and
collection of the Collateral and the preparation and enforcement of any
agreement relating thereto; (vi) Notify Bank of each location and of each
office of Borrower at which records of Borrower relating to the Accounts
are kept; (vii) Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms
and companies as Bank may require and with loss payable solely to Bank,
and, in the event Bank takes possession of the Collateral, the insurance
policy or policies and any unearned or returned premium thereon shall at
the option of Bank become the sole property of Bank, such policies and the
proceeds of any other insurance covering or in any material way relating to
the Collateral, whether now in existence or hereafter obtained, being
hereby assigned to Bank; and (viii) In the event the unpaid balance of
Borrower's Loan Account shall exceed the maximum amount of outstanding
loans to which Borrower is entitled under Section 1 hereof, Borrower shall
immediately pay to Bank, from its own funds and not from the proceeds of
Collateral, for credit to Borrower's Loan Account the amount of such
excess.
10. Bank may at any time (Rider 2A), without prior notice to Borrower, collect
the Accounts and may give notice of assignment to any and all account
debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the name of Borrower
upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts to endorse the name of the undersigned
upon any document or instrument relating to the Collateral; in its name or
otherwise, to demand, sue for, collect and give acquittances for any and
all moneys due or to become due upon the Accounts; to compromise, prosecute
or defend any action, claim or proceeding with respect thereto; and to do
any and all things necessary and proper to carry out the purpose herein
contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other (Rider 2B) than to
Bank, or execute any financing statements covering the Collateral in favor
of any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any material respect in any warranty, statement, promise, term or
condition, contained herein or hereby secured; (ii) Any statement or
representation made for the purpose of obtaining credit hereunder prove
false in any material respect; (iii) Bank deem the Collateral inadequate
(Rider 2C); (iv) Borrower become insolvent or make an assignment for the
benefit of creditors; or (v) Any proceeding be commended by or against
Borrower under any bankruptcy, reorganization, arrangement, readjustment of
debt or moratorium law or statute; then in any such event, Bank may, at its
option and without demand first made and without notice to Borrower, (Rider
2) do any one or more of the following: (a) Terminate its obligation to
make loans to Borrower as provided in Section 1 hereof; (b) Declare all
sums secured hereby immediately due and payable; (c) Immediately take
possession of the Collateral wherever it may be found, or require Borrower
to assemble the Collateral and make it available to Bank at a place
designated by Bank which is
-4-
<PAGE>
reasonably convenient to Borrower and Bank, and Borrower waives all claims
for damages due to or arising from or connected with any such taking; (d)
Proceed in the foreclosure of Bank's security interest and sale of the
Collateral in any manner permitted by law, or provided for herein; (e)
Sell, lease or otherwise dispose of the Collateral at public or private
sale, with or without having the Collateral at the place of sale, and upon
terms and in such manner as Bank may determine, and Bank may purchase same
at any such sale; (f) Retain the Collateral in full satisfaction of the
obligations secured thereby; (g) Exercise any remedies of a secured party
under the Uniform Commercial Code. Prior to any such disposition, Bank
may, at its option, cause any of the Collateral to be repaired or
reconditioned in such manner and to such extent as Bank may deem advisable,
and any sums expended therefor by Bank shall be repaid by Borrower and
secured hereby. Bank shall have the right to enforce one or more remedies
hereunder successively or concurrently, and any such action shall not estop
or prevent Bank from pursuing any further remedy which it may have
hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured by this Security
Agreement, Borrower hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
-5-
<PAGE>
*16. Additional Provisions: Subject to conditions and limitations contained in
the Credit Terms and Conditions dated January 31, 1996.
Executed this 31st day of January, 1996
IMPERIAL BANK SPLASH TECHNOLOGY, INC.
By:/s/ Kenneth W. LeDeit By: /s/ Kevin Macgillivray, CEO
---------------------------- -----------------------------------
(Name of Borrower)
Title: CLO By:___________________________________
-------------------------
(Authorized Signature and Title)
By:___________________________________
(Authorized Signature and Title)
*If none, insert "None"
-6-
<PAGE>
Rider to Splash Technology, Inc.
Security and Loan Agreement
Rider 1
- -------
prior to or on January 31, 1997
Rider 2A
- --------
following the occurrence and during the continuation of any event described in
Section 12 and 13 hereof,
Rider 2B
- --------
sales of inventory and comparable transactions in the ordinary course of
business or security interests granted
Rider 2C
- --------
based on the borrowing base reports or its collateral audit
Rider 2D
- --------
but subject to applicable law
-7-
<PAGE>
EXHIBIT 11.1
Splash Technology Inc.
COMPUTATION OF LOSS PER SHARE(1)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Five months
ended
-------------
June 30, 1996
-------------
<S> <C> <C>
Weighted average common shares
outstanding for the period 0
Common equivalent shares pursuant
to Staff Accounting Bulletin No. 83(2)
Common equivalent shares deemed
outstanding from options to
acquire common stock deemed
converted using Modified Treasury
Stock Method 226
Common equivalent shares outstanding
from conversion of preferred stock 498
Common Stock Issued 2,002
Number of shares used in computing
-------------
Net loss per share 2,726
=============
Net loss (11,579)
Cumulative dividends on preferred stock (365)
-------------
Adjusted net loss (11,944)
=============
Net loss per share $(4.38)
=============
</TABLE>
________________________
(1) This exhibit presents the primary and fully diluted computations of income
and loss per share. There is no difference in the per-share amounts when
applying either method.
(2) Common shares issued by the Company during the twelve months immediately
proceeding the initial public offering date plus the number of common
equivalent shares which were issued during the same period pursuant to the
grant of stock options (using the treasury stock method and proposed
offering price) have been included in the calculation of common equivalent
shares pursuant to Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83.
<PAGE>
EXHIBIT 21.1
Subsidiaries of Registrant
Splash Technology, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
_______) of our report dated July 23, 1996, except for Note 12 for which the
date is July 31, 1996, on our audits of the consolidated financial statements
and consolidated financial statement schedule of Splash Technology Holdings,
Inc. We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P.
San Jose, California
July 31, 1996
